Weekly Buzz: 🐅 India’s stock market just hit the $4 trillion milestone

15 December 2023

India's stock market just hit a new milestone – it’s now valued at more than $4 trillion. In less than three years, the world’s fifth-largest equity market has added $1 trillion to its total valuation, now closing the gap with Hong Kong’s market. What’s behind this momentum?

India’s ongoing growth story

Despite a slowing global economy and a string of interest rate increases at home – designed to both bolster the rupee and rein in inflation – India’s economic output rose 7.6% in the three months leading to September this year.

What’s driving all this growth? In short, its people. India’s now the world’s most populous nation, and its young and growing workforce is a key factor contributing to its rapid economic growth. Today, there are about 961 million people comprising India’s working age population – by 2050, it’s projected that this number will grow by another 158 million.

And consider the impact of rising incomes on a country of this size. PRICE, an Indian think tank, projects that the country’s middle-class and middle-rich households will drive about $2.7 trillion in incremental consumption spending by 2030 – that’s nearly the size of France’s GDP.

When growth is plentiful, there’s plenty of reasons for investors to get excited. This in turn is reflected in stock market valuations, which explains this surge to $4 trillion.

Are Indian stocks too pricey?

There’s more to consider when it comes to India’s $4 trillion stock market valuation. As with any purchase, its price should reflect its real value. For stocks, this means earnings potential. And India’s looking a little pricey here.

This chart places the MSCI India (an index of large and mid-sized Indian companies) relative to its peers, comparing current and average price-to-earnings premiums. In all three cases, both the MSCI India index’s current and average premiums have expanded a lot more compared to its peers.

That said, you could argue that this market premium is justified by the country’s growth potential and relatively better economic performance, and that Indian companies can grow into these valuations.

After all, compared to a decade ago, India’s fundamental outlook is now looking a lot better. Besides its previously mentioned rising middle class, inflation is under control, and the government’s made good progress with economic reforms over the past few years. For a deeper dive into India, check out our recent CIO Insights!

As an investor, what does this mean for me?

While the path ahead will see its ups and downs, India's got a good chance at strong growth over the long term – so it’s no surprise that investors have now pushed its stock market to this $4 trillion milestone. And if you’re also thinking of investing in India, consider our Flexible Portfolios – we recently added an ETF that lets you invest directly in the country.

But keep in mind, it’s always a good idea to make sure you’re not too concentrated in any one market – especially a developing one like India. If you’ve got money in an emerging market fund, you probably already have some sort of stake in India, so take that into account when figuring how much more exposure you want.

This article was written in collaboration with Finimize.

💡 Investors’ Corner

You might want to reconsider cash during a rate pause

With sluggish economic growth, sticky inflation, and interest rates that are higher than they’ve been in decades, it’s no surprise that a lot of investors have been tempted to move to the sidelines, to seek comfort in cash.

Back when interest rates were shooting up, that made sense, but now that the US Federal Reserve (the Fed) has likely hoisted rates as high as they’re going to go, it’s a tougher call. And sitting on the sidelines – hoping for a clearer picture on policy rates – might mean you’re missing out on what’s happening with other assets.

This chart shows how stocks, bonds, and cash perform during specific phases of the Fed’s rate cycle. And in times like these, when the Fed’s taking a breather between hiking rates and cutting them, stocks and bonds usually outpace cash, by a lot. It might still be a little early to see rate cuts any time soon, but this pause tends not to linger. In the five rate-hiking cycles since 1990, the Fed took only about 10 months to go from hike to cut.

We’re still likely to see positive but slower economic growth in the upcoming year (check out our 2024 Macro Outlook for the bigger picture!). That probably means potential returns in the stock market in the near future – food for thought if you’ve been sitting on the sidelines so far.

🎓 Jargon Buster

Market valuation

Market valuation is like a price tag that investors collectively put on a company in the stock market, based on what they believe it's worth. It’s calculated by multiplying the current price of a company’s shares by the number of shares available. This value gives investors an idea of a company's size and, when each company’s been added up, the overall size of the stock market.

🗓️ Save the Date

Building wealth abroad doesn’t have to be overly complicated. How can you, as a Filipino living in the UAE, take charge of your financial future? 

Happening on Dec 18 (Mon), this webinar will help you map out your financial goals and learn how to make them come to life.

Join us virtually at one of the world's largest investor summits! 🌐 Our Chief Investment Officer, Stephanie Leung, will take the stage at Finimize's Modern Investor Summit to share practical tips on risk management and finding the right risk-reward balance.

And that's not all - you'll also get to hear from keynote speakers like Ray Dalio and JPMorgan’s Jamie Dimon. 

⬆️ Give your cash the upgrade it deserves! 

Unleash the power of your savings with our ultra-low-risk cash management solution! Enjoy a projected 4.5% p.a. return (net of fees) without the hassle of lock-in periods or minimum investment amounts. Simple’s returns are closely tied to interest rates, so when rates go up, so does Simple’s ability to earn more on your cash. 

Whether you’re building up your emergency fund, saving up for an upcoming expense, or putting aside funds to dollar-cost average into your investment portfolios, Simple keeps your cash secure in even the most volatile market environments. Experience the freedom of flexible saving and watch your money work smarter, not harder. Start today and transform any amount into an earning opportunity – because it's that simple.

StashAway Simple™ is only available on your mobile app. Find out more about it here

We’re passionate about investing regularly – it’s perhaps the easiest way to build wealth. Want to see it in action? Take a look.

So, consider putting your investments on autopilot with FastTransfer – no more worrying about when you’ll be entering the markets:

  1. Go to the “Transfer” tab of your StashAway app
  2. Connect your bank to StashAway
  3. Set recurring amount and frequency
  4. Confirm your transfer every time for extra security

Share this

  • linkedin
  • facebook
  • twitter
  • email

Want more?

We thought you might.

Join the hundreds of thousands of people who are taking control of their personal finances and investments with tips and market insights delivered straight to their inboxes.