The Sensex and Nifty 50 have scaled impressive heights setting a new record of continuous positive gains for 8 consecutive years. The earlier record was set in the year 1994 with a streak of consecutive gains starting from 1988. This time it is considered as impressive because despite heightened geo-political odds, tight monetary policy regimes, mounting inflationary pressures and persistent volatility in oil prices and other odds being present in the global economy, these two indices were able to deliver double digit gains in the four out of last five years.
Indian securities market did exceptionally well
The Sensex has achieved around 18.7 per cent and the Nifty 50 has recorded around 20 per cent gains respectively this calendar year. Even as many investors probably looked for profit booking just before the New Year eve on the last trading day. i.e., Friday, 29th December, 2023 and that pulled the Sensex down by 170.12 points and the Nifty 50 by 47.30 points, yet that may not undermine overall performance of the Indian indices as even the mid-cap Indian securities achieved a whopping 29 per cent increase in in market capitalization in the sparkling markets in the year 2023.
Moreover, Indian securities market almost reached pretty close to the MSCI World Index which returned 22 per cent gains to the investors. And what to talk about the MSCI Emerging Market Index which just made a gain of 6.95 per cent despite the Indian securities being part of it. India’s weightage on the MSCI Emerging Market (EM) Index is currently around 16 per cent with around 131 stocks representing India.
India outperforms MSCI EM index is considered as important as its stock indices, are not only actively traded by global asset managers, noted hedge funds, large corporates and other leading financial institutions, but also used for passive investment by ETFs, Index Funds etc. EM index was launched int he year 1988 and India was included in it in the year 1994. Thus Indian securities market has clearly outperformed the peer group countries such as China, Thailand and South Korea even as some of the other markets such as the US, Japan, Germany, Taiwan and Brazil fared a bit better than it.
Indian economy showed resilience
Indian economy exhibited tremendous resilience and maintained monetary stability amid so much of disturbance in the global economy due to provoked and prolonged wars and inflation breaching the upper tolerance limits set by the RBI in the domestic economy at times.
Many Indian corporates also fared well and delivered returns that seemed good enough to attract more and more of foreign portfolio investment in the economy. The foreign exchange reserves have crossed the record level of $620 billion US dollars in the week ending December 22, 2023, hitting a 21-month high as per the data released by the RBI.
The optimism relating to the continuance of the sparkles in the new year 2024 as well is not without reason. The monetary policy of the US Fed and the RBI have been well received and recent elections verdicts in four states indicated political stability in the country.
Retail Participation is increasing in capital markets
This year both the number and amount of the public offerings (IPOs, Rights Issues & QIPs) increased in the capital markets. The total number of public offerings was reported to be 114 and the amount raised was Rs. 1,11,050 crore as compared to 64 public offerings totaling upto Rs. 74,929 crore the last year (2022), indicating that many smaller-sized issues as well made inroads on to the stock markets this year. Many of the IPOs churned out 45 per cent listing day gains on an average and more than 90 per cent of them are reported to be trading above their issue price. The increased participation of retail investors in the Indian stock market is a welcome feature and it will strengthen it in the times to come.
Fiscal Deficit managed well
The fiscal deficit for the first eight months of the financial year 2023-24 has been around 51 per cent of the full year’s targeted deficit of Rs. 17.87 trillion at Rs. 9.1 trillion. The government has raised the capex by 31 per cent in the period from April to November 2023 as compared to the similar period in the year 2022. The core sector managed to grow at 7.8 per cent in the month of October. Of late, part of government expenditure has been reprioritized towards containing inflation yet the capex thrust is likely to continue.
According to the half-yearly economic review 2023-24, released by the government, the GDP is slated to increase by over 6.5 per cent. The RBI has already raised the growth projection for the GDP to 7 per cent in its recent monetary policy statement. The growth rate of over 7.6 per cent for the quarter ended September 30, 2023 was 60 bps more than what was expected and this has raised the expectation that the Indian economy may continue to do good enough to keep India’s growth rate in higher trajectory. Resilient consumption and investment have boosted India’s growth rate in the first half of the current financial year.
Banking sector is adequately capitalized
The Indian banking sector was also reported to be well capitalized with the capital adequacy ratio being 16.6 per cent as at end of September 2023 which is much higher than the minimum stipulated threshold of 9 per cent as per the recent Financial Stability Report released by the RBI. The net NPAs have declined to a meagre 0.8 per cent and gross NPAs improved to 3.2 per cent by the end of September 30, 2023. The asset quality has improved in all major sub-sectors barring infrastructure (other than electricity) and petroleum. The healthy balance sheet of financial institution is a strong factor towards maintaining resilience in the Indian economy.
Moreover, the resilience of the non-banking financial companies (NBFCs) sector is reported to have improved with CRAR at 27.6 per cent, GNPA ratio at 4.6 per cent and return on assets (RoA) at 2.9 per cent respectively, in September 2023.
Risks need to be carefully monitored for the sparks to continue
All said well as above, the fact remains that major risk factors may continue to remain in focus in the year 2024 as well. According to the RBI, the global economy faces multiple challenges as under:
- prospects of slowing growth;
- large public debt;
- increasing economic fragmentation; and
- prolonging geopolitical conflicts.
However, at the same time the Indian economy and the domestic financial system remain resilient, well supported by strong macroeconomic fundamentals, healthy balance sheets of financial institutions, moderating inflation, improving external sector position and continuing fiscal consolidation.
India continues to be one of the fastest-growing economies of the world chasing the roadmap for becoming a $5 trillion economy. The Government continues to focus on growth at the macro level and at the same time is making efforts to complement it with all-inclusive welfare at the micro level, promotion of digital economy and fintech, fostering technology-enabled development, energy transition and climate action and relying on a virtuous cycle of investment and growth through its capex thrust.
And so we may quite as well hope and be optimistic about the outlook of the Indian economy which looks quite soundly placed as of now to give hope that sparkles that were seen as at end of the year 2023 will continue to give shine to the Indian economy and its capital markets in the year 2024 as well!
Disclaimer: Indian securities market is subject to market risks that need to be assessed by the investors based on expert advice and /or adequate evaluation of risks involved at any point of time.