In partnership with

In the edition of ‘Current Investments Trends Amidst Elections’ series, we cover the final and most popular asset class - equities.

The Indian equity market has become a captivating arena where politics and economics intertwine. Today, we delve into the fascinating journey of India's stock markets leading up to the election results.

WHERE INDIANS ARE INVESTING

PART 11: STOCK MARKET

Key Points Covered:

• 📊 FY24 Performance: Indian stock indices outperform global markets

• 💰 Domestic Investors: The driving force behind market resilience

• 🙋‍♂️🙋‍♀️ New Investors: A surge in equity market participation

• 📈 Pre-Election Phases: Optimism, resilience, exuberance, and caution

• 🔦 Sector Spotlight: Safe havens amidst political uncertainties

• 📉 FDI Dynamics: Navigating the changing investment landscape

The world's largest democracy's much-anticipated electoral countdown ⌛️ is nearly concluding. Even with a record 744 political parties contesting the high-stakes 🗳️ Lok Sabha Elections in 2024, the Indian stock indices have remained quite resilient. As everyone waits for the ball to drop on this unusual phenomenon defying past trends, equity investors are closely monitoring the market movement. In FY24, Indian stock indices were one of the best performing markets globally. 🌍️ To recap the blockbuster year, these were some key developments:

• The benchmark Nifty 50 index surged an impressive 29% from April 2023 to April 2024, while Sensex was up 25% buoyed by robust economic fundamentals, stellar corporate earnings, and sustained domestic investor participation. 💪 This was its best performance in 20 years.

• The mid-cap and small-cap indices did even better, rising 61.21% and 76.15% respectively in FY24. 🚀

• Domestic institutional investors (DIIs) and retail investors drove the markets, with net inflows of ₹2.06 lakh crore by DIIs in FY24. 📈

• The proportion of individual investors in cash market turnover remained high at 35.5% in April 2024. 🔥

• FPI flows turned positive with net inflows of ₹2.04 lakh crore into Indian equities in FY24, compared to outflows in the previous two years. 🌟

• India's market cap to GDP ratio remained high at over 140.2% in FY24, much above the 10-year average of 87%, indicating highly valued markets. 💹

• As of March 2024, there were 15.138 crore total demat accounts, reaching an all-time high. 📊

• Several proactive measures were taken to strengthen investor protection like blocking of funds before trades, segregation of client collateral, curbing misuse of power of attorney, and greater disclosure of investor complaints. 🛡️

MONTHLY FII AND DII NET INVESTMENTS 📊

NET FDI IN INDIA FELL 📉

A look at FII investment trends puts the impact of domestic capital inflow on Indian equities into context, as we cover the latter in the article.

• Percentage decrease: Net FDI in India declined by 45% to $14.55 billion during April-February of the fiscal year 2023-24.

• Reason for the decline: The decline in net FDI could be due to a number of factors, including global economic uncertainty or changes in government policy.

• Government efforts: The Indian government has been taking steps to attract foreign investment, such as easing FDI norms and improving the ease of doing business in the country.

DOMESTIC INSTITUTIONAL INVESTORS (DIIs) REMAIN STRONG BUYERS 💪

• FY24 Performance: DIIs ended FY24 with record high monthly net inflows of Rs 56,311 crore in March 2024.

• April 2024 Activity: The buying spree continued into April 2024 with net inflows of Rs 44,186 crore.

• Tenth Consecutive Month of Net Inflows: DIIs maintained their buying momentum in Indian equities for the tenth consecutive month in May 2024.

• Year-Over-Year Comparison: The cumulative DII net inflows for FY25 thus far (as of May 30, 2024) stand at Rs 1.97 lakh crore, compared to net inflow of Rs 82,109 crore during the same period last year.

INVESTOR DEMOGRAPHICS 🙋‍♂️🙋‍♀️

The pre-election period saw a remarkable surge in new equity investors, with 1.37 crore individuals entering the market from January to April 2024.

India's financial markets are experiencing a boom in retail investor activity, reflecting a growing appetite for equities. 📈 This surge is fueled by a significant rise in demat accounts and robust inflows into mutual funds, particularly among millennials who are actively investing in a variety of financial instruments. 🌟

• Retail Participation: The influx of retail investors has been a driving force behind the recent surge in Indian equities. 📊

• Capital Raising: Companies are increasingly raising capital through the stock market, further broadening market participation and strengthening its foundation. 💰

• Market Resilience: Retail investors act as a buffer during market downturns, such as high foreign portfolio investor (FPI) outflows, contributing to greater market resilience and stability. 🛡️

Recognizing this growing investor base, the market is evolving to support and sustain this dynamic participation. 🌐💪

INVESTMENT TRENDS

• Investors showed a preference for sectors with strong growth potential and lower risk.

• Diversification across sectors was a common strategy to mitigate risk and capture growth opportunities.

JANUARY 2024 - APRIL 2024: PRE-ELECTION BULLISH EXUBERANCE 📈 

The end of 2023 was marked by positive investor sentiment and sector-specific growth prospects that drove the market's resilience and provided a solid foundation for the markets to weather the impending electoral uncertainties.

January 2024

• DII Net inflow = Rs 26,743 crore

• Nifty50 = 21,275

• Sensex = 71,752

February 2024

• DII Net inflow = Rs 25,379 crore

• Nifty50 = 21,982

• Sensex = 72,500

March 2024

• DII Net inflow = Rs 56,311 crore

• Nifty50 = 22,326

• Sensex = 73,651

April 2024

• DII Net inflow = Rs 44,186 crore

• Nifty50 = 22,604

• Sensex = 74,482

May 2024 (as of May 30, 2024)

• DII Net inflow = Rs 40,798 crore

• Nifty50 = 22,637

• Sensex = 74,007

Throughout the pre-election period, investor sentiment remained undeterred whether it was 🗳️ opinion polls and political rhetoric, 📄 policy announcements and manifestos, 🌐 global macroeconomic developments, or 💬 heated electoral campaigns and debates.

THE INDIAN BULL MARKET

The ongoing bull market in India is the second-longest in the country's history. 📆 While its cumulative return is less than a third of the longest bull market, despite lasting 80% as long, investors are questioning what could take stocks materially higher. 🤔

Several key factors are expected to support the bull market's longevity:

• Outperformance: India's headline index outshone prominent global indices such as Dow Jones, Euro Stoxx 50, FTSE 100, Hang Seng, and KOSPI in FY24. 🌏📊

• Comparison: Despite this, India's domestic indices could not eclipse the performance of Nikkei, Nasdaq Composite, and S&P 500. 📉

• Investor Attention: India's increased representation in MSCI indices kept investors' attention riveted, despite concerns over high market valuations. 📈👀

These factors combined indicate that while the bull market has been remarkable, its future trajectory will depend on overcoming high valuation concerns and maintaining global competitiveness. 🌟💼

SECTORS IN REVIEW

In Spotlight: Where Investors Sought Refuge 🔦 

Amidst the ebb and flow of political tides, certain sectors emerged as safe havens for investors seeking solace:

1. 🏦 Banking and Finance

2. 💻 Information Technology

3. 💊 Pharmaceuticals

4. 🛒 Consumer-focused Industries

Sectoral Performance 📊 

1. IT Sector: 💻️ Experienced volatility but managed to show resilience. Companies focused on digital transformation and cloud services led the growth.

2. Financial Services: 🏦 Benefited from robust credit growth and improved asset quality. Banks and NBFCs saw significant gains.

3. Healthcare: 🩺 Continued to perform well due to ongoing demand for healthcare services and pharmaceuticals, especially in the post-pandemic era.

4. Consumer Goods: 🛍️ Steady performance driven by strong demand in both rural and urban markets. FMCG companies performed particularly well.

5. Energy: 🔋 Mixed performance with renewable energy companies showing promise, while traditional energy sectors faced challenges.

Sector-wise FDI 💸 

The capital goods, automobiles, and consumer services sectors, including finance, banking, insurance, non-financial / business, and outsourcing services, attracted the highest FDI during the period.

Sectors to Watch in FY25 👀 

In FY25, several sectors are expected to garner significant interest from investors. 🚀 The ongoing demand surge and government initiatives aimed at infrastructure development suggest a bright outlook for these industries. 🏗️🌆

• Healthcare Sector: Anticipated to witness significant growth due to rising disposable incomes, increasing awareness, and growing demand for medical insurance. 🏥💉

• IT Sector: A major contributor to India's GDP, expected to maintain its growth trajectory driven by digital transformation, cloud adoption, and demand for skilled professionals. 💻☁️👩‍💻

These sectors highlight the diverse opportunities available to investors, underpinned by robust demand and supportive government policies. 📊💪

India's equity markets face a pivotal moment as the country awaits for the new government to be announced. The pre-election exuberance and investor confidence clearly define the deep-seated conviction in India's long-term growth potential. A record number of new investors and robust domestic participation have demonstrated the market's ability to weather political storms.

The incoming administration's policies and reforms will be critical in guiding the market's future direction. As India embarks on a new democratic chapter, equity markets will continue to be a telling indicator of the nation's economic aspirations and investor optimism.

Despite challenges in the future, the unwavering resilience and inherent adaptability of Indian equity markets will continue to offer investors the golden opportunity to participate in India's growth story.