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India
Opinion
Nicholas Spiro
Nicholas Spiro

Macroscope | Global investors’ love affair with India is about to be tested

  • Indian shares are on course for their eighth straight year of gains, turbocharged by the succession of policy shocks in China
  • With India’s inclusion in JPMorgan’s bond index next year, however, greater foreign scrutiny of its economy and markets can be expected

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A bird flies over a screen displaying stock data outside the Bombay Stock Exchange building in Mumbai on February 1. While global investors continue to sell down their holdings of Chinese stocks, they have purchased US$15.8 billion of Indian equities since the start of this year. Photo: Reuters
Nicholas Spiro

“If something cannot go on forever, it will stop.” This statement by Herbert Stein, a former chairman of the US Council of Economic Advisers, referred to America’s rising public debt. However, it is equally applicable, if not more so, to surging asset prices.

If there is one market that is putting Stein’s law to the test, it is Indian stocks. On September 15, the Nifty 50 and BSE Sensex indices hit fresh all-time highs. Since the start of this year, Indian equities have risen nearly 9 per cent, compared with an almost 1 per cent decline for the broader emerging market index.
This puts Indian shares on course for their eighth straight year of gains. While global investors continue to sell down their holdings of Chinese stocks, they have purchased US$15.8 billion of Indian equities since the start of this year, data from JPMorgan shows. Morgan Stanley predicts that India’s stock market – currently the world’s fifth largest – will be the third biggest by the end of this decade.
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This is questionable. What is clear is that India is ticking many of the boxes that matter to international investors. Not only is it the world’s fastest-growing major economy – it expanded at an annualised rate of 7.8 per cent in the second quarter, powered by the service sector – it boasts strong corporate earnings driven by a long-awaited pickup in private investment.

Just as importantly, Asia’s third-largest economy is the leading beneficiary of the sharp deterioration in sentiment towards China over the past several years. Although Indian stocks were already surging before Chinese shares peaked in early 2021, the rally has been turbocharged by the succession of policy shocks in China.

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However, the most striking thing about Indian markets is that they have become Teflon-like. Nothing that is thrown at them – the dramatic increase in United States interest rates and the sharp rally in the dollar, the global downturn, the surge in food inflation in India, the renewed rise in oil prices, and the allegations of fraud and stock market manipulation against Adani Group – seems to stick.
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