India’s Share in Global Market Cap Soars in June 2023
Foreign fund flows have provided a much-needed boost to the Indian equities market. As a result, India’s share in the global market capitalization has reached its highest level this year. According to an analysis by Motilal Oswal Financial Services, India’s share rose to 3.3% in June, surpassing the historical average of 2.6%.
In June alone, foreign portfolio investors (FPIs) injected a record-breaking $6,717 million into Indian stocks, marking the highest monthly infusion by FPIs in 2023 thus far. This increased foreign interest in Indian equities has been further solidified by the recent performance of key benchmark indices, which have reached new highs.
India’s strong performance stands out among other emerging markets, such as South Korea and Taiwan, that are also experiencing foreign investment inflows. These markets have benefited from China’s delayed recovery. However, India boasts several additional advantages, including a relatively better economic growth outlook, easing inflation, and the belief that the Reserve Bank of India’s rate tightening cycle has likely peaked. These factors have reignited foreign interest in the Indian market.
While there are positive indicators for India’s stock market, some downside risks should be considered. India’s valuations are currently at a premium compared to its Asian peers, as noted by the MSCI India index’s one-year forward price-to-earnings multiple of nearly 19x.
Additionally, there are concerns regarding the impact of lower-than-expected rainfall on agriculture, which could have adverse effects on rural demand. It is worth noting that rising food prices could contribute to higher inflation in the near term. Amidst an uneven rainfall trend, the retail prices of certain food products, including cereals, pulses, and vegetables, have already started moving higher. UBS Securities India analysts expect the government to intervene by implementing measures such as announcing stock holding limits and reducing import duties on wheat to ease the impact on food prices.
On a global scale, the potential for more interest rate hikes by hawkish developed central banks could reduce the attractiveness of emerging markets for foreign investors. It is essential to closely monitor the June quarter earnings performance of India Inc., which could have a significant impact on the market. Despite potential challenges, the easing commodity prices may lead to a recovery in operating margins for various sectors, although volume growth trends may vary.
To summarize, India’s share in the global market capitalization has reached its peak in June 2023, driven by a turnaround in foreign fund flows. With several positive factors, such as a favorable economic growth outlook and easing inflation, India has become an attractive destination for foreign portfolio investors. However, risks such as high valuations and the impact of lower rainfall on agriculture and food prices should be carefully considered.
