Let’s talk about the Indian stock market: Why do people say 'the ideal is beautiful, but reality is harsh'?

Today, let’s talk about the Indian stock market. This is a detailed, in-depth article—4,000 words long—and I spent a lot of time over the weekend gathering data. We recommend saving it for later! This piece was partially drafted back in March last year, but at that time, the ‘America First’ tariff policy was announced, triggering a global market selloff—and I never got around to finishing it. This March, geopolitical tensions in the Middle East again caused synchronized global declines. Only recently—over the past week—have global markets rebounded sharply: some indices, such as the Nasdaq and Japan’s Topix, have already recovered all losses incurred since the outbreak of the Iran-related conflict (though the situation may still fluctuate). The Indian stock index has not yet reached a new all-time high—so why write about India now? Because among major countries’ equity markets, India currently boasts the lowest valuation—still seemingly stuck in a trough. Could this be an opportunity? 1. Basic facts about the Indian stock market India has two nationwide stock exchanges: the Bombay Stock Exchange (BSE), with over 5,000 listed companies, and the National Stock Exchange (NSE), with over 2,000 listed companies. They were founded in 1875 and 1992 respectively—both located in Mumbai. India’s three most important stock indices are: the SENSEX30 (launched by BSE), the Nifty50 (launched by NSE), and the MSCI India Index (widely used internationally). Their constituent stocks number approximately 30, 50, and 136 respectively. SENSEX30 and Nifty50 have highly overlapping constituents and nearly identical performance—their correlation stands at 0.99. In contrast, the MSCI India Index shows slightly lower correlation with the other two—around 0.95. In terms of returns, SENSEX30 and Nifty50 have delivered marginally stronger long-term gains than the MSCI India Index—but overall, all three have performed exceptionally well. Later, we’ll analyze SENSEX30’s performance in greater detail. Among these, SENSEX30 is the most renowned—almost synonymous with the Indian stock market itself (akin to China’s CSI 300 Index). Launched on January 1, 1986, its base date is April 3, 1979, with a base value of 100. It is a market-capitalization-weighted index comprising 30 large-cap, highly liquid stocks listed on the BSE. Market capitalization: In 2024, India’s stock market surged strongly—its mid-year total market cap briefly exceeded USD 5.5 trillion, ranking fourth globally, behind only the U.S., China, and Japan. During last year’s ‘reciprocal tariffs’ episode, market cap shrank to USD 4–4.5 trillion; it has now recovered to approximately USD 5 trillion. Ownership structure: The largest shareholder group comprises Indian corporations themselves—holding roughly 40–50% of shares. Domestic institutional investors (DIIs) hold about 20%, foreign institutional investors (FIIs) around 16–18%, and retail investors roughly 15%. Yet in daily trading activity, retail investors remain the most active participants. Historically, FIIs held a larger share than DIIs—but in 2023, FIIs recorded the highest net inflows: approx. INR 2 trillion (USD 24 billion). That year, rising expectations of Federal Reserve rate cuts encouraged foreign capital allocation toward emerging markets—and India’s robust economic fundamentals, including GDP growth exceeding 7%, further boosted investor confidence. By September 2024, India’s SENSEX30 index hit a record high of 85,800 points. Interestingly, the Fed’s first rate cut in this cycle also occurred in September 2024—yet after the official start of the easing cycle, the SENSEX30 failed to reach a new peak.

India’s stock market capitalization has tripled in three years, reaching nearly USD 4 trillion for the first time—ranking fourth globally. What key information deserves attention?

According to data compiled by authoritative media outlets, as of last Friday—December 1—the combined market capitalization of securities listed on Indian exchanges had tripled since the pandemic-induced low point in March 2020. Growth of ~200% over more than three years India’s stock market capitalization ranks fourth globally—behind only the U.S., China, and Japan. According to Caixin Global, India’s stock market has stood out recently amid strong domestic macroeconomic data and expectations of looser global interest rates. Per media-compiled data, India’s total stock market capitalization has grown by roughly two-fold since the pandemic low in March 2020. On December 6, local time, India’s stock market capitalization surpassed USD 4 trillion for the first time—ranking fourth globally, behind only the U.S., China, and Japan. Last weekend, following the ruling Bharatiya Janata Party’s (BJP) victory in three critical state elections under Prime Minister Narendra Modi’s leadership, India’s benchmark NSE Nifty 50 index rose 2.1% on Monday—closing at a record high. The rally continued on Tuesday, closing at 20,855.10. Meanwhile, the SENSEX index gained 2.05% to close at 68,865.12—also a new all-time high. Back in March 2020, during the pandemic slump, the NSE Nifty 50 index had plunged to as low as 7,511.10. According to The Paper, India’s two major stock exchanges are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Trading hours run Monday through Friday, from 9:00 a.m. to 3:30 p.m. Indian Standard Time (IST)—i.e., 11:30 a.m. to 6:00 p.m. Beijing time—with a 2.5-hour time difference from China. The BSE, founded in 1875, uses the SENSEX30 as its benchmark index and hosts over 4,700 listed Indian companies. The NSE was established in 1992 and began operations in 1994, with the NIFTY50 as its flagship index. Settlement cycles: T+3 for institutions; T+0 for retail investors. Why has the Indian stock market become so bullish? According to Yicai Global, JPMorgan strategist Rajiv Batra noted in a research report: “We believe recent drivers behind India’s equity market strength include robust macroeconomic data, solid corporate earnings, falling oil prices, and strong domestic fund flows.” India’s recently released Q3 GDP grew 7.6% year-on-year—topping all G10 economies. Growth rates for the first three quarters stood at 6.1%, 7.8%, and 7.6% respectively.

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reuters

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