The Nifty50 has given 18% returns on a year-to-date basis. But from its 52-week low of 16,828 points touched in March this year, the index has rallied more than 28% to a lifetime high of 21,593 points in the last month of 2023.
In this bull run, the index has managed to outpace many of its developed as well as emerging market peers. In fact, its close competitor China was a laggard for the second consecutive year.
China’s Shanghai Composite index gave negative returns of more than 5% in 2023, after 15% losses in 2022.
This outperformance by India has been possible because of the unprecedented foreign as well as domestic capital flows.
In 2023 so far, foreign portfolio investors have pumped in more than $22 billion into Indian equities, according to the National Securities Depository Ltd (NSDL). This is after the record outflows in 2022.
Domestic institutional investors moved in parallel with the FPIs, infusing about $20 billion so far this year.Despite record FPI outflows in 2022, Indian equities were the second-best performers after Brazil, thanks to favourable domestic macroeconomic factors and record-high DII inflows of $23 billion.
Then, most market experts had predicted FPIs to make a comeback in 2023 given that India was placed much better than most world economies. Some of them even termedIndia as an “oasis” in the desert, which seems to have been true.
The strong rally in Indian equities improved their weightage significantly in the MSCI Emerging Market Index, a gauge that most FPIs consider while investing in emerging markets.
India has a weightage of 15.5% in the MSCI Emerging Market Index (EM), compared with 15.1% for Taiwan. India’s weighting has climbed from 12.97% in end-January, whenTaiwan’s weighting was 14.42%.
The MSCI India index has given a staggering 36% returns so far in 2023, whereas the MSCI AC Asia Pacific index has given just 6% returns.
Rapid economic growth, strong corporate earnings, capex growth, and a broad-based recovery in consumption are some of the major factors that kept India on a good stead versus most of the global economies.
Will the show repeat in 2024?
When it comes to the factors that will attract foreign investors, India has ticked all the boxes.
Most money managers, therefore, see India remaining a long-term destination for FIIs. They infact, see FII inflows in 2024 outpacing that seen in 2023.
“I think flows will remain positive and in the global backdrop, if the dollar comes off a little bit and US interest rates ease back, that should be good for markets like India and other emerging markets as well. So, it should be a reasonably good year,” says Jonathan Schiessl, Deputy CIO, Westminster Asset Management.
Even though from a valuation perspective, Indian markets are a bit expensive, many believe that sustained inflows will help sustain premium valuations.
“The next 12 months is largely about foreign investors returning to this market and seeing what they can make of largecaps,” says Saurabh Mukherjea of Marcellus Investment Managers.
For HSBC, India is a key overweight market that is expected to see a decisive bullish phase.
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