Benchmark indices like the NSE Nifty 50 and the S&P BSE Sensex are scaling new record highs every week. You may think that you have missed the opportunity. That could prompt you to wait for a correction to time the market. However, that is a tricky idea. If you waited the entire 2024 for the right opportunity, holding more cash in your bank deposits than equity assets, you could feel worse than just fear of missing out or FOMO.
The Nifty and Sensex are among the best-performing stock market indices in the world in 2024. There is no sight of any event that could trigger a correction. That is despite everyone accepting that there are geo-political tensions due to global conflicts.
There are signs of a slowdown in Europe. While the US economy is strong and inflation is controlled, job growth is slowing. In India, an analysis in the latest bulletin published by the National Stock Exchange of non-banking Nifty 50 companies’ financial results for the quarter ended June 2024 showed that the operating profit growth for Nifty 50 companies slowed at a pace last seen five years ago.
Unabated rally
The rally in India continues unabated despite no fundamental reasons to drive prices. The market capitalisation to GDP ratio has surpassed all previous records and is inching closer to 150%. All of that is due to strong inflows from domestic and foreign institutions. Over the past three years, foreign portfolio investors have pulled the money out of India. However, as the US moves to reduce interest rates over the next 12 months, there will likely be a flood of money towards emerging markets.
India is already a top holding for most regional and emerging market funds. The money flowing into Indian equities is reaching unprecedented levels. There is already a steady monthly flow of mutual fund money flowing into Indian equities. In addition, institutions like the Life Insurance Corporation of India continue to stay committed to investing over
R1,30,000 crore annually into Indian shares. The other key factor is the participation of individual investors. The response to initial public offerings is another example. Market experts are confident that there are enough companies in the private space willing to absorb the substantial flows of money.
However, there is another development. Foreign flows were so far confined to equity markets. In 2024, for the first time, money is flowing into the Indian secondary bond market. Debt flows are much higher than foreign flows. That was anticipated as Indian government bonds were included by benchmark bond indices managed by global bank JP Morgan and others for the first time. However, the money flow in bonds is likely to remain strong.
The Indian shares are not cheap. They are not for domestic investors and foreigners, who have more options in China and other markets. The Indian rupee has remained one of the most stable currencies in emerging markets. That is primarily because of the RBI’s astute management of foreign exchanges. Despite strong foreign flows and remittances, RBI has managed to hold the rupee steady. As India is a net importer of commodities and capital goods, it acts as a natural counterbalance to strong foreign flows.
RBI’s intervention is minimal now. However, those balances could get disturbed in favour of the Indian rupee. Oil prices are much lower than a year ago period. Commodity prices are also cooler than they were previously. As more foreign and portfolio money flows into equity and debt markets, any fall in imports could put upward pressure on the Indian rupee.
That tends to attract more money from foreigners. If the Indian rupee appreciates, the US dollar returns for foreign investors could look even better, and they may allocate more money to Indian equities and bonds. These scenarios will likely assume a stable political environment and a policy regime.
If you have stayed out of equity assets for long, you must try and engage a professional financial advisor. In these boom times, not having an investment plan is bad.
Rajas Kelkar
The author is editor-in-chief at www. moneyminute.in.