On a steady, upward growth path

For the last couple of years, the stock markets have been booming. The Sensex has touched new highs regularly. And this is not an Indian phenomenon only. Globally, markets in Japan, Hong Kong, the UK and most of all the US have been jumping. The unpredictable and erratic behaviour of US President Trump did cause some wobbles for a bit. But through it all, tariff threats and all that, the markets didn’t lose their confidence.

But behind this very rosy picture there are certain hard realities in the markets. The US markets have been driven by the frenzied activity and investment in AI companies and data centres. This seems unstoppable, even though there is the constant commentary that this could be another dot-com boom – just waiting for a spectacular crash. But as is openly discussed, initially it was only the FAANG tech stocks including the likes of NVIDIA and Tesla that were responsible for the spectacular run-up. And last year it was the gigantic investments in AI that were also driving the market further, including several of the FAANG companies that were placing very large bets and investments in AI.

In India, we have a somewhat similar picture – though there is no AI investment frenzy yet. But in the last 15 months or so, it is a small number of the largest companies in India, dominating the Sensex – Reliance, ICICI, HDFC, etc – that are driving the Sensex relentlessly upwards.

Looking beyond these companies, the mid-cap and small-cap companies have been hitting new lows. But it must also be remembered that till 18-24 months ago, it was the same small- and mid-cap companies that were driving the markets. In India too, the threat and imposition of tariffs, while causing some temporary setbacks, have not impacted the stock markets. Though it is true that the visa issues in the US caused shares of the biggest IT companies to stall last year, by this year the IT companies have stabilised too. 

One of the big changes seen in the last 2 years has been that Foreign Portfolio Investors (FPIs) have lost their dominant sway in the markets. For the first time in over 25 years, they have not been setting the price in the Indian markets. And as we have pointed out several times, it is the domestic institutions, running Systematic Investment Plans (SIPs) that have more than offset the outflows by FPIs. These SIPs are funded by small middle-class investors, who continue to hold their faith, rightly, in the longer-term value of equity. And of course this is how it should be, as in any mature market, it is the domestic investors who must set the tone and price. In addition, the last 18-24 months have seen a large number of successful foreign-funded companies, which were start-ups a while ago, listing on the exchanges. These attractive new listings, which also give an opportunity to their founders to cash out some of their profits, will also take their place as Indian blue chips.  

It also must be pointed out that very many companies, big and small, even though their stocks have fallen, have since Covid developed strong balance sheets, with strong reserves, and are well poised to play their part in the India growth story. Our economy is now on a steady upward growth path. And history shows that stock markets can grow at twice the growth rate of the economy. 

It is this faith in India moving steadily to Viksit Bharat that makes Business India bullish for the long term on the stock markets.