IMay be NDIANS An excuse to look east rather than a little jealous. India in 1980 GDP Per capita purchasing power parity was almost double that of China. Then the dragon flew away. By 2021, China’s per capita income is more than double that of India. Yet when it comes to last year’s stock market performance, at least, India can declare victory. The Sensex 30 index of stocks rose about 22% last year, surpassing only the Shanghai market. MSCI Emerging market indicators, and also indicators of many rich countries. As we have written, the Sensex has been up so far this year, compared to falling elsewhere.
Healthy performance is enough to lure Indian retail punters to the market. According to MintBank accounts opened by customers intending to invest in a newspaper, stocks and bonds have risen above 77m last year, compared to 39m in 2019. What is behind the extraordinary performance of the market?
After an unpleasant decade, profits are roaring back. Even before the epidemic, the company’s revenue was low, as firms struggled with high inflation, inadequate access to bank loans, and restrictive controls. The expansion of the Covid-19 in 2020 and the severe lockdown of that year gave another push. But the economy is improving now. The IMF Expects GDP It will grow 9% this year and 7.1% in 2023, more than any other major economy.
Lots of regulations are still banned in India, ranging from the complexities of the tax system to the sheer number of import duties. Yet in the last three or more years some decent changes may begin to bear fruit. These include a reduction in the corporate-tax rate and a pledge to, ultimately, end the government’s habit of hitting companies with retroactive tax bills. Financial incentives for manufacturers may also encourage small firms, which have benefited from a bullish mood, as have large firms. Overall, Morgan Stanley’s Rhythm Desai, a bank, seems to have started a new earnings cycle. He predicts an annual profit growth of 24% over the next three years.
Big IT consultants, such as Tata Consultancy Services and Infosys, have done well in the boom. In the years before the epidemic, investors were cold on their growth prospects. Covid-induced digitization, however, has rekindled their interest. Shares of the two companies more than doubled between March 2020 and December last year (although they fell slightly from their peak).
Interestingly, the recent pick-up in the Sensex has been mass-based, said Credit Suisse, a bank’s Nilkant Mishra, as it is showing strong returns through one industry after another. Home builders, for example, have been boosted by increasing demand from buyers and accelerating credit growth. As a result, share prices of cement and machinery manufacturers have risen.
Garment companies’ share prices with cotton and yarn producers have risen as well as those of chemical companies. The idea is that these could benefit not only from general optimism about the domestic economy, but also from its high-cost leanings and increasingly geopolitically divisive, east-facing neighboring production. 3
For more expert analysis of the biggest stories in economics, business and markets, sign up for our weekly newsletter Money Talks.
This article was published in the print edition of the section on Finance and Economics under the heading “Roaring Tiger”