Introduction
The year 2024 has been exceptionally favorable for stock market investors, marking a significant revival and robust growth in returns. The Nifty50 has reported an impressive 21% return in the first nine months, indicating a promising trajectory that could elevate total returns to the highest levels seen in three years. In 2023, Nifty had already produced a commendable 20% return, in stark contrast to the modest 4.3% return in 2022. Notably, since 2015, the Nifty has consistently avoided negative returns in any fiscal year. However, what stands out this year is the relatively lower contribution from large-cap stocks to Nifty’s ascent.
Major Contributors to Nifty’s Surge
Among the key players driving the Nifty’s growth in 2024, ICICI Bank takes the lead, contributing an impressive 526 points. Other notable contributors include Bharti Airtel (also contributing 526 points) and Mahindra & Mahindra (contributing 317 points). Overall, the Nifty has climbed approximately 4,500 points this year. While HDFC Bank boasts the largest weightage in the Nifty index, its performance has been lackluster, with only a 4% increase in stock value, demonstrating that not all large caps are performing equally well.
Market Valuation: A Mixed Picture
The Indian stock market, while rewarding investors with substantial profits, has simultaneously reached high valuation levels, thus becoming one of the most expensive markets globally. Comparatively, indices from other regions display different growth patterns. For instance, South Africa’s Kospi has seen a decline of 2% in dollar terms, while the Jakarta Composite and Philippines indices have displayed excellent gains of 8.1% and 14.4%, respectively. Notably, Taiwan’s TAIEX has made a significant comeback with a 22.3% rise by the end of September 2024.
Long-Term Perspective on Indian Markets
Despite its current high valuations, Jefferies has expressed optimism regarding the Indian market’s long-term prospects. They anticipate superior performance over extended periods, but caution investors about potential short-term volatility, primarily influenced by the trading patterns of domestic retail investors and institutional players. Mahesh Nandurkar, a strategist at Jefferies, forecasts fluctuations in the market as investor sentiment shifts. Additionally, Chris Wood, Jefferies’ Global Equity Strategist, reinforces the narrative that the Indian market remains a worthwhile venture for long-term investment.
Driving Forces Behind Market Growth
The continuous inflow of capital from domestic investors has played a crucial role in propelling Nifty’s growth. Currently, Nifty is valued at 21.5 times the projected earnings for the upcoming year. In contrast, benchmarks from other countries exhibit lower valuations: Kospi at 8.8 times, TAIEX at 16.8 times, and the Jakarta Composite nearing 14 times. The stark contrast in valuations has made domestic investors more active, while foreign institutional investors exhibit caution due to the lofty pricing of Indian stocks. According to Nandurkar, the primary apprehension amongst foreign investors pertains to these elevated market valuations.
Conclusion
In summary, 2024 is shaping up to be a remarkable year for stock market investors in India, primarily marked by substantial gains in the Nifty index. Key players such as ICICI Bank and Bharti Airtel have been pivotal in this surge. However, with the market now perceived as one of the most expensive globally, investors must remain vigilant regarding potential volatility in the near term while considering the long-term growth potential of the Indian market.
