Covid has changed our lives irrevocably. It has forced us to deal with adversity, and we have emerged stronger. The Indian stock market is no different. Although it has been trudging along in the middle of the pack for the past few years, Covid has really allowed it to emerge from the shadows.
“India is emerging as a beacon of hope” — Radhika Gupta, CEO, Edelweiss AMC
The Dow Jones has fallen over 7% so far this year. Nikkei has fallen by over 4%. Nifty, on the other hand, is up by over 3.5%. So, will the Indian stock market outperform?
“Nifty has significantly outperformed major global equity indices in the current calendar year mainly due to (a) healthy financial performance for companies, (b) good growth visibility and (c) inflation and GDP numbers.” — Amit Nadekar, LIC Mutual Fund
India’s outperformance is due to the rallying together of different factors. Companies recovered, and there is visible economic growth and a very inherent faith that India will flourish.
It’s not just a poetic ramble, though. Much of the stock market is governed by the sentiments of investors. As long as there is faith in recovery, it will happen.
If we look at what’s happening in the rest of the world. Europe is struggling to cope with the strain of the Russia-Ukraine war. The prices of coal, natural gas, and oil have all shot up since the war started, and it has continued to climb.
Add to that, the fact that the European Council has imposed sanctions on almost all the oil imports from Russia, and we have in our hands a lose-lose situation.
The UK, of course, is on the brink of recession. Rishi Sunak may be carrying the hopes of the entire nation, but he is not a magician. According to a report by EY, the UK economy is expected to contract by 0.3% in 2023. This is the culmination of increasing inflation and interest rate.
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The US is dealing with the highest inflation since the 1980s. The Fed has been increasing interest rates with mercenary-like precision. While this aggressive stance may be required in the long run, it does have a negative impact on economic activity.
In comparison, India is the picture of stability. At least, foreign investors seem to think so.
In FY 2021-22, we attracted foreign direct investment (FDI) of US $83.6 billion. In fact, the Ministry of Commerce and Industry expects that we might reach the milestone of US $100 billion FDI by the end of this financial year. Here is the difference between FDI and FPI.
FDI or Foreign Direct Investment is when the foreign investor takes a more active role. A considerable stake is sold in this case, and some decision-making power is also shared. This happens when companies or venture capitalists invest directly in startups and other companies.
This generally happens in boardrooms with teams of lawyers and iron-clad contracts.
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FPI or Foreign Portfolio Investment, on the other hand, is when foreign investors buy shares of Indian companies in the stock market. This is the simple version, where retail investors can also participate, and the flow of money is much faster.
If you look at the FPI figures, however, they might show a different story. Please keep in mind that this is for different reasons and is primarily fuelled by the rising interest rates in the US. These fluctuations are short-term in nature and don’t really spell out the picture of the overall economy.
India has emerged as a clear investment hotspot (basics of investing)in the last couple of years. Ever since COVID-19, diplomatic relationships with China have gone up in smoke. More and more companies are starting to reduce their supply chain dependence on China, and India is the perfect substitute.
Apple and Google have both announced plans to relocate manufacturing to India. Other companies will soon follow suit. Apart from that, government support and Production Linked Incentive (PLI) schemes have encouraged capital expenditure by companies. The banking sector is starting to recover and NPAs have decreased. The corporate debt to GDP ratio has fallen to its lowest level in 15 years.
The road ahead is expected to remain rosy, at least for the next year. The global market will take a while to recover, both from the recession fears and the geopolitical tensions. In the meantime, volatility will continue.
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