As the Federal Reserve's interest rate cut finally landed, India's SENSEX index rose by 1.7%, closing at 84,622.11 points, continuing to set a new historical high; India's NIFTY index also rose by 1.5%, closing at 25,849.25 points, also continuing to set a new historical high.
Despite the high valuations due to repeated new highs, the Indian stock market continues to attract overseas investors and is expected to record an increase for the sixth consecutive quarter.
In addition to the booming secondary market, the primary market has also "ascended to heaven."
However, there are changes amidst the constancy.
Due to Indian Prime Minister Modi's narrow victory in the previous election, although the momentum of the Indian stock market's continuous rise has not diminished, investors have also adjusted their sector preferences, withdrawing from Modi concept stocks and turning to consumer and software stocks.
The recent interest rate cut by the Federal Reserve has also brought a wave of market sentiment to interest rate-sensitive sectors.
The Indian stock market is expected to record a sixth consecutive quarter of increase this year, and after entering the ninth year of continuous increase, the price-to-earnings ratio of the Indian stock market has reached twice that of the MSCI Emerging Markets Index.
The price-to-earnings ratio of the Nifty50 index has reached 21 times, far higher than the 10-year average level of the index.
However, with Modi successfully forming a coalition government and starting his third term, investors' confidence in policy stability and continuity has been strengthened, and the expectation and realization of the Federal Reserve's interest rate cut, as well as the global market turmoil since August this year, which lacks good investment targets, have led to overseas investors who had temporarily left the Indian stock market due to high valuations, returning again.
Media data shows that foreign capital has net purchased $8.5 billion worth of Indian stocks in this quarter, which is expected to set a new high for the largest purchase scale since the middle of 2023.
Boosted by such a large-scale capital inflow, the Indian stock index is also expected to record a sixth consecutive quarter of increase, with the MSCI India Index rising by 7% in this quarter, while the broader emerging market stock index only rose by about 2%.
Looking at September alone, overseas funds are also expected to continue the inflow into the Indian stock market for the fourth consecutive month.
In addition, a number of exchange-traded funds (ETFs) listed in the United States that track the Indian stock market have also risen with the repeated new highs of the Indian stock market.
For example, the WisdomTree India Earnings Fund, one of the oldest and largest ETFs in this category, recently set a new high and also recorded a rapid increase of 8% in a single month this summer.
James Cheo, Chief Investment Officer for Southeast Asia and India at HSBC Global Private Banking and Wealth Management in Singapore, said: "Although the valuation is indeed high, the Indian stock market is still attractive compared to other markets with weaker growth prospects.
We expect that India's economic growth can continue to be supported by strong corporate performance and favorable economic conditions and supportive policies."
According to the previous forecast of the International Monetary Fund (IMF), by 2028, India will become the world's third-largest economy.
It is also worth mentioning that not only the secondary market, but also the primary market in India has been sought after by global funds, becoming the busiest market in the world this quarter.
According to recent media reports, the strong demand from investors has driven the Indian initial public offering (IPO) market to welcome 235 companies to go public this year, raising about $8.6 billion, exceeding the total financing in 2023.
Among them, there are also hundreds of millions of dollars in large financing projects.
For example, Bajaj Housing Finance, an Indian housing loan financing institution, went public in the local Indian market in mid-September, raising 6.56 billion rupees (about $780 million).
Calculated at the issue price, the company's valuation is about $7 billion.
Before going public, Bajaj Housing Finance was subscribed nearly 64 times in 3 days.
Last month, Ola Electric Mobility Ltd. went public and raised more than $730 million, and the baby product retailer Brainbees Solutions Ltd. went public and raised about $500 million.
NTPC Green Energy, the renewable energy division of the Indian National Thermal Power Corporation (NTPC), has also recently submitted an IPO application to the Indian Securities and Exchange Commission, intending to raise $1.19 billion.
However, as the Indian stock market continues to set new highs, investors' preferences for sectors have recently changed.
The Modi stock index compiled by CLSA shows that within 100 days after the start of the third term in early June, the "Modi concept stock" index only rose by 2%.
During the same period, the increase in consumer stocks and software stocks reached 20% and 34% respectively.
Media-compiled data also shows that overseas funds reversed the previous trend of buying in August, net selling industry sectors supported by Modi's policies, including public utilities, cement, metals, and finance.
Not only overseas investors, but also a report from Motilal Oswal Financial Services shows that domestic mutual funds in India have been reducing their investments in enterprises producing capital goods every month since the election results were announced on June 4, and these enterprises have been one of the main drivers of the Indian stock market.
The reason, according to market insiders, is mainly that in the previous Indian general election, Modi's ruling party, the Bharatiya Janata Party (BJP), did not gain more than half of the seats in the Lok Sabha (lower house of parliament) as expected, and only obtained the right to form a government by relying on allies, and this dependence may intensify the tilt towards populism, causing investors to worry.
Sonam Srivastava, founder and fund manager of Wright Research and Capital, said that the rotation of investment themes in the Indian stock market is mainly driven by the Indian general election and recent global market fluctuations, and the themes preferred by investors have obviously shifted from infrastructure to agriculture and consumer fields.
Mahesh Nandurkar, an analyst at Jefferies Financial Group, also wrote in a recent report that during Modi's new term, it may not be possible to achieve the capital expenditure target, which will become a major obstacle to the continued rise of investment-intensive infrastructure industry stocks, and it is expected that the lagging performance of Modi concept stocks may continue until the end of this year.
Last week's first interest rate cut by the Federal Reserve in four years also triggered the latest round of sector rotation.
Last week, interest rate-sensitive sectors such as automobiles and finance were boosted by the interest rate cut.
Traditional industry sectors such as fast-moving consumer goods (FMCG) also performed well, and the strength of this sector's stocks was mainly driven by expectations of good performance, thanks to strong consumer demand and reduced input costs.
However, growth stocks, such as technology stocks, performed poorly.
The Nifty IT index fell by nearly 3% on Wednesday last week, setting the largest single-day drop since August 5, 2024.
Major Indian technology stocks such as Infosys, TCS, and Tech Mahindra led the index lower.
