Indian markets, now valued more than India GDP for FY24

The Nifty 50 index reclaimed the 20,000-mark after a span of two months.

Domestic institutional investors (DIIs) purchased shares worth a provisional ₹2,360.81 crore, while foreign portfolio investors (FPI), who nibbled at ₹71.91 crore worth of purchases, are believed to have raised their already bullish bets on stock futures, market analysts said.

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The institutional buying, along with that of direct retail participation, pushed up the bellwether Nifty index to two-week highs, up 1.04% to 20,096.60 points, and the Sensex by 1.1% to 66,901.91.

“Domestic inflows continue to remain strong, absorbing the recent selling by FPIs around 19,000 levels, and form the fulcrum of the rally,” said Gaurav Dua, head-capital market strategy, Sharekhan, by BNP Paribas. “The additional tailwind is in the form of falling US bond yields and the DXY (dollar index), which has attracted FPI interest back to (emerging markets). I remain bullish and think the Nifty is on course to test and surpass its record high.”

The broad-based rally has catapulted domestic market cap to all-time highs. While the Nifty has risen 19.4% from its 20 March low of 16,828.3, both the Nifty Midcap 150 and Nifty Smallcap 250 hit fresh peaks.

The Nifty Midcap 150 reached 15,853.9 points during trading on Wednesday before closing a tad lower at 15,838.85, up 0.66% from the previous day’s close. The Nifty Smallcap 250 soared to 13,133.60 before closing at 13,112.10, up 0.75%. Since March, the Nifty Midcap 150 has rallied 42%, as of Wednesday’s closing, and the Nifty Smallcap 250 is up by 50%.

The US, China, Germany, Japan and the UK are the only other countries with a higher market cap.

“India now is one of the few countries that has a market cap in excess of its GDP, at $4 trillion,” said Nilesh Shah, managing director, Kotak AMC.

“Normally, such high valuation should be a cause of concern. This time, however, there is a Triveni sangam of growth, governance and green transformation of economy, backed by investors looking to buy into every correction,” he said. “While there will be ups and downs in the market, the Indian economy and the markets are both poised well for the long-term so long as we deliver on the 3G of growth, governance and green.”

DII inflows in the year to date stood at ₹1.7 trillion, as per BSE, and FPI flows at ₹1 trillion, according to the National Securities Depository Ltd, or NSDL.

After six months of buying, FPIs turned net sellers to the tune of ₹39,316 crore in September and October amid rising US bond yields and dollar rates. They remained net sellers of a cumulative 175,698 contracts of the Nifty and the Bank Nifty futures and 160,000 contracts of stock futures as of 2 November.

FPIs resumed investments in Indian shares in November, pumping in ₹4,687 crore, following the US Fed’s decision to leave the Fed Funds Rate untouched for a second straight policy meeting this month. Also contributing to this were US retail inflation declining to 3.24% in October, below the long-term average of 3.28%, and US yields and the dollar cooling off.

Buying in the cash market has been accompanied by FPIs turning cumulatively net long on stock futures, to the tune of 92,736 contracts as of 28 November. They also cut their net shorts on index futures, to 128,791 contracts since 2 November, which is lending more steam to the market rally.

“The FPIs are adding more longs at the stock futures level and cutting index shorts, which are definitely positives,” said Kruti Shah, quant analyst at Equirus Capital. “While they haven’t closed out index shorts ahead of the five assembly election outcomes, their raising bullish bets on cash and on stock futures reflects an early resumption of their bullish sentiment.”

Spot gold hit a record ₹62,524 per 10 gm (ex-GST), with a weaker dollar making dollar-denominated assets cheaper for holders of other currencies.

Top Nifty gainers on Wednesday included HDFC Bank, Tata Motors, Wipro, Mahindra and Mahindra and Axis Bank, which rallied 2-4%.

Nifty Smallcap gainers included Aster DM, which shot up 18.14% riding on the $1 billion divestment of its Gulf business, and Minda Corp, which gained 11%. Midcap gainers included Torrent Power (11%), and Sundaram Finance (8%).