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Will the Indian stock market soon overtake London?

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Nothing could stop the Indian stock market for the past year and a half.

The delta variant, China’s intervention in the tech sector, inflation, a still low vaccination rate (about 20%), and even the phasing out of emergency support by the US Fed: nothing could stop the on-going Indian bull in the past 18 months. The best performing serious stock market is therefore not on Wall Street, but on Dalal Street in Mumbai.

The main index S&P BSE Sensex has already risen almost 30% this year, the other indicator Nifty 50 even slightly more. As a tech-heavy index, the AEX manages to come close to 27%. But not elsewhere: the American S&P 500 is trading 20%, the European Euro Stoxx 50 17%. Compared to other emerging markets, India already excels: the MSCI Emerging Markets Index fell this year.

The Sensex largely consists of banks and insurers. The Indian state energy company is also in the main index, as are industrial companies such as Tata Steel, and the Indian divisions of Nestle and Unilever. Only a small part of the index now consists of tech companies.

Traditional companies are doing just fine

That does not seem to bother the Indian investor. The 10-year yield in India was 6.39% on Tuesday, so banks and insurers will be less affected by low interest rates than their Western counterparts. In addition, the demand for power and industrial materials such as steel has exploded in India as well. And the stock market success is now luring a number of Indian start-ups, which are preparing an IPO.

Small investors are partly driving the remarkable rise. Just like in the West, they have discovered investment apps and put their savings in stocks. In India too, the interest on savings is relatively low and apps make it easy for everyone to invest in shares or in the country’s popular investment funds. The Sensex index is above 60,000 points for the first time, a milestone that was celebrated extensively at the end of September.

But in India too, after a year and a half, some investors are afraid of heights, even though the economy is largely open again. ‘The frequent build-up of risk appetite has led to sparkling stock markets with very high valuations,’ the Bank of India warned.

As in the West, fears of a correction of at least 10% are rising. But just like in the West, no one knows when or if the correction will come. Analysts also say that of the nearly 1.4 billion inhabitants, more than 500 million now own a smartphone: a huge market for investment apps and start-ups.

According to Goldman Sachs, India now has at least 67 unicorns, with 27 start-ups reaching $1 billion this year. They are mostly tech companies and they are eager to go public.

According to the American investment bank, this could cause the value of the Indian stock market to grow from about $3500 billion today to more than $5000 billion in 2024. This would make the Bombay Stock Exchange the fifth largest stock market in the world, and push the prestigious London Stock Exchange out of the top 5.

Image Credit: Getty

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