India overtakes Hong Kong as seventh largest stock exchange – Moneycontrol

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Despite the recent rally, the Indian market (NIFTY) at 18.5X one-year forward EPS (earnings per share) is still at a discount to its long-period-average valuation of 19.5X one-year forward earnings, thanks to the strong earnings momentum

India’s stock market surpassed Hong Kong to become the world’s seventh-largest, underscoring the optimism surrounding the economic potential of the world’s most populous nation, as per a CNBC report.


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The total market capitalisation of all listed companies in India stood at $3.989 trillion at the end of November, slightly above Hong Kong’s $3.984 trillion, according to data from the World Federation of Exchanges, a trade body.

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The surge in Indian stock prices in November, fueled by growing investor confidence following the better-than-expected performance of the ruling Bharatiya Janata Party in state elections and robust macroeconomic indicators, has set the stage for the country to secure the seventh-largest position globally, behind the New York Stock Exchange, Nasdaq, Shanghai, Euronext, Japan, and Shenzhen.

So far this year, Indian equity benchmarks – the S&P BSE Sensex and Nifty50 have risen 14 percent and 15 percent, respectively, as against a 17 percent fall in Hong Kong’s benchmark Hang Seng index.

This bearish slump in Hong Kong’s exchanges has come amid China’s deteriorating real estate sector, raising concerns of a possible spillover across the broader economy. Notably, the Hang Seng index mainly comprises China’s mainland companies.

After three years of Covid, the Hong Kong markets have been downweighed by higher interest rates across the world, elevated inflation, sluggish foreign investment, and persistent turmoil in the housing market.

Interestingly, Indian equity markets reached more than the $4 trillion mark on December 5, marking a key milestone for the world’s fifth-biggest equity market as it overtakes slumping Hong Kong.

ALSO READ: Foreigners turn bullish on India stock futures after PM Modi’s wins

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Brokerage upgrades for India vs brokerage closures in Hong Kong

A slew of global brokerages have upgraded India to an ‘overweight’ rating driven by decent second-quarter earnings. These include JPMorgan, Morgan Stanley, CLSA, and Nomura.

CLSA, for instance, said that it expects India’s GDP growth to propel it to the top three of the globe’s largest economies – estimating $29 trillion by 2047 and $45 trillion by 2052. “China and US will be the only economies bigger than India by then. If big bang reforms unleash efficiencies, India could overtake the US economy in size by 2052,” the brokerage firm had said in an earlier note.

On the other hand, Morgan Stanley believed India’s relative valuations ‘less extreme’ than in October (2022), and the nation’s reform and macro-stability agenda supports a strong capex and profit outlook.

Contrary to this, around 30 local brokerages have shut offices in Hong Kong this year after a record 49 shut shops in 2022, according to data from the Hong Kong Stock Exchange. This follows layoffs across dealmakers after Wall Street observed a plunge in Hong Kong’s IPO market.

Essentially, Hong Kong IPOs are at a 20-year low, according to Jefferies Greed & Fear report. Funds raised by IPOs declined by 63 percent year-on-year for the first ten months of this year.

Though the Hong Kong government has taken steps to stimulate trading by introducing stamp duty hike on stock trades, high borrowing costs add to weak investor sentiment.

ALSO READ: Nifty at 21k: Four solid reasons why you should not be worried about a correction

BSE market-cap grows over 2x in 5 years

India’s benchmark gauge – BSE’s market capitalisation or m-cap grew from Rs 3.2 lakh crore to Rs 343.5 lakh crore in 2023 (see chart). If we concise it to five years, BSE’s m-cap has more than doubled from Rs 154.6 lakh crore, according to data from Geojit Insights.

m-cappp

Siram BKR, Senior Investment Strategist at Geojit Financial Services said that the Sensex price index pierced through the barriers of the 69,000 level milestone for the first time on December 5, 2023, due to strong foreign flows that emanated from the lowering of US bond yields, ruling central government’s party positive show in key state elections, and improving economic macros.

“It took 31.3 years for the index to climb the 30,000 points milestone, in April 2017. The next 30,000 points get added over the next 4.4 years,” Siram added.

The average Sensex earnings per share (EPS) computed by trailing 12-month price-to-earnings (PE) ratio stood around Rs 2,831, witnessing 7.2 percent YoY growth, and 16.2 percent CAGR over 2 years.

eps

“Going ahead, EPS is estimated to be up 13.1 percent CAGR in 5 years and 9.2 percent CAGR in 10 years,” expressed Siram BKR of Geojit Financial.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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