In the four years of Modi government, the domestic market gained over 40 per cent taking the overall market cap of BSE to Rs 145.10 trillion from Rs 83.76 trillion, a rise of 73.24 per cent since May 2014. While the Sensex and Nifty rose 38.95 per cent and 41.73 per cent respectively, mid and small stocks saw a massive rally driven mainly by huge buying interest from Indian mutual funds that had pumped in a whopping Rs 1.5 lakh crore.
However, in the case of foreign investors it was a different story as they have pulled out close to Rs 91,200 crore during the period. Despite that the Indian markets have outperformed global peers in the four years since the NDA government came to power.
While MSCI India index rose 32.64 per cent, MSCI Emerging Markets rose 9.6 per cent and MSCI World 24.9 per cent, a major outperformance by domestic market.
According to experts, huge domestic liquidity saved the day for Indian stocks powered by domestic asset managers who have seen huge inflows into equity schemes especially after demonetisation move.
While the benchmark indices gained 40 per cent in the four years, the midcap and smallcap indices rallied between 80 per cent and 85 per cent respectively. A major part of the rally has been driven by domestic fund flows on the back of a benign macro, resulting in a re-rating of stocks as domestic savings moved into financial assets dues to demonetisation and unattractiveness of physical assets like real estate and gold.
“The markets did well, given the expectations of earnings recovery, consistent reforms and decision-making. Before 2014, policy paralysis and lack of meaningful reforms had been a damper,” says Gautam Duggad, head of research, Motilal Oswal Institutional Equities. “What helped in the last four years was the consistent and steady inflows of domestic investors in mutual funds. Mid-caps have done quite well in this four-year period and are now trading at a premium to large-caps,” he further said.
Many experts believe that the valuations are quite high, considering earning numbers from Indian companies.
There are several big challenges due to deteriorating macros, high crude prices and a falling rupee amid high valuations as the rupee has fallen 6.6 per cent this year and global crude prices have surged to $80 a barrel. This has made analysts cautious about the domestic market on account of concerns over a deteriorating macro environment and uncertainty regarding the outcome of the 2019 general elections.
“Our estimation of global economic trends such as industrial and consumer confidence, capacity utilisation, credit spreads and earnings revisions has peaked and India again is not insulated,” an analyst with a leading foreign brokerage said.
The stock market was holding up on hopes of an imminent turnaround in the economy, as analysts expected the improving macros to reflect on corporate earnings.
“The markets have done well under Modi, as investors have been impressed with the reforms agenda and efforts to improve the macro stability on inflation and fiscal front,” said Gautam Chhaochharia, head of India research, UBS.
But some measures such as demonetisation and poor GST rollout slowed down an expected revival in earnings growth. Huge retail money came into financial assets such as equity and other financial assets. There were a total of 2.16 crore SIP accounts as of April. Retail investors pumped in Rs 67,190 crore into mutual funds via SIPs in FY18 as against Rs 43,921 crore in FY17. This provided cushion to the impact of foreign outflows and triggered huge rally in mid and small cap stocks. There about 92 stocks that rallied more than 1,000 per cent under the Modi regime.
“The bull run in midcaps started post 2014 Modi euphoria. Since then, we have seen massive inflows into mutual fund portfolios. Most funds were diverted into midcaps and smallcaps for lack of options in the largecap space,” brokerage Elara Capital said in a note.
“The fourth year report card is most crucial as it would be the last one before 2019 elections. So far as economic policies are concerned there are many positives like rolling out of GST, improved road, air and water connectivity and keeping the fiscal situation mostly under control. There were more reforms needed to boost agriculture and more jobs could have been created. Overall the report card looks satisfactory,” said Prakarsh Gagdani, CEO, 5Paisa.com.