India File: Exuberance and anxiety as equities rally onIndia File is published every Tuesday. Think your friend or colleague should know about us? Forward this newsletter to them. They can also subscribe here.
Sept 24 - By Ira Dugal, Editor Financial News, with global Reuters staff
Hello, I'm Ira Dugal and I head financial news for Reuters in India. Join me each Tuesday as I lead you through the biggest stories out of India, and Asia.
Indian benchmark equity indexes, already ebullient, got another burst of energy over the past week - hitting their 60th record high of the year - after the U.S. Federal Reserve's jumbo-sized interest rate cut. But investors are divided on whether to cheer about the rally or fret about markets overheating. That's the focus of our discussion this week.
THIS WEEK IN ASIA
** China's central bank unveils broad easing measures to revive economy
** Leaders of Australia, India, Japan and the United States expanded joint security steps in Asia's trade-rich waters
** Bank of Japan signals it is in no rush to raise rates further as it eyes global uncertainties
** Ammunition from India has found its way into Ukraine, raising Russian ire
EXUBERANCE AND ANXIETY
India's benchmark equity indexes – the NSE Nifty 50 and the S&P BSE Sensex - have outperformed most major global markets so far this year, surpassed only by the Nasdaq and S&P 500.
The indexes tacked on a few more percent after the U.S. Federal Reserve's 50 basis-point interest rate cut last week, with the Nifty now up 19.3% and the Sensex up 17.5% for the year to date.
The outperformance has pushed up India's weighting in a key Morgan Stanley equities index, overtaking China and kicking off a virtuous cycle of increased flows, bigger gains and an even higher weighting.
"India will continue to gain share," Morgan Stanley analysts wrote in a note last week. With India's nominal GDP growing at three times the rate of China, they added, there is a "profound divergence" in the earnings growth environments of the two giant Asian economies.
India's surging share prices have lifted valuations to among the highest across major markets, with the 12-month forward price-to-earnings ratio of the Sensex at 23.6 and the Nifty at 24.4.
Domestic institutional and retail buyers appear unfazed by those lofty numbers, as they continue piling into equities.
Domestic flows, averaging $7.5 billion per month from January to August, are three times greater than the same period a year ago. An estimated one-quarter of India's personal financial savings are now going into the stock markets, Jefferies analysts said last week.
"We believe that this is unsustainably high and it makes us uncomfortable on the near-term equity outlook."
Foreign investors have been cautious about buying at these valuations but have been more open to investing in primary share offerings, which are also rising and adding fuel to the equities buying.
Over the past week alone, three more large companies - state-owned utility NTPC's green energy unit, Brookfield-backed Hotel Leela and consumer financier HDB Financial - have announced plans to go public.
Some foreign companies, such as South Korea's Hyundai Motor, have also been drawn to raising capital from the Indian markets. But an Indian listing could prove to be a honey trap for global firms, Reuters Breakingviews columnist Una Galani wrote.
Alongside the primary markets, trading in equity derivatives has boomed in India, prompting repeated warnings from the market regulator, the Securities and Exchange Board of India (SEBI). In one such warning on Monday evening, SEBI said Indian retail traders made net losses totalling 1.81 trillion rupees ($21.67 billion) in futures and options trading in the three years to March 2024. Tighter rules may follow.
India's chief economic adviser V. Anantha Nageswaran offered a veiled warning earlier this month against excessive financialisation, which he defined as the dominance of financial markets over the real economy.
That could lead to high levels of public and private debt, while increasing the reliance of economic growth on high asset prices and worsening income inequality, he said at a financial industry event, pointing to examples across global markets.
"India must be wary of these outcomes and avoid this trap," he said. "When the market becomes bigger than the economy, it is natural, but not necessarily reasonable, that the market's considerations dominate public discourse and influence policy."
With share prices rising at a faster pace than economic growth, India's market capitalisation-to-GDP ratio now exceeds 140%, the highest in more than a decade.
Do you think the Indian markets are overheating? Write to me at [email protected].
QUOTE OF THE WEEK
"A thorough investigation into the allegations of an unsafe and exploitative work environment is underway."
India's labour minister Shobha Karandlaje on X after the death of a 26-year-old associate worker at accounting firm EY. The woman's mother blamed the death on stress and demanded accountability. Labour department officials inspected the firm's Pune office on Monday.
EY said it placed "the highest importance on the well-being of all employees", adding that it is "taking the family's correspondence with the utmost seriousness and humility".
MARKET MATTERS
With the Fed joining the global rate-cutting cycle, investors are now watching meetings at central banks in Sweden and Switzerland this week. Rate cuts are a key theme for global markets in the final months of the year.
Will the Indian central bank follow when it meets in October? Food inflation could play spoilsport.
(By Ira Dugal; Additional reporting by Bharath Rajeswaran; Editing by Edmund Klamann)
India File: Exuberance and anxiety as equities rally onIndia File is published every Tuesday. Think your friend or colleague should know about us? Forward this newsletter to them. They can also subscribe here.
Sept 24 - By Ira Dugal, Editor Financial News, with global Reuters staff
Hello, I'm Ira Dugal and I head financial news for Reuters in India. Join me each Tuesday as I lead you through the biggest stories out of India, and Asia.
Indian benchmark equity indexes, already ebullient, got another burst of energy over the past week - hitting their 60th record high of the year - after the U.S. Federal Reserve's jumbo-sized interest rate cut. But investors are divided on whether to cheer about the rally or fret about markets overheating. That's the focus of our discussion this week.
THIS WEEK IN ASIA
** China's central bank unveils broad easing measures to revive economy
** Leaders of Australia, India, Japan and the United States expanded joint security steps in Asia's trade-rich waters
** Bank of Japan signals it is in no rush to raise rates further as it eyes global uncertainties
** Ammunition from India has found its way into Ukraine, raising Russian ire
EXUBERANCE AND ANXIETY
India's benchmark equity indexes – the NSE Nifty 50 and the S&P BSE Sensex - have outperformed most major global markets so far this year, surpassed only by the Nasdaq and S&P 500.
The indexes tacked on a few more percent after the U.S. Federal Reserve's 50 basis-point interest rate cut last week, with the Nifty now up 19.3% and the Sensex up 17.5% for the year to date.
The outperformance has pushed up India's weighting in a key Morgan Stanley equities index, overtaking China and kicking off a virtuous cycle of increased flows, bigger gains and an even higher weighting.
"India will continue to gain share," Morgan Stanley analysts wrote in a note last week. With India's nominal GDP growing at three times the rate of China, they added, there is a "profound divergence" in the earnings growth environments of the two giant Asian economies.
India's surging share prices have lifted valuations to among the highest across major markets, with the 12-month forward price-to-earnings ratio of the Sensex at 23.6 and the Nifty at 24.4.
Domestic institutional and retail buyers appear unfazed by those lofty numbers, as they continue piling into equities.
Domestic flows, averaging $7.5 billion per month from January to August, are three times greater than the same period a year ago. An estimated one-quarter of India's personal financial savings are now going into the stock markets, Jefferies analysts said last week.
"We believe that this is unsustainably high and it makes us uncomfortable on the near-term equity outlook."
Foreign investors have been cautious about buying at these valuations but have been more open to investing in primary share offerings, which are also rising and adding fuel to the equities buying.
Over the past week alone, three more large companies - state-owned utility NTPC's green energy unit, Brookfield-backed Hotel Leela and consumer financier HDB Financial - have announced plans to go public.
Some foreign companies, such as South Korea's Hyundai Motor, have also been drawn to raising capital from the Indian markets. But an Indian listing could prove to be a honey trap for global firms, Reuters Breakingviews columnist Una Galani wrote.
Alongside the primary markets, trading in equity derivatives has boomed in India, prompting repeated warnings from the market regulator, the Securities and Exchange Board of India (SEBI). In one such warning on Monday evening, SEBI said Indian retail traders made net losses totalling 1.81 trillion rupees ($21.67 billion) in futures and options trading in the three years to March 2024. Tighter rules may follow.
India's chief economic adviser V. Anantha Nageswaran offered a veiled warning earlier this month against excessive financialisation, which he defined as the dominance of financial markets over the real economy.
That could lead to high levels of public and private debt, while increasing the reliance of economic growth on high asset prices and worsening income inequality, he said at a financial industry event, pointing to examples across global markets.
"India must be wary of these outcomes and avoid this trap," he said. "When the market becomes bigger than the economy, it is natural, but not necessarily reasonable, that the market's considerations dominate public discourse and influence policy."
With share prices rising at a faster pace than economic growth, India's market capitalisation-to-GDP ratio now exceeds 140%, the highest in more than a decade.
Do you think the Indian markets are overheating? Write to me at [email protected].
QUOTE OF THE WEEK
"A thorough investigation into the allegations of an unsafe and exploitative work environment is underway."
India's labour minister Shobha Karandlaje on X after the death of a 26-year-old associate worker at accounting firm EY. The woman's mother blamed the death on stress and demanded accountability. Labour department officials inspected the firm's Pune office on Monday.
EY said it placed "the highest importance on the well-being of all employees", adding that it is "taking the family's correspondence with the utmost seriousness and humility".
MARKET MATTERS
With the Fed joining the global rate-cutting cycle, investors are now watching meetings at central banks in Sweden and Switzerland this week. Rate cuts are a key theme for global markets in the final months of the year.
Will the Indian central bank follow when it meets in October? Food inflation could play spoilsport.
(By Ira Dugal; Additional reporting by Bharath Rajeswaran; Editing by Edmund Klamann)
