Key Factors Fueling the Indian Stock Market's Upward Trajectory

India, one of the largest economies in the world, will surpass Japan and Germany to become the third-largest economy by 2027. Also, by 2030, it will be the third-largest stock market in the world. What could be the potential reason behind this boom in the stock market?

• India is the fastest-growing economy in the world, with a GDP growth of 5.5%.
• India is becoming more influential on the global stage.
• It is a good time for investors and companies to invest in India, as it is a once-in-a-generation opportunity for investment.
• In 2023, India could generate $400 billion in annual economic growth, making it one of the top three. After 2028, it would increase by $500 billion.

 The global trend and the country's significant investment in the technology and energy sectors could be the reasons why the Indian stock market is booming.

Why is the Indian stock market rising?

India is a top performer on the global stage, creating new wealth each year. The reasons behind this rise are:

1. Cultivating a global workforce: India is better known for its service sector around the world. Companies outside India outsource software development, customer service processing, business process outsourcing, etc. With the change in globalized working models, India is known as the back office of the world. Many people are employed in India and working for foreign companies; the surprising number reaches 11 million. Global companies spend around $180 billion annually on outsourcing, and the number can reach $500 billion by 2030.
   • Due to the reduction in corporate taxes and the encouragement of investments in the form of incentives and infrastructure spending, India will soon become the world's factory.
   • India's manufacturing could increase from 15.6% to 21% by 2031. As a result, India's export market share will increase two times.
2. Connecting Digitization, Consumers, and Credit: Credit is essential to the Indian economy. India has harnessed all the possibilities of digitization, and making loans accessible and affordable to consumers and businesses is one part of it. The credit-to-GDP ratio is estimated to increase from 57% to 100% in the coming ten years.
   • The income distribution in India will drastically shift, positively impacting the consumption level. The consumption level would increase from $2 trillion in 2022 to $4.9 trillion by the decade's end. 
3. Sustainable India: It is estimated that 2/3 of India's energy will be supplied by renewable energy sources like biogas, ethanol, hydrogen, etc. This could reduce India's dependence on imported energy sources.
   • The rise in energy consumption would encourage new segments of investment, creating more jobs, income, and investments.

Is it a good time to invest in the Indian stock market?

To harness the potential of the Indian stock market, one needs to be consistent for a more extended period. Opportunities can be impacted by sudden events like the global recession, geopolitical events, changes in policy, etc. It is also true that the financial services and industrial sectors make India a good bet for investors. India has excellent growth opportunities in Asia.

Indian Stock Market Forecast

 According to Jefferies Group, Sensex can hit the mark of 1 lakh in the next five years. It means a 60% bounce in just five years.

Which sector has a bright future in India? 

Though India has numerous investment opportunities, here are the top four sectors that can help in wealth creation.

1. Renewable energy sector: India acquires a fourth position in renewable energy capacity. The energy requirement may reach 817 GW by 2030, aiming to meet 50% of the total energy requirement from renewable energy by 2030. Therefore, this sector is an excellent opportunity for green investors.
2. Semiconductor sector: India entirely depends on imports to fulfill the requirements of semiconductors in the country. It is estimated that by 2026, the Indian semiconductor market will grow fourfold. Many foreign and Indian companies are eager to invest in India to fulfill this demand.
3. Artificial Intelligence: India is among the top three markets for artificial intelligence and covers 16% of the global AI talent pool. The Indian AI market is expected to grow by 20% over the next five years.
4. Fintech sector: With the increasing demand for growing financial services in the country, the sector holds a positive outlook. The increase in demand for digital services like mobile payments, online lending, and insurance makes this sector a good option.

Why does the US market affect the Indian stock market?

With the advent of a borderless economy, industries and businesses are interconnected. Most Indian companies operate in various markets around the world. Any event in the countries impacts these connections and operations, which is further reflected in the stock market. Similarly, the US market affects the Indian stock market in many ways:

1. The dollar index: It is an important macroeconomic element that significantly impacts the Indian market. When the dollar index falls, FII invests more in Indian stocks, and vice versa.
2. US Treasury Bonds: It is the safest investment option that attracts many investors. There is an inverse relationship between Treasury bonds and the stock market. Investors shift from risky assets like shares when the Treasury bond provides a good return.
3. Crude oil: India imports around 85% of crude oil to meet demand. The change in the price of crude oil significantly impacts the tire, logistics, refinery, and paint industries.
4. Nasdaq and the Indian IT industry: NASDAQ is a worldwide standard for the technology sector. Many Indian industries run businesses in the US market. The strong presence of the companies in the US market also makes them bound to changes in the index, which ultimately affects the Indian stock market.
5. Indian ADRs: Indian ADRs are stocks of Indian companies traded on the US stock exchange. Therefore, they are also responsible for the change in the Indian stock market. 

Is the Indian market overvalued now?

There is a mixed approach regarding the valuation of the Indian market. Some suggest that the Indian market is not overvalued; rather, it is fairly valued. On the other hand, it is also estimated that the Indian market is overvalued by 10%.

When Nifty touched its most anticipated mark of 20,000, it was trading at 18.5 times the estimated earnings for 2025. It means Nifty is expensive as compared to historical averages. This also makes the Indian market expensive. It is susceptible to corrections.

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Final Thoughts

All the economies in the world are subject to the risks of global recession, geopolitical events, and much more, which makes it risky for investors to choose from. India is the fastest-growing economy in the world and is estimated to surpass Japan and Germany by 2027. Therefore, investing in India for a longer period can bring wealth to investors. The market share of the Bombay Stock Exchange can reach $10 trillion in the coming decades, which indicates the capability of the country to strap out the best possibilities. The Indian stock market is definitely a good choice for investors and businesses to invest and create tremendous wealth.

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