Since the lows of March 2023, the Indian equity markets have recovered well. The Nifty 50 TRI (total return index) has increased by 20%, while the Nifty mid-cap and small-cap TRI indexes have increased even more, by 55% and 47%, respectively, in absolute terms. All three of the indices have reached new all-time highs in the marketplace today.

The range of sectors that have participated in the rally has been interesting. A number of industries are reaching all-time highs, including capital goods, auto, pharma, life and general insurance, non-banking financing companies, real estate, and capital markets. Markets are one of the economy's leading indicators. Therefore, the increasing involvement of different economic sectors in the equity markets may indicate the beginning of a new economic cycle. Given the aforementioned characteristics of the market's participation range, the market is considered strong and is not likely to decline rapidly.

Additionally, our markets are experiencing a surge of their own thanks in large part to local investors and money flowing into the markets. Furthermore, "an object will not change its motion unless a force acts on it," according to Newton's first law. Thus, bad news must now halt the advance in order for the market momentum to halt or reverse.

The market is now assigning a considerably higher probability—following the outcomes of the most recent assembly election—that the current political regime will endure past 2024.

The market anticipates that India will continue to be among the top economies in the world with the highest rate of growth since this development should guarantee the continuance of policies that favour growth. Political stability, strong economic growth, and the potential inclusion of India in global bond indices in mid-2024 can lead to the appreciation of the Indian rupee, which will lead to more significant FPI inflows in India, pulling markets even more upwards. The $4 trillion Indian economy is emerging as the growth engine in an increasingly growth-starved world. What is enthusing investors is the predictability and the certainty of the long duration of growth in India. As a market, the appeal of Indian equities is rising. It seems that the rise in global interest rates that began in late 2021 has peaked. Even if interest rates might stay higher for longer, given the worsening economic data from developed economies and the waning inflation measurements, it is anticipated that central bankers won't boost rates any further.

Regardless of the outcome of the 2024 election, the auto, financial, FMCG, and capital goods sectors might perform well in this broad-based rally. The following justifies these sectors: -

Automobiles: They account for 35% of the manufacturing GDP and 6% of India's GDP. The market for electric vehicles, or EVs, is predicted to expand at a 49 percent compound annual growth rate (CAGR) between 2022 and 2030, reaching 10 million units sold annually by that time.

Financials: Market penetration and digitization offer substantial growth potential for the industry. Fintech's expansion will enable this industry to reach the sizable rural market and the rising number of young people who are internet literate.

FMCG: This industry is resilient and reliable; demand for its products remained steady even throughout the worldwide pandemic. Growing consumer expectations are likely to fuel the growth of an all-weather industry.

Capital Goods: These are the subsectors that would profit from the government's increased infrastructure push and programs like PLI (production-linked incentive), such as electrical equipment, plant equipment, earthmoving/mining machines, heavy electric equipment, etc.

Though it looks like a while off, we think the most important danger to be aware of is a possible hard landing in the US. The Indian market is vulnerable to the short-term risk of overheating. It's important for investors to control their emotions and thoroughly consider their risk-return options.

About the author,

    Sarthak Rastogi

A boy who loves to read and write, is passionate for fitness and sports and has a heart full of compassion and love. He possesses a masters degree in economics with an inclination towards finance and policy making.