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India's Nifty: 20,000 and counting as retail, foreign investors seen fueling rally

A man walks past a newly launched Nifty Indices logo inside the National Stock Exchange building in Mumbai

By Bharath Rajeswaran

BENGALURU (Reuters) -India's stock market investors have a lot to cheer about as the country's economic strength keeps foreign investors tethered, while local inflows underpin a rally that lifted the benchmark Nifty 50 to 20,000 points for the first time on Monday.

The Indian economy grew 7.8% in the April-June quarter and is expected to expand nearly 6.5% in the current financial year, making it one of the fastest growing major economies of the world.

The strong resurgence in India's macroeconomic fundamentals and a pronounced slowdown in China's economy have kept foreign portfolio buyers invested in Indian stocks.

Foreign portfolio investors (FPIs) have bought shares worth 1.57 trillion Indian rupees ($18.93 billion)on a net basis so far in fiscal 2024. In contrast, they sold shares worth 376.32 billion rupees on a net basis last year.

"The way China has disappointed foreign investors and also (given) the geopolitical situation, there's clearly a massive case for increased reallocation of foreign assets from China to India," said Pramod Gubbi, founder at Marcellus Investment Management.

As a result, both the Nifty 50 and the BSE Sensex have risen more than 10% each so far this year. The Nifty gained as much as 0.95% on Monday to top the 20,000-mark for the first time, before closing 0.89% higher at 19,996.35.

Domestic institutions have bought 1.17 trillion rupees worth of shares so far in 2023, according to stock exchange data. They bought 2.35 trillion rupees worth of shares in January-August last year.


Retail investor interest has steadily soared over the past two years as the indexes sailed higher.

India's equity mutual fund schemes have recorded net inflows for 30 months in a row and contributions through systematic investment plans (SIPs) - regular payments into mutual funds - hit a record 158.14 billion rupees in August.

"While the FPI flows have been strong over the last few months, the backbone of the Indian market is the retail investor," said Sanjiv Bhasin, director at IIFL Securities.

The "icing on the cake is that, the trend will likely continue in the coming months."

New demat accounts, necessary to trade, rose to 3.1 million August, notching their biggest monthly increase since January 2022, official data showed.

The flow of retail money has led to small-cap and mid-cap stocks outperform the benchmarks so far this year, logging eye-watering gains of 33.41% and 31.53% respectively.

Analysts, however, have cautioned that the outperformance in mid-cap and small-cap segment is not being driven by meaningful fundamentals of most companies.

"The primary driver of the rally in small- and mid-caps appears to be irrational exuberance among investors with high return expectations," analysts at Kotak Institutional Equities said.

(Reporting by Bharath Rajeswaran in Bengaluru; Editing by Sonia Cheema and Saumyadeb Chakrabarty)