India’s Nifty and Sensex Outperform Most Global Markets, Trail Only Wall Street

By Bharath Rajeswaran

BENGALURU – India’s NSE Nifty 50 and Sensex are among the top performers this year, trailing only Wall Street’s Nasdaq. Analysts anticipate that the current rally will continue into 2025.

In 2024, the Nifty and Sensex have achieved gains of 18.7% and 17%, respectively, placing them third and fourth among major global stock exchanges. The Nasdaq and S&P indices have seen increases of approximately 22% and 20.5%, putting them slightly ahead of the Indian benchmarks, while the Nikkei and FTSE follow with rises of 13% and 12%, respectively.

Notably, India’s weight in a key MSCI index surpassed that of China for the first time earlier this week. Analysts at Emkay Global have noted that they expect the Federal Reserve’s rate cut to accelerate foreign inflows, creating enough momentum in domestic markets to mitigate potential downsides.

The rally in India’s stock market has been driven by expectations of policy continuity after the national elections in June and a strong growth outlook. This momentum intensified following a significant rate cut by the U.S. Federal Reserve on September 18. After a moderation in foreign portfolio inflows during August, September is set to witness inflows reaching a six-month high.

As a result of the rally, the 12-month forward price-to-earnings ratios for the Sensex and Nifty have risen to 23.6 and 24.4, respectively—the highest among emerging markets. Technical indicators now suggest that both indexes are in overbought territory.

Furthermore, the prospect of a soft landing for the U.S. economy is expected to benefit sectors such as information technology and pharmaceuticals, which derive a substantial portion of their revenue from the U.S. market. Realty, automobiles, public sector enterprises, pharmaceuticals, and energy are among the top-performing sectoral indices this year.

Domestic institutional and retail investors have also been active participants in the stock market, consistently buying on dips. Data indicates that domestic institutional investors have acquired shares worth a net 3.23 trillion rupees since the beginning of the year. Mutual funds have likewise remained net buyers since February 2021, with contributions via systematic investment plans reaching record highs for 14 consecutive months.

However, this trend has raised some concerns. Analysts at Jefferies pointed out that the combined domestic inflows from mutual funds, direct participation, insurance, and pension funds have reached "unsustainably high" levels of $7.5 billion per month between January and August. Consequently, the brokerage has adopted a cautious stance regarding the markets, particularly for small- and mid-cap stocks.