What is the future of the Indian Stock Market? Would Sensex be able to reach 100,000 points by 2030? Would India be able to become a 5 trillion economy as claimed by the government? Sensex is one of the oldest stock exchanges of the Asian Market. In the last 150 years, it has grown to be a reckoning force worldwide. Sensex and Nifty (National Stock Exchange 50) together form the bulk of the Indian Stock Market and together they bear the hopes of millions of investors of India and worldwide. This article explores the various factors that would impact the Indian stock market in the next few years.
What does a stock exchange represent? What factors affect the stock market?
A stock exchange is an entity on which many major companies of a country are listed. Traders and brokers can buy or sell stocks and other securities of these companies. How a stock exchange is performing represents the performance of the companies listed on the stock exchange cumulatively, thus giving the investor or the trader an idea of the financial growth of the region. The index represents the portfolio of the most liquid and usually the most versatile companies of the market, which typically span across various sectors. A bullish market means that the stock market is riding on a current growth wave, while the bearish market symbolizes a crest or a trough in the ratings.
5 Major Reasons why the Indian financial market would be much more prominent in the next few years?
According to a report by BBC, while India might have lost its top spot as the world’s fastest-growing economy in May 2019, it is still one of the topmost developing nations in terms of fast growth, just behind China. A recent report by Bloomberg mentions that India is expected to breach the five trillion-dollar mark somewhere in the middle of the next ten years, and is going to be the third-largest economy of the world, right behind China and the United States of America. The report adds that by 2030, India’s GDP would reach around 8.4 trillion-dollar mark, thus making it one among the most powerful economies of the world and making the Indian stock exchange touch new highs in terms of absolute numbers. These estimates are based on the average growth of around 8 percent per annum.
The primary reasons for the steady growth of the economy and the stock market are as follows:
- Rising Education Levels and Skills of Workers – India is the home to a relatively young population. With the average age of twenty-nine years and more than 50 percent of the Indian population being below 25 years of age, a huge chunk of India’s population will soon enter the working strata in the next decade. This population has increased education and literacy levels as compared to the previous generations is more independent and is highly skilled. Literacy rates in the country have gone up from 47 percent in 2001 to over 74 now. The skills coupled off with entrepreneurial encouragement by various schemes of the government has the potential to make India’s economy even more significant than expected in a short time. Encouraging youth to develop new avenues, hire more people and lead the economy via small and medium scale industries in the modern era of growth and development.
Improvements in science and technology, increasing interest towards higher education and development of more vocational skill-based programs via skill India have also played their part in making the workforce more productive.
- Investment by Foreign Players – One of the most important fuels of this growth engine is the vast appetite of the Indian customer. India being one of the largest demanding markets, commands a significant influence on companies investing in India, starting up new ventures. A report by BBC says that by the end of the next decade, India will transition from a lower-middle-income group country to an upper-middle-income group country, improving its average income per capita from 2000 dollars per annum to over 5,700 dollars per annum. This improved income and status will create and stimulate more demand in the industry. The increased demand is said to bring in more investments by the big players in terms of joint partnerships and foreign investments in Indian subsidiaries, which will impact and strengthen the Indian stock exchange. While all of these reports look rosy, it should be kept in mind that they all have been developed by keeping an optimistic scenario in mind. The actual growth of the Indian economy is going slower than what was initially predicted for the short-term situation. Moody’s investor service, downgraded India’s economic outlook from stable to negative during the first week of November, for the upcoming period, and slashed India’s actual economic growth of 2019 to 5.6 percent from 7.4 per cent in 2018.
- Bleak future for major “developed” countries – A Pew Research Centre and CNBC report predicts that the national debt of the United States of America will steadily grow in the future, and the country will be in a higher amount of debt by 2050. The ratio of the country’s debt and GDP is continually growing since the early 2000s, and a similar trend is expected to continue in the future. The World Bank’s global economic prospects report from January 2019 suggested that the growth potential of advanced economies in 2020 is expected to be 1.6 percent as compared to 1.8 percent in 2018. The negative trend portrays a bleak future for the advanced economies, while the developing nations are projected to enjoy an excellent potential growth of 6 to 8 percent.
An article published by ‘The Independent’ revealed that the British GDP would be boosted only by a 0.2 to 0.7 percent in the long run. Counter-claims made by the researchers of The Independent states that the white paper deals could reduce the GDP by over 1.8 percent in the upcoming decade. The same article says that a WTO Brexit would reduce per capita income in the United Kingdom by around 3.5 percent to 8.7 percent in the coming years. The pictures do look grim for the flourishing nation of the previous century.
- Impact of Government decisions and RBI– The government and the central banking authority of the country play an essential role in deciding the economic future of the country. The stability of the government, friendliness of the laws, and the optimism about the prospective future; play a role along with the decisions taken by the government and banking authorities, to decide the fate of the stock market. Previously made decisions, such as the introduction of GST and demonetization, reduced the growth of the Indian economy in the latter half of this decade. GDP growth of five percent was the lowest in the last six years, while the nominal GDP growth was also at a 15-year low as quoted by Business Line in September.
The unemployment rates also touched a 45-year low in some sectors. No doubt, the last few years have been on a lower side for the Indian economy. Still, after the previous few turbid years, the economy appears to move on a path to recovery, businesses have come out of the initial shock of GST and demonetization. They are poised to gain benefits of the digital economy. Led by the constant rate cuts by RBI, lower credit costs, moderation in fresh slippages, credit growth picks up in the banking sector, and the return of the pricing power has shown a degree of positivity for the Indian Stock Exchange. The next decade is about going from strength to strength and cashing in on the benefits. The first term reforms being undertaken by the Modi Government which include bankruptcy laws, decisions on NPAs, merger, and clean-up of various banks, should lift the growth rate from 7.4 to around 8 percent claims a report by Bloomberg.
Government initiatives that helped open up the economy in various sectors, relaxing rules for start-ups and providing schemes such as Make in India and Digital India, are also bringing more investments into the country. Government investments in major sectors such as Health by launching more hospitals in tier 2 and tier 3 cities under the Aayushman Bharat Scheme and stirring up the infrastructure sector, by increased demand for houses, has stirred new order in the market which will well continue into the next decade. The digitalization initiatives have made people keep lesser and lesser cash in hand, and put it back into the system, thus again improving the money circulation in the economy and creates more fodder for the economic opportunities in the ecosystem.
- Historical Trends and Past performances– Stock markets depend a lot on speculation and historical trends. Sensex has grown over 390 times in the last 40 years, a Rs. 1 lakh investment in 1979, would have grown to Rs. 3.9 crore today according to an article released by economic times.
A CAGR (compounded annual growth rate) of 17 percent, has made the equity gauge the most potent asset. According to Mr. Ridham Desai, head-India and Director-equity research at Morgan Stanley, the economy has the potential to grow up to 3 times from the 2017 mark in the next decade. Since the markets are non-linear, we can expect 90-95 percent of these returns coming in the next five years. Within the Asian region, India’s equity market is expected to grow the fastest of the major markets at 10.1 percent compounded annual growth rate (CAGR), reaching $6.1 trillion by 2027, predicts Morgan Stanley.
The speculations and market trends portray a secure future of the Indian market, and these speculations would, in turn, become a driving force, to force the market upwards as people would tend to invest more in the market. While this phenomenon is not specific to this decade and won’t bear as much significance like the other factors, it is also one factor that needs to be taken into account while deciding out the future of the Indian Stock Markets.