Demat account additions exceed 2 million

Demat account openings scaled its peak so far in 2023 with the addition of 2.1 million accounts in May. This was a significant milestone as it had been three months since over 2 million accounts were added last. Analysts attribute this surge in demat account openings to the renewed participation of retail investors in the Indian equity markets, encouraged by appealing returns witnessed over the past two months.

The number of demat accounts surpassed 118.16 million, reflecting a 1.8 percent increase from the previous month, and a substantial 25 percent growth over the same period last year. April experienced a dip in demat account openings, hitting the lowest level since December 2020, with only 1.60 million accounts opened due to volatile markets.

Historical data also shows a direct correlation between the trend of demat account openings and the performance of both the secondary and primary (IPO) markets.

Following a period of sluggishness influenced by global sentiments, the Indian markets experienced a revival in optimism. In April 2023, the market outperformed the global market by 4 percent, and this positive trend continued into May, with the market outperforming by 3 percent. Analysts point to the Reserve Bank of India’s stance on the interest rate scenario as a catalyst for this trajectory, providing further impetus to market growth.

India’s manufacturing PMI hits 31-month high

The Manufacturing Purchasing Managers’ Index, compiled by S&P Global, rose to over a 2-1/2 year high of 58.7 in May from April’s 57.2. Reuters had pegged a drop to 56.5. It remained above the 50-mark separating growth from contraction for a 23rd consecutive month.

India’s factory output in May expanded at the quickest pace in the last 31 months owing to strong demand and output, while improved optimism led firms to hire at the fastest rate in six months, a private survey showed on Thursday.

“While the upturn in domestic orders strengthens the foundations of the economy, rising external business foster international partnerships and boost India’s position in the global market,” said Pollyanna De Lima, economics associate director at S&P Global in a press release.

Data showed new orders expanded at the quickest pace since January 2021, while foreign demand grew at its fastest rate in six months. Higher orders saw the quantity of purchases of items accelerating at the highest pace in over 12 years.

Thanks to strong demand, firms were able to hire at the strongest rate since November 2022 and optimism around future business activity rose to its highest in five months.

“Demand-driven inflation is not inherently negative, but could erode purchasing power, create challenges for the economy and open the door for more interest rate hikes,” added De Lima.

Data released Wednesday showed that the Indian economy grew by 6.1 per cent, beating analyst estimates that helped push the annual growth rate to 7.2 per cent.

The growth was boosted by a 5.5 per cent expansion in agriculture and a 4.5 per cent growth in manufacturing.

FIIs turn positive towards Indian equities

The earnings season for the March 2023 quarter may not have been spectacular, but foreign institutional investors (FIIs) are making a definitive turn towards Indian equities. FIIs pumped in about Rs 22,000 crore so far this month in the cash segment. They were net buyers in March and April also, a reversal from 2022 when they have largely been sellers.

The 12-month rolling FII flows turned positive for the first time in 15 months. “Though FII flows can be quite volatile and unpredictable in the short term, 12-month rolling data have been a proven indicator of a sustainable reversal in trend.

Their renewed purchases are supporting benchmark indices—the Nifty 50 index is up 8 percent in the past two months. Reduction in valuation premium vis-à-vis emerging market indices, the relatively stable macroeconomic situation, easing inflation and the prospect of a pause in interest rate hikes by the central banks are driving FII flows into India. Listed funds witnessed inflows of US$635 mn in April, led by US$705 mn of ETF inflows, which was offset by US$69 mn of non-ETF outflows. India-dedicated funds saw inflows of US$613 mn, broken down into US$330 mn of ETF inflows and US$283 mn of non-ETF inflows. GEM funds witnessed inflows of US$148 mn in April, led by US$271 mn of ETF inflows, offset by US$123 mn of non-ETF outflows.

Emerging market flows. Listed emerging market fund flows were positive for China, India and Taiwan. China witnessed US$8 bn of inflows. South Korea saw outflows of US$540 mn. Total FPI and EPFR activity showed divergent trends for most countries.

Country allocations. Allocations to China and India constitute 45% of the average Asia ex-Japan fund portfolio. Asia ex-Japan funds’ allocations to India increased to 16.3% in April from 15.6% in March, whereas allocations to India by GEM funds increased to 14.4% in April from 13.7% in March. Allocations by Asia ex-Japan non-ETFs to India increased to 16.8% in April from 16.2% in March; allocations to India by GEM non-ETFs increased to 13.9% in April from 13.2% in March.

Now Sensex @ 100,000 is well within achievable limit.
With $3.31-trillion valuation, India reclaims fifth spot in global stock market.

Due to continued buying from foreign investors amid improving macroeconomic conditions in the country, the local equity markets in India is in a rally since March 28, The Sensex and the Nifty jumped nearly 10 percent, while BSE MidCap and SmallCap climbed nearly 15 percent. The BSE Bankex has climbed nearly 13 percent. Foreign investors have bought nearly $6.3 billion in local equities in the last two months.

Following such broad-based rally in local equities, India has reclaimed its position as the world’s fifth-largest market. India’s market capitalization stands at $3.31 trillion. It is now ranked fifth among the top-10 most-valued countries. Since the beginning of this year, it has experienced an increase of almost $330 billion market capitalization. This comes after briefly losing the spot to France in January. The positive performance of the Indian stock market contributed to this resurgence in ranking.

In comparison, the US holds the top spot with a market value of $44.54 trillion, followed by China with $10.26 trillion and Japan with $5.68 trillion. Hong Kong is ranked fourth with a market capitalisation of $5.14 trillion, while France holds the sixth slot with $3.24-trillion market value.

Many Foreign brokerage including Jefferies recently expressed confidence in India’s enduring structural narrative. Some of the experts believe that it is only a matter of time before the BSE benchmark Sensex crosses the remarkable 1,00,000 milestone.

Since Jefferies’ projection is based on an assumption of 15 percent earnings per share (EPS) growth over a five-year period and the maintenance of a five-year average one-year forward price-to-earnings (PE) multiple of 19.8 times. Chanakya also believes that the target of sensex @ 100,000 is well within achievable limit.

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