Indian stocks top Asian markets, strong economic growth fuels hope

In a year when Indian equities emerged as the best performers in Asia and the country took advantage of a structural shift in supply chains from a pandemic-hit China, forecasts of robust economic growth are set to keep stocks on a firm footing.

India's Nifty 50 index .NSEI struck a record high in December and is up 5% this year, joining an exclusive group of markets worldwide that rose in spite of interest rate hikes and slower growth. In contrast, MSCI's broadest index of Asia-Pacific shares outside Japan shed 19%.

Next year's optimism for India is driven by strong corporate earnings, a post-pandemic retail boom and an economy set to grow by 6% in the next fiscal year - which will make it the world's fastest-growing major economy in 2023.

Amit Khattar, head of Deutsche Bank's investment bank unit, said India has benefitted from predictability around large deals and confidence on the reforms agenda.

"Global investors, sovereign funds and other institutions are looking to raise exposure to India in their emerging markets portfolios. Very large private players are looking to buy different businesses," Khattar said.

The world-beating stocks performance has helped India to double its weight in MSCI's emerging markets index to 16% from 2019, but overseas investors have missed out in the local rally.

Foreign portfolio investors sold a net $18 billion this year of Indian assets but turned buyers in November and December.

While Asia M&A deals fell to 8-year lows, India stood out with total deal value jumping 33% on the year to $164 billion, mainly boosted by the $40 billion purchase by the country's largest private lender, HDFC BankHDBK.NS, of its parent.

India recorded its largest IPO with the $2.7 billion issue of Life Insurance Corp of India, making it the fifth-largest valued firm though its shares have shed about 20% since it went public in May.

The IPO came after the government offloaded its decades-old, debt-laden flag carrier Air India to Tata Sons for $2.4 billion in enterprise value.

"India is going to be one of the main focuses within Asia for us in developing exposure in 2023," said Adam Watson, co-head of Asia Pacific at Partners Capital, which works with endowments, foundations and others globally, and handles $45 billion in assets.

Though some analysts point to high domestic valuations, strategists polled by Reuters last month forecast India's stock market will rise another 9% by the end of 2023 despite widespread expectations of a gradual slowdown in the economy. GDP is projected to grow 6.8% to 7% in the current fiscal year.

Goldman Sachs said current market valuations have priced in expectations of superior earnings growth over the next couple of years, noting that foreign flows could remain weak next year.

Meanwhile, as Beijing and Washington remain mired in trade tensions and supply chains shift due to production disruptions from China's zero-Covid policy, which has only started to ease recently, India has been winning business.