India Stocks Post Biggest Gains Since 2017 on Recovery Hopes

(Bloomberg) -- Indian stocks gained for a sixth consecutive year to extend the biggest rally among major equity markets that started from the darkest days of the pandemic in early 2020 with investors setting aside a resurgence of the virus to focus on an economic recovery underway.

The benchmark S&P BSE Sensex rose 0.8% to 58,253.82 in Mumbai on Friday, to stretch its yearly advance to 22%, the biggest since 2017. The NSE Nifty 50 Index advanced 0.9%. The key equity gauges, which surged to their record in October, have gained about 2% each for the month but slipped 1.5% for the quarter, partly driven by selling from foreign funds.

That selling could see some caution creep into the New Year.

“2022 is starting with an expectation of tightening liquidity, increasing interest rates and uncertainty around Covid still remaining,” said Santosh Kumar Singh, head of research at Motilal Oswal Asset Management Co. Ltd. Singh sees returns from local equities to somewhat moderate for the next year even though the economy is showing signs of strength and the corporate earning cycle is on an uptrend.

Since a March 2020 low, when stocks plunged worldwide on signs that the coronavirus was spreading globally, India's Sensex has risen about 124%, the highest among countries with stock markets worth $1 trillion or more.

The gains have come on the back of efforts from global and local central banks who have pumped in billions of dollars into the economy and a sharp spike in first-time, individual investors in India, who have raised exposure to stocks as returns from traditional investments such as bank deposits dimmed.

However, the potential tightening of global monetary policy cycle and emerging worries over spread of omicron strain have weighed on local stocks, with foreign investors taking out about $4.7 billion in quarter through December 29, their first outflows from India since March 2020. For the year, they bought net of $3.8 billion of local stocks against inflows of $23.4 billion in 2020.

“Post a super show in 2021, valuation levels in Indian equities could make most people cautious on India within EMs and Asia,” said Dhiraj Relli, the CEO of Mumbai-based HDFC Securities Ltd., one of India's leading brokerages. Among factors that may impact local stocks include potential third wave of virus infections in India and elections in key states that include politically important Uttar Pradesh, Relli said.