The Indian stock market roared in FY24, defying expectations and delivering its best performance in over a decade (excluding the exceptional pandemic rebound of FY21). The benchmark Nifty 50 surged a remarkable 28.61%, while the small and mid-cap segments witnessed an even bigger explosion. The NSE Smallcap 250 index delivered a stellar return of 63.07%, showcasing the vibrancy of the smaller companies, and the NSE Midcap 150 wasn’t far behind with a robust 56.50% gain. The Microcap 250 counter was the leader with a phenomenal return of 85.13%. 

This bullish performance comes as a surprise to many, considering the ongoing challenges in the global landscape. Sticky inflation and unresolved geopolitical tensions have cast a shadow of uncertainty over the world economy. However, the Indian market has proven its resilience, fueled by a confluence of positive factors.

What are the Factors Behind this Growth Story?

Let us now understand what is driving this exceptional market surge. The key takeaway from this phenomenal performance lies in the unwavering confidence of investors. Three key investor groups have emerged as the driving force behind the Indian market rally:

Retail Investors: Indian retail investors have displayed a remarkable appetite for equities. This segment has witnessed a significant surge in participation over the past few years, fueled by increased financial literacy and the ease of access to markets. This enthusiastic participation by retail investors has provided a strong base of demand for Indian stocks.

Domestic Institutional Investors (DIIs): Domestic institutions, such as mutual funds and insurance companies, have also played a crucial role in the market rally. DIIs led the charge by pumping a net of ₹2.08 trillion into the Indian market in FY24. Their confidence in the long-term potential of the Indian economy has been a significant factor in driving stock prices higher. Infact in the last 30 days of FY24 DIIs have approximately invested above ₹60000 crores into the market. 

Foreign Portfolio Investors (FPIs): Despite global headwinds, Foreign Portfolio Investors (FPIs) continue to see India as an attractive investment destination. FPIs infused ₹2.06 trillion worth of stocks during FY24. This sustained foreign investment signifies the faith of international investors in the Indian growth story.

The combined action of these three investor groups has created a strong demand for Indian equities, propelling the stock market to new heights.

Decoding the Market Performance

While the headline numbers paint a picture of exceptional returns, a closer look reveals some interesting insights:

Sectoral Performance

The market rally wasn’t uniform across all sectors. Sectors like Realty, PSE and auto emerged as the frontrunners, benefitting from changes in policy by the government, economic recovery and domestic consumption.

Conversely, sectors like Media, FMCG (Fast-Moving Consumer Goods) and IT faced headwinds due to inflationary pressures and global market volatility.

Individual Stock Performance:

The performance of individual stocks within the Nifty 50 also varied. Interestingly, 48 out of the 50 stocks in the index delivered positive returns in FY24. The top 5 performers – Tata Motors, Bajaj Auto, Adani Ports, Coal India, and Hero MotoCorp – all witnessed exceptional returns exceeding 100%. This highlights the potential for significant gains within the broader market.

However, the story wasn’t entirely positive. Two prominent companies, HDFC Bank and Hindustan Unilever, faced challenges and registered negative returns. Apart from them UPL which has just recently been removed from the index, has been the biggest loser this financial year due to slow growth in business.

These cases highlight the importance of thorough research and portfolio diversification for investors.

Looking Ahead: Can the Rally Sustain?

The million-dollar question on everyone’s mind is: can this market rally sustain itself? While the future is always uncertain, there are positive factors that suggest a continuation of the bull run:

Economic Growth: 

India is expected to be one of the fastest-growing economies globally. This economic expansion translates to increased corporate earnings and ultimately higher stock prices.

Government Reforms: 

The Indian government has been actively implementing reforms aimed at boosting economic activity and attracting investments. These reforms are likely to have a positive impact on the stock market in the long run.

Strong Corporate Earnings:  

Healthy corporate earnings growth is a key driver of stock market performance. Indian companies have been reporting strong earnings recently, and this trend is expected to continue in the near future.

However, investors need to remain cautious and be aware of potential risks:

Loksabha Elections:

The Indian state will soon witness the largest festival of democracy in the world. This election will tell how the political stability equation of the nation will be in the coming future and how freely the government will be able to bring in future reforms. Markets may see short-term volatility till the results are clear. 

Global Volatility: 

Geopolitical tensions and global economic slowdown could impact investor sentiment and lead to market corrections.

Recession:  

It has been forecasted that many Western nations may face recession like situation in the coming days. This may also lead to an impact on Indian markets and their performance.

Conclusion

The Indian growth story is still unfolding, and the stock market offers a compelling opportunity to participate in this journey. By adopting a long-term perspective, conducting due diligence, and staying disciplined with your investment strategy, you can benefit from the tremendous potential of the Indian market and enhance your wealth.