Even without winning the brilliant victory of the 400 seats promised before the general election, the market's confidence in the Modi government of India remains unshaken.

One month after the general election, the Indian stock market continues to hit new highs, with the blue-chip index Nifty 50 rising more than 10% in a month. The degree of bullishness on Wall Street cannot keep up with the speed of the Indian stock market's rise. At the end of last month, Amish Shan, an analyst at Bank of America, predicted that the Nifty 50 index could break through the 24,000-point mark by the end of this year. However, soon after he made the prediction, the Nifty 50 continued to soar and reached 24,000 points just three days later.

On Wednesday, the Indian stock market continued to surge, with banks and financials leading the way. The BSE Sensex index once broke through the 0.08 million point mark, and the Nifty 50 index rose 0.67% to close at 24286.5 points.

Looking at the entire emerging market, the Indian stock market has almost no rivals. Over the past ten years, the MSCI India Index has been rising for 9 years. Even in 2020-2023, which was hit by the epidemic, the MSCI India Index still soared 46%, leading major emerging markets.

Given the massive inflow of funds that will come with the rebalancing of the MSCI Emerging Markets Index in the future, as well as Prime Minister Modi's massive infrastructure plans and consumer-oriented strategies, Wall Street remains bullish on India's $5 trillion market cap stock market and expects the MSCI India Index to rise as much as 20% this year. High valuations do not seem to be an obstacle to further gains; new highs are just ahead.

In terms of funding, with the MSCI Emerging Markets Index increasing the weight of Indian stocks, a large influx of foreign capital can bring incremental funds to the market, and the Indian stock market is expected to continue to grow vigorously.

From a funding perspective, with the MSCI Emerging Markets Index increasing the weight of Indian stocks, a large influx of foreign capital can bring incremental funds to the market, and the Indian stock market is expected to continue to grow vigorously.

Since November 2020, the weight of the Indian stock market in the MSCI Emerging Markets Index has almost doubled, reaching a new high of 19%. Nuvama Asset Management predicts that the weight of the Indian stock market in the MSCI Emerging Markets Index will continue to increase, and by the second half of 2024, it may exceed 20%.

More than $1.6 trillion in funds track the MSCI Emerging Markets Index, and the increase in the weight of the Indian stock market means that investors tracking the index must increase their exposure to the Indian stock market to maintain consistent allocation with the MSCI Emerging Markets Index. For the Indian stock market, this represents a stable influx of foreign investment.

Taking HDFC Bank, which led the surge in the Indian stock market on Wednesday, as an example, it is the fourth largest private bank in India. Nuvama stated in a report released this week that the weight of HDFC Bank in the MSCI Emerging Markets Index could increase significantly from 3.8% to 7.2%-7.5%, bringing potential inflows of $3.2 billion to $4 billion.

From the perspective of fundamentals, Indian company profits are expected to rise by double digits this year, driving the stock market higher with the help of strong economic growth and policy continuity under the Modi government.

This month, the Modi government will submit a federal budget. Many market participants expect that the Modi government's top priority will be to take a variety of stimulus measures to support consumption. The blockbuster policies in the budget include lowering personal tax rates for specific categories to boost consumer confidence, increasing middle-class savings, and continuing to promote capital spending in infrastructure.

In the 2023-24 fiscal year, India's GDP growth rate is as high as 8.2%, far exceeding the global average, but the consumption growth rate is less than half of the economic growth rate.

Modi previously stated when forming his new government that he would work to increase middle-class savings and improve their quality of life. To achieve this goal, the Indian government may revise the 2020 tax plan to give the middle class greater individual tax deductions. According to India's current tax plan, the personal income tax rate for groups with an annual income of no more than 1.5 million rupees (approximately RMB 130,000) ranges from 5% to 20%, while the tax rate for groups with an income exceeding 1.5 million rupees is as high as 30%.

In addition, the early arrival of the Indian monsoon has also boosted the prospects of rice, corn, soybean and other crop-related companies. According to Wall Street analysts' views summarized by the media, the MSCI India Index constituent stocks are expected to see a year-on-year increase of 15.6% in earnings per share for the full year of 2024. Among all industries, non-essential consumer goods have the most promising future, followed by finance and commodity industries.

Promoting capital expenditure will also be the Modi government's top priority.

Investment bank Jefferies said in a report released at the end of last month that the generous dividends issued by the Reserve Bank of India to the government, as well as the increasing tax revenue, can support the Indian government's effort to please everyone with higher capital expenditure, social spending and tighter fiscal policy. In the 2024-25 fiscal year, the federal budget of India plans to keep the fiscal deficit under control at 5.1% of GDP.

Bino Pathiparampil, research director at the asset management institution Elara Capital, told the media: "Supported by the rising profit margin, Indian companies' profits have been strong in the past year, and the growth in the 2025 fiscal year may be higher than the historical average, thus continuing India's growth story."

However, it should be noted that although India has certain advantages in terms of population structure, policies, etc., challenges such as weak infrastructure construction and perennial commodity trade deficits cannot be solved in a short period of time. Potential headwinds may cause India's stock market valuation to decline in the short term.