Against the backdrop of India's economic slowdown, weak corporate profits, and long-term weakness in the rupee exchange rate, etc., foreign capital has gone wild, and major stock indexes have hit new lows. Has this brought an end to the 20-year boom in the Indian stock market?

Morgan Stanley said in a research report released on the 11th that although the market is pressured by growth concerns in the short term, India is currently experiencing a significant “major shift in wealth”, which has had a profound impact on the macroeconomy and the market.

Damo believes that with the wealth transfer of about 9.7 trillion US dollars accumulated by Indian households over the past 10 years, it is expected to bring about a consumer boom, which in turn will drive up capital market activity and increase the return on the local stock market.

The main points of the research report are as follows:

• India's current bull market is supported by three pillars, namely a stable macroeconomy, an upward cycle of corporate profits, and continuous domestic purchases.
• In addition to strong growth prospects, stable macroeconomic growth, and digital development, India's continued efforts in infrastructure projects have also laid a good foundation for India's transformation to financialization, and are currently forming a virtuous cycle in the real economy by promoting household wealth transfers.
• Over the past 10 years, Indian households have accumulated about 9.7 trillion dollars of wealth, with investments in stocks, gold, and real estate being the main driving force for wealth appreciation.
• Considering factors such as the low share of stocks on household balance sheets and the fact that the expected return on the Indian stock market is still attractive, it is expected that the huge transfer of household wealth will drive the flow of Indian stock market and global capital inflows.

Damo: Indian stocks are generally good, and household savings have more room for asset allocation

The report shows that a series of fundamental stock market indicators show that there is still room for growth in the Indian stock market.

The data shows that under the overall downward trend of inflation in India, inflation volatility is also gradually declining; at the same time, the level of corporate financial leverage has increased significantly, and profitability is still in the middle of the cycle; compared with the overall level of emerging markets, the beta of the Indian stock market is lower, which means that the market is less volatile.

On the macroeconomic side, international investment (IIP) positions have been growing steadily in recent years. The market expects the nominal industrial growth rate to “grow moderately,” and that the difference between actual GDP growth and 10-year Indian Treasury yields has narrowed, which also indicates that stock returns may stabilize.

In terms of household savings, the report data shows that household savings reached 10 trillion US dollars in the past 10 years, and the retail shareholding ratio in the Indian stock market increased by 800 basis points during the same period.

At the same time, as household savings allocate more stocks or gold assets, the rate of appreciation of household wealth outperforms the growth rate of savings all year round.

Chart data shows that around 2020, the share of household wealth compared to savings increased significantly over the entire time period, and in recent years, Indian household investment has shifted more from stocks to gold, which means that household savings still have room to increase their holdings in terms of stock allocation.