The writer is president of Rockefeller International
While most global investors are consumed with rising stock prices in the world’s financial hegemon, the United States, an even more intense bull market is underway in India.
As the only two major stock markets that have recently rallied to all-time highs in dollar terms, the US and India are at a clear advantage in some ways. Their markets are driven by relatively strong economies and a large base of optimistic domestic investors. Beyond that general body type, however, these bulls look nothing alike.
The United States is a historical anomaly. It’s about a big industry, technology, and within that industry, the few giants that have had many different nicknames, most recently the Magnificent Seven. These companies are getting older and bigger and sucking the life out of other stocks.
Over the past year, the Magnificent Seven are up 80% and account for more than half of all U.S. stock market gains. Meanwhile, the average stock, out of 4,700 traded in the United States, is down. It’s a story of unusually concentrated returns, further inflamed by the craze for artificial intelligence, seen as a boon especially for larger companies.
To get an idea of how unusual this is, note that in the past, during US bull markets where large caps have outperformed, small caps have not suffered. In the early 1970s, and again in the late 1990s, small caps produced double-digit annual returns, driven higher by powerful bull markets.
Now, the little ones are on the ground. Retail investors typically take on significantly more risk than institutional investors and tend to hold very different portfolios. Just three years ago, at the height of the pandemic, the retail trading public was in open revolt, trying to prove the hedge fund overlords wrong by betting against their positions. Today. the Magnificent Seven dominate the top 10 holdings for both hedge funds and day traders on Robinhood.
The Indian bull market is, on the contrary, a broad-based classic. Gains are spread much more evenly across sectors, and no sector has accounted for even a quarter of total returns over the past year. While large-cap stocks are gaining traction in the country, mid- and small-cap stocks have gained even more; instead of losing ground since the start of 2023, the median stock has risen more than 40%.
There is a perception that India benefits from the flight of money from China. Indeed, foreign money is flowing in, but not as fast as domestic money. As a result, foreign investors now own less than 40% of the shares available for public trading, compared to 60% a decade ago.
Instead of the optimism generated by artificial intelligence, India is getting a boost from the spread of an equity culture, with rising incomes allowing more people to buy stocks. The amount of money Indians hold in targeted investment schemes has tripled this decade to nearly $110 billion.
Over the past two decades, the number of publicly traded companies in India has multiplied nearly fivefold to 2,800, even as it has fallen by a quarter to 4,700 in the United States, where oligopolies have begun to exert a stronger grip on most sectors. not just technological.
Amazingly, 180 companies in India have tripled in value this decade and now have a market capitalization of $1 billion or more. This is more than in any other country, including the United States.
In most bull markets the excesses accumulate over time; in India, they are visible in subsets of the growing retail investor class. In 2023, Indians bought more than 85 billion options, or nearly eight times the volume of the United States, and on average held those contracts for less than half an hour. Amid the frenzy, regulators have ordered trading platforms to open with warnings that 90% of retail investors are losing money on these trades.
With a total value of $4.6 trillion, the Indian stock market is, like all others, dwarfed by that of the United States at $62 trillion. Yet it is equally diverse, more competitive and has greater growth potential. Of course, investing in the Indian market comes with its own risks. It is currently even more expensive than its American counterpart, but it is also less volatile, suggesting a very strong belief on the part of investors that good times will continue to roll by.
For a country that has long disappointed both optimists and pessimists, the bar of expectations is now very high. However, at a time when the investment world seems to only have eyes for the concentrated AI boom in the United States, it’s surprising to see another major market marching to its own bullish, yet classic, tune.