The Stock Market: At an Inflection Point

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas”, recommends the author, while quoting Nobel Laureate Paul Samuelson. Not all may be hunky dory, there is more than a fair promise on the road ahead.

“Don’t follow the crowd, let the crowd follow you” – Margaret Thatcher

Considered in a proper historical and comparative perspective, the 30-share Sensex, which had breached the first 25,000-mark in May 2014 and the 50,000 mark on January 21, 2021, smashed the psychological 75,000 barrier, zooming to 75,124 (intra-day lifetime high levels) on April 9, 2024 on gains in FMCG, energy and metal shares. While markets dipped subsequently, closing 0.08% down following profit booking in index major Reliance Industries, the surge of almost 25% over the past year has been truly remarkable.

On April 9, 2024, the combined market capitalisation of the BSE listed firms surpassed ` 400 lakh crore with the BSE Midcap index soaring almost 67% and the Smallcap index rising 65% over the past year. The NSE companies with maximum gains were Infosys Ltd, Apollo Hospitals, LTIMindtree Ltd, Tech Mahindra Ltd, Adani Ports and Special Economic Zone.The market was also buoyed by strong US economic data, oil price dipping from a five-month high to $ 85/barrel, easing policy rates by central banks in developed countries, easing monetary policy in India with softening food prices and positive Asian market.

Interestingly, Sensex has not slipped below 70,000 mark since it breached it for the first time on December 14, 2023. Evidently, this is not a case of one swallow doesn’t make a summer and this is part of a pattern – a pattern that is at once both clear and inexorable.

Transformative Triggers and Drivers-Secular Bull Run?

Why do we make such an ostensibly outlandish claim? Let us examine the big picture, connect the dots and draw meaningful inferences. The Indian process of economic growth and structural transformation has been marked by over 7% growth in FY 24 juxtaposed against the global growth of 3% worsened by rising global indebtedness and cost of living crisis and robust earnings expectations in Q 4 of FY 24, particularly banks and auto manufacturers. The overarching macroeconomic setting is characterized by softening of headline inflation from 5.7% in December 2023 to 5.1% during January and February 2024 with core inflation declining steadily over the past three quarters (fuel component of the CPI being deflationary for two consecutive quarters but higher food inflation pressures in February) as against real GDP growth at 7.6% for FY 24 and real GDP growth for FY 25 is seen at 7%. India’s economic growth rose to 8.4% in the December quarter compared with a revised 8.1% growth in the previous quarter because of double-digit manufacturing growth raising prospects for the world’s fastest-growing major economy. Going forward, India will consolidate its position by important transformative triggers and drivers. The demand side is likely to be propelled by consumer boom, ascendant middle class and green transition. The supply side is driven by demographic dividend, greater access to finance and streamlining of physical and digital infrastructure. The IMF has revealed that “digitalization-driven productivity gains” in India have acted as a force-multiplier. There is uncertainty on the external front, exacerbated global tensions across geographies, including Israel, Iran, Palestine, Ukraine, Russia, etc., and volatility in crude oil prices.

But as Ms. Gita Gopinath, the IMF’s first Deputy Managing Director stressed “the disruptive effects of these swings on emerging market economies are much more muted than in earlier episodes… because emerging and developing countries have developed much stronger macro policy frameworks to be able to deal with shocks”. Viewed thereof, the Indian economy is well and truly on a sustained growth course of about 7%. The FY24 estimate was also revised upwards to 7.6% from 7%. And, since the capital market is a microcosm of the broader Indian economy, we expect the capital market to maintain its upward climb-up, up and beyond!

Going forward, the policy rate cuts may happen in a gradual and calibrated manner because of the downward trending inflation trajectory and the trade-off between growth and inflation. There is a distinct possibility of 75 basis points cut in the policy rate in FY 25.

Shifting Paradigms?

“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful” – Warren Buffett

It has often been debated whether this stratospheric level is a flash in the pan or is an integral part of a higher onward march of the capital market. Retail investors of India have been consistently investing in Mutual Funds through the SIP route in a huge way. On an average, the monthly investment is ` 20,000 crore. This works out to an annual investment of a whopping ` 2.50 lakh crore. There are 80 million unique investors investing money in the Indian stock markets through NSE. These 80 million investors are actually 50 million unique households, which is 17% (about 5% two decades ago; nearly 60% share in the US) of India’s all households cumulatively. This proportion has been rising steadily (incremental addition of over 12 crore demat accounts in a decade) in India because of the steadily burgeoning middle class, higher penetration level of mobile phones, the growing popularity of trading apps, soaring capital market and a pandemic-driven digital push. Growth of this order is succinctly captured in the number of individual demat accounts in India surging seven-fold from just over 2 crore individual demat accounts in April 2015 to nearly 15 crore in February 2024. This is the way to go because as Robert G. Allen pithily asked “how many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case”.

Granular Examination across Asset Classes- The Dance of Markets

While there are several reasons for this surge, it has to be realized that peaks and troughs, booms and busts are an integral part of the stock market saga – much like the waves of the sea, which rise and fall. Hence, while there could be an element of “irrational exuberance” and “froth”, there is no doubt that of the three asset classes – equity, debt and gold, equity is becoming an increasingly important asset class. Hence, it is necessary to give undivided attention on long-term growth through asset allocation, focusing on time horizon, asset allocation being a function of the individual’s return-volatility appetite, quality assets, and time in market over timing, i.e., staying invested rather than obsessively concerned with catching the top and bottom of the peak and the trough because “a rising tide lifts all boats”. Similarly retail participation in equities rose strikingly as the number of mutual fund folios grew from less than 3 crore in March 2014 to over 11 crore as of Dec 2023. Retail investors, including high networth individuals, account for 91% of the Indian fund industry’s nearly ` 22 lakh crore equity assets under management (AUM) surging at 30% CAGR over the past decade. Further, monthly SIPs surged from a modest ` 1,200 crore in 2014 to over ` 19,000 crore in 2024. The SIP-driven rise of individual investors has provided mutual fund companies with the potential and the heft to successful withstand foreign fund selloffs. This welcome process of financialisation of savings, progressively rising digitisation in a manner, which is unprecedented in India and unparalleled in other countries of the world and ease of doing investment with mobile platforms & UPI has provided tailwinds to the dynamic and vibrant Indian market. Hence this rapidly emerging investing culture, a game-changer is here to stay and transform the financial markets.

Persisting concerns

Despite 8.66% (Feb. 2024) consumer food price index, the probability of healthy output and declining food inflation make us sanguine on the rate cutting front. However, all is not hunky dory – not by a long shot. With a price-to-earnings ratio of 25.54 – above the average between 2014-15 and 2023-24, there are justifiable valuation concerns. But despite occasional dips, the stock market direction over the long haul is clear and positive.

As Robert Browning said, “the best is yet to be”. But in the words of Ben Graham “the individual investor should act consistently as an investor and not as a speculator”. Similarly, Nobel Laureate Paul Samuelson stressed the quality of patience, when he averred “investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas”.

Sane and sage words, these! The holy grail of investing.


Dr. Manoranjan Sharma is Chief Economist, Infomerics, India. With a brilliant academic record, he has over 250 publications and six books. His views have been cited in the Associated Press, New York; Dow Jones, New York; International Herald Tribune, New York; Wall Street Journal, New York.


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