According to Daiwa, domestic bids are an important support factor for the rise of indian stocks, with indian households accumulating about $9.7 trillion in wealth over the past 10 years and stocks accounting for a low proportion of household asset allocation. It is expected that the transfer of this wealth will bring about a consumption boom, thereby boosting the activity of the capital markets and increasing the local stock market's return on investment.
Against the backdrop of India's economic slowdown, weak corporate profits, and long-term weakness in the rupee exchange rate, foreign funds are fleeing wildly, with major stock indices hitting new lows. Will the 20-year bull run of the Indian stock market come to an end?
In a research report released by Morgan Stanley on the 11th, although the market is under pressure in the short term due to growth concerns, India is currently experiencing a significant 'wealth transfer,' which has profound implications for the macroeconomy and the market.
According to Morgan Stanley, with the approximately $9.7 trillion wealth transfer accumulated by Indian households over the past 10 years, it is expected to bring about a consumption boom, thereby increasing the activity in capital markets and leading to higher returns in the local stock market.
The main points of the research report are as follows:
- The current bull market in India is supported by three main pillars: a stable macroeconomy, rising corporate profits, and sustained domestic bid.
- In addition to strong growth prospects, stable macroeconomic growth, and digital development, India's ongoing focus on infrastructure projects also lays a solid foundation for India's financialization transition, currently fostering a virtuous cycle in the real economy through the promotion of household wealth transfer.
- Over the past 10 years, Indian households have accumulated approximately $9.7 trillion in wealth, with stocks, gold, and real estate investments being the main driving forces for wealth appreciation.
- Considering the relatively low proportion of stocks in the household balance sheet, the expected roi of the Indian stock market remains attractive, and other factors, the expected large-scale transfer of household wealth is expected to drive the inflow of India's domestic stock market and global capital.
Morgan Stanley: Indian stocks have good fundamentals, and there is a large asset allocation space for household savings.
The report shows that a series of stock market fundamental indicators indicate that the Indian stock market still has room for growth.
Data indicates that under the overall downward trend of inflation in India, inflation volatility is gradually decreasing; at the same time, the level of corporate financial leverage has significantly increased, and profitability remains at a medium-term cycle; compared to the overall level of emerging markets, the Beta of the Indian stock market is lower, meaning market volatility is smaller.
On the macroeconomic front, international investment (IIP) positions have grown steadily in recent years, with market expectations for industrial nominal growth to be moderate, and the narrowing gap between actual GDP growth and the yield on 10-year Indian government bonds also indicates that stock returns may stabilize.
Regarding household savings, report data shows that household savings reached $10 trillion in the past 10 years, while the proportion of individual investors in the Indian stock market increased by 800 basis points during the same period.
At the same time, with more allocation of stocks or gold assets in household savings, the appreciation speed of household wealth has consistently outpaced the savings growth rate.
Chart data shows that around 2020, the proportion of household wealth relative to savings has shown significant growth over the entire period, and in recent years, Indian households have shifted more of their investments from stocks to gold, indicating that there is still room to increase shareholding in stocks in terms of household savings allocation.