The Indian stock market appears to be experiencing a boom similar to the "Roaring Nineties" in the USA during the 1990s.

In the past five years, the India Nifty 500 Index has surged by 126%, far exceeding$S&P 500 Index (.SPX.US)$the approximately 83% rise.

The ongoing market surge has also sparked enthusiasm among local investors. More and more retail investors are turning to India's approximately 5 trillion dollar stock market to achieve their wealth aspirations, with a prevalent "equity culture."

Looking back at the boom of the US stock market in the late 1990s, stock prices reached historical highs, helping an entire generation of investors to become wealthy. At that time, it was the "equity culture" that drove stock returns growth, and the proportion of household savings in this asset class doubled to about one-third.

With retail investors continuing to invest, some analysts believe that India may reach similar levels in the coming years.

Optimistic sentiment continues, with funds pouring into the Indian stock market.

According to data from Morgan Stanley, as of the end of 2023, the shareholding ratio of Indian retail investors in local stocks increased by 8 percentage points, reaching 23.4%. Data from JPMorgan shows that domestic institutional investors in India maintained net buying for 14 consecutive months as of October this year, with inflows reaching a record of 12.8 billion dollars in October, setting a historical monthly high.

Currently, the shareholding of domestic institutional investors in India is nearing historical highs and is close to exceeding the shareholding of global fund managers for the first time.

Bloomberg analysts believe that this shift is driven by changes in sentiment and will redefine India's $5 trillion stock market, making it a wealth creation engine for the world's most populous country.

Despite facing high valuations and outflows of overseas funds, many investors in India still believe that the current bull market may just be beginning.

Analysts believe that the enthusiasm of Indian retail investors for stocks may strengthen the local market's resistance to global shocks, with a large number of retail investors ready to buy on dips. In August of this year, concerns over the high valuations of AI stocks triggered a global sell-off, causing the MSCI Asia-Pacific Index to drop over 6% on August 5, but the decline of the Indian Nifty 50 Index was less than half of that.

The 'Roaring India'.

Currently, investors are turning to the Indian stock market. Reports indicate that the frenzy for buying stocks has led to an oversubscription of up to 400 times for new local companies listing in India, with first-day stock price increases averaging 25% for companies debuting this year, surpassing the 12% increase in the USA.

Christopher Wood, the Global Equity strategy chief at Jefferies LLC, stated, "I am not sure I have seen such a drastic structural change. The Indian market is now driven by domestic investors, and this trend may continue. This resembles a lot what happened in the USA during the 1990s."

Specifically, the boom in the US stock market during the 1990s was driven by many additional factors:

Tax reforms increased interest in 401K retirement plans;

Discount services from companies like Charles Schwab and E-Trade Financial helped lower brokerage costs.

Now, the Indian stock market is also experiencing its own "Renaissance period":

In 2018, the government relaxed restrictions on the national pension scheme, allowing for larger-scale Private Equity investments and reducing redemption taxes;

The emergence of discount brokers like Zerodha has also facilitated growth, with the top three such companies holding over half of the total independent accounts in the country;

Commission-free trading has attracted many investors to enter the market.

Currently, investors in India have already reaped returns. A report from Morgan Stanley indicates that over the past decade, Indian households have accumulated approximately 9.7 trillion USD in wealth, with investments such as Stocks being the main driver of wealth growth.

Analysts from Wall Street Banks say:

"We believe that domestic stock investment in India will continue to remain strong, and the allocation in the coming years may rise to double digits. Given the younger population and lower base, India's growth may surpass the prosperity of the USA."

Will there be a bubble after the boom?

However, as retail investors become increasingly convinced that Stocks are a "risk-free investment," regulators have begun to worry that this may lead to a market crash similar to the "bursting of the American Internet bubble." Therefore, a series of rules have been introduced to try to limit speculative bubbles and warn small investors about the dangers of market frenzy.

However, signs of risk have already begun to appear, with data showing that the market cap of all listed companies recently reached its highest level relative to GDP since the global financial crisis.

Siddhartha Bhaiya, Chief Investment Officer at Aequitas Investment Consultancy Pvt, warns:

"A bear market is inevitable."

The Indian stock market seems to have started a large-scale pullback recently.

In October of this year, foreign capital withdrew over 10 billion USD from the Indian stock market, marking the largest monthly Outflow since the outbreak of the COVID-19 pandemic. This wave of withdrawal has put pressure on the Indian stock market, with both Large Cap and CNI Mid-Small Cap.Index experiencing varying degrees of decline.

Editor/Rocky