Modi’s reforms set Indian stocks on fire
Indian stocks pass a new milestone, but global fund managers are holding back. Are there signs of overheating?

Indian stocks “are on fire”, says Jacky Wong in The Wall Street Journal. The BSE Sensex stock index has rocketed 28% higher over the past 12 months and has more than tripled since an April 2020 pandemic low. The boom rests on strong fundamentals.
GDP expanded 6.7% year-on-year in the second quarter, with net company earnings up 9% or so over the same period. Billions of dollars of inward investment are pouring into local manufacturing as multinationals look to diversify supply chains beyond China. Still, with the local market trading on a forward price/earnings ratio of more than 24 – pricier even than US stocks – investors are being asked to pay dearly for a piece of the action.
Indian shares recently passed a new milestone, says the Financial Times. Its share of the MSCI All-Country World Index (ACWI) has surpassed that of China on a free-float basis. The ACWI is still dominated by US stocks (accounting for two-thirds of the index), but India has the sixth-biggest weighting and is now a fixture of the global investment landscape.
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Could the Indian market be overheating?
Yet global fund managers are holding back. Concerned about valuations, foreign institutional investors turned net sellers of Indian shares last month. For 2024 as a whole, they have so far added a net $2.6 billion of India exposure, modest compared with last year’s $22 billion figure.
The boom is instead being driven by local retail investors yet, as one unnamed bank executive in Mumbai puts it, many of these small investors “have no understanding of the risks... There’s a whole generation of people who have not seen a market correction”.
Propelled by a four-year bull run, stock mania that started in Mumbai and New Delhi is now reaching deep into the country’s “hinterlands”, say Chiranjivi Chakraborty and Preeti Singh on Bloomberg.
Net wealth has risen an average of 8.7% a year in India since 2000, leaving many ordinary people with extra cash to invest. But the speculative boom is making regulators “nervous”. Small investors have been piling into high-risk equity options in pursuit of a big payday. Small-cap stocks have been particularly frothy – a wave of “tiny firms with fragile balance sheets” are cashing in on the frenzy by launching overpriced initial public offerings.
There are still “compelling structural factors” driving the Indian growth story, say JPMorgan’s analysts. Manufacturing is “gaining traction”, infrastructure is improving rapidly and a young population promises several decades of economic dynamism to come. On forecast growth trends, India should surpass Japan and Germany to become the world’s third economic power by 2027. That said, with valuations rich and recent earnings coming in a little softer than expected, stocks could be due to “take a pause – at least for now”.
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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.
Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.
He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.
Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.
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