Blog: The Indian Equity Market

The Indian stock market was established in 1875, but it was only in the early 1990s it became possible for foreigners to invest in India. Since then, India have grown into one of the most important emerging markets and will be even more important going forward.

The two main stock exchanges are Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). BSE have more than 5 500 listed companies, and NSE have more than 1 800 listed companies. The most significant firms of India are listed on both the exchanges, and about 500 firms constitute more than 90% of the market cap.  From the two stock exchanges comes the Indices Sensex and Nifty 50.  Sensex consist of the 30 companies with highest free float market capitalization., while the Nifty 50 includes the 50 companies also with highest free float market capitalization.

For further consideration of the Indian market, we use the NSE and the Nifty 50 as a focal point. NSE would be the preferable place to trade for an institutional investor. It has higher liquidity and are trading a larger number of shares.

Nifty 50 Index covers 13 industry sectors which includes:

• Financial services
• IT
• Oil and gas
• Consumer goods
• Automobiles
• Pharma
• Construction
• Metal
• Cement
• Telecom
• Power
• Services
• Fertilizers and Pesticides

Out of these 13, financial services are the most important with a market share of 36,7 % as of end of January 2022.  Further to be mentioned is IT 17,5 %, oil and gas 12,6 %, Consumer goods 10,4 % and automobile 5,4 %. The rest is about 3 % each or less.

The financial industry of India includes a few large companies. Except from State Bank of India, the private banks of ICICI Bank and HDFC Bank is by far the most interesting. These two players are the largest competitors in an Indian market which still have a long way to go, to be even close to fully utilized.

Compared to develop countries, India’s retail loans-to-GDP ratio stands at 13 %, where USA stands at 76 %. The mortgage loan-to-GDP ratio of India stands at 6 %, compared to 77 % in the US. For insurance, the sum assured as a percentage to GDP for India stands at only 19 %, against 251 % for USA

The IT-sector is also a very important part of the Indian economy and stock market. From being the “back office” of many large companies in the developed market, the Indian IT-sector have developed into the global leader when it comes to IT-consultancy and services. A Number of companies have grown considerably the last 10-20 years. In the front are giants like Tata Consultancy Services (TCS) and Infosys, plus HCL Technologies and Wipro and many others.  Financial investors should also consider the venture industry of India, that is growing fast due to young smart IT-engineers establishing their own companies after some years of experience, often in TCS or similar companies.

India has its large share of conglomerates. The largest and most important of all is probably Reliance Industries, the one half of his father’s business, Mukesh Ambani got as inheritance.  It started out as a petrochemical company, expanding into oil and gas, telecom, LPG and clothing plus other areas. Jio Platforms have lately grown into the larger player in the expanding Indian telecom-market, and the company seems to have a large focus on opportunities coming from renewable energy.

Other large conglomerates are Tata Group including Tata Consulting Services, Aditya Birla Group including Birla Cellulose, Mahindra Group including Kotak Mahindra Bank, Baja Group including Bajaj Finance, Adani Group including Adani Enterprises and Larsen & Toubro Group including L&T Construction. L&T Group was started by two Danish engineers who got stuck in India during WW2, and started a small workshop to undertake jobs and provide service facilities.

For a diversified investor, Nifty 50 is what would be similar to a typical portfolio of a risk averse investor in the Indian market. In the last 15 years, the NIFTY 50 index have delivered nearly 12% average annual return. (Aug.21)

To be mentioned is also the Nifty 100, which is similar to Nifty 50, but consist of the 100 largest companies in India.   Nifty 50 companies account for about 80 % of the total weight of Nifty 100.  In the last 15 years, the NIFTY 100 index delivered over a 12.3% average annual return (aug.21). For an investor looking for a somewhat broader portfolio, Nifty 100 would be an interesting alternative.