India overtakes Hong Kong as world’s fourth-largest stock market by Market Cap

India’s has overtaken Hong Kong in terms of stock market capitalization for the first time as the country’s growth prospects and policy reforms seem to increase its attractiveness for investors and those looking for an alternative

The combined value of shares listed on Indian exchanges reached $4.33 trillion as of Monday, versus $4.29 trillion for Hong Kong, according to data compiled by Bloomberg. That makes India the fourth-biggest equity market globally. Its value crossed $4 trillion for the first time on December 5, with about half of that coming in the past four years.

Hong Kong’s Hang Seng Index has experienced its fourth consecutive yearly decline, while the Shanghai Stock Exchange has recorded its second straight year of losses. In contrast, Indian equity markets have sustained gains for eight consecutive years, displaying resilience and poised for further growth. The positive momentum is attributed to strong sentiments ahead of the upcoming elections, improving macroeconomic conditions, and expectations of interest rate cuts.

The recent triumph of the Narendra Modi-led National Democratic Alliance (NDA) in multiple state elections has bolstered investor confidence, signaling continuity as India approaches general elections in April 2024. Analysts foresee sustained policies and measures if Modi and the BJP-led NDA secure a third consecutive term, aiming to propel India’s economy towards the coveted Rs 5 trillion mark.

The decline in Hong Kong markets is attributed to a Chinese economic downturn and pressure on American investors to divest their exposure to Chinese companies. This stands in stark contrast to the robust performance of the U.S. market, where inflation eased, and the job market remained resilient. In 2023, the S&P 500 surged by 25%, underscoring the divergent paths of the world’s two largest economies.

Initially, global investors anticipated a rebound in China’s economy following strict pandemic measures. However, as borders fully reopened in 2024, households exhibited hesitancy in spending. This reluctance, combined with a sluggish economy and China’s ongoing property crisis, has contributed to a downturn impacting Hong Kong. Many Chinese real estate developers, having expanded extensively and heavily borrowed from foreign investors in Hong Kong, now face the looming threat of a collapse.

“A significant trend in global economic growth now is the underperformance of China and the outperformance of India. This is getting reflected in the stock market. Since the important Chinese stocks listed in Hong Kong have crashed, the Hang Seng Index is near a 19-year low. This trend is likely to continue, since the prospects for the Chinese economy and stock market appear bleak for now. However, if the Chinese economy stages a comeback the Chinese stocks will bounce back since their valuations are very low,” said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Commenting on the same, Suman Banerjee, CIO, Hedonova, a Paris Based hedge fund said, “in a transformative shift, India has ascended to the fourth position in the global stock market rankings, eclipsing Hong Kong. This momentous milestone underscores the resilience and dynamism of India’s economic landscape. As the nation forges ahead, investor confidence and opportunities converge, propelling the stock market to new heights. This achievement marks not only a numerical triumph but also signifies India’s emergence as a key player in the international financial arena. It is a testament to the nation’s economic fortitude and signals a promising trajectory for investors navigating the diverse and vibrant landscape of the Indian stock market.”