Strong economy, flows power India's Nifty to best fiscal year since 2021

India's blue-chip Nifty 50 index, surged nearly 29% this financial year, ending March 31, powered by a booming economy and strong fund inflows that helped mark the best year for domestic stocks since a post-COVID bounce in fiscal 2021.

Aided by the rally in domestic equities, the overall market capitalisation of all National Stock Exchange (NSE) -listed stocks jumped $1.5 trillion, or about 49%, over the last twelve months, to a near record high of $4.56 trillion.

India's growth has also outpaced its Asian peers, with the domestic economy speeding towards growth of 7.6% in fiscal 2024, the fastest among large economies. India's stock benchmarks were among the best performing indexes globally in fiscal 2024, only outperformed by the Nasdaq.

The Nifty also recorded its biggest rise in fiscal 2024 since 2021 when record high foreign inflows powered a 71% rise from COVID-19 led lows. Previously, the biggest gain for the index was in fiscal 2010 when stocks rebounded from a drop post the global financial crisis.

"The performance of Indian markets in fiscal 2024 is a reflection of two things: India's strong macroeconomic growth and global risk-on sentiment, aided by hopes that a Federal Reserve rate cut should begin in the next six months," said Pankaj Murarka, chief investment officer at Renaissance Investment Managers.

Hopes of policy continuity after the upcoming national elections, spanning April to June in India and later in the year in the U.S. along with favourable liquidity conditions have also supported domestic markets, Murarka added.

Domestic mutual fund investors have been net buyers in equity-oriented schemes for 36 months in a row. Over the last 11 months, investments through systematic investment plans (SIPs) scaled multiple record highs.

Foreign portfolio investors (FPI) also turned, buyers in Indian equities after being sellers in the last two financial years, buying shares worth 2.04 trillion rupees ($24.46 billion) in fiscal 2024, as of March 27.

This is the second-highest FPI inflow into Indian equities after foreign investors lapped up Indian shares following the COVID-19 induced slide in global stocks in fiscal 2021.

All 13 major sectors advanced in fiscal 2024, with realty, state-owned banks, auto, and energy, leading the gains, adding between 70% and 135%.

Despite their recent underperformance on valuation concerns in March, small, and mid-caps, outperformed the benchmarks, adding 70% and 60%, respectively, during the period.

Only three of the Nifty 50 stocks - UPL, HDFC Bank, and Hindustan Unilever- logged losses in fiscal 2024.