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What has driven the phenomenal growth in the Stock Markets?

18 Feb 2024 , 06:33 PM

FY24 has been an amazing year for Nifty and Sensex

The financial year 2023-24 has seen a stunning rally in the Nifty and the Sensex. From the lows of March 31, 2023, the Nifty traversed 26.96% to its record high closing 22,041. That has happened amidst a lot of volatility. What about the Sensex in this same period? Between the low of March 31, 2023 and its recent peak on January 15, 2024, the Sensex traversed 24.30% to its peak level of 73,328. What has actually surprised and confounded analysts and investors alike is that this phenomenal journey of the Nifty and Sensex comes at a time when global markets were sceptical about equities as an asset class. 

The arguments are not entirely misplaced. The issue is not just about the Red Sea crisis or the Fed hawkishness or weak rural demand. There is a more fundamental question about yields. Today, the Nifty P/E ratio is at 22.8 and Sensex P/E is at around 24. If you consider the Nifty P/E as the benchmark, the earnings yield comes to 4.4%. Compare this to the 10-year G-Sec bond yield of 7.2% and the difference is quite stark. One can argue that equity is a high risk instrument, that also gives capital appreciation; but it still does not justify the 280 bps differential between the earnings yield and the bond yields. But like the old piece of Gujarati wisdom “Bhaav Bhagwan Chhe.” So, who is to argue with the stock prices?

Five factors that triggered the markets to new highs

As we look at the close of the markets for the week to February 16, 2024, the Nifty is already at its closing highs while the Sensex is less than 900 points from its closing highs, or about 1% short. What has triggered both the indices to scale back to peak levels.

  1. The interim budget announced by the government on February 01, 2024 has been one of the key triggers for the stock market indices. It may have been the trailer before the full budget in July, but it had two important messages. Firstly, the government is not giving up on fiscal prudence and secondly, the government continues to be aggressive on capital spending, albeit at a lower rate of growth. Even in the absence of any other specifics, these two factors have boosted the confidence of the markets.


  2. FPI flows were robust in the year 2023. For the full year, FPIs were net buyers (in equity and debt) to the tune of ₹2,37,061 Crore. This not only offsets the FPI net selling of ₹1,32,815 in the year 2022, but also covers the net selling in the last quarter of 2021. In short, the massive selling triggered by the Fed hawkishness and the flight to safety has been more than negated by the FPI inflows in 2023. In 2024, the FPIs have been tentative on equity, but have been decisive buyers in debt. The addition of Indian bonds to the JP Morgan bond indices will only add to these flows.


  3. Indian investors have long been under-exposed to equities. That is being rectified now. Not only have Indian demat accounts crossed 14 Crore as have the trading accounts. Mor importantly, there are more than 16.96 Crore folios as of January 2024 of which nearly 8 Crore are SIP folios, a signal of retail intensity. In addition, the domestic mutual funds and LIC combined have a total AUM of $1.30 Trillion. In short, there  is a very strong domestic support system, in the form of willing buyers,  for the stock markets. 


  4. The big macro story of India is not lost on the stock markets. As per the RBI estimates in the Feb-24 monetary policy, FY25 will be the third year in succession when the Indian GDP will grow at over 7% annualized. For the last 2 years, India has already been the fastest growing large economy in the world and that could repeat in 2025 also. That makes Indian stocks an automatic magnet for investor. As India transitions from $3.60 Trillion GDP to $5.0 Trillion GDP over the next 4 years, it is likely to unleash massive capital spending and consumption, which could have a multiplier effect on the economy.


  5. Last, but not the least, there is the MVS troika at play. This is the troika of factors that captures the hard and soft aspects of the stock markets. M refers to money flows and that is currently robust in terms of domestic and global fund flows. V stands for valuations. At 22-23 times current earnings and at around 20X forward earnings, the Nifty and Sensex valuations are nowhere close to worry zone, and well below previous market peaks. Lastly, S is for Scepticism. As long as there is scepticism and their doubting Thomases in the market, it is good. The problem arises when everyone expects the market to only go up. For now, that does not even appear to be on the horizon.

These five factors, possibly, explain why the markets are close to their lifetime highs, despite the headwinds at a global level. The MVS troika is actually the most crucial. Let us now turn to the sectors that triggered this rally to the top.


With the Nifty and the Sensex at near their lifetime highs, the question is what has triggered this journey to the top in terms of the sectoral mix. The focus would only be on the sectors with a significant weight in the index. Here is the tabular summary.



Oil & Gas









Data Source: NSE

Auto index rallies 66.8% in FY24

In the 10 months of FY24, the auto index has rallied by an impressive 66.8%. The rally has been robust across four-wheeler companies like Tata Motors and two wheelers players like Bajaj Auto and Hero Motocorp. While rural demand remains a major area of concern, the urban demand is more than making up for it. For now, the demand is well in excess of supply and that is keeping the stocks in demand. The shift to EV is happening faster than expected and that is a big trigger for auto stocks.

Oil & Fas index rallies 65.8% in FY24

That was the big surprise of the current fiscal. In fact, oil & gas stocks were static till September and almost the entire gains came from October 2023 onwards. Reliance was a major driver, but other oil stocks like ONGC, IOC, BPCL, GAIL and other oil & gas stocks also rallied. Most of the oil marketing companies gained substantially because the market price of petrol and diesel were not reduced in tandem with the fall in crude prices. This allowed the OMCs to report bumper profits. Stable oil prices resulted in robust barrel realizations for upstream companies and strong GRMs for refiners.

Infrastructure sector rallies 58.7% in FY24

This was a rather mixed sector but basically was a proxy for the surge in government spending. There are aspects of products, aspects of construction, aspects of EPC and aspects of capital goods. Overall, as the government grew its capex spending by 30% each year, for the last 2 years, this was the segment that a smart turnaround. Overall, the weightage in the index may not be much, but being pegged to the government infrastructure spending and considering its strong downstream multiplier effects, the sector did play a key role as a swing factor in boost the Nifty and the Sensex in FY24.

Metal index rallies 45.1% in FY24

There were several things going for metal. These companies were gaining big time from the massive infrastructure investments made by the government. In addition, China was trying to grow its way out of financial problems and that has also helped keep the prices of metals robust. The metal companies also saw robust profits on the back of falling input costs as the costs of coal, oil, and coking coal were much lower than the previous year. The rally was across the large and the mid-cap metal stocks.

IT Sector rallies 34.1% in FY24

That may look a surprising inclusion in the list, but IT has been a star performer. This is despite challenges like falling technology spending, weak constant currency growth and pressure on margins. To the credit of large IT companies like TCS, Infosys and HCL Tech; they focused on deepening existing relationships, focused on non-US markets, and put greater accent on the digital and emerging businesses like AI, ML, IOT etc. This subtle shift, combined with much sharper cost management and lower employee costs has led to the margins bouncing in recent quarters. Considering its weightage in the index, it played a magnifying role in boost the index.

What about banking and FMCG in the year FY24 so far? The Bank Nifty grew at 14.2% while the FMCG index grew at 16.6%. Both had their challenges. FMCG had issues on the valuation front and on rural demand. For banks, the best of high NIIs and high NIMs had already played out and now it was time for mean reversion. The returns on banking and FMCG was lower than the Nifty returns and they remained the lag factors. However, other sectors more than made up for the gap.


The story of FY24 would be incomplete if we only looked at sectors and not at the themes. There are several themes that gave stellar returns in the year FY24. But, they were also important since they created new investment opportunities in the stock market. Here is a look at 5 such fabulous themes of FY24.












Data Source: NSE

Defence Theme rallies 101.9% in FY24

For a long time, defence was the sector that had the potential but never delivered. Year 2024 was very different. The defence index more than doubled and was a key theme driving market sentiments. As the government favoured farming out orders to the domestic players, defence orders poured in for frigates, boats, tanks, army jeeps and so on. Defence companies found their order books overflowing and India was saving much needed foreign exchange. The result was a frenetic rally in defence stocks, with even drone companies turning out to be multi-baggers for the fiscal year.

CPSE Theme rallies 100.7% in FY24

If defence was the one theme that doubled, the other theme to double in FY24 was the central public sector undertakings (CPSEs). It was not just about the more liberal dividends being paid out by these CPSEs. These companies saw big orders flowing from the government, a more favourable policy, and a belief that Indian PSUs could actually deliver the goods. The tacit decision was that making Indian CPSEs profitable and productive was a better option than divesting them for a song. The CPSEs were happy and the stock markets simply loved this change of tack.

Mobility Theme gains 73.5% in FY24

Mobility is a strange concept that has taken off in a big way in recent months. Mobility is about every thing that influences your mobility. It includes the traditional automobile companies and the modern day EVs. But, it also includes ports and airports that facilitate mobility as well as companies like Zomato and Swiggy which also have an influence on mobility in a different way. Again, this was seen as a disruptive theme and people lapped up these stocks in a big way.

Transport & Logistics Theme rallies 70.4% in FY24

This was the brand new approach to the traditional trade. The important of logistics in India has been highlighted time and again. It was first evident during the COVID crisis and last year we saw the delays in getting Kharif output to the Mandis. The government is investing heavily to bring Indian logistics to Asian levels so that its Make in India program can really attract investors. As logistics became the fulcrum of complex manufacturing, the theme took off in a big way in terms of stock market returns.

Momentum Theme rallies 67.2% in FY24

Unlike the other four themes, this is not exactly a business theme but a market theme. Momentum is the opposite of value and is the core of investing in fast growing markets. The India growth story in FY24 was all about how the stock markets would adapt to the macro growth. Obviously, it was all about momentum. Markets really did not care about P/E ratios and P/BV ratios. The only question was whether growth momentum was favourable.

The Nifty and Sensex are around their lifetime highs and it would obviously need a strong narrative from current levels. It looks like many of these sectors and themes may have just scratched the tip of the iceberg. The real story may be yet to unfold.

Related Tags

  • Banking
  • FMCG
  • IT
  • Midcap
  • nifty
  • oil
  • sensex
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