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as the fed cuts interest rates, india's sensex index rose 1.7% to 84,622.11 points, setting a new record high; india's nifty index rose 1.5% to 25,849.25 points, also setting a new record high. although the valuation is high due to the repeated record highs, the indian stock market continues to attract overseas investors and is expected to record six consecutive quarters of growth.

while the secondary market is booming, the primary market is also "rising". however, there are changes in the unchanged. as indian prime minister modi narrowly won the general election, although the indian stock market continued to rise, investors also adjusted their sector preferences, withdrawing from modi concept stocks and investing in consumer and software stocks. the recent interest rate cut by the federal reserve has also brought a wave of market to interest rate sensitive sectors.

indian stocks on track for sixth quarterly gain

entering its ninth consecutive year of gains this year, india's stock market price-to-earnings ratio has reached twice that of the msci emerging markets index.price-to-earnings ratioit has reached 21 times, far higher than the 10-year average of the index. however, with modi successfully forming a coalition government and starting his third term, investors have increased their confidence in policy stability and continuity, the fed's expectations and fulfillment of interest rate cuts, and the global market turmoil since august and the lack of good investment targets, overseas investors who had previously temporarily left the indian stock market due to high valuations are returning again.

media data show that foreign investors bought a net $8.5 billion of indian stocks this quarter, which may hit the highest purchase scale since mid-2023. boosted by such large-scale capital inflows, indian stock indexes are also expected to record gains for the sixth consecutive quarter. the msci india index rose 7% this quarter, while the broader emerging market stock index rose only about 2% during the same period. looking at september alone, overseas funds are also expected to flow into the indian stock market for the fourth consecutive month.

in addition, a number of u.s.-listed exchange-traded funds (etfs) that track indian stocks have also risen as indian stocks have hit new highs. for example, the wisdomtree india earnings fund, one of the oldest and largest etfs in the category, recently hit a new high, and also recorded a sharp increase of 8% in a single month this summer.

james cheo, chief investment officer for southeast asia and india at hsbc global private banking and wealth management in singapore, said: "although valuations are indeed high, indian stocks remain attractive relative to other markets with weaker growth prospects. we expect india's economic growth to continue to be supported by strong corporate performance and favorable economic conditions and supportive policies." according to previous forecasts by the international monetary fund (imf), india will become the world's third largest economy by 2028.

it is also worth mentioning that not only the secondary market, but also the primary market in india has been sought after by global funds, becoming the world's busiest market this quarter. according to recent media reports, strong demand from investors has driven the indian initial public offering (ipo) market to welcome 235 companies to go public this year, raising approximately us$8.6 billion, exceeding the total amount of financing in 2023. among them, there are also large financing projects of billions of dollars.

for example, bajaj housing finance, an indian housing loan financing institution, went public in the local indian market in mid-september, raising 65.6 billion rupees (about $780 million). based on the issue price, the company is valued at about $7 billion. before going public, bajaj housing finance received nearly 64 times the subscription in three days. last month, ola electric mobility ltd. raised more than $730 million from its listing, and baby products retailer brainbees solutions ltd. raised about $500 million from its listing. ntpc green energy, the renewable energy arm of the national thermal power corporation of india (ntpc), has also recently submitted an ipo application to the securities and exchange board of india, intending to raise $1.19 billion.

sector rotation starts

however, while the indian stock market has repeatedly hit new highs, investors' preferred sectors have changed recently.

the modi stock index compiled by clsa shows that within 100 days after the start of his third term in early june, the "modi concept stock" index rose only 2%. during the same period, consumer stocks and software stocks rose by 20% and 34% respectively. media compilation data also showed that overseas funds reversed their previous buying trend in august and net sold industry sectors supported by modi's policies, including utilities, cement, metals and finance. not only overseas investors, a report by motilal oswal financial services shows that in the three months since the announcement of the general election results on june 4, domestic mutual funds in india have also been reducing their investments in companies producing capital goods, which have previously been one of the main drivers of the indian stock market.

as for the reason, market participants said that it was mainly because in the previous indian general election, the ruling bharatiya janata party (bjp) led by modi failed to win more than half of the seats in the lok sabha (lower house of parliament) as expected, and only gained the right to form a government by relying on its allies. this dependence may exacerbate the inclination towards populism, which worries investors.

sonam srivastava, founder and fund manager of investment institution wright research and capital, said that the rotation of investment themes in the indian stock market was mainly driven by the indian general election and recent global market fluctuations. investors' preferred themes have clearly shifted from infrastructure to agriculture and consumption.

mahesh nandurkar, an analyst at jefferies financial group, also wrote in a recent report that modi may not be able to achieve capital expenditure targets during his new term, which will become a major obstacle to the continued rise of investment-intensive infrastructure industry stocks. it is expected that the lagging performance of modi concept stocks may continue until the end of this year.

in addition to the impact of the election, the federal reserve's first rate cut in four years last week also triggered the latest round of sector rotation. last week, interest rate sensitive sectors such as automobiles and finance were boosted by rate cuts. traditional industry sectors such as fast-moving consumer goods (fmcg) also performed well. the strength of stocks in this sector was mainly driven by expectations of good performance, thanks to strong consumer demand and lower input costs. but growth stocks, such as technology stocks, performed poorly. the nifty it index fell nearly 3% on wednesday last week, the biggest single-day drop since august 5, 2024. major indian technology stocks such as infosys, tcs and tech mahindra led the decline in the index.