Indian shares are hitting record highs on Monday, as the country's economic opening up sees business activity rise above pre-pandemic levels for the first time. A horrendous spike in infection has abated. Government policy looks likely to keep conditions business-friendly for the rest of the year.
The Nifty 50 is up 7.0% this month alone, and posting a 1.1% gain in afternoon Monday trade. The Sensex, similarly, is up 1.1% on Monday and 7.8% since August began. The Nifty's one-year gain of 44.8% (with the Sensex up 43.5%) is the best performance among major Asian markets.
While Indian shares as a whole have been rising at a rip-roaring pace, progress since July has been consolidated in the largest listings. The Nifty Smallcap 250 index is down in August, having lurched 9.2% lower through August 23. It has since regained 5.3% to pare its August loss to 4.4%.
The Nifty 50 looks at a weighted average of 50 of the largest Indian companies listed on the National Stock Exchange. The Sensex is a little like the Dow, representing the performance of 30 long-established companies trading on the Bombay Stock Exchange. The small-cap index looks to simulate performance across small businesses by sampling 250 small-cap stocks, about 6.4% of the National Stock Exchange market cap.
India has shown the same strong rally from a sharp COVID-19 dip in March 2020 that other markets have demonstrated. Since then, the Sensex has advanced 121.4%. The Nifty 50 has put on 109.5%.
India's central bank has propelled the market forward. In a country used to interest rates that often rise above 8%, the Reserve Bank of India has injected liquidity in the market, opting to keep its repo rate at 4% during its August meeting. It says it will maintain an accommodative strategy until recovery from the pandemic is assured. Economists are pricing in two 0.25% interest-rate increases next year, meaning market conditions should remain favorable over the course of the rest of this year.
Asian shares in general are buoyed today after U.S. Federal Reserve Chairman Jerome Powell was surprisingly dovish in his address at Jackson Hole. Powell suggested the Fed would begin tapering its asset-purchasing program by year end, but said the pace of withdrawal from stimulus would be gradual.
But the Indian equity run has been exceptional. The country recently crossed a significant milestone. India has now vaccinated more than half of its adult population that are eligible for a COVID-19 vaccine. Health officials say they have administered one dose to 473 million people, with 138 million covered by both shots.
However, the numbers diminish when applied to its full 1.4 billion population. So far, 35% of the population has had one dose, according to data from Our World in Data, while only 10% are fully vaccinated.
India reports GDP figures on Tuesday that are likely to show record growth in the June quarter. The country's opening up from lockdown is resulting in record year-on-year comparisons. GDP likely rose 20.0% in the three months through June, after contracting a record 24.4% the same time last year.
India saw a massive spike in infection over the course of the June quarter. At one point in May it was reporting more than 400,000 new cases of COVID-19 per day. That far surpassed its previous wave of infection in the second half of 2020. The pace has slowed to a daily average of 40,954 now.
Officially, India has now reported 32.7 million COVID-19 cases, recording 437,830 deaths. Only the United States has reported more cumulative cases, while only U.S. and Brazilian deaths are higher. However, experts say the tallies in India are sure to massively undercount both cases and fatalities, since testing was often lacking and hospitals became so overwhelmed that they turned away many cases.
It is likely that around 539 million Indians have been infected with COVID-19, according to analysis from The New York Times, while around 1.6 million Indians are likely to have died. That would represent the most-catastrophic losses anywhere in the world.
The government's initial response was to enter a sudden, total and harsh lockdown of the country on March 25, 2020. It at first left many of the country's 100 million migrant workers stranded and even walking their way hundreds of miles home.
India's opening up has been surprisingly swift despite the disastrous and deadly wave of disease this spring. The Nomura India Business Resumption Index crossed a milestone itself on August 17, hitting 101.2, the first time above the pre-pandemic level of 100 since the pandemic began. Mobility indicators from (Alphabet (GOOGL) ) Google also show the country is back on the move.
Stock rallies have had a history of petering out in August for Indian stocks. In 2018, the Nifty 50 rose 16.8% between March 23 and August 31, only to a low of 14.1% through October 26 of that year.
In 2016, the index rallied 25.3% between February 26 and September 2. It then gave back 8.3% through November 18.
Market watchers say gains through the rest of the year may be more restrained for the Nifty and Sensex indexes. Equally, there's nothing in terms of policy or economic developments that suggests the Indian freight train is about to derail. The biggest threat would be of a renewed outbreak of COVID-19 that prompts the government to re-impose movement and business restrictions. Learning from the lessons of March 2020, Indian officials have attempted to handle new infections through localized and targeted restrictions instead of blanket nationwide bans.