Indian Stock Market Hits June High... Focus on Manufacturing and Budget in Second Half

Hana Securities on the 28th issued an analysis stating that in order to monitor the stock market trends in the second half of the year amid the recent record highs in the Indian stock market, attention should be paid to the manufacturing sector and the government’s finalized budget to be announced in July.

The market capitalization of the Indian stock market surpassed $5 trillion in mid-June, ranking it 5th globally by market cap. This milestone was reached just six months after hitting $4 trillion in December 2023. On the previous day (26th), the NIFTY50 index overcame the shock of the general election and set a new record high again. Foreign investors also shifted from a net sale of $3 billion in May to net buying in June, accumulating net purchases of $2.1 billion as of the 26th.

Researchers Geun-A Kim and Kyung-Hwan Kim stated, "We present three key points to watch to gauge whether the Indian stock market will continue to outperform in the second half of the year. First, from a supply and demand perspective, it is necessary to observe whether foreign investors maintain their net buying trend."

The second point is the manufacturing sector. The two researchers explained, "Sustained economic high growth requires continuous development of manufacturing. Although India’s manufacturing PMI remains in expansion territory above 50, it has been declining for two consecutive months. This is presumed to be due to reduced production caused by shortened working hours from the heatwave, despite steady increases in new export orders. We need to check whether the manufacturing PMI rises in the second half after the heatwave subsides."

The third point is the government’s finalized budget to be announced in the third week of July. The researchers noted, "This budget is important as it is the first indicator to confirm the policy direction to be pursued in the first year of Modi government’s third term. The Reserve Bank of India (RBI) expects 7.2% economic growth in FY2025, supported by increased rural consumption and easing inflation after a period of sluggishness. Therefore, the government is likely to propose policies related to stimulating consumption to maintain the momentum of high economic growth."

They added, "Rather than pursuing populist policies aimed at regaining public favor as initially feared by the market, it is expected that the government will present a middle ground that maintains the trajectory of fostering core industries while monitoring public sentiment. If the first budget of Modi’s third term focuses on economic growth, it will likely increase the potential for stock market gains."