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Trading turnover: Indian markets at highest ever against Hong Kong

Analysts say trend underscores the shift in investor sentiment

Hong kong Stock exchange

Photo: Bloomberg

Samie Modak Mumbai

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The Indian markets have extended their lead to the highest ever over Hong Kong when it comes to daily trading volumes.

While India first overtook Hong Kong in September, the gap in the average daily turnover (ADTV) for both markets has been widening ever since. And, it has touched a fresh high this week, shows Bloomberg data. In January, India also overtook Hong Kong as the fourth-biggest equity market globally. 

Experts say these two data points underscore a shift in investor sentiment with more and more preferring to invest in India and move away from China and Hong Kong.

Until 2020, both the trading turnover and market cap of the Hong Kong market have been multi-fold compared to India.

During the Covid lows in March 2020, Hong Kong’s market cap, at $4.6 trillion, was 3.44 times bigger than India’s. Similarly, at the start of 2021, the one-month average ADTV for Hong Kong was over 5x that of India.

Currently, India’s market cap (m-cap) is at $4.65 trillion, while Hong Kong’s, where nearly three-quarters of listed companies are from China, is about $4.56 trillion.

During the trailing one month, ADTV for the domestic markets (both NSE and BSE combined) was $16.5 billion (about Rs 1.4 trillion), higher than $13.1 billion for the Hong Kong exchange.

“We think in some ways this reflects the prevailing consensus narrative towards India and Hong Kong/China stocks. Speaking to investors, we sense there is almost a consensus structurally positive view on Indian stocks (although valuations are widely cited as a stumbling block). However, in contrast, we sense that investors’ appetite for HK/China stocks remains quite low,” said Chetan Seth, Equity Strategist, Nomura in a note.

Hong Kong Stock Exchange India NSE BSE

While India’s benchmark Nifty is up 22 per cent in the past one year, Hong Kong’s Hang Seng is down 25 per cent. In January, India witnessed record opening of new trading accounts as well as trading volumes.

The broking industry added 4.7 million new accounts, surpassing the previous record of 4.1 million in the preceding month.

Similarly, ADTV for both the cash and derivatives segments (NSE and BSE combined) hit a record of Rs 1.23 trillion and Rs 460 trillion, (on a notional basis), respectively.

“There is considerable momentum in the market on the back of the rally that happened pre-Budget and hopes of regime continuity. The volumes will continue to remain robust. More importantly, mid and smallcaps are rallying, which is reflected in the cash volumes. Unless there is some big correction, there is no reason for cash columns to taper,” said Ajay Menon, chief executive officer (CEO) for broking and distribution at Motilal Oswal Financial Services.

However, given the meteoric rise in the domestic markets, analysts say there could be some near-term hiccups.

“We do not rule out an ‘air pocket’ for Indian stocks. Nonetheless, we would capitalise on any pullback in India and use it as an opportunity. We remain structurally positive and in the ‘buy the dip’ camp,” said Seth of Nomura.

Currently, India is one of the most-expensive markets in the emerging market pack. The Nifty trades at a one-year forward price-to-earnings multiple of 20 times, while the Hang Seng is available at just 7.5 times.

The likely headwinds identified by Nomura are a cyclical slowdown in the economy from a high base, leading to some earnings downgrades. There are also rising concerns about tighter banking liquidity conditions and possible profit taking/trimming heading into the general elections as well as stretched investor positioning and valuations.

Among global factors, likely reallocation of flows back to other large Asia (ex-Japan) markets like South Korea and China is weighing on the domestic market’s performance.

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First Published: Feb 09 2024 | 10:04 AM IST

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