Indian stock market soars to record high despite global headwinds

The Indian stock market on Thursday touched a new high amid the looming risk of a global economic downturn, the ongoing Russia-Ukraine war and uncertainty around unusually large-scale unrest in China.

The benchmark BSE Sensex recorded a fresh high of 63,583 points and Nifty-fifty of NSE also rose to a record-breaking high of 18,874 points. According to Reuters poll, the market is expected to remain bullish throughout the next year and grow by 9% by the end of 2023.

The growth momentum in the domestic indices can be attributed partly to the softening inflation expectations and less hawkish stance on monetary policy by the Federal Reserve and Reserve Bank of India (RBI).

Experts believe that RBI will likely slow the rate hikes in the upcoming Monetary Policy Committee (MPC) meet, which will begin on December 5th. The analysts predict that the rate hike could be between 25-35 basis point, which is down from the previous hike of 50 basis point in September. The likely move to taper further rate hike by RBI is in line with the Fed's stance of smaller incremental hike.

In a recent speech at the Brookings institution, Federal Reserve chair Jerome Powell said, "Monetary policy affects the economy and inflation with uncertain lags, and the full effects of our rapid tightening so far are yet to be felt. Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down."

Other than the less aggressive future rate hikes, global cues like softening commodity prices (especially plunging crude prices) and the strong net inflow of Foreign Institutional investors (FIIs) in the Indian equity market is driving up the market optimism.

Apart from that, the strengthening of domestic demand, which can be observed through the acceleration in credit growth and increased risk appetite of investors in the equity market also contributes to the surge in the domestic indices.

"The prospects for Indian markets remain bright over medium term as structural growth drivers for Indian economy are intact and India's macroeconomic parameters remain resilient against challenges in the global economy," said Hemant Kanawala, Executive Vice President and Head of Equity at Kotak Mahindra Life Insurance.

However, the future trajectory of the market sentiment will likely be influenced by RBI's upcoming Monetary Policy Committee (MPC) meeting on December 5th, the US Federal Open Market Committee (FOMC) meeting on December 14th and the concerns over the economic consequences of widespread protests in China on global supply chain.