India – Are we in a bullmarket?

Yes Sir its a bullmarket.

Is this an equity bubble?

Well not yet, but we are in the beginning of a bubble build up.

The Indian growth story is intact. We are in the very beginning of a period of 5-10 years of structural growth. Now lets take a look at some of the risks.

The Indian market has done well in the last five years. The market is up a 110% in the last 5 years and this year the performance continues with 24% returns for the benchmark consisting of 500 stocks. The market is at a new all time high.

After the election was finished in June and the new government budget was confirmed in July, confidence in the market was reinforced. The domestic flows into equities are a strong indication of whats going on here. Monthly retail driven flows into equities are 8 billion dollars this year compared to last year when it was 2,4 billion.

Is this sustainable and how about the bubble?

Well we are in the first phase of a bubble, and it can grow much more before its time for risk off.

A few early bubble signs are:

1. Domestic flows into equities, people are moving money from deposits to equity, draining the banking system of liquidity
2. Property market. Demand is very strong. So much money has been made in the equity market the last five years, so profits are being recycled into property.
3. When RERA was introduced a few years ago, the Governments intention was to boost end user demand for the middle class. Now developers, given strong demand moves towards luxury projects.
4. In NCR, (Delhi), we hear evidence of buyers buying a second property for investment purposes or also signing up for a new project at presales, only to flip it and book a profit when they get the keys. We have seen this before. Its a classic sign of a bubble building.
5. Goldlending. I met a couple of NBFC’s specialising in loans against gold as colleteral. Traditionally families would save in gold here. In case of an emergency they would borrow against it to be able to pay the hospital bills. Now I suspect some of the goldloans are financing punters in the equity market. The companies we meet denies this is the case. Loangrowth in this segment is 20-25%.
6. In March this year, RBI gave a warning to one of the local security houses here, that were accepting gold as collateral for equity investments. Clearly RBI is concerned about retailinvestors taking to much risk in the market.
7. I flew from Delhi to Bombay on Friday night. The Delhi airport, operated by GMR, was very busy. The Vistara, (owned by Tata&Sons), flight was booked to the last seat. When I arrived at the Taj Landsend, (owned by Indian Hotels), it was also sold out. I got the last room available. Welloff familys, that already have a nice property in town, come here for the weekend to celebrate birthdays with their friends. I met with both GMR and Indian Hotels last week. Both of them confirm the strong growth we experience in India for domestic tourism and travelling.
8. A thousand people at the JP Morgan India Conference can not be wrong. I have never in my 29 year long coverage of India seen such a large crowd of investors here for a conference. So last year global funds and the New York bankers came here, many for the first time. This year we have investors from China and Hong Kong attending, desperate to escape the underperforming Chinese market. Follow the money.
9. The IPO market is super hot. Last week Bajaj Finance listed its mortgage business, Bajaj Housing Finance. The issue was 36 times oversubscribed and the price went up by 135% on the first day of trading. Valuation now is 7,5 x bookvalue, which is more expensive than the parentcompany.

To be continued

/ Gunnar Påhlson, Bombay, 24-09-25