As Indian markets hit fresh record highs in 2024, with the Sensex blazing past 75,000 and the Nifty moving towards 22,800, they are turning up the heat on global markets, outpacing several emerging and even developed markets.

Over the past year alone, Nifty has soared 27 percent, eclipsing the modest 7 percent rise seen in the MSCI Emerging Markets index, which was dragged by Chinese heavyweights like Alibaba and Tencent.

Over longer periods though, Sensex and Nifty have delivered returns in line with global counterparts such as the US, China, Japan, and Korea. Over the past 10 years, Sensex and Nifty delivered dollar returns of 109 percent and 110 percent, respectively.

India's outperformance is attributed to what analysts call the Goldilocks moment, owing to favorable macroeconomic conditions, robust corporate earnings, stabilized interest rates, manageable inflation, and consistent policy momentum.

Factors such as digitization, expanding manufacturing capabilities, and a burgeoning housing sector, all buoyed by regulatory reforms and a growing middle class have also pushed the markets higher. Despite global economic uncertainties and inflation concerns, India's resilience shines through, capturing the attention of investors worldwide.

It’s not just the domestic growth pull that is leading global investors to flock to Indian markets. India's allure has been gaining momentum as global investors seek substitutes for sickly Chinese markets and as expectations grow that national elections this year will see Prime Minister Narendra Modi return for a rare third term, assuring investors of both political and policy continuity.

Besides, Indian investors are also hooked to the stock markets putting money into Systematic Investment Plans (SIPs) of mutual funds that give them the heft to support markets during dips.

India versus the big EMs

The meltdown in China's real estate industry caused a rout in equities pulling the Shanghai index down 13 percent in the last year.

The gap in weightage between the Indian and Chinese equities on the MSCI index has been narrowing with many global giants picking up shares on Dalal Street over those in Shanghai.

Earlier this year, India surpassed Taiwan in the MSCI Emerging Markets index, securing the second position after China and affirming its status as an attractive investment option in emerging markets.

India’s share in the MSCI Emerging Markets index saw a significant jump over the last eight years, rising to 17.2 percent, and is projected to rise further to 20 percent this year, according to Nuvama Institutional Equities.

The relentless rally in Indian stocks has coincided with a historic downturn in Hong Kong, home to some of China’s most influential and innovative firms.

The stringent Covid-related curbs, regulatory crackdowns on corporations, a property-sector crisis, and geopolitical tensions with the West combined to erode China’s appeal as the world’s growth engine, and triggering an equities rout with the Hang Seng index tanking 16 percent in the last one year.

Moreover, new listings have dried up in Hong Kong, leading to the Asian financial hub losing its position as one of the world’s busiest platforms for initial public offerings. On the flip side, India has seen a boom in IPOs, some of which were subscribed 60 times or even 100 times.

Japan's Nikkei 225 this year smashed the 40,000 mark for the first time, continuing its comeback after decades of stagnation. However, the index has fallen 1 percent in the last one year, underperforming India Nifty as the Asian peer dealt with a shrinking population and rigid labor force, weighing on growth.

Japan's economy officially entered recession earlier this year, giving up its spot as the world’s third-largest economy to Germany. The flows out of Japan also helped push Indian equities higher.

India versus the US

Despite higher bond yields, red hot inflation, and constant recession threat, Wall Street's flagship index S&P 500 managed to keep up with India's Nifty, rising 27 percent in the last year. Nifty outperformed Dow Jones by a margin. However, tech-heavy Nasdaq outpaced with returns of 34 percent during this period.

While the US indices have managed to keep up with the buoyant Indian indices, a stronger-than-expected CPI inflation reading, at both the headline and the core level or a delay in interest rate cuts by the Fed could end up triggering a correction, according to analysts.

India's outperformance to continue?

Several market experts assert that the ongoing bull run in India is unparalleled in terms of wealth generation, which is reflected in the high market capitalization of companies. The nation's mini-Goldilocks moment is being supported by healthy flows, and it now boasts a unique combination of size and growth, according to Motilal Oswal.

Veteran investor Mark Mobius believes that China's market slowdown will only help India with more foreign investments. And investors seem happy to overlook risks, such as the already lofty valuations and any political surprises.

International brokerage Haitong remains convinced of the strength in Indian markets in the long term and expects to see a strong pickup post-elections.

"We would recommend looking at any dips as buying opportunities, as valuations are currently at all-time highs," it said. Even as growth remains stock and sentiment overwhelmingly positive, experts advise caution in pockets where valuations may be totally out of whack with reality.