India’s stock market has overtaken Hong Kong’s for the first time. With the combined value of shares listed on Indian exchanges hitting $4.33 trillion as of January 22, against $4.29 trillion for Hong Kong, India is now the fourth-biggest equity market globally.

Its stock market capitalisation crossed $4 trillion for the first time on December 5, with about half of it coming in the past four years. “India has all the right ingredients in place to set the growth momentum further,” Ashish Gupta, chief investment officer at Axis Mutual Fund in Mumbai, told Bloomberg.

A growing retail investor base and strong corporate earnings has resulted in Indian equities booming. Thanks to its stable political setup and a consumption-driven economy the most populous country has been able to position itself as an alternative to China, attracting fresh capital from global investors and companies.

The rally in Indian stocks also coincided with Hong Kong’s slump due to an eroding China appeal. Some of China’s most influential and innovative firms are listed in Hong Kong. Beijing’s stringent anti-Covid-19 curbs, regulatory crackdowns on corporations, property-sector crisis and geopolitical tensions with the West have hit Chinese stocks hard.

The total market value of Chinese and Hong Kong stocks have tumbled by more than $6 trillion since their peaks in 2021. New listings have dried up in Hong Kong and the Asian financial hub has lost its status as one of the world’s busiest venues for initial public offerings. At the same time, overseas funds poured more than $21 billion into Indian shares in 2023, helping the country’s benchmark S&P BSE Sensex Index cap an eighth consecutive year of gains.

Some strategists, however, expect a turnaround. According to a report in November, UBS Group AG expects Chinese stocks to outperform Indian peers in 2024 as battered valuations in the former suggest significant upside potential once sentiment turns, while the latter is at “fairly extreme levels.” Bernstein, a wealth management group expects the Chinese market to recover, and recommends taking profits on Indian stocks, which it sees as expensive. But, momentum seems to be on India’s side for now.

Foreigners who until recently were enamoured by the China narrative are sending their funds over to its South Asian rival. Global pension and sovereign wealth managers are also seen favouring India, according to a recent study by London-based think-tank Official Monetary and Financial Institutions Forum.