Indian equities among worst performers in 2018

India is now among the worst-performing markets, with the rupee’s slide and the pullback by overseas investors crimping returns.

The 50-share Nifty is down 15.4 per cent in the year-to-date in dollar terms and lags most Asian peers, except China, Indonesia and the Philippines. Other emerging markets such as Brazil, Taiwan and Thailand are also in the red but have outperformed India.

Last month, Goldman Sachs lowered its investment view on India from overweight to marketweight citing elevated valuations. The brokerage said it expected Indian equities to consolidate heading into the elections. “Indian equities are the most expensive in Asia and trading at a record 58 per cent premia to the region. At these levels, equities have historically posted negative returns over next the three-six months,” said the report.

Market observers believe that some of the long-only funds have started unwinding their positions in bluechips following the sharp currency depreciation and increasing concerns over corporate governance practices among Indian companies. The rise in 10year US government bond yields to a fresh seven-year high has also spooked overseas investors, who have offloaded stocks worth ~205 billion in the year-to-date.

Overseas investors had started pulling out money from emerging markets (EM) from February amid the hardening of US bond yields. The sell-off appeared intensifying in August after a financial crisis in Turkey spread fears of contagion. Other EM currencies, too, fell as foreign investors indulged in riskoff trading.

In August, Morgan Stanley had stated that the broad macroenvironment and earnings outlook for Asia EM continues to deteriorate on multiple fronts and it seemed likely that MSCI EM will now give back all of the gains versus developed market (DM) equities that took place in the rally from January 2016 to January 2018.

The rupee closed at an all-time low of 73.8 against the dollar on Friday, down more than 13 per cent in the year-to-date, making it the worst performing currency in Asia.

Crude oil prices are up more than 50 per cent in the year-todate and are hovering above $85 a barrel, the most since November 2014, on fears that the impending sanctions on Iran’s petroleum industry would lead to constricted supplies.