INDIAN INDICES LAG MOST GLOBAL PEERS
Sensex has declined 5.8% in April, and 8.8% in a month
Monday’s fall in the stock market has relegated India to the bottom of the global equity indices performance table. Domestic benchmark BSE Sensex trails all major global indices in April and over a one-month period, as well, having declined 5.8 per cent and 8.8 per cent, respectively, in US dollar terms.
This is a sharp reversal in fortunes as till midfebruary India was among the best-performing markets, with returns in excess of 10 per cent.
The resurgence in Covid-19 cases and imposition of lockdowns has dealt a blow to the hopes of a strong revival in the economy and corporate earnings, prompting foreign investors to pare their bullish bets on the country.
Global investors are seen shifting their focus to developed markets (DMS), with the US and Europe outperforming emerging markets (Ems) by huge margin. The S&P 500 in the US has gained nearly 4 per cent this month, while the Euro Stoxx 50, a gauge for the performance of European equities, is up 3 per cent.
Analysts say the divergent performance is an indication that investors expect uneven global recovery from the pandemic. A far better grip on the pandemic and scaling up of the vaccination programme has raised the attractiveness of DMS.
“In the US, the vaccination roll-out has been very quick. Their economy will reopen a lot quicker and earnings too will pick up faster. [US President Joe] Biden’s infrastructure investment plan will boost the economy. The same factors favour the UK. In Asia, the vaccine roll-out has been a lot slower. That’s the reason we are witnessing a switch in foreign fund flows,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies.
The sliding rupee is making a dent in foreign investors’ appetite for domestic stocks and debt. The domestic currency has slid three per cent against the US dollar this month. The weakness in the rupee comes amid softening of domestic bond yields, following a pledge by the Reserve Bank of India (RBI) to buy ~1 trillion ($13.5 billion) worth of bonds this quarter to cap borrowing costs and support the economy.
“The challenges that lie ahead for central banks in emerging Asia — Indonesia, India and the Philippines — appear daunting,” said Sonal Varma, chief economist, India and Asia ex-japan, at Nomura. “Now, the spectre of US growth outperformance, the attendant rise in DM bond yields and the prospect of the US Fed tapering asset purchases sometime within the next year has triggered flashbacks of 2013 and 2018, when EM Asian central banks were forced to hike rates amid currency weakness, as investors demanded higher risk premia.”
Experts say vaccine differentials could give the DMS an edge over developing markets. What could hurt markets like India even more is that US dollar and bond yields will move northwards as the prospects for the world’s largest economy improve.
Foreign investors have turned net-sellers in April after a gap of five months. Experts are not ruling out further outflows if the Covid-19 situation in the country worsens.