Indian markets may not catch cold even if Trump rally fizzles out
Sensex, Nifty fall 1% each; analysts say India growth story intact, decline an opportunity to invest
MUMBAI: Indian stocks fell for a third straight day following a sell-off in global markets, as investors fretted about US President Donald Trump’s ability to follow through with his policies.
With global fund managers still holding the belief that emerging markets are undervalued, the liquidity that has fuelled the rally so far will continue, analysts said.
On Tuesday, US stocks had their worst day in six months as investors feared that Trump’s failure to repeal Obamacare may mean his pro-growth tax reform policies will hit a roadblock. That led to a sell-off when Asian markets opened on Wednesday; the Sensex and Nifty shed about 1% at the close of trading. The Sensex closed at 29,167.68 points and Nifty at 9,030.45 points.
Since the beginning of the year, the MSCI Emerging Markets index has gained 12.85%. The Sensex and Nifty have gained 14.5% and 13.7% respectively.
“Consolidation for Indian markets is healthy before it prepares for another upmove. There is no downside seen in the market as India growth story remains intact. Any fall in the market now provides an opportunity to enter,” said Rajat Rajgarhia, managing director and chief executive officer, Motilal Oswal Financial Services Ltd.
Apart from the India growth story, what could help the liquidity inflow are softer US bond yields and a dollar which has not strengthened as much as expected. Since the US Federal Reserve hiked rates on March 15, the dollar index, a gauge of the US greenback’s strength against a basket of currencies, has fallen 0.88%, while the 10-year US bond yield has fallen 8 basis points.
Emerging markets will likely to benefit from fund inflows. A Bank of America-Merrill Lynch survey of global fund managers found that a net 44% of investors think emerging markets are still undervalued while US equities are the most overvalued.
Foreign money continues to drive Indian equities. So far in March, foreign institutional investors have bought $3 billion worth of stocks — more than what they purchased in the preceding 10 months.
Notwithstanding the longterm bullish stance, analysts warned of risks from rising valuations, uncertainties around corporate earnings and the impact of the goods and services tax (GST).
“Almost all positive triggers are factored in the market and investors seem to be overlooking the disruptions that the GST rollout may cause,” said Ambareesh Baliga, an independent market analyst.