Indian equity markets cement haven status

Sensex set for seventh straight annual advance

“There remains much to like about the opportunity set in India, whether judged in absolute or relative terms.” Vikas Pershad

NEW DELHI: Having emerged as a safe haven amid this year’s global equity rout, Indian stocks look poised to extend their lead over world peers and finish 2022 on a high.

A return of foreign investors is bolstering the market, where the benchmark S&P BSE Sensex Index rose to an all-time high last Friday as risk assets rejoiced over a softer United States inflation print.

An unprecedented retail investing boom, strong domestic demand that’s enabled one of the world’s fastest growth rates, and political stability are also tailwinds that have helped India decouple from other emerging markets.

“Amidst the noise of markets around the world today, India is sending the right signals,” said Vikas Pershad, a fund manager for Asian equities at M&G Investments (Singapore) Pte.

“There remains much to like about the opportunity set in India, whether judged in absolute or relative terms. The probability that we see of continued outperformance is high.”

Up 6.1% this year, the Sensex is on course for a seventh straight annual advance. Its gain is the biggest among benchmarks in countries that have stock markets valued at at least US$1 trillion (RM4.66 trillion) and compares with a loss of 23% in the Morgan Stanley Capital International (MSCI) Emerging Markets Index. The MSCI All-country World Index is down 18% in 2022.

While local retail money helped cushion the Indian market earlier in the year, amid a record foreign exodus sparked by the US Federal Reserve’s aggressive rate hikes, stocks have gone from strength to strength since this year’s lows in June as overseas buyers slowly returned.

Robust earnings for the latest quarter have also boosted investors’ faith in the economic recovery.

India recently overtook the United Kingdom to become the world’s fifth-largest economy. Gross domestic product (GDP) is forecast to expand 7% in fiscal year 2023, according to a recent Bloomberg News survey.

India has also been a beneficiary of this year’s relentless plunge in China that’s spooked global funds. While they sold Chinese equities in October, Indian shares witnessed an inflow.

Overall, foreigners have bought a net Us$2.5bil (Rm11.6bil) of India stocks so far this quarter after scooping up Us$6bil (Rm28bil) in the previous three months.

“From an asset allocation perspective, we see Indian equities as a diversifier for China reopening risks,” said Ray Sharma-ong, investment director of multi-asset solutions at abrdn plc. “We see India equities staying fairly resilient in the current environment.”

Trends in flows, both foreign and local retail money, and investor response to further policy tightening by the Reserve Bank of India could be key to the outlook for stocks.

Meanwhile, China’s beaten-down market is staging a sharp rebound in November, as signs emerge that authorities are shifting away from the strict zero-covid policy.

The rally extended yesterday, with property names surging as the nation plans its most sweeping rescue package for the sector.

Given that Covid controls and the property crisis have been the biggest sore points for investors, the steps taken by authorities could spur a rush among funds to pile into Chinese assets, impacting demand for Indian ones.

“The strengthening of the oil price also poses a key risk,” said Sat Duhra, a Singaporebased fund manager at Janus Henderson Investors.

India imports nearly three quarters of its oil, making it one of the most vulnerable countries in Asia to higher prices.

“In the face of rising external risks, it is difficult to see India continuing this level of valuation premium.”

Still, many long-term market watchers say India’s performance will be aided by underlying fundamentals such as favourable demographics that are at the heart of its domestic-driven economy.

Government incentives are also attracting foreign companies, including iphone manufacturers, to set up plants in India, boosting local output and luring foreign investment.

“Given all the problems we see in markets globally, India is a safe haven,” said Tushar Pradhan, chief investment officer at HSBC Asset Management India.

India’s per capita income is set to rise to a higher trajectory, and “when you hit that sort of range, which happened to China 20 years ago, the next 10 to 20 years are a period of significant income growth.”

Morgan Stanley expects India’s GDP to more than double to over US$7.5 trillion (RM35 trillion) by 2031 and its equity market capitalisation to grow by over 11% annually to US$10 trillion (RM46.6 trillion), according to a report last month. — Bloomberg