Why India is better placed than most emerging markets

While the MSCI Emerging Markets Index fell by around 21.8% in the 12 months to August 31, the MSCI India Index fell by just 3.17%. Similarly, while the emerging markets index lost 6.49% in the three months to the end of August, the MSCI India gained 6.14%.

Some experts suggested that India’s strong economic growth despite economic woes in the US and European nations shows that India’s recovery from the pandemic has set itself apart from most emerging and developed countries, underscoring India’s growing economic independence.

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“India is in a sweet spot compared to its emerging market peers like China, Russia and Taiwan: one is weighed down by growth concerns, the other by crippling sanctions and the last on the brink of a showdown with its powerful neighbour,” said. Nilesh Shah, Managing Director and CEO of Kotak Mahindra Asset Management Co. “Amidst these trouble spots, India stands out as an ideal investment destination, offering high prospects for economic growth and corporate earnings, strong corporate governance standards and a focus on green initiatives. This will ensure that our market continues to trade at a historically high premium to emerging markets and attract more investment flows in the future.”

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MSCI India’s one-year price-earnings multiple at the end of August was 21.65. That compares with 11.09 for the MSCI EM.

With India likely to remain the fastest growing economy over the next five years, equities will continue to command a premium over other emerging markets, said Manish Jain, fund manager, Coffee Can PMS, Ambit Asset Management. India is likely to continue to grow at a rate of 6-6.5% over the next few years, translating into 10-12% earnings growth, Jain said.

“Domestic consumer demand is strong, the agricultural sector continues to grow at a steady pace, credit growth has accelerated with no impact on asset quality, and most importantly, inflation has peaked.” said Jain, adding that these factors should make India one of the favorite investment destinations for foreign investors.

Given India’s outperformance, it replaced Taiwan as the second largest country by weight in the MSCI Emerging Market (EM) Index this month, raising the potential for larger passive fund allocations as domestic stocks continue to outperform peers. of MS. The country’s weighting in MSCI EM stood at 14.11% versus Taiwan’s 13.67% as of 5 September. China continues to enjoy the largest weight at 29.08%.

Market data reviewed by the Mint shows that India has outperformed its key emerging market peers since March 2020, when financial markets and global economies began to take a hit from pandemic-induced lockdowns. For example, India has seen its weight rise 683 bps from 7.66% at the end of March 2020 to August 2022. Over the same period, China’s weight has fallen 398 bps from 36.07% through August As of 2022, Taiwan’s has risen 251 bps, and South Korea has fallen 9 bps. One bps is equal to 0.01%.

“India is currently an oasis in terms of growth prospects and comfortable external position compared to its emerging market peers and therefore the historically high premium relative to the emerging market package could persist,” said Mahesh Patil, Chief Investment Officer of Aditya Birla Sun Life Asset. management company

To be sure, not everyone agrees that India’s path will diverge significantly for a long time. India’s dependence on imported energy and raw materials makes it vulnerable to global supply shocks.

For now, the divergence can be attributed to India being a domestic consumption-driven economy, unlike China and Taiwan, which rely heavily on exports to Western markets.

While Moody’s cut its GDP growth estimate for India last month by 1 percentage point to 7.7% for 2022, it is still better than the agency’s growth forecasts for emerging markets such as Indonesia (5.1%) and China (3.5%).

“With inflation lower than in the developed world, India is becoming an oasis in an uncertain world. This is reflected in the strong outperformance of the Indian markets,” said Jyotivardhan Jaipuria, Founder and CEO of Valentis Advisors.

Indeed, a national fund manager said, on condition of anonymity, that global money managers are thinking of considering an emerging markets index outside of China, where the focus would be more on India, given the structural advantages India enjoys. relative to other countries. fellow ME.

In another part of Mint

In Opinion, Kaushik Basu writes about the mistake of the US Federal Reserve. misreading the labor market. Montek S. Ahluwalia and Utkarsh Patel say India needs a 10 year plan on the strategy for managing climate change. Biju Dominic on how employers can persuade employees back to the office. tells a long story the existential crisis of a premier PSU.

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