INSUBCONTINENT EXCLUSIVE:
By Nupur Acharya, Santanu Chakraborty and Ameya KarveAs emerging-market stocks reel under the pressure of a rising dollar and fiery trade
rhetoric, Indian equities are charting a different course.
The nation’s benchmark SP BSE Sensex Index has risen 7 percent this quarter in
local-currency terms, the best performance among developing nations
That’s as the MSCI Emerging Markets Index has tumbled almost 10 percent.
The world’s fastest-growing major economy is relatively
insulated from trade risks due to its massive domestic market and burgeoning middle class
And while India hasn’t been immune to outflows, buying by local funds has more than made up for this and helped the Sensex to so far shrug
off headwinds such as rising oil prices and a weak rupee.
“The EM pack has suffered due to outflows and a strong dollar,” said Sunil
Sharma, who oversees $1 billion of assets as chief investment officer at Sanctum Wealth Management Pvt
“India has been resilient because of its strong economy and local flows, even as the trade war rhetoric rises.”
Domestic funds have
bought a net $4.5 billion of Indian shares since the end of March, compared with $2.9 billion of foreign outflows, data compiled by
Much of the local buying came in April and May, when a net 245 billion rupees ($3.6 billion) was pumped into equity funds amid poor returns
from gold and real estate.
Data released in late May showing the economy grew 7.7 percent from a year earlier in the first quarter has also
added to the allure of stocks.
“Domestic flows, while having moderated from peak levels, are still quite sizable and they are lending
support to the market,” said Harsha Upadhyaya, who oversees $3.4 billion in equities as chief investment officer at Kotak Mahindra Asset
in Mumbai.
Also, year-to-date withdrawals of less than $800 million from Indian stocks are “very small as markets like Indonesia and
Thailand have seen much larger outflows,” Mark Matthews, head of Asia research at Bank Julius Baer Co., said in an interview in Mumbai
“We saw foreign investors subscribe to Indian IPOs
They wouldn’t do that unless they want to be in India.”
Resilience TestedStill, the idea that Indian equities are less prone than others
to global shocks may be tested if the price of oil -- the nation’s top import -- remains elevated and the trade skirmish worsens and
drives a flight to haven assets.
The rupee has slid more than 5 percent this quarter and hit a record low Thursday
That’s left global funds with losses in dollar terms, and has increased the risk of the stock market becoming overly reliant on domestic
The upshot is that equity investors must tone down their return expectations, according to Aditya Birla Sun Life AMC Ltd.
“Equity as an
asset class in India will yield moderate returns this financial year -- about 12 to 13 percent,” said Mahesh Patil, who manages $6.3
billion of stocks at Aditya Birla, the nation’s third-largest money manager
“It’s very difficult to expect positive foreign flows in India this year.”
