India's share in global m-cap at 7-month low

Recent fall in rupee and stocks pushes down ranking; Nifty is down around 5% in dollar terms so far this month

The ongoing fall in share prices and the rupee has pushed India's share of global market capitalisation (m-cap) to a seven-month low of 2.45 per cent. Since the beginning of September, India's pie in global markets has eroded around 20 basis points (bps), a relative underperformance by markets here.

The benchmark Nifty on the National Stock Exchange is down around five per cent in dollar terms so far this month, amid a sharp selloff of $1.1 billion by foreign portfolio investors (FPIs). At the peak in May, India constituted 2.7 per cent of the global m-cap.

Escalating tension between America and North Korea have put brakes on the overall rally in emerging markets (EMs). The fall has been steeper in Indian markets due to concerns surrounding domestic economic growth. Since the beginning of the current financial year, say analysts, Indian markets saw a sharp rally, while the macro fundamentals, including economic growth and corporate earnings, remained muted. This led to a surge in valuations.

 

"Expensive valuations alongside weak economic fundamentals have led to a correction in the Indian markets. Over the past few months, FPIs have been nervous about their exposure to India and, hence, have been trimming this. Even the broad story of quantitative easing policy of global central banks, which fuelled inflows into various EMs, is coming to an end," said Saurabh Mukherjea, chief executive officer, Ambit Capital.

India loses best tag

The process has seen the Indian markets cede the 'best-performing major global market of 2017' tag. Until August, the Nifty was the best performing equity index globally. It has been overtaken by Italy, Mexico and Brazil.

Market participants say the pressure here could continue for domestic and global reasons. Any deterioration in fiscal health and disappointing earnings for the September quarter would be big headwinds.

However, a revival in earnings seems to be still two or three quarters away, as businesses are still coping with the new Goods and Services Tax (GST). Stressed assets continue to take a toll on the banking sector, especially the public sector ones. The sector is the largest in weightage in the benchmark indices.

One of the biggest tailwinds for Indian markets in the recent past has been the rupee's strong performance. Of late, however, with foreign funds taking money off the table and with the country's fiscal deficit showing signs of increase, this seems to be fading.

In the global markets, there is still momentum. Market participants expect EMs, led by South Korea and Brazil, to deliver impressive returns. However, portfolio flows, robust across EMs in recent months, might get slower on account of weaker global cues.

 

According to Manishi Raychaudhuri, Asia-Pacific equity strategist at BNP Paribas, consumption has been strong across Asia and EMs, indicating possible recovery in the economy. "While economic recovery on the back of strong consumption is expected to help the EMs, the consensus view is overly confident that policy rates will remain low. We think this constitutes possibly the only risk to EM equities presently," he said.