India the worst major market in September

Sensex down 3.7% in dollar terms amid economic growth concerns; in comparison, the MSCI EM index has lost 1% during the month

India is likely to earn the worst-performing major market tag for September. So far this month, the benchmark BSE Sensex is down nearly four per cent in dollar terms. In comparison, the MSCI EM index, a gauge for the performance of emerging market (EM) equities, has lost about one per cent during the month.

The correction in the domestic market has been more pronounced in the past fortnight with Indian markets dropping six per cent in dollar terms.
 

India’s relative underperformance is on concerns of an economic slowdown and a delay in revival of growth in corporate earnings.

India’s gross domestic product (GDP) grew at 5.7 per cent during the quarter ended June — the slowest in nearly three years. In order to infuse momentum, the government is now considering a stimulus package. But, economists fear such a move could widen the fiscal deficit. 

Illustration: Ajay Mohanty

 

On the other hand, corporate earnings have been muted for several years now. Analysts say, when the earnings revival cycle was getting ready to take off in late 2016, measures such as demonetisation and the goods and services tax (GST) had impacted the bottom line of India Inc.

“In the past two-three quarters, the economy has been reeling under the pressure of several reform measures. There are concerns about several segments, including capital expenditure spending, exports and no meaningful improvement in bank’s non-performing assets (NPAs). However, there is no need to panic at this point of time as the growth could rebound in the (next) few quarters,” said U R Bhat, managing director, Dalton Capital Advisors.

Escalating tensions between the US and North Korea have also impacted investor sentiment, not just in Indian markets but across EMs. The sharper correction in the Indian benchmarks was on account of expensive valuations of Indian shares, experts say. 

Although the North Korean episode is not yet settled, the tensions are showing signs of easing. Market participants say, even if the issue flares up again, Indian investors should not be very concerned as its impact would be negligible and short-lived.

“We expect the markets to consolidate around current levels in the near future with a slight downward bias. The uncertainty regarding geopolitical tensions in the Korean peninsula persists and any negative development is likely to cause a knee-jerk reaction. However, it as an extraneous event to (the) Indian economy and is likely to have a very short-term impact,” said Arun Thukral, managing director, Axis Securities.

Interestingly, the South Korean markets have shown resilience even as the nation is embroiled directly in the stand-off with its northern neighbour. Kospi, the benchmark index of South Korea, has lost only 1.4 per cent during September. Market participants say improving consumption demand in the US markets, along with reasonable valuations, is helping Korea attract capital flows. Brazil, whose market tumbled between May and July due to a political crisis, made a strong comeback in September, with its benchmark Ibovespa index gaining nearly three per cent.

However, portfolio flows have been negative across EMs, as foreign funds seem to be chasing safer havens. 

India has witnessed foreign institution investor (FII) selling to a tune of $1.3 billion during September. Others, including South Korea, Taiwan and Indonesia, have also witnessed similar selling, data showed.