India vs World markets: India lags developed markets and China

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Indian equities did better than emerging market (EM) peers, they underperformed developed markets in 2015. A slowdown in China, poor monsoon and subdued corporate earnings impacted our markets. So, did the return of risk-off sentiment which prompted overseas investors to pull out money from emerging markets.

China emerged as the best performing market in Asia despite facing a turbulent period in June-July when the country's benchmark Shanghai Composite lost about 32 per cent in 16 sessions. Experts have questioned the basis for the rally, arguing there is no noteworthy change in the country’s fundamentals.

 

Brazil and Russia, meanwhile, were affected by falling commodity prices and geopolitical issues, in addition to the fears of a ‘hard-landing’ in China.

Analysts believe emerging markets may continue to be a value trap with a weak earnings outlook, sharply slowing China growth and continuing headwinds from a stronger US dollar and higher bond yields. Additional rate hikes by the US Fed in 2016 will also impact the region’s markets.

However, India is best placed among emerging economies to continue attracting higher fund inflows owing to its comfortable current account and fiscal deficit situation, and sizable foreign exchange reserves. Indian equities are expected to do well next year, particularly in the second half, as lower inflation, cheap commodities and strong governance drive improvement in corporate earnings over the next 18-24 months.

“While other emerging markets may see outflows, India will remain an attractive destination for FIIs. The domestic savings will likely continue to flow into financial assets (including equities) and that may provide additional support to the markets,” said a note by Kotak Securities.