Indian markets are likely to underperform peers in the short-run: Analysts

Among the lot, US equities still have a lot of room to catch up as the US Federal Reserve (US Fed) slows its pace of rate hikes, analysts say

Indian frontline indices – the S&P BSE Sensex and the Nifty50 – are likely to underperform their global counterparts, said analysts, who feel global markets are set for a catchup after underperforming since the past few months.

Among the lot, US equities, they feel, still have a lot of room to catch up as the US Federal Reserve (US Fed) slows its pace of rate hikes amid a stronger economy and a correction in crude oil prices.

Despite still elevated inflation and further tightening of interest rates in the US, G Chokkalingam, founder and chief investment officer at Equinomics Research, expects global equities to remain stable. The US equities, he feels, are likely to recover further from the current levels given the recent underperformance.

"Despite global inventories of oil falling by 14.2 million barrels (mbd) in September, oil price has corrected a lot - from a 52-week high of around $127 per barrel (bbl) to around $87 now. We believe that further fall in oil price is possible and the same could give a lot of hope for further moderation in global inflation. A major rally in the US equities is possible going ahead," he said.

Thus far in November 2022, the S&P BSE Sensex and the Nifty50 have underperformed their global peers. While these two frontline indices mostly remained flat in the month-to-date period, Dow Jones Industrial Average (DJIA), the NASDAQ and S&P 500 indexes in the US rallied up to 3 per cent, data show.

 

Major indexes across Europe and Asia, too, have moved up significantly. FTSE 100, CAC 40, DAX in Europe; Taiwan TAIEX index, Kospi Hang Seng, Shanghai Composite and the Straits Times in Asia have rallied up to 21 per cent thus far in November.

The stock market rally in the US, according to Christopher Wood, global head of equity strategy at Jefferies, which really kicked off with the latest CPI data, can run to year end (i.e. typical year-end market action) before markets refocus in the New Year on the rising US recession risk and related US earnings downgrades. A potential further powerful catalyst to extend the recent rally, he said, will be any sign of resolution of the Ukraine conflict.

"This may seem unlikely for now, but there is growing evidence of dialogue with, for example, CIA Director Bill Burns and his Russian intelligence counterpart, Sergey Naryshkin, meeting in Ankara. The Russian retreat from Kherson, and the related move to the eastern side of the Dnipro River, could also be seen as a potential prelude to some deal. Any such deal would be a major positive for the peaking-out-of-inflation trade with European financial stocks most geared to the upside," Wood wrote in his recent note to investors, GREED & fear.

PODCAST: Should investors be worried about the recent correction?

As regards Indian equities, market participants, said Ajit Mishra, vice-president for research at Religare Broking, should see the recent dip as normal profit taking after the recent surge.

"We expect the 17,950-18,050 zone to act as immediate support for the Nifty50. While we’re seeing a mixed trend across sectors, resilience in the banking space is playing a critical role in capping the damage so far. Recommend investors continue with a stock-specific approach," he said.