Regaining lost ground: India among best-performing emerging markets in Nov

The decline in oil prices, along with strengthening rupee, has pushed up India in terms of dollar returns. Among the major emerging market (EM) and Asian economies, the Nifty 50 has given the second-best return of 5.7 per cent in November. In October, the domestic benchmark index was the fifth best with negative a return of 7 per cent.

In November, India’s dollar return was only bettered by Indonesia at 7.3 per cent.  

The fall in oil, India’s biggest import item, has helped in improving sentiment. Brent crude has fallen 31 per cent to $59 a barrel from $85 a barrel at the start of October. 

Crude oil prices can have a telling impact on how investors view India as the current account deficit (CAD) is highly sensitive to oil. High CAD means the government has to buy more dollars to pay bills, which further weakens rupee. With softening oil, experts expect the rupee to stabilise. 

Analysts say the fall in crude triggers a virtuous cycle of stable rupee and interest rates, and a manageable fiscal position.

The positive sentiment can also be seen in the behaviour of foreign institutional investors (FIIs). During November 1-19, FIIs had bought shares worth $723 million. In the previous three months, FIIs were net sellers at $5.3 billion. In year-to-date, FIIs have sold $5 billion worth of equities on a net basis.

Analysts add that softening of US treasury yields and dollar has led to a risk-on sentiment. The prevailing geopolitical risks and global growth concerns have also built hope that the US Fed may be forced to pause its policy tightening.  

While there seems to be some reversal of FIIs’ negative stance, foreign brokerages are still advising clients to tread with caution when it comes to India. 

“Upcoming national elections could lead to investment commitments being deferred until H1-FY20,” said Standard Chartered in its strategy note. Also, slower credit disbursement by non-banking financial companies amid higher interest rates and tighter liquidity is likely to contain economic activity. “Moderating global growth is another concern for future domestic growth,” the note said.