Trump rally lifts markets, not India

While all EMs since Nov 8 have underperformed developed markets, India is among the worst performers

Donald Trump’s victory in the US presidential election early November has spurred hopes of a spending boost and tax cuts, triggering gains in global stocks. The Trump-inspired rally has lifted equity benchmarks of major markets, with the exception of India. 

While all emerging markets (EMs) since November 8 have underperformed the developed markets, India is among the worst performers. Analysts say the government’s decision to scrap high-value notes, which coincided with the US general election results, has weighed on the domestic market. 

An analysis of performance of major markets since November 8 shows the domestic benchmark index Nifty is down 4.3 per cent in dollar terms and 1.7 per cent in local currency terms. China, the only other market with negative return in this period, is down 2.8 per cent in dollar terms and 1.1 per cent in local currency. 

Analysts say the US developments have led to sharp capital outflow from EMs. That and demonetisation have hurt India more. “While the US Fed rate hike weighed down on EMs in general, demonetisation was a double whammy for Indian equities,” says Ravi Muthukrishnan, co-head of research, ICICI Securities.

Some are using the recent underperformance as a buying opportunities, as they believe India stands to gain in the long term. “We assume the recovery from demonetisation would be quick and its impact on gross domestic product and earnings would be insignificant, with signs of a credit cycle-driven recovery becoming visible soon. Our discussions with investors suggest they expect the impact to be short-lived and only a select few have trimmed exposure to affected sectors,” says Gautam Chhaochharia, head of research, UBS Securities.