Can India continue to outperform global markets?
- Data shows that Sensex has lost nearly 4% this year, which is lower than other global markets which have fallen up to 30%.
- This indicates weakness in sentiment in a high interest rate scenario along with fears of global recession looming.
- Analysts believe near term issues in the market will persist and may lead to further falls; as central banks across the world are raising interest rates to tackle inflation.
AdvertisementWhile Indian equity markets continue to outperform global markets, the question is will it continue to do so. Data shows that Indian benchmark index Sensex has lost nearly 4% this year. This is modest compared to other global markets that have fallen up to 30%.
This indicates severe weakness in sentiment as investors have become cautious in a high interest rate scenario; combined with the fear of a global recession.
Analysts believe near term issues in the market will persist and may lead to further falls – as central banks across the world are raising borrowing costs to tackle inflation.
“Post hawkish Fed, we expected USD-INR to weaken, global growth likely to be severely dented as aggressive tightening to take place across nations, and adverse impact on global earnings and equities. For India, while we can outperform, we cannot fly against the wind. Structurally, India is best placed in the long-term but only at certain valuations,” said Anjali Verma, research analyst at Phillip Capital in a report.
Tight domestic liquidity, depreciating rupee, dipping forex reserves, monetary policy tightening, fiscal deficit, soft FII and DII inflows and weak exports are some of the major risks impacting the market.
Sensex continues to outperform other global markets but with negative returns. Meanwhile, the US, South Korea and Taiwan are the worst performing markets at the moment.
Chinese markets have shed 16% of value this year as it struggles to catch up after several lockdowns, re-emergence in Covid-19 cases; ahead of a key political event. The 20th Communist Party Congress, a key political meeting, starts on October 16, where President Xi Jinping is expected to secure an unprecedented third term.
|Asian markets||% change on February 14|
|FTSE 100 Index (London)||-8.70%|
|Nikkei 225 (Japan)||-10.67%|
|Shanghai SE Composite Index||-16.17%|
|CAC 40 (France)||-21.54%|
|Hang Seng (Hong Kong)||-25.91%|
|Taiwan Capitalization Weighted Stock Index (Taiwan)||-26.30%|
|KOSPI (South Korea)||-27.42%|
|Nasdaq Composite (US)||-31.60%|
An important event that might decide further direction for the market is RBI’s monetary bi-monthly review meeting that has started today. It is widely expected that the RBI would follow the Fed’s lead and raise interest rates on September 30. RBI has already raised interest rates by an overall 140 basis points three times in a row.
Currently, Sensex and Nifty50 continue to remain under pressure mirroring weakness in the global market on fears of recession and dollar climbing against other currencies. Moreover, Nifty50 traded below its psychological levels of 17,000 at 16,959.
Another pain for the Indian economy is the depreciating Indian rupee, which fell to another low at 81.94 on Wednesday on the back of monetary policy tightening by central banks and on concerns about India’s record trade deficit.
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