India’s markets are proving surprisingly resilient. Ugly clashes in Delhi have left at least 32 people dead and hundreds wounded. The violence broke out at a time when the domestic economy is slowing and global money managers are jittery about the risk of a pandemic. Still, the world’s fifth-largest economy is surprisingly alluring to foreign money.
Overseas investors are pulling money out of emerging markets and have turned sellers of equities in Brazil, South Korea, Taiwan and more, according to Macquarie. India’s NSE Nifty 50 has also started to fall this week as investors have sought safe havens. Nevertheless, the country managed to attract net foreign inflows this month.
That’s despite rich valuations with the IBES MSCI India trading at 18.5 times forward earnings, compared with 12.7 times for the IBES MSCI Emerging Markets.
Such enthusiasm jars with economic realities. New investments are in short supply, vehicle sales are falling, and corporate profits have been disappointing. That disconnect is exacerbated by rolling television coverage of mobs in Delhi beating each other with rods and sticks during and after the state-visit of US President Donald Trump.
Foreign buyers, and domestic ones that continue to pour savings into the market, are so far looking beyond both. India is going through a harsh period as its economy undergoes some disruptive changes.
The introduction of a bankruptcy code, policies like the goods and services tax, and tax cuts are helping a few large companies including HDFC Bank, Reliance Industries, and Asian Paints consolidate market share at the expense of less well-run rivals, especially small- and medium-sized businesses.
The resulting downward pressure on incomes and job losses only fuel the risk of social problems, especially when paired with nationalist politics in a country with a history of religious violence. But India has relatively strong growth, a huge home market, and record foreign exchange reserves. Foreign investors are therefore unlikely to lose their nerve unless there is a much bigger shock or any sure sign that the slowdown will be long lasting. — Reuters
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