Why India Is Resilient Even In The Face Of A Global Market Meltdown
Of late, Indian equity benchmarks have been outperforming their global peers at a time when global inflationary pressures have dealt a strong blow to the US and European markets in the aftermath of the Russia-Ukraine war.
Rising energy prices are adding to the worries of recessions in some parts of the world. That, in turn, has led to the flight to safety towards emerging markets like India.
The US’ Dow Jones Industrial Average has so far this year fallen 14 per cent, England's FTSE 100 index has dropped 1.76 per cent, Germany's DAX has tumbled 19 per cent and France's CAC 40 index has dropped 15 per cent.
In comparison, India's Nifty 50 index has advanced nearly 2 per cent year to date and has managed to stage a strong rebound from a 52-week low hit in June in the last few weeks. It surged a whopping 18.5 per cent from a low of 15,183 hit on June 17 last month, marking its fastest three-month rally in over two decades.
The inflows of foreign institutional investors (FIIs) were at the highest in August since January 2021. FIIs bought shares worth Rs 51,204 crore in August, data from National Securities Depository Limited showed. However, domestic institutional investors turned net sellers after 17 months of buying.
Rising Weight
Indian equities have been in demand globally. It is evident from the fact that MSCI’s emerging market index has placed a weightage of 14.9 per cent on Indian equities, the second highest after China’s weightage of 32.09 per cent. Reliance Industries, ICICI Bank and Infosys feature among the top 10 stocks in the emerging market index which has a total 1,382 constituents spanning across 24 emerging markets.
Talking about the resilience of Indian markets, Ravi Singh, vice president & head of research, Share India Securities, explains: “After Russia announced the attack on Ukraine, the Indian stock market reacted very sharply and fell vehemently. Nifty breached its major support and lost a significant chunk on the first day of the invasion. However, the market regained the very next day and gave a good positive opening. Since then, it has continued to be resilient even though the Russia-Ukraine crisis is yet to get over, the hike of the interest rate for the first time in the last four years by the US Federal Reserve and disregarding the supply shock of crude oil prices.”
The factors that supported the Indian market despite global uncertainties are majorly the role of the government on several reforms and policies favoring the economy’s growth and recovering GDP which further boosted the domestic investors’ buying, he says.
“The direct incentives from the government have imposed positive sentiments among foreign investors and bound them to consider India as their next investment arena. This has led to the beginning of a new corporate capital expenditure cycle. Moreover, corporate earnings have also shown improvement during recent quarters on the back of better operating margins,” Singh adds.
On the sectoral front, eight of 14 sector gauges compiled by the NSE are trading higher. State-run lenders in the Nifty PSU bank index surged over 20 per cent primarily led by a rally in State Bank of India which has surged 17 per cent since the start of the year.
Auto, FMCG, private bank, oil and gas and metal indices are also up between 10-20 per cent so far this year. In the Nifty 50 basket of shares, Coal India, Mahindra & Mahindra and ITC have handsomely rewarded investors by surging over 50 per cent.
On the other hand, the IT index has tumbled 28 per cent after outperforming for two consecutive years. IT stocks like Wipro, Tech Mahindra, HCL Technologies, Infosys and TCS have been wealth destroyers in the range of 16-43 per cent. Nifty healthcare, pharma and consumer durables indices are also giving negative returns.
