The slight uptick in Indian rupee and the recent move by the government to ease FDI norms have brought some cheer to markets,but it may be too little,too late as equities continue to feature among the top five worst performing markets in the world.
According to Bloomberg data,the Sensex and Nifty have given negative returns of 4.5% and 6%,respectively,in dollar terms since the start of CY13. While the number may have improved from last months (year-to-date dollar return of -11% in June-end),it remains a concern given that India saw the second highest inflows by overseas investors.
Even in local currency terms,the 30-share gauge has given positive returns of just 3.72% and trails the performance of other Asian,emerging market and developed markets equities by a wide margin.
Brazil tops the list as the most underperformed market so far during the year. The Bovespa index the main indicator of the Brazilian stock market’s average performance has given negative returns of -27.9% in dollar terms. South Korea’s Kospi (-11.1%),Russia’s Micex Stock index (-8.36%),and Mexico’s IPC index (-5.26%) complete the list of top five underperforming markets.
Experts attribute Indias underperformance to a weakening rupee,which dropped over 10% in one month.
While other Asian and EM equities also saw pressure from a strong dollar,experts said Indias balance sheet problems and failure to announce economic reforms on a timely basis did more damage to Indian equities. Apart from the rupee,the benefit from lower crude oil and commodity prices has also started to wane. With crude oil prices heading back towards $110-a-barrel and the Indian currency near record lows,Indias oil bill is going nowhere but north,they said.
Poor Chinese economic data and higher oil prices is not helping India either. If you take the currency depreciation and today’s oil price,it is equivalent to crude oil at $150 a barrel that we saw in 2008. So,all the talk about commodity prices heading lower and current account deficit getting better has clearly not panned out, said Andrew Holland,CEO,Ambit Investment Advisory.
Holland highlighted the fact that investors,especially,FIIs,are running out of patience with the progress of economic reforms,or the lack of it. With elections being so close,it is unlikely the government is in a position to bring in major new reforms.
Data shows that Japanese equities have been the best performing markets on a ytd basis,with the JASDAQ giving 45.6% gains in dollar terms and 68.7% in local currency terms on the investors’ portfolios. Nikkei has given 21% positive returns in dollars and 41% in local currency terms. Similarly,investors have gained 18.6% from the Dow Jones Industrial Average since the beginning of CY13.
Shifting focus to EM,ytd performance of Philippines Stock Exchange PSEi Index stands at 7.76% in dollar terms and 13.9% in local currency,followed by Stock Exchange Of Thailand Set Index at 4.95% in dollar terms (+6.46% in local currency) and Indonesia at 4.6% (+9.45% in local currency).
According to Morgan Stanley India,draining global and local liquidity and fresh growth uncertainty will likely cap the upside. However,the US financial services major remains optimistic on the medium- and long-term story.
A section of the market believes that tweaking the Marginal Standing Facility (MSF) rate and increasing the FDI caps will help stabilise the rupee,but experts say the relief for the Indian unit could be temporary.
While the rupee’s fair value will matter in the medium term,its fortunes in the coming quarters will be inextricably linked to how the balance of payments pans out. And this is where the news gets sobering, said JPMorgan in its research note.
The note states that India will have to live with a current account deficit of $80-85 billion during FY14 and raised doubts whether the amount can be funded in the current environment.