While the MSCI Emerging Markets Index fell nearly 21.8% in the 12 months to August 31, the MSCI India Index lost only 3.17%. Similarly, while the EM index fell 6.49% in the three months to August-end, MSCI India gained 6.14%.
Some experts suggested that India’s strong economic growth despite economic troubles in the US and European countries suggests that India’s recovery from the pandemic has been isolated from most emerging and developed countries, underscoring India’s growing economic independence. .
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“India is in a sweet spot compared to its EM peers like China, Russia and Taiwan – one weighed down by growth concerns, another by easing sanctions and the other on the verge of a face-off with its powerful neighbour,” said Nilesh Shah, Managing Director and Chief Executive, Kotak Mahindra Asset Management Company, said, “Amidst these crisis hotspots, India stands out as an ideal investment destination, characterized by high economic and corporate earnings growth prospects, strong corporate governance standards and Focuses on green initiatives. These will ensure that our market continues to trade at a historically high premium to EMs and attracts more investment inflows in the future.”
MSCI India’s one-year forward price-to-earnings multiple was 21.65 at the end of August. This is compared to 11.09 for the MSCI EM.
With India likely to remain the fastest growing economy over the next five years, shares will continue to have a premium over other emerging markets, said Manish Jain, fund manager, Coffee Can PMS, Ambit Asset Management. Jain said India is likely to grow at a pace of 6-6.5% in the next few years, leading to a 10-12 per cent growth in income.
“Household consumption demand is strong, the agriculture sector is growing at a steady pace, credit growth is picking up with no impact on asset quality, and most importantly, inflation is peaking,” Jain said. India is one of the preferred investment destinations for foreign investors.
Given India’s outperformance, it overtook Taiwan as the second largest country on the MSCI Emerging Markets (EM) index this month, raising the possibility of higher allocation from passive funds as domestic stocks outperformed their EM peers. are performed. The country’s weighting on the MSCI EM stood at 14.11% as against Taiwan’s 13.67% on September 5. China continues to enjoy the highest weighting of 29.08%.
Market data reviewed by Mint shows India has been outperforming major EM peers since March 2020, when global financial markets and economies began to grapple with pandemic-induced lockdowns. For example, India has seen an increase of 683 basis points in its weight from 7.66% at the end of March 2020 to August 2022. Over the same period, China’s weight has fallen 398 bps from 36.07% as of August 2022, Taiwan has increased by 251 bps, and South Korea has declined by 9 bps. One bps equals 0.01%.
Mahesh Patil, Chief Investment Officer, Aditya Birla Sun Life Asset said, “India is currently an oasis in terms of growth prospects and comfortable external position as compared to its EM counterparts, and thus, continues to have historically high premiums relative to the EM pack. Could stay.” management company
Of course, not everyone agrees that India’s path will vary significantly over the very long run. India’s dependence on imports of energy and commodities makes it vulnerable to global supply shocks.
For now, India can be attributed aversion to being a domestic consumption-driven economy, unlike China and Taiwan, which relies heavily on exports to Western markets.
While Moody’s last month slashed India’s GDP growth forecast for 2022 by 1 percentage point to 7.7%, it still falls short of the agency’s growth forecast for emerging markets such as Indonesia (5.1%) and China (3.5%). is better than.
“With inflation lower than developed countries, India is becoming an oasis in an uncertain world. Jyotivardhan Jaipuria, Founder and CEO, Valentis Advisors, said, “This is reflected in the strong performance of the Indian markets.
In fact, a domestic fund manager said on condition of anonymity that there is some thinking among global money managers to consider EM indexes outside China, where India enjoys structural advantages over others, where the focus is more. India will be focused. EM friends.
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