Indian shares have fared better than the Asian markets in local currency terms, although in dollar terms, their performance has been unimpressive.
India’s benchmark Sensex and Nifty 50 stock indices have fallen about 4 percent each so far this year, which is the least among major Asian markets when measured in the local currency.
However, in dollar terms, both have shed over 8 percent each. The key indices in Malaysia, Thailand, South Africa, Singapore, Jakarta and Brazil have done better than Indian stocks in dollar terms.
The decline in Indian equities comes as foreign institutional investors sold a net $25 billion of Indian shares so far this year, extending their selling spree to eight consecutive months. They dumped about $4.87 billion of Indian shares in May.
The rupee has eroded by 4 percent this year and is trading at close to its record low level, but it has performed better than major Asian currencies such as the Japanese yen, the South Korean won, the Taiwanese dollar, China’s renminbi and Malaysia’s ringgit.
Some analysts said the near-term outlook is hazy. Oil prices above $120 a barrel following the Russia-Ukraine war and the tightening of liquidity by global central banks amid higher inflation have cast a shadow on Indian stocks.
Inflation concerns
HSBC’s India economist, Pranjul Bhandari, said elevated energy prices over a long period and continued pandemic waves could slow the pace of economic recovery. A sharp rise in income inequality could hurt growth prospects over the medium term as well. She expects 1 percentage point to be added to inflation and GDP to be dragged lower by 0.9 percentage points if oil prices remain above $100/barrel for long.
Amid steep inflation, the Reserve Bank of India is likely to continue increasing the repo rate. India’s central bank increased the repo rate by 40 basis points to 4.40 percent after an off-cycle meeting of the Monetary Policy Committee in May. The next meeting of the MPC is scheduled for June 6-8.
Inflation as measured by the Consumer Price Index accelerated to 7.79 percent in April, the highest reading since 8.3 percent in May 2014. It stayed above the upper limit of the central bank’s tolerance band of 6 percent for the fourth straight month.
However, brokerage PhillipCapital has a positive view on Indian equities. PhillipCapital advises a buy on dips considering better-than-expected local macro data coupled with government and RBI steps to contain inflation. The brokerage also said quarterly earnings are ahead of expectations.
The government recently introduced measures to curb inflation such as the excise duty cut on petrol and diesel, customs duty reduction on raw materials for plastics and steel, and export duty increase on iron ore and steel intermediates.
“With clarity on the government’s intent to curb inflation, we expect inflation to trend lower in the second half of FY23, thus continue to expect RBI to tighten repo rates by 50 bps in the rest of FY23 (below consensus). We also expect FII outflows from India to taper from here on and continue to foresee a likelihood of less hawkish monetary policies across the globe (including India) than are anticipated currently. Growth concerns globally could aggravate, pressurising equities; however, India is expected to withstand growth slowdown as interest rate/liquidity tightening is not the steep one,” PhillipCapital said in a report.
Domestic institutional investors infused a net Rs 1.85 lakh crore in Indian shares so far in 2022.
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