The Indian stock market was among the top five in the world, for delivering significantly better year-to-date returns.
While most of the other markets gave negative year-to-date (YTD) returns between -15 percent and -38 percent, India delivered -10.45 percent. Brazil was the only market that delivered a positive YTD return of 12 percent.
Among the top five were also Indonesia with -4.34 percent, Singapore with -8.08 percent and Mexico with -13.05 percent.
The worst performer was Russia at -37.96 percent.
India remains expensive when compared to the other markets. Its valuation premium, which is the premium investors have to pay to invest in India over other markets, has only grown this year against all markets except Brazil.
The domestic stock market’s elevated P/E was justified by strong earnings posted this fiscal year too, despite that the stock market saw significant outflows. This was largely because investors, who had fled China in 2021, returned to the country in 2022.
Post pandemic, India saw a massive surge in foreign-fund flows till most of 2021. The fund inflow was disproportionately high compared with the weightage it had on the MSCI indices. This was chiefly driven by the narrative that India could be a good hedge against China because of the size of the market. But this year was a harsh reminder that India is not immune to outflows and that China will continue to remain a preferred and strong contender for global money flows when the economic environment there is supportive.
The coming year may remain challenging for India in terms of attracting foreign-investors’ funds, since China may have put its economic woes behind. India will have to deliver on its promise of superior earnings growth, even as the private capex cycle is yet to take off.
After China, their favourite destination was Brazil, which explains Brazil’s superior stock market performance. Three years before this turn in sentiment, or between 2019 and 2021, Brazil had seen outflows between $1.17 billion and $11.01 billion. In 2022 YTD, the country has seen inflows of up to $13.69 billion, which is the highest it has seen for nearly a decade.
Brazil’s economy is booming on commodity exports, and its stock market is looking attractive with its lower valuation. The export boost has helped the country increase its forex reserves and become current-account surplus. Besides, Brazil’s corporate earnings growth has been strong, banks have improved balance sheets and inflation is trending lower.
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