There's so much chatter about emerging markets, with India and China making up a bulk of the conversation. Sure, combined the two EM giants make up almost 50 percent of the MSCI EM index, but let's try to shine the spotlight on the other 50 percent.
So who really are the other EM players? Following India, Taiwan is one of the largest emerging markets as a result of its booming semiconductor and electronics manufacturing sector. South Korea is known for K-Pop, sure, but also for its technological advancements and robust manufacturing sector. Despite seeing near-constant economic uncertainty, Brazil cinches in the fifth place on the EM scale, with the South American nation's services industry contributing the most to the GDP.
Poland, Qatar, Kuwait, Turkey, the Philippines, Greece, Chile, Peru, Hungary, the Czech Republic, Colombia, and Egypt have cameo appearances in the MSCI EM index as well, each with a weight less than a percentage point.
So why are we talking about EMs today? Well I hate to break it to you, but this conversation is also about China.
When FIIs invest in a country, they can do so directly, through stocks, bonds, and other kinds of securities that we all know but rarely talk about. Or, they can make it easier for themselves, and invest in emerging markets using an index provider like the MSCI or FTSE that invests in companies across countries. And well, most people do like to take the easy way out.
China recently saw a big bang stimulus package, launched to spur the sputtering economy out of its deflationary mood, causing analysts to suddenly be looking Shanghai and talking Shenzhen.
Since China makes up such a large part of EM indices, following the stimulus, the rest of the bucket might see fewer flows coming to them as the world turns its gaze to China once again.
"The current environment is characterized by multiple dimensions of risk and opportunity. Indeed, it is amongst the most complex that we can recall," said Morgan Stanley.
Sure, India also saw fleeing FPIs, but we have our trusty DIIs and retail investors who kept our markets afloat. But what happens to the little guys?
If you're from Mexico, Taiwan, or South Korea, then the picture on the cards isn't too pretty. International brokerage Morgan Stanley, along with other market makers, have been slashing their allocation towards these countries, instead bumping up allocations towards Brazil and China.
“Moreover, there is a chance for China to outperform even more in the short term even without more aggressive stimulus measures, such as bigger than expected bank recapitalisations and the like,” said Christopher Wood in a recent Jefferies note.
Well, the market will soon return to its wait-and-watch mode to see what else comes out of China. If it's nothing more, then the fate of the EMs hangs in the balance until the US election results are declared. Once that’s wrapped up, the threads of fate will move on to the next trigger and then the next ad infinitum.
Wipro (Rs 532.7, -3.1%)
Shares fell as investors offloaded the stock ahead of the earnings which will be reported on October 17.
Bull Case: Continued ramp-up of large deals won in previous quarters is expected to drive revenue growth. Investments in generative AI and digital transformation initiatives to catalyse demand. The weakening of the Indian Rupee against major currencies provides tailwinds.
Bull Case: Recent wage hikes are likely to weigh on EBIT margins. Energy, utilities, and manufacturing verticals continue to face challenges. Sustaining momentum in consulting arms like Capco and Rizing is proving difficult.
Just Dial (Rs 1,215, -3.5%)
Stock fell after Q2 earnings misses Street estimates
Bull Case: The company's ongoing recovery from the pandemic, coupled with potential growth from its B2B platform JD Mart and new ventures like JDXprt and JD Shopping, could drive long-term value. A turnaround led by Reliance Retail may further accelerate growth.
Bear Case: Its recovery remains sluggish, with paid campaigns still below pre-pandemic levels. JD Mart has failed to gain significant traction, and new initiatives like JDXprt and JD Shopping face skepticism due to the company's poor track record and growing competition.
Sunteck Realty (Rs 596.80, +7.65%)
Stock surged after the company posted a healthy Q2FY25 performance, clocking Rs 520 crore in pre-sales
Bull Case: The Realty major's strategic focus on the lucrative Mumbai market and ability to source high-value land deals positions it for significant growth. The anticipated operational scaleup is likely to generate strong cash flows, enhancing financial stability and long-term profitability.
Bear Case: A prolonged slowdown in Mumbai’s residential market poses a major risk to Sunteck Realty’s growth. Additionally, potential regulatory hurdles and partnership risks in Joint Development Agreements (JDA) and Joint Ventures (JV) could hamper the company’s expansion and cash flow generation.
(With inputs from Harshita and Neeshita.)
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