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India leads the emerging market pack
Tue, 18 Aug Pre-Open

While the Indian economy is yet to recover from the slowdown, the green shoots in the economy as well as the buoyancy in the stock markets are a probable sign that things are likely to get better in the coming times.

For investors, the year 2015 has not been quite rewarding so far. The optimism and momentum that we saw in the bull rally in 2014 has subsided for sure. But guess what, India is still much better placed compared to many other emerging economies...

We came across some interesting data in Livemint. Since the beginning of 2015, the MSCI India index is up just 1% in US dollar terms. This may appear disappointing. But if you compare it with other emerging markets, India turns out to be the best performing market and the only one with positive gains in 2015. The MSCI Emerging Markets index is down 10% during the same period. There is a wide gap between the valuations of Indian stock markets and other emerging economies. While the MSCI India index is trading at 23.6 times current price to earnings multiple, the MSCI Emerging Market index is trading much lower at 12.4 times.

What is reason behind the underperformance and lower valuations of other emerging economies? The answer appears to be the slowdown in China, the biggest emerging economy in the world. The resulting slump in commodity prices has severely impacted commodity producing countries such as Brazil and Russia.

The slowdown in China has impacted also weakened economic prospects of other emerging economies that are dependent on exports for China's domestic demand. The depreciation of the yuan is another factor that will dent economies that compete with Chinese exports.

Why has India been relatively resilient to the China factor?

The reason is our economic orientation. India is a consumption-driven, net-commodity importer. We are not a major exporter to China. And the crash in commodity prices, particularly crude oil, is music to our ears. India, for now at least, is a net-gainer in this situation.How long this advantage will last is anyone's guess. But this is certainly a great time window for Indian policymakers to fix the maladies in our economy and carry out the much needed reforms.

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Jan 19, 2018 (Close)