An outperforming Indian equity market has become an underperformer

in Project HOPE2 years ago

Over the last year, India's Nifty has outperformed all major indices in the world. The worst performer has been Hang Seng of the ones I considered but that may be due to China's crackdown on Tech (a major factor I think).

1 year.JPG

However, the chart completely flips for Nifty when we look at the last 1 month.

1 month.JPG

Nifty has fallen almost in line with Hang Seng in the last month this is despite many companies easily raising money via equity listings in the last quarter at high valuations. I was wondering what could be causing this deviation.

One reason is that investors globally are worried about inflation and Fed's tapering i.e. reduction in liquidity supply and hence de-risking their books by exiting EM (Emerging Markets).

However, if one specifically looks at India, then what is the situation. Inflation is on the rise. The Wholesale Price Index is rising in double digits for the last 6 months whereas retail inflation or Consumer Price Index is showing single-digit growth. Automobile companies have passed on the inflation to consumers every quarter by a series of price hikes. Government policies have caused fuel prices to rise 50% during the last two years. Commodity inflation and edible oil inflation are also extremely high for consumers. Fuel price inflation is slowly creeping into other consumer goods. The variation in WPI and CPI will have to be bridged in the coming months i.e. inflation will further shoot up and may cause the central bank to raise rates causing tightening of liquidity.

What about the consumer side? Wages have been stagnant for the majority of India's workforce. Unemployment is really high. While there are no official figures from the govt., many surveys indicate that unemployment among youth could be as high as 30%, nearly 1 in 3! A dwindling consumer purchasing power, tightening liquidity scenario, and high prices do not bode well for any economy and I think India is suffering because of that.

Second, on the political front, India's PM going on the backfoot and withdrawing 3 controversial farm bills poses a big question mark on the government's stability going forward. What about economic reforms going forward? Will India's ruling party be able to hold on to its strong base in the state of Uttar Pradesh during the state elections next year?

I think both the factors mentioned above have caused investors to become cautious about India during the recent past. The underperformance may continue for some more time in my opinion.

Sort:  

hello @karamyog,
the inflation is a factor that is affecting almost all countries, in that sense energy, basic services and mass consumer goods are increasing in value, this causes political instability in many countries, now not everything about debt is bad. inflation allows the devaluation of debt, for those who live in Venezuela devaluation is an instrument that can be used in our favour, because as the value of the currency depreciates, so do the debts.

I agree that debt isn't bad and inflation is used to pay off debts. High inflation, low wage growth is bad for consumers as they can't inflate their debt away.

Coin Marketplace

STEEM 0.35
TRX 0.12
JST 0.040
BTC 70625.87
ETH 3563.07
USDT 1.00
SBD 4.71