After five months of positive returns, Indian markets turned red in August, similar to most of its global peers on the back of high interest rates, recurring inflation concerns, and weak macro data.
Despite that India has outperformed most of its global peers in August.
In dollar terms, the Indian benchmark Nifty has lost 3 percent and is the third best-performing market in August. Russia's MICEX and US benchmark S&P500 are the only 2 indices that have outperformed Nifty50 last month with Russia's MICEX gaining 1 percent in August and S&P 500 declining 2 percent, a report by broekrage house Motilal Oswal informed.
Apart from these two, all other global markets have underperformed Indian markets. China's HSCEI index and Brazil have shed the most, down 9 percent in dollar terms while the MSCI EM index and South Korea fell 6 percent in August. Germany and UK markets have also lost 5 percent each in August whereas Japan and France markets declined 4 percent each last month, further mentioned the report.
However, on a 2023 YTD basis, Nifty is the fourth worst-performing market. In dollar terms, Nifty has gained 6 percent in 2023 YTD and has outperformed only the UK (up 4 percent), MSCI EM (up 3 percent) and China (HSCEI) (down 6 percent), it said.
On the other hand, the S&P500 is the top-performing index this year so far, up 17 percent followed by Germany, France, Taian, Brazil, Japan, Russia MICEX and South Korea, up between 9-16 percent each.
But it is important to note that MSCI India’s outperformance has continued since January 2022 whereas other EMs (emerging markets) remain weak, stated MOSL.
MSCI India index has surged 107 percent since Jan 2022 followed by MSCI US, up 93 percent, MSCI World, up 92 percent, MSCI China, up 82 percent and MSCI EM, up 80 percent, it observed.
What lies ahead?
Vinod Nair, Head of Research at Geojit Financial Services
Strong domestic factors are providing crucial support for Indian equities, allowing them to maintain their strength despite attempts by weak global peers to disrupt the mood. India's service PMI remains robust at 60.2, indicating sustained demand even in the face of inflationary pressures.
Notably, small and mid-cap stocks have been standout performers, with both indices reaching all-time highs. Conversely, the weak Chinese service PMI has cast a shadow on hopes of an economic rebound in China, impacting global market sentiments.
Pradeep Gupta, Co-founder & Vice Chairman, Anand Rathi Group
Equity markets are volatile by nature in the shorter term and we witnessed key indices rally almost by 13.54 percent in the current FY. At present, the results and market positioning are the key for a short-term rally and the results season kicking in with better-than-expected results of a few major companies has further pushed and driven the short-term market sentiment.
Over 80 percent of the world's top 100 economies are now growing their GDP. Many of these countries, notably the United States and some European economies, have had faster growth than expected. As seen by the International Monetary Fund's upward revision of the global growth estimate, the economic picture for the second half of 2023 appears to be improving. However, the likelihood of worsening in specific countries cannot be ruled out.
Asset allocation, we believe, is the most important component of long-term wealth creation, accounting for nearly 90 percent of portfolio return. Market timing and the selection of specific instruments within an asset class explain only about 10 percent of portfolio return variability.
Parth Nyati, Founder of Tradingo
Despite the prevailing bullishness in the market with favorable liquidity and sentiment, the Nifty index is not trading at a significant premium valuation compared to its historic average. Currently, the Nifty is trading at 19 times its one-year forward earnings, slightly higher than its 10-year average of 17.5.
If you have a long-term investment horizon of more than 3 years, staying invested in the Indian equity market seems prudent due to the highly optimistic outlook for the next 3-5 years. The market is expected to remain bullish during this period, presenting the potential for significant growth. However, if you are a short-term investor, it may be wise to consider booking some profits in areas where valuations appear stretched.