Emerging markets (EMs) and currencies have seen a major selling in the month of June, following the US Federal Reserve’s decision to hike interest rates by 75 basis points (bps) and signalling another 75-bp hike in July. However, post the US Fed policy, most EMs see deeper cuts than India, a report by Business Standard noted.
It added that month-to-date returns for most stock market gauges are flashing red.
As per the report, domestic indices are down 5.3 percent in local currency terms and 6.1 percent in US dollar terms so far this month in the middle of a $6-billion outflow from overseas investors.
However, India’s performance is still better compared to other EMs, noted BS. For instance, equity markets in Brazil, South Korea, the Philippines, and Taiwan are down between 11 percent and 20 percent in US dollar terms, stated the report. It further noted that only China and Indonesia outperformed India in June so far.
China's was the only equity market that managed to give positive returns this month, rising around 5 percent in June so far, as per BS. Meanwhile, Indonesia fell 3.4 percent during the month. Even though the EM equity market is in the red but it has still performed better than Indian markets in this period, BS added.
“India will continue to remain an attractive investment destination once the risk appetite improves. After the recent correction, Indian equity-market valuations have also turned more reasonable, moving closer to the historical long-term average in terms of the price-to-earnings multiple. Although volatility can remain high in the near term, it presents an attractive opportunity to build up on equity exposure as a healthy earnings momentum is expected to remain a key pillar for the markets,” says Milind Muchhala, executive director, Julius Baer India told BS.
The report further noted that in June, the safe-haven greenback has also strengthened against most currencies this year amid reversal in capital flows.