The Indian market has been the one-eyed king in the land of the blind in 2022, outperforming most major markets, Manish Gunwani, chief investment officer for equities at Nippon India Mutual Fund told Business Standard.
In an interview with market daily, Gunwani said, "we have relatively strong growth and a healthy corporate earnings cycle as positives, but a worrisome current account deficit and high inflation as challenges."
He further noted that both the Indian stock market and currency have significantly outperformed EMs in general. This high base may mean that further material outperformance is difficult in the near term. In the long-term, the fundamentals of the Indian economy are much more attractive than most EMs, he added.
However, the market expert cautioned that it will be difficult for India to replicate the outperformance over emerging markets (EMs) in the last few quarters.
Talking about the latest recovery, he said that after a stiff correction in most assets globally in the first half of this calendar year, stability in bond yields and inflation peaking out had brought some relief to the markets. While inflation is likely to descend from the current levels, given the extent of negative real rates in developed economies and asset inflation remaining healthy, there is a good chance that monetary tightening will continue for quite some time, he added.
He further mentioned that while the slowdown in China is bad for global growth, but is not as bad for India as it has been a headwind for commodity prices, especially energy.
"The slowdown in China is broadly priced in by markets, but the tail risk could be if the yuan was to undergo a disorderly depreciation, which would then transmit to other EM currencies. At this point in time, we are not seeing signs of this," said Gunwani.
He also pointed out that going ahead FII flow into India should broadly depend on flows into EMs in general – and this in turn typically depends a lot on dollar strength.
"If the dollar was to appreciate, it is unlikely that FII flows into India will be positive. There seems to be a pattern wherein flows by domestic and FII investors gather strength by turns; so if FII inflows increase, it is likely that domestic investors will book profits," noted Gunwani.
