Indian markets have performed relatively better than their global market peers in 2022 till August, a report by Bank of Baroda (BoB) noted.
It is important to note that for comparison purpose, BoB has assumed December 2021 to be the base and have analysed how global markets have performed this year since then till August 31.
Amongst major markets, Indian benchmark Nifty and UK index FTSE have largely outperformed between January-August 2022. In this period, the Indian benchmark (Nifty) has advanced 2.3 percent while FTSE is up 2.8 percent, BoB pointed out.
On the other hand, during the same time, US indices S&P500 and Dow Jones have lost 10.7 percent and 7 percent, respectively. Meanwhile, among Asian peers, Hong Kong's Hang Seng has shed 15 percent whereas Japan's Nikkei is down half a percent, informed BoB.
As per the report, a key reason for the performance of stock markets in the US remains concerns regarding growth slowdown and the Fed’s aggressive monetary policy stance. Recently at Jackson Hole too, Fed Chair Powell reasserted that Fed will continue to remain hawkish to tame currently elevated levels of inflation. This is expected to hurt growth in the near term, predicted BoB. Tech-heavy S&P500 has thus been impacted the most in the US, it added.
It further showed that in the case of the UK, FTSE is largely dominated by financial, energy and material stocks (contributing to 41 percent in FTSE versus 16 percent in S&P). These stocks have been buoyed by increases in rates and global commodity prices. Also, there is limited dominance of tech stocks which acted as a drag in other market indices, explained the report.
In India’s case, sustained improvement in economic growth has helped its stock markets, said BoB. So far in 2022 (till August), air passenger traffic growth is up by 82 percent (YoY), rail freight traffic by 9.3 percent, toll collections by 62 percent and diesel consumption by 13 percent, the report mentioned.
Corporate results for the June quarter of the financial year 2023 (Q1FY23) also rose solidly. Even looking at 3-year CAGR, sales rose by 13.3 percent during this period compared with 39.8 percent when reckoned over FY21, noted BoB.
Even IMF expects India’s growth at 7.4 percent in the current year, compared with 3.3 percent in China and 5.3 percent in ASEAN-5. This will also be much higher than the 4.6 percent average growth expected for emerging Asia and developing economies, it added.
Meanwhile, developed markets like the US and Euro Area are estimated to register 2.3 percent and 2.6 percent, respectively growth this year. UK’s growth is however projected to be higher at 3.2 percent, the report pointed out.
Another reason for the recent outperformance of Indian markets is the return of foreign investors.
"In India, FPIs (equity) has also seen a turnaround in the last 2 months (July-August 2022) with inflows at $ 6.8 billion, compared with an outflow of $28.6 billion between January-June 2022. In CYTD terms, FPI outflows from India stood at $21.7 billion, compared with outflows of US$85.3 billion (till June 2022) from China, $38.2 billion from Taiwan (till August 2022), $211.8 billion from the US (till June 2022), and $133.1 billion from the Euro Area (till June 2022)," the report informed.
Going forward, BoB believes that the global markets will react to incoming data from the US, Europe and China to assess the impact of consistent rate hikes by major central banks.
"Energy crisis in Europe and increasing bills of utilities, food, beverages in the UK will affect consumption demand in the area, thus increasing the risk of recession. China’s looming property crisis will add to global woes. In India, with the festive season ahead, investors will closely monitor the impact of inflation and front-loading of rate hikes by RBI on domestic demand," it said.
