Christopher wood who writes GREED & fear ……is surprised by the extent of Indian outperformance year-to-date in an Asia and emerging market context in US dollar terms. So, GREED & fear suspects, are many fund managers.
The Indian outperformance has become quiet marked. The MSCI India Index has declined by only 1.3% in US dollar terms year-to-date, while the MSCI AC Asia Pacific ex-Japan Index and the MSCI Emerging Markets Index are down 5.1% and 7.6% respectively over the same period.
Why has India been so resilient and defied bearish expectations? One reason is that India, as primarily a domestic-driven economy, is clearly much less exposed to Trump-driven trade concerns. But in GREED & fear’s view the stock market’s resilience may also be a sign that India is contra cyclical in the sense that the economy is accelerating at a time when many other markets in Asia could be near their cyclical peak. In this respect, it needs to be remembered that it is 10 years since the last investment cycle peaked. The gross fixed capital formation to nominal GDP ratio has declined from an estimated 36% in FY08 to 28.5% in the past three fiscal years . When that new investment cycle commences it will be very bullish for the stock market. This is the main reason why GREED & fear has been less concerned about the undoubtedly high valuations in India.
India’s corporate profit as % of GDP has declined from 7.1% in FY08 to 3.1% in FY18 ended 31 and is in the process of bottoming out.
But it must be noted that the Capex cycle has still not picked up and the economy is still dependent upon borrowed consumption spending and mortgage. How long will this sustain is a million dollar question?