Indian markets @ bottom of BRICS ladder - still an attractive investment destination?

By Amit Mudgill

NEW DELHI: The performance of Indian equities market year to date may be trailing its other BRICS peers, but the local markets appear quite attractive for investment, analysts say.

Experts believe this is the right time to build a long-term portfolio as stock prices will not be as reasonable when earnings start rebounding, probably from the December quarter onwards.

Sensex & BRICS

Data show that the BSE benchmark has fallen 0.80 per cent so far this calendar year, compared to China’s 30 per cent rise.

Russian markets as suggested by the MICEX have surged 18 per cent, while IBovespa, representing the Brazilian markets has gained 8 per cent so far this year.

Even South African index JSE FTSE All share index has returned 4 per cent in the period mentioned.



The five indices mentioned above represent stock markets of a group of five fast emerging economies, BRICS. The term is an expanded version of BRIC, first coined by Jim O'Neill of investment bank Goldman Sachs back in 2001.

Concerns & outlook

The poor performance of the domestic markets can be largely attributed to tepid growth in earnings, delays in policy rate cuts and fears of a below normal monsoon, which has the potential to flare up inflations this year.

Gaurav Dua, head of research at Sharekhan, said, “Indian benchmarks are now quoting at a quite lower premium to MSCI EM index than their long-term averages. One must not forget that it is the domestic benchmarks that were among top global performers of 2014. Foreign fund are just adjusting to that.”

The BSE Sensex rose 30 per cent and was among the top 5 global performers in 2014.

Dua said that a couple of reasons capped the upside on domestic indices and poor earnings were one of them. That said, he is advising investors to start building portfolios for long-term gains.

“If we ignore the short-term performance and look at the bigger picture, I still expect Indian market can surely beat Asian peers in the long term. We are in a bull run. The markets are going to be at much higher levels than they are at present four years down the line. Earnings are likely to show a visible rebound from H2FY16 onwards.”

Tushar Pradhan, CIO, HSBC Global Asset Management said, that that we are in interesting times for both international as well as India markets.

“The domestic economy clearly seems to be in a rebuild phase, but the numbers are yet to come in. Earnings are something which the market is still taking a little easy. Due to this fact we seem to be in a very attractive position now. If investments have to be made from assets such as equities, it is the risky assets that really make a lot of sense,” Pradhan said.

“Interest rates are at higher levels than what that should normally be. Given where the economy is, we would expect lower rates later in the year. These are all makings of a very interesting time in equity markets,” Pradhan added.

Vikas Khemani of Edelweiss Securities, in an interview to ET Now, said, “As far as medium-to-long-term perspective is concerned, markets still look interesting. It is probably one of the best time to build portfolio from a long-term perspective. You would not get these levels when the earning cycle starts picking up, probably from the December quarter onwards.”

The ongoing concerns over domestic growth and global cues have led to a foreign outflow of Rs 4,307 crore so far this month. This was in addition to Rs 5,000-crore outflows seen in the preceding month.

Rashesh Shah, Chairman & CEO, Edelweiss Group, pointed out that LIC is expected to infuse between $14 and $15 billion in domestic equities, Indian mutual funds would add $14-15 billion, while Indian insurance companies are expected to pump another $8-10 billion in domestic equities.

“Even if you take $30 billion, that equities to Rs 1,80,000 crore, this is going to be more than the money that comes in from the FIIs this year. FIIs will come and go and the markets will in the short-term swing to their tune, but the long-term real stable money is now also coming from Indian institutions. So, they will counterbalance and that is why we are seeing robust market. The trend is resilient because India’s savings are $600 billion. If you take 5% of that, that is only $30 billion.

“Indian institutional flows are also very strong and, in fact, the good news is that if FIIs have slowed down, at least the Indian institutions are very active because we are seeing mutual funds getting Rs 7,000-8,000 crore of equity inflows every month. if I add that up, there is going to be Rs 80,000 to 100,000 crore of equity money coming in. That is close to $14-15 billion, what FIIs would bring into the country."

Meanwhile, Dua believes that certain pockets such as consumer discretionary and private sector banks have started looking good on likely improvement in fundamentals over the next two years.