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Business News/ Market / Stock-market-news/  India the worst emerging equity market after China in dollar terms
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India the worst emerging equity market after China in dollar terms

Year-to-date, Sensex down 10.3% in dollar terms; rupee, Asia's worst performer, has shed 2.58% this year

Photo: BloombergPremium
Photo: Bloomberg

India’s benchmark Sensex has underperformed all major emerging market indices in 2016, barring China, and the situation may worsen further, experts say.

Year-to-date, BSE’s 30-share Sensex has declined 10.3% in dollar terms, making it the second-worst performing major emerging market in the world, as global risk aversion hampered foreign fund inflows and poor corporate earnings and lack of demand for goods continued to bother investors.

The rupee has shed 2.58% this year to close at 67.90 per dollar, making it Asia’s worst performing currency.

China’s Shanghai Composite Index was the biggest loser among emerging market indices, with a 23.6% decline in dollar terms this year.

On Tuesday, the Sensex fell 1.1% to close at 24,020.98 points, while the National Stock Exchange’s 50-share Nifty shed 1.21% to close at 7,298.20 points. It was the lowest close since 21 January for both indices.

“There are too many events globally that are bothering the market and there is risk-off trade. Safe haven bets such as US treasuries and gold are performing pretty well. There is a clear flight to safety," said Vaibhav Sanghavi, managing director of Ambit Investment Advisors Pvt. Ltd.

“Unless we see stability in China, settling down of crude oil and certainty on US rates, situation may remain hazy. Global markets, including India, will be extremely volatile until these issues see some resolution," added Sanghavi.

Foreign institutional investors have pulled out $1.8 billion from Indian shares so far in 2016, the second-highest, after South Korea, in Asia (excluding Japan).

As many as 26 of the 30 Sensex stocks are in the red, year-to-date. Top lender State Bank of India and power equipment maker Bharat Heavy Electricals Ltd led the losses with declines of 25.6% and 22.4%, respectively.

All the sectoral indices, with the exception of the BSE Consumer Durables Index, have declined this year.

World markets traded in the red on Tuesday as European shares gave up early gains due to a drop in bank stocks and losses in Asian markets, sending investors hunting for safe havens. This strengthened the Japanese yen, considered a safe-haven asset, and drove the yield on Japan’s benchmark government bond into negative territory for the first time ever.

“Asian markets are selling off because of global risk aversion this time, not so much because of Asia-specific reasons. Concerns about US corporate debt markets, European peripherals and developed-markets central bank policy effectiveness are the main themes," said Maarten Jan Bakkum, senior strategist (emerging markets), NN Investment Partners.

The China hangover will continue to bother world markets, including India, as investors will avoid risk for a while, market participants said. Chinese markets are closed this week for the Lunar New Year, and all eyes are set on what happens when they resume trading on Monday.

“It will be important to watch China after the new year holiday. Policymakers there will have to do something to stop the capital outflows. China risk is likely to become the dominant theme again in the coming months. Emerging markets as a whole remain vulnerable, mainly because of China risk and the large debt overhang in most EMs (emerging markets)," Bakkum said in an email.

In India, things are improving gradually on the macro front, but so far there has been nothing much to cheer about.

On Monday, government data showed that Asia’s third largest economy is forecast to expand at a faster pace in the full year to March, although gross domestic product growth slowed in the fiscal third quarter.

Data released by the Central Statistics Office projected growth of 7.6% in 2015-16, against the government’s more modest expectation of 7-7.5%. This, despite growth decelerating to 7.3% in the quarter ended December from 7.7% in the previous quarter.

Earnings in the December quarter have been tepid, and a meaningful recovery in demand is not in sight, leading to lacklustre corporate earnings for fiscal 2016. Also, the striking negative is a surge in provisions for bad assets by state-run banks.

Operating profitability or Ebitda (earnings before interest, tax, depreciation and amortization) for BSE 500 firms, excluding banks and financial services, is likely to post single-digit growth for fiscal 2016 and fiscal 2017 given the sharp decline in gross value-added growth expectation for fiscal 2016, India Ratings and Research said in a release on Tuesday.

This would be much lower than the Ebitda growth of 17-22% in the post-financial crisis period, from fiscal 2010 to fiscal 2012, the release added.

“Corporate profitability growth will rely largely on urban consumption (which could fade as inflation increases) and to an extent on general government expenditure (centre and state)—the only two pillars of growth in FY17," the release said.

“Export growth and private corporate capital expenditure are unlikely to contribute meaningfully to growth during the course of FY17 and if the government continues on its path of fiscal consolidation," it added.

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Published: 10 Feb 2016, 01:10 AM IST
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