Despite having lost nearly a third of the gains made this year, Chinese markets are poised to outperform Indian markets for the second consecutive calender year. The Shanghai Composite gave year-to-date returns of 6.5% during CY15, against a 4.9% decline witnessed by the Sensex, Bloomberg data showed.
After a massive rally that saw it more than double between June 2014 and June 2015, the Shanghai composite lost more than 40% of its value between mid-June and August. The fall was accentuated with investors offloading their holdings in the Chinese markets over fears of slowdown in the economy and poor factory data. On July 27, the Shanghai Composite posted its biggest single-day fall in eight years, forcing the Chinese government to take corrective measures.
The government suspended scrips with high volatility from trading further and asked brokerages to buy shares backed by China’s central bank. However, Chinese scrips made a comeback in the last three months as the Shanghai Composite climbed 7% during the period.
The Indian markets, on the other hand, started off on a positive note as the Sensex touched its lifetime high of 30,000.24 points on March 4. However, markets have corrected sharply since April as global uncertainties triggered sell-off by investors, especially foreign portfolio investors (FPIs). While investors trimmed back their expectations on economic reforms by the NDA government, worse-than-expected earnings performance of India Inc has fuelled concerns that the economic recovery may take longer than anticipated. Investors also grew increasingly impatient with the pace of economic reforms.
The FPIs bought equities worth $3.5 billion during CY15 – the worst in last four years. In fact, in the five of the last seven months, FPIs have sold equities close to $5.4 billion worth of Indian shares.
Inferior market performance notwithstanding, India continues to command the highest valuations among emerging markets due to its relative attractiveness. The one year forward price to earning of the Sensex is currently 16.84 times. Numerous brokerages have pointed that India would be an outperformer in the emerging markets universe due to better GDP trajectory as well as relative stability in the domestic currency.
Morgan Stanley said in a research note published on November 26 that India continues to be an ‘overwieght’ among emerging markets due to improved fiscal discipline, lower inflation and balanced current account position.
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