Indian market better off than Asian peers, BRIC

Even though bears have minced domestic markets considerably, has the decline in commodity or energy prices helped the domestic stock mark

et perform better than its Asian peers and other BRIC constituents? While crude prices tumbled by around 60% since its July 11 peak and a 40-50 % correction has set in metals and agro-commodities, the Indian stock market has fallen by 27% from mid-July - which is much less than its Asian and BRIC peers, analysis shows. Equity markets in other comparable Asian countries such as Korea (-29 %), Taiwan (-32 %), Japan (-35 %), Hong Kong (-37 %) and Singapore (-39 %) have sharply fallen even as the commodities' tide turned.

India's appeal to foreign investors becomes clearer when we put the performance of the other BRIC nations such as Brazil, Russia and China in perspective . From July, Russian markets have shed 65% of their values while China (-40 %) and commodity-centric Brazil (- 38%) has also been hard-hit .

Crude and other commodities raced towards their peaks in the first half of 2008 which indirectly resulted in stock prices tumbling as inputs became costlier. Corporate growth was said to be affected which led to investors dumping shares of companies in c o n s u m p t i o n - d r ive n economies like India, since demand-led earnings was likely to be lower in a scenario of higher prices. The decline in commodity or energy prices seen as a positive for the Indian economy, has also aided in putting brakes to the slide in share prices of Indian firms.

"India imports about 85% of its oil requirements and hence, the drop in prices augurs well for the trade and current account deficits. On the other hand, we are one of the few economies driven by domestic consumption and investment , unlike other regional economies which are dependent on exports. This makes us relatively insulated to global slowdown," Sukumar Rajah, chief investment officer (Equity) of Franklin Templeton Investments India said.

While the increased risk premium globally has resulted in more safe haven buying and flows out of emerging markets, the Indian stock market's relative outperformance could be perceived as better-placed than its peers. Fund-tracker EPFR has said that equity funds in emerging markets have lost around a tenth of their value as fears of a global recession have hardened, despite commodity prices falling like nine pins.

Helped by the fall in commodity prices, inflation is easing . And earnings reported by Indian companies have not been as bad as feared. "There are also more positive than negative surprises (41+ve, 30-ve , and 17 in-line ), though our analysts continue to wield their hatchets on earnings (40 downgrades, 11 upgrades - yes, still happening)," Citigroup Global market analyst said.

Source: EconomicTimes