Neutral On Indian Equities, Looking For A Favourable Entry Point


We remain bullish towards Emerging Asian equities relative to Developed Asian equities due to a superior economic growth outlook, cheaper valuations, and a more favourable technical picture. Within EM Asia, our favourite pick has long been the Shanghai Composite. We argued earlier this year that Chinese equities were very cheap even relative to Emerging Markets globally (See 'China Yet To Participate In EM Rally', May 21) and called for Shanghai Composite outperformance amid an increasingly attractive technical picture.

In EM Asia, Indian equities have been on the rise, hitting all time highs. The Sensex Index is one of the best performing markets globally since the start of 2014, returning 26.7% year-to-date (YTD) as compared to MSCI Emerging Market (EM) Index and MSCI World Index (which returned 7.2% and 4.2%, respectively YTD [in USD terms]). Even on a 10-year annualised basis, the Sensex Index outperformed both MSCI EM and MSCI World Indices, returning 14.7% (as compared to 7.5% and 4.2% for the two other indices, respectively). The outperformance of Indian equities since the start of the year can be attributed to the optimism by investors over the landmark win by the Bharatiya Janata Party (BJP) led by the new Prime Minister, Narendra Modi. Despite the improving fundamental outlook, and reasonable valuations, we hold a neutral view on the Sensex due to the deteriorating technical picture.

Reasonable Valuations

Significant Outperformance
Year-To-Date (YTD) Comparative Returns Of Sensex, MSCI EM & MSCI World Indices (Top) & 10-year Annualised Returns

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Related sectors of this article: Economy, Finance, Equities, Economic Activity
Geography: Asia, India