India fourth-worst among Asian EM peers post trade war selloff

India is the fourth-worst performing emerging Asian market since the trade war-related sell-off began in February this year. Data compiled by the ETIG Database show that India’s benchmark Sensex and Nifty have lost 5.9 per cent and 5.8 per cent, respectively, since February while markets in China, Philippines and Hong Kong have declined 8.1-9.8 per cent.

Domestic factors such as introduction of long-term capital gains tax on equity, scam at Punjab National Bank and BJP’s poor show in Bihar and Uttar Pradesh bypolls also contributed to Indian market’s weakness. The upcoming state elections are expected to add to the volatility in the run-up to the general elections next year.

However, India’s benchmark indices have outperformed the emerging markets gauge — MSCI EM index, which fell 7.4per cent during the same period. The dollar index has risen 1.1 per cent during the same period.

In terms of foreign inflows also, India has been a recipient of net inflows since February to the tune of $523 million (till Friday) compared to Indonesia, South Korea, Malaysia, the Philippines and Taiwan which have seen outflows of $0.2 billion to $6 billion. Inflows into India also include investments in public issues. Analysts still see downside risks to Indian markets as earnings growth expectations look elevated vis-à-vis valuations. On a one-year forward basis, the Nifty is trading at 14.71 times compared to the MSCI EM index which is at 10.95 times.

“With FY18 likely to be another year of tepid earnings growth (single-digit expected), we would watch out for downgrade risks to FY19 estimates, given elevated expectations (20 per cent/24 per cent YoY for Nifty based on Citi/consensus forecasts),” said Citi, lowering the Sensex target for December 2018 to 35,700. Citi said 2018 will be a volatile year for Indian markets.