MSCI Asian stocks are standing tall, but Indian peers wilting

The lacklustre demand scenario in the country has led to frequent reduction in corporate India's earnings expectations, which has impacted the performance of Indian equities relative to regional peers. Over the past three months, stocks that have made it to the MSCI India index have underperformed their Asian peers. While the MSCI Asia index delivered 4% over the past three months, the MSCI India index fell 2%. Most of the regional MSCI indices are calculated in dollars. Experts attribute this to the devaluation of the Chinese yuan in mid-August. Foreign portfolio investors have sold Indian stocks worth nearly $3.5 billion on worsening underperformance. The cumulative investment in 2015 has reduced to $3.5 billion from $6.94 billion in mid-August.

NSE Nifty has emerged as the third worst performer in Asia after Singapore and Thailand, giving a negative return of 0.5% over the past three months. This has been driven by massive earnings cuts and the expensive relative valuations of Nifty companies. India’s consensus EPS has been cut by 15-20% over the last year. This downgrade cycle has been very sharp — the second sharpest in the past 15 years and double the region’s average. The significant downgrades have been in firms whose earnings are linked to the global commodity cycle. On relative valuation, past data shows Indian stocks have always underperformed the MSCI Asia when its premium surpasses 50%.