India 2018 – Caution is the Byword

For global investors, 2017 was expected to be a challenging year with a protectionist President Trump in office combined with a more hawkish Federal Reserve. Market participants and the business media left no stone unturned in debating and highlighting the imminent demise of the global bull market in stocks, running into its tenth year currently. Many have turned their attention sheepishly to repeating the same prognostications of doom and gloom for 2018, albeit, a few have reluctantly thrown in the towel citing synchronised global growth and U.S. tax reform.

For those keeping score, S&P 500 returned 21.8%, Dow Jones Industrial Average 28.1%, EURO STOXX 24.8% and the STOXX Global Total Market

23.5%. Not to be left behind MSCI Emerging Markets Index (“EM”) delivered 37.7%. Keeping pace was MSCI India USD Index (“India”) delivering a total return of 38.7%. If one believes the current prognosis of some of the world’s most important opinion makers in investing then, “India is still attractive. …[1]”. To us it appears that Mr Wien is late to the party that Jeffrey Gundlach started in earnest in 2017 when he said; “I like Japan and India. It is the new China[2].”

In ANTYA’s view, while comparisons of India to China are misplaced, Gundlach’s comments may have influenced some U.S. debt investors to allocate capital to India in 2017. The widening interest rate differential between developed markets and India was too enticing to ignore. Also, lower crude oil prices proved to be a boon for India. Lower crude kept a lid on consumer price inflation, helped to control the current account deficit, and yield-seeking inflows enabled the INR to strengthen, juicing returns for both equity and debt investors. In ANTYA’s view, the tide has turned with favourable trends of 2017 turning rapidly into headwinds. We are cautious on the prospects of the Indian equity market in 2018 and recommend an underweight position compared to the EM.