{"id":811,"date":"2018-01-26T05:34:33","date_gmt":"2018-01-26T05:34:33","guid":{"rendered":"https:\/\/www.antya.ca\/research\/2018-india-tread-with-caution\/"},"modified":"2026-02-17T06:27:33","modified_gmt":"2026-02-17T06:27:33","slug":"2018-india-tread-with-caution","status":"publish","type":"post","link":"https:\/\/www.antya.ca\/research\/2018-india-tread-with-caution\/","title":{"rendered":"2018 India \u2013 Tread With Caution"},"content":{"rendered":"
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We are not excited by the prospects for the Indian equity market in 2018. Either the market will stagnate to allow valuations to fall in line with historical norms, or it will correct, and new stock-specific opportunities will emerge again. Furthermore, India has a correlation of 90% to MSCI EM Index with a lower 3-year Sharpe ratio of 0.54 versus 0.62, and a deeper drawdown in times of stress of 72.6% versus 65.1% for EM.<\/p>\n

Therefore, to be market-weight or overweight India at this juncture with sky-high valuations, a more hawkish global central banking outlook and the curtain rising on new political theater is not advisable. Nonetheless, if you are invested in India and decide to stay put, we recommend\u00e2\u0080\u00a6<\/p>\n<\/div><\/div>\n<\/div>\n

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India 2018 \u00e2\u0080\u0093 Caution is the Byword<\/strong><\/p>\n

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.<\/p>\n

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<\/p>\n

23.5%. Not to be left behind MSCI Emerging Markets Index (\u00e2\u0080\u009cEM\u00e2\u0080\u009d) delivered 37.7%. Keeping pace was MSCI India USD Index (\u00e2\u0080\u009cIndia\u00e2\u0080\u009d) delivering a total return of 38.7%. If one believes the current prognosis of some of the world\u00e2\u0080\u0099s most important opinion makers in investing then, \u00e2\u0080\u009cIndia is still attractive. \u00e2\u0080\u00a6[1]<\/u>\u00e2\u0080\u009d. To us it appears that Mr Wien is late to the party that Jeffrey Gundlach started in earnest in 2017 when he said; \u00e2\u0080\u009cI like Japan and India. It is the new China[2]<\/u>.\u00e2\u0080\u009d<\/p>\n

In ANTYA\u00e2\u0080\u0099s view, while comparisons of India to China are misplaced, Gundlach\u00e2\u0080\u0099s 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\u00e2\u0080\u0099s 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.<\/p>\n

[1] Byron Wien \u2013 January 11, 2018, CNBC
\n[2] Jeffrey Gundlach \u00e2\u0080\u0093 January 14, 2017 \u00e2\u0080\u0093 Barron\u00e2\u0080\u0099s Roundtable\n<\/p><\/div>\n

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