India's stockmarket rally runs out of steam
India's BSE Sensex index fell early this week, and the country's economic outlook is shaky.

Has India’s stockmarket bounce run out of steam? The BSE Sensex index has been enjoying its longest winning streak since November, says Ronojoy Mazumdar on Bloomberg, rising for four weeks. Yet the index dipped early this week. The world’s third-worst hit nation by number of Covid-19 cases, India’s economic outlook is shaky.
The market is up by 35% since the March low, but that doesn’t mean the rally is over, Hemang Jani of Motilal Oswal Financial Services tells Aashika Jain on Forbes. On three of the four previous occasions that the market has plunged by more than 30%, the subsequent six-month returns on the Nifty 50, the index of top blue-chips, were at least 35%.
A long way back to normal
The economy faces an uphill struggle, says Prathamesh Mulye for Quartz India. A “stringent” Covid-19 shutdown in March led to 114 million people losing their jobs. The effect on household balance sheets and consumer spending has been devastating. Domestic consumption accounts for roughly 57% of Indian GDP and the economy looks set to contract “between 5% and 10% this year”. The slowdown is doing the shaky banking system no favours at all.
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India has always been a paradox, says The Economist. It is a large economy, but one where the people are poor. Institutions are robust, but policymaking can be chaotic. The latest problem – mass layoffs in a nation known for its restrictive labour laws – has not been lost on politicians. Moves are afoot to change the “quaintly fastidious” patchwork of rules that facilitate corruption and encourage businesses to remain “small and shadowy”.
Prime Minister Narendra Modi’s focus has been on China following Himalayan border clashes, says Sadanand Dhume in The Wall Street Journal. New Delhi has responded by banning 59 Chinese apps, including TikTok. Restricted access to the huge Indian market dents Beijing’s hopes of eclipsing America as “the world’s... technological power”. China’s spats with other nations could also prove a boon for India. Multinationals want to diversify their supply chains and India is an obvious candidate, says The Economist. The pandemic has not deterred foreign investment, with $20bn in cross-border deals announced since the lockdown from the likes of Facebook and KKR, a big private-equity firm.
On a cyclically-adjusted price/earnings ratio of 19 the market is much more richly valued than the emerging market average of 14.5. This is a country with much long-term promise thanks to its youthful population (half the population is under 25) and a vast, burgeoning middle class. Yet with the economy in a precarious position the coming year will be a difficult one.
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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.
Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.
He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.
Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.
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