Those who complain that Western stockmarkets have become disconnected from the economy should take a look at India. Prime Minister Narendra Modi ordered a very strict lockdown last spring. GDP subsequently crashed by 23.9% in the first quarter and the World Bank thinks output will contract by 9.6% in the 2020-2021 fiscal year (to 1 April 2021).
Yet the stockmarket has continued to make all-time highs. The BSE Sensex benchmark has soared by 90% since last year’s March lows and is up by 20% on pre-pandemic levels.
India’s economy had been slowing even before the virus hit, says Tish Sanghera for Aljazeera. While governments across major economies unleashed massive fiscal stimulus to cushion the shock, elevated debt levels have reduced New Delhi’s room for manoeuvre.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Fiscal measures designed to fight the crisis are estimated to be worth just 1% of GDP. While consumers in many countries are sitting on a pile of furlough cash, nearly half of Indian households report that their incomes have fallen over the past year.
Instead, the government has focused on reforms to labour and agricultural laws to boost the economy. India’s leaders have shown “unusual energy” in pushing through the latest reforms, says Mihir Sharma on Bloomberg. Perhaps too much energy: the government’s lack of consultation has sparked a needless backlash. Furious farmers have descended on the capital to protest against changes that would open up agricultural markets. Multiple rounds of talks are yet to deliver a solution.
A vulnerable bull market
The stockmarket’s surge is being driven by foreign investors, says Prathamesh Mulye on Quartz India. Low global interest rates and a weakening dollar have prompted a rush into emerging markets; $14bn of overseas cash piled into India during the last two months of 2020 alone.
Indeed, the local stockmarket is so “out of tune” with the economy that the Reserve Bank of India, the central bank, has warned that it could put financial stability at risk. Asian markets have raced off the starting blocks this year, says Mike Bird in The Wall Street Journal.
Yet the indiscriminate gains across markets as different as South Korea and India suggest something is wrong. Heavy reliance on foreign investment inflows could leave India’s stock rally badly “exposed” if investors’ sentiment shifts.
On a cyclically adjusted price/earnings (p/e) ratio of 21.3, Indian shares are more expensive than major markets across Asia and Europe and well above the emerging market average of 15.7. The rally may have momentum, and the longer-term outlook remains compelling, but for now it seems there is a long way down for the country’s shares.
-
Which investment trusts could benefit from lower interest rates?As vehicles for long-term investments, many investment trusts were hit when interest rates rose in 2022. With interest rates expected to fall by the end of the year, could now be the time to invest in one of these unloved sectors?
-
How to protect your personal and financial data from cyber attacksM&S and the Co-op are the latest retailers to suffer from cyber hacks but consumers also need to be vigilant
-
Unilever braces for inflation amid tariff uncertainty – what does it mean for investors?Consumer-goods giant Unilever has made steady progress simplifying its operations. Will tariffs now cause turbulence?
-
'Technology will determine tomorrow’s top stocks in emerging markets'Opinion John Citron, investment manager of the JPMorgan Emerging Markets Investment Trust, tells us where he’d put his money
-
Two ways to tap into monopoly profits from airportsMost investors can’t get their hands on airports. Here are two ways you can
-
Fat profits: should you invest in weight-loss drugs?The latest weight-loss treatments could transform public health and the world economy. Should you invest?
-
How investors could profit from Ramsden Holdings' four-part growth strategyRamsdens Holdings offers a diversified set of financial and retail services and a juicy yield, says Dr Michael Tubbs
-
How to invest in the booming insurance marketThe insurance sector is experiencing rapid growth after years of stagnation. Smart investors should buy in now, says Rupert Hargreaves
-
Out of America's shadow: Why Trump's tariff chaos may be good for non-US stocksOpinion Upending global investment and trade could benefit other countries at the expense of the US market, says Cris Sholto Heaton
-
BP's 'long, painful decline' – and why next year could be even tougherOpinion Long-suffering shareholders in oil giant BP have been pushing for change. It won’t come soon enough, says Matthew Lynn
