“Stockmarket mania” is in full flower in India, says Mike Bird in The Wall Street Journal. The BSE Sensex stock index has gained 93% since March 2020. Last month it closed above 50,000 points for the first time.
The BSE Sensex’s gains have matched those of America’s S&P 500 since early last year, notes Bird. This rally is not justified by the economic fundamentals: GDP crashed by 24% in the second quarter of last year. Poverty has soared. In the country’s banking sector, long the economy’s Achilles’ heel, gross non-performing assets are set to rocket as the pandemic chokes off activity. Indian equities are priced for perfection, leaving them vulnerable to bad news ahead.
Modi’s magic money tree
Last month’s government budget provided an extra fillip for Indian shares. Finance minister Nirmala Sitharaman is turning on the fiscal taps, with the deficit set to hit 9.5% of GDP this fiscal year and 7% next year. Investors were pleased to be spared rumoured tax hikes.
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
New Delhi says it can “raise truckloads of money” by selling off stakes in state assets, says Prathamesh Mulye for Quartz India. Planned divestments include a life insurer, several logistics businesses and “beleaguered national carrier” Air India. It remains to be seen whether words are met with action: “Some of these names have been floating around for... years now but haven’t found any takers.”
It is 30 years since India began to tear up its cumbersome “licence raj” and put itself on a faster growth track, says Banyan in The Economist. Yet in recent years reforms have slowed and “even, in some respects, reversed” as Indian prime minister Narendra Modi’s government resurrects “older ideas of protectionism and state control”.
Modi is giving up his longstanding commitment to fiscal discipline, says Mihir Sharma on Bloomberg. Government deficits will remain elevated for years. India’s debt-to-GDP ratio looks on course to breach 90%. The government argues that it doesn’t matter if it overspends so long as the money is invested. That is a dangerous game for India to play. Unlike other big economies, India has neither a reserve currency nor a deflation problem. Inflation topped 7% last autumn: “Numbers more associated with Latin American stagnation than your typical Asian tiger.”
Things could come to a head if ratings agencies decide to downgrade India’s credit rating in the next few years, says Reshma Kapadia in Barron’s. The current rally certainly has momentum. Morgan Stanley thinks the BSE Sensex could hit 55,000 by the end of the year, but “investors should tread carefully”. As Bird notes, the country’s shares are trading on 24 times forward earnings, making them more expensive than America’s grossly overvalued S&P 500.
-
Half of UK homeowners will need to tap housing wealth to pay for retirementUnlocking property wealth could inject £21 billion each year into UK economy by 2040, according to new research
-
When will M&S take online orders again?Shoppers have not been able to place orders on the M&S website for more than two weeks, following a cyberattack. Meanwhile, the retailer’s share price has plummeted by 15%. When will things get back to normal?
-
'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
-
India's stock market decline wipes out $1.3 trillion in market value – can investors stay optimistic?More than $1 trillion has been wiped off from India's stock market after investors turn to China. Has the emerging-market darling hit rock bottom?
-
Global investors have overlooked these top tips in emerging marketsOpinion Chris Tennant, co-portfolio manager of Fidelity Emerging Markets, picks three attractive companies in emerging markets
-
Leading companies cashing in on India’s compelling growth prospectsOpinion Ewan Thompson, manager of the Liontrust India fund, highlights three companies he thinks are well-positioned to generate attractive economic returns
-
Should you invest in emerging markets?Emerging markets offer strong, long-term growth and excellent value, says Rupert Hargreaves
-
The best ways to invest in Vietnam – Asia’s communist dynamoVietnam has long been one of our favourite markets. The prognosis remains auspicious, says Alex Rankine.
-
India is a new global powerhouse — should you invest?India’s growth rate has slowed recently, but there is still ample scope for investors to benefit from its development.
-
Why Chinese stocks are so far out of favourThere’s little appetite for Chinese stocks despite low valuations.
