May 23, 2019 | 12:10 PM


13.06.2013India On Painfully Slow Path To Recovery

The worst may be over for India, but this is one slow walk down a very long and winding road.

Kenneth Rapoza, Forbes.com

The worst may be over for India, but this is one slow walk down a very long and winding road.  India isn’t the worst performing BRIC, but it’s still underperforming the MSCI Emerging Markets index and Wednesday’s data shows why investors aren’t all that excited about it.

Liveblog: Sony's PS4 Press Conference At E3 2013
How The Human Face Might Look In 100,000 Years
Ohio Dept. Of Insurance: Obamacare To Increase Individual-Market Health Premiums By 88 Percent

Industrial production grew 2.0% year over year in April, failing to meet market estimates of 2.4%. Production is at least stable, but not growing much.  On a more positive note, IP growth for March was revised higher to 3.4% from 2.5%.

Then there’s ongoing weakness with the rupee, which the Reserve Bank through a lifeline on Tuesday when it was trading at its lowest level in years.  The slow economy means Indian interest rates aren’t going anywhere anytime soon, but the government will have to figure out away to bring in capital as its budget deficit woes continue unabated.

India’s industrial sector remains weak and is not seeing any broad-based improvements, Barclays analysts led by Rahul Bajoria said in a note to clients today.  The capital goods segment is ‘normalizing’ back to weaker trends in capital formation and recorded only 1% growth in April compared to the same period last year.

This has been the worst year-to-date performances for emerging markets in history, and India is part of the drag.  The gap between emerging market equities and developed markets is very wide.  Emerging markets are down around 11% while developed markets are up over 15%.

“One of the dynamics is that the trend of the world’s economies has changed, so even though emerging is growing faster as a group while developing is not, the fact is that expectations for growth there have been revised more negatively,” said Morgan Harting, a portfolio manager for AllianceBernstein.

In developed markets, investors see trends that are broadly more favorable. That goes for the U.S., Europe and in Japan where the Bank of Japan is spreading liquidity love all over the markets.  This liquidity has generated a tailwind for developed markets, while emerging markets like India have not participated in the party.

The Wisdom Tree India (EPI) exchange traded fund is down 14.66% year-to-date.  It’s still doing better than the Market Vectors Russia (RSX) fund, down 18.23% and the iShares MSCI Brazil (EWZ) ETF, down 15.46%.  The iShares FTSE China (FXI) ETF is doing about as “great” as Wisdom Tree’s India.

Consumer inflation is slowing, but still ridiculously high. Indian inflation is the highest of the BRICs, with May CPI coming in at 9.3%. Food inflation for May was over 10% compared to May 2012 and fuel inflation rose 8.5%.

India’s current account deficit is likely to remain elevated and financing it will be a challenge in the coming weeks, Barclays said.

“We expect policy tools to be used to support sentiment, including further liberalization of the capital account,” Bajoria wrote, adding that further possible measures may include limited Reserve Bank intervention to support the rupee, greater opening of the bond market to foreigners and relaxation of limits to foreign direct investment in India as the country looks to attract capital.

Top Stories on FatCat.com.au

How to stop fuel costs guzzling your cash A national FuelWatch scheme will be launched later this year, but can it bring relief to motorists at a time of...

News from TheBull.com.au

© Copyright 2019, FatCat.com.au. All right reserved.