Indian equities lag behind in dollar returns

Mumbai, Jan 1 | Updated: Jan 2 2006, 06:32am hrs
India figures nowhere in the top 10 list of global emerging markets in terms of dollar returns on equities. While the Sensex did offer 44% return in domestic currency, in dollar terms it was just over 35%, pulling Indias rank down to 18 among the emerging markets.

According to MSCI Standard Index series, MSCI India has given only 35.38% returns, much lower than countries such as Egypt (154.5%), Colombia (102.3%) and Jordan (71.72%). Compared to Asian peers too, India fares lower than Pakistan (56.49%) and Korea (54.28%). MSCI India has posted higher return of 40.72% in rupees while MSCI Pakistan has also posted 57.45% returns in its local currency, slightly higher than dollar returns. MSCI Koreas return on equity for 2005 in its local currency at 50.65% has under performed its return in dollar terms.

After enjoying a fantastic year of foreign fund flows into the equity markets, 2006 may not be so hot. According to one of the worlds top brokerage house, benchmarking MSCI Index returns, has recommended to their FII clients to go underweight on India.

It has argued that though growth earnings and liquidity will remain strong, India was the most expensive market amongst GEM. Forex weakness worries us. It is a sign that capital inflows are abating following strong equity gains. Besides, Indian inflation is at an inflection point. Rate increases are expected to follow and that will be the catalyst to take profits, it said in its outlook for 2006.

Indian rupee has depreciated about 3.97% in 2005 while Pakistani rupee has appreciated 2.32%. South Korean won depreciated a massive 5.16% during the year. The three best-performing currencies versus US dollar in 2005 were Brazilian rial 18%, Chilean peso 8% and Mexican peso 7%. On the other hand, the three worst-performing currencies versus US dollar were Hungarian forint -19%, South African rand -12% and Polish zloty -10%.

2005 was the third consecutive year of the emerging market equity bull market. The MSCI emerging market free (EMF) index gave a total return of 30.3% in 2005. This follows 26% in 2004 and 56% in 2003 and compares with a mean annual return of 13.2% since its inception in 1987. From 10 October 2002 to date, the total return from EMF has been 194%. Over the same period, GEM market capitalisation has risen from $0.5 trillion to $1.5 trillion.