The Indian equity market is the second worst performer in 2011, following Brazil’s Bovespa in US dollar terms. While fears of a global slowdown continue to weigh on equity markets worldwide, relatively higher inflation figures and currency depreciation further pulled down emerging market equities in terms of performance.
For instance, the worst two performers, Brazil and India, with higher inflation rates in the range of 7 to 10% saw their currency depreciate sharply, especially in last two months. For 2011 so far, while Brazilian real lost 7% of its value, the rupee declined by about 9%.
For the year till date, Brazilian equity market as measured by Bovespa has fallen 24.6% in Real terms and 29.7% in dollar terms, the difference being the currency depreciation. Similarly, Indian equity market as measured by Sensex fell 20.8% in rupee terms while falling 28% in dollar terms.
Similarly, the performance of other asian markets such as Taiwan and Thailand has been affected by a relatively higher inflation rate and currency depreciation to the tune of 3 to 4% of their respective local currencies.
According to a report by Kotak Institutional equities, on a proportional basis (country flows as a % of total estimated assets), Indian outflows were the second highest among emerging markets in the past three months.
India has witnessed outflows worth $463 million in the last month taking the three month tally to about $2 billion. Of this, ETFs have contributed to around 23% of the total outflows,? the report said. In contrast, stronger currency standings of Singapore, Hong Kong and Chinese markets have helped the relative performance of the above markets.
Indonesia has done relatively well with lower inflation numbers among emerging countries and stronger local currency, Indonesian rupiah. FIIs have so far invested close to $1.7 billion in Indonesian equity markets while remaining net sellers worth $ 10.7 billion, $6.8 billion and $906 millions in Taiwan, South Korea and Thailand markets respectively.
While India also experienced a net outflow of $568 million of FII money in 2011 so far, it has seen a comparatively smaller flows in most part of the year with FIIs remaining ‘underweight’ on the country for most part of the year. Against FII buying activity (gross purchases) worth $242 bn for South Korea and $165 billion for Taiwan, the Indian equity market has so far seen gross foreign buying interest of the order of $108 billion this year.
What has spoiled the show for India is the higher average crude oil prices for the year. Despite a correction from a high of $127 per barrel in April 2011, the prices of brent crude oil has averaged $111 a barrel in 2011, up 38% from its average of $80 in 2010.
Subsequently, India’s WPI (Wholesale Price Index) even after falling from highs of 10.8% in mid-2010, has rebounded to 9.78% in August 2011 from a low of 8.20% reached in November 2010.