India's strength has made it a favourite among investors, but the headwinds it is currently encountering go beyond overvaluations.
Poor earnings, the attractiveness of rival markets (the market expects the Fed to pivot to policy), and China** is just recovering, all cast doubt on whether India can continue its rally. India's major stock index has a record eighth consecutive year in 2023**.
Citigroup Inc) and Societe Generale S.A. both downgraded India, while foreign investors have sold a net $3.8 billion in India** so far this year, the highest among emerging Asian markets outside China. Multi-asset investors favor rupee bonds over the South Asian country**. Some say the pace of capital outflows out of China may be slowing as China ramps up bailouts.
Sean Taylor, chief investment officer at Matthews Asia, said: "India is the best option in the long term, but we are taking a profit due to high valuations. I'm going to cut more of my exposure to India into the Fed's relative rate cuts, because I need to put more money into South Korea and the rest of Asia. ”
Despite short-term profit-taking, India's long-term outlook remains stable due to its rapid economic growth, growing middle class, and growing manufacturing strength.
Despite valuation concerns, India is in the sweet spot. ”mirae asset global investments co.Juoohee An, chief investment officer based in Hong Kong, said, "We take a longer-term view of India compared to other emerging markets. ”
However, in the recent earnings season, in addition to the already stretched valuation, India 3Weak consumer demand in some parts of the $4 trillion economy and still-hawkish central banks have left some investors at a temporary disadvantage beyond a series of underperformance.
This is likely to prompt some investors to reconsider their asset allocations across the region.
The S&P Bombay Stock Exchange's (S&P BSE) Sensex Index is valued at 20 times its expected 12-month earnings, above its 10-year average and the most expensive in Asia. Chinese mainland benchmark CSI 300 Index hit a five-year low earlier this month at a price-to-earnings ratio of just over 10 times.
We've been in this country because we're value investors and we're struggling in this market. Vicki Chi, Robeco's portfolio manager in Hong Kong, said, "We like things that are very cheap, but there is almost nothing in India. ”