Indian Stock Market Blog

The revival of global investor interest in emerging market stocks is led by the BRIC economies — Brazil, Russia, India and China. Emerging Portfolio Fund Research reports that 25 per cent of all emerging market fund flows this year have been into BRIC dedicated funds. There are two factors supporting the relative attractiveness of BRIC markets. First, the impact of a possible slow down in the US is unlikely to hurt these economies due to their progressively low dependence on US for exports. China’s exports to Asia and Japan, as a per cent to total, is higher than that to US; Brazil and Russia have commodity exports not expected to be impacted by a US slowdown; and India has a low share of exports in GDP growth. Second, BRIC economies have increased their interdependence, which feeds their growth — India and China’s growth contributes to increased demand for commodities that Brazil and Russia produce, for example. Fund flows to the BRIC markets have increased after the trough, leading to a sharp recovery that outperforms the broader MSCI emerging market indices since then.

OptiMix View and Outlook

There is an increasing feeling of a great Indian Land Grab going on, with projects being justified on associated land. Companies across the board are finding it difficult to acquire land for industrialisation and those who do are able to command premiums based on commercialisation. There is a danger that industrialisation would fall behind commercialisation — that higher cost of mortgages, land and high prices in general would stress the savings of the middle class.

Franklin Templeton Mutual Fund

Our long-term fundamental view hasn’t changed — that of a positive demographic profile driving savings and consumption, the capex cycle enabling a higher and sustainable growth, and tax reforms. Having said that, the risk-return trade off for a short-term investor remains unfavourable and the kind of volatility we have been seeing will remain. Liquidity and flows are difficult to predict and while it is tempting to comment that the markets will remain range-bound on fair valuations, it is more likely that they will move one way or the other, near-term. As a strategy, we recommend investors develop a longer-term perspective to portfolios while looking at equities to optimise returns.