Last week snapped a three-week winning streak for Indian stocks — the first since last September for this year’s emerging markets laggard. India, an oil importer and a domestic demand play with high inflation, has languished this year in comparison with fellow-BRIC Russia which has returned 14 percent so far, thanks to the $125/barrel oil price. But could the market be turning? Indian stocks, down 20 percent at one point in February, have cut their losses to 6 percent so far this year. And there are signs fund managers are piling back in.
ING Investment Management started buying Indian equities earlier this month for the first time since mid-2010. Inflation may have peaked and with state elections out of the way, politics may be less of an issue, they say. And Indian valuations, always expensive, are back in line with long term averages, the fund’s strategist Maarten-Jan Bakkum notes. He is overweight Russia too but says that is driven by a tactical play on the oil price rather than any long-term conviction.
HSBC‘s head of emerging equities, John Lomax, says commodity and food price inflation may have peaked after a massive run and sees that leading to a change of tone within emerging markets. “We want to be a less exposed to the commodity themes now so we are less positive on Russia. But we like Turkey and we recently upgraded India and China, which are domestic demand plays.”
It is too early to say if the corner has been turned. March inflation was higher than expected at almost 9 percent. With markets pricing in more aggessive policy action from the central bank, that has — at least for now — spelled a halt in the recent fragile rally.