For the quarter ending September 2022, Indian equities gained about 8% in dollar terms, compared to 5% and 16% declines for their US and Chinese counterparts. This year in 2022, the Indian, US and Chinese equity markets have declined 9%, 25% and 26% respectively. 

These corrections have occurred because of rising interest rates. Central bankers have raised them because inflation has reached a multi-decade high level. This has caused equity markets to fall. In the case of emerging markets, this fall has generally been steeper. US investors have pulled in money from abroad to invest at home after the Fed started raising interest rates.

Indian equities have fared better than other emerging markets and even better than the US market. Domestic inflows have mitigated foreign outflows. In the new global order, India’s economic model is fundamentally sound. Prospects of multi-decade consumption-led growth are strong. India is also poised to benefit from western economies diversifying their supply sources as US-China tensions rise.

As is well known, one-year returns can vary a lot from a market’s long-term performance. Public markets are invariably volatile. Now, the Russia-Ukraine War and the supply side shock from China have increased volatility. If we discount short-term volatility and assess long-term performance, India is the only major global economy other than the US that has delivered long-term equity returns over the past decade. 

Long-Term Equity Returns Across Major Global Markets

Sectors Doing Well and Not-So-Well

During the July 1 to September 30 quarter, most sectors in India except information technology (IT) and energy were up. They have recovered from their lows early this year amid an improving outlook. Consequently, most sectors posted moderate gains or losses year-to-date in dollar terms, despite a depreciation of approximately 9% of the rupee against dollar. 

So far, the IT sector is the worst performer, declining by 33% in 2022. Slowdown in key markets such as the US and Europe has hurt his sector. A talent shortage and wage pressures in India as well as competition from the new digital economy companies has put further downward pressure on the IT sector. The healthcare sector also declined 19% this year, reversing some of its gains made during the pandemic. 

The utilities sector has performed best this year. It is up by 37%. This sector has done well because of a huge conglomerate. It comprises 50% of the sector and has expanded aggressively into various industries such as energy, utilities, ports, and cement.

India’s Sector Performance for the Three- and Nine-Months Ending September 30, 2022

Inflation High but Under Control

Like much of the rest of the world, inflation in India has risen. It crossed the 6% upper tolerance limit set by the Reserve Bank of India (RBI), the country’s central bank, during the January 1 to March 31 quarter and has remained around 7% over the next two quarters. This is nothing when compared to Turkey where inflation is estimated to have crossed 160% or Argentina where this figure is over 80%. Inflation even in Germany has crossed over 10% and has reached 7.7% in the US.

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Considering India imports almost all its energy, inflation is not that high. It has hit India hard though because the percentage of low-income households is still quite high. Since May 2022, the RBI has increased interest rates from 4% to 5.9% and is expected to raise rates further.Despite the central bank tightening monetary policy, India’s growth forecast remains robust amid a global slowdown. The International Monetary Fund (IMF) projects India’s real gross domestic product (“GDP”) to grow by 6.1% in 2023, compared to 1%, 0.6% and 4.4% increases for the US, the euro area and China, respectively. In 2022, the IMF expects India to grow by 6.8%, compared to 1.6%, 2.1% and 3.2% GDP growth for the US, euro area and China respectively^..

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.