Monday’s decline put the Indian equity market lower than the global equity markets on the performance front. The domestic benchmark Sensex has been lagging against all-important global markets in April and even in the span of one month and has lost 5.8 per cent and 8.8 per cent respectively in terms of US dollar.
By mid-February, India was one of the best-performing global markets due to a sharp improvement in fortunes, with returns exceeding 10 per cent.
The revival in the cases of COVID-19 and the lockdown have tarnished hopes of an improvement in the economy. At the same time, the hopes of improving the earnings of companies have also faded. Because of this, foreign investors are selling here.
Global investors are focusing their attention on the developed market and the US and Europe are outperforming the emerging markets with large margins. In the US, the S&P-500 has gained four per cent this month, while the Euro Stocks-50 has risen 3 per cent, which measures the performance of European equities. Analysts said the diversified performance is an indication that investors are expecting a disproportionate global recovery from the epidemic. Better control over the epidemic and faster vaccination has increased the attractiveness of developed markets.
“Vaccination is taking place in the US at a rapid pace,” said Andrew Holland, CEO of Avendus Capital Alternate Strategies. Their economy will reopen at a very fast pace and income will also pick up pace. Biden’s plan to invest in infrastructure will boost the economy. There is a similar situation in Britain. Vaccination work in Asia is progressing at a sluggish pace. This is why the flow of foreign funds is going out of here.
So far in April, India recorded 1.4 million new infections of COVID and thus overtook Brazil, the second most affected country after the US.
The fall in the rupee is eclipsing the willingness of foreign investors to invest in domestic shares and debt. The rupee has lost three per cent against the dollar this month. The rupee has weakened amid a decrease in domestic bond yields after the RBI announced the purchase of bonds worth Rs 1 lakh crore in this quarter.
Sonura Varma, chief economist at Nomura (excluding India and Asia-Japan), said the challenges facing central banks in emerging markets – Indonesia, India and the Philippines – are going to be discouraging. “Now, with the US performing well, rising bond yields in developed markets and the possibility of the Federal Reserve’s move, investors are demanding a higher risk premium,” he said. Experts said the difference in the vaccine could give the developed markets an edge over the developing markets. One of the things that can shock markets like India is that if the US dollar and bond yields rise, the future of the world’s largest economy will also improve.
Foreign investors have become net sellers after a gap of five months. Experts say that if the situation of COVID-19 in the country worsens, then the possibility of further investment withdrawal from here cannot be ruled out.