Wednesday, 26 March 2014

Is India the First among Emerging Market Equals? Time to buy?

Astute observers will have noticed that the Indian Sensex index has just hit a multi-year high at over 22,000 (Figure 1).


Source: Bloomberg

Not only that, but the Indian rupee has also started to gain ground against major currencies such as the US dollar, the euro, and sterling.

Given the relatively poor backdrop for most emerging markets thanks largely to Russia and China, why is India bucking the trend so successfully?

New central bank governor, maybe a new government?

A widely respected central bank governor, Raghuram Rajan, has already been installed at the Reserve Bank of India. He has lent a lot of credibility to the central bank policy of attempting to control Indian inflation which is still relatively high at 8.1%, but which is finally starting to come down.

A second driver for a positive view on India comes from Indian politics. Parliamentary elections are due to be held soon in India, and current opinion polls indicate that Narendra Modi’s Bharatiya Janata (BJP) opposition party is likely to win power, ousting the long-serving Congress party in the process. This is being seen as a good opportunity to see widespread reform within India, which may remove some of the structural roadblocks to Indian growth.

Clearly, while it is not clear that tensions over the Russian annexation of Crimea are calming or that sanctions will not be intensified on the part of the US and European Union, and while it is not clear as well that China will reignite growth in the near future, nevertheless India remains a bright spot within the emerging market universe.

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