Indian markets are dangerously resisting virus resurgence

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A man walks past the burning funeral pyres of those who died of coronavirus disease (COVID-19), during a mass cremation, at a crematorium in New Delhi, India on April 26, 2021. REUTERS / Adnan Abidi TPX IMAGES OF THE DAY – RC2P3N9SSDIW

The resurgence of the virus in India worries almost everyone except foreign investors. As New Delhi hospitals run out of oxygen, funeral pyres are burning in the capital and locals wonder which city will be submerged next, local markets await attractive returns.

Fund managers became net sellers of local stocks after six months of entries. The benchmark Nifty 50 has just had its best day in nearly a month, and the MSCI India index is also up over the period. The Indian basket is trading at an exuberant multiple of nearly 21 times expected earnings for the year, a premium for the MSCI Emerging Markets Index. After depreciating earlier in the month, the rupee is also rebounding.

Multiple factors underpin the optimism despite more than 360,000 new cases in 24 hours on Wednesday. India’s economy is slowing but less sharply than during the lockdown last year. There is also confidence in a more rapid deployment of vaccines. Half the country could be vaccinated by the end of the year. About 9% of the population received a dose, according to Reuters, a higher rate than in Japan and Australia. The rate is double in big cities like Mumbai.

The acceleration of digital adoption also supports longer-term prospects. The crisis has forced people and businesses online, putting India in a position to develop technologically faster than not. A solid capital cushion provides additional comfort. Foreign exchange reserves of nearly $ 600 billion are about double the level of 2013, when the US Federal Reserve slashed its quantitative easing program and triggered rupee volatility. Prime Minister Narendra Modi’s political agenda, ranging from incentives for manufacturers to privatization, is also a draw.

The assumption is that emerging market yields will exceed those in developed markets where interest rates are low or negative. Another is that the wealthy segment of the population, whose consumption matters the most, will not be impacted much, which will allow the heavyweights of the index from Reliance Industries (RELI.NS) to HDFC Bank (HDBK.NS) to prosper even if the smallest rivals struggle. But economists are starting to cut their growth forecasts for India, rising inflation could still prove to be a spoiler, and eventually the weakened purchasing power of the masses who receive little official support will bite. The tragic reduction seems too small.

To pursue @ugalani on Twitter

NEWS FROM THE CONTEXT

– On April 28, India’s benchmark stock indexes saw their biggest gains in one day since March 30 and marked three consecutive sessions of increases following a pandemic-induced crisis. The Nifty 50 index jumped 1.4% to 14,865, while the benchmark S&P BSE Sensex climbed 1.6% to 49,734.

– India registered 360,960 new cases in 24 hours, bringing the number of infections to nearly 18 million, Reuters reported on April 28.

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