About the Indian economy
India’s $1.8 billion economy is considered the world’s growth engine, together with China’s economy. India has the tenth-largest economy in the world on nominal terms as of 2013. However, being the second most populous country in the world, India’s per-capita income is low, at $1,580.
India’s $309 billion exports prominently include software services, pharmaceuticals, and textiles. The economy largely relies on domestic consumption (just like Brazil does), unlike the majority of export-driven emerging economies.
About the Indian stock market
India has two main indices—S&P BSE Sensex and NSE Nifty. We’ve taken BSE Sensex as the proxy for the Indian stock market in this series. India’s stock market is much more diversified than Brazil’s or Russia’s, with a 25.5% weight to the banking and finance sector, followed by the technology sector, which constitutes 18%. Some of the companies’ securities are also listed on NYSE, including Infosys (INFY).
India’s stock market was the best-performing emerging equity market during the past year, gaining 21% since April 2013.
The impact of Treasury yields on Indian stock markets
Among BRIC nations, only India’s stock market shows a positive correlation with Treasury yields. To put this in simple terms, only India’s stock market has moved along with the S&P500 over the past year. However, the correlation remains weak, at 0.37, meaning only 13.7% (0.37 into 0.37) of movements in the Indian stock market can be explained by changes in U.S. Treasury yields. The remaining movements are a result of other local and global factors.
Investors willing to gain exposure to India can invest in companies listed in the U.S. but largely operating out of India, including iGate Corporation (IGATE).
Plus, there are a lot of India-focused ETFs, including the WisdomTree India Earnings Fund (EPI), that investors can benefit from.
To find out how the Chinese stock market correlates to the U.S. Treasury bond market, read on to the next part of this series.