Will India See Rebound from Subdued Market Performance?

Indian stock market performance

Indian benchmark indexes the S&P BSE Sensex and Nifty 50 ended on a mixed note on April 6, 2017, after the RBI’s policy announcement. The policy repo rate under the liquidity adjustment facility (or LAF) was flat at 6.3%. The Indian government’s commitment to fiscal, investment, and taxation reforms in the union budget were major positives for the stock market in 2016. The below chart shows the performance of the BSE Sensex and the Nifty 50.

Will India See Rebound from Subdued Market Performance?

2016 market performance

The Indian stock market has stuttered since the beginning of 2016 due to weak first quarter earnings and falling crude prices. The panic selling was seen across sectors throughout 2016 as these new developments emerged:

  • slowdown in the Chinese economy
  • Brexit vote
  • demonetization
  • weak global trade
  • economic and political changes in the US

The BSE Sensex and the Nifty rose 2% and 3%, respectively, in 2016. The metal sector rallied in 2016 due to expectations of a resurgence in Chinese demand. Some of the major gainers in the metal sector in 2016 include Vedanta (VEDL), Hindalco Industries (HNDNF), Hindustan Zinc, MOIL, and JSW Steel.

2016 comparative market performance

The Indian stock market underperformed emerging market as well as developed market counterparts in 2016. The iShares MSCI India ETF (INDA), which tracks Indian stocks, dropped by about 3% in 2016. The Vanguard FTSE Emerging Markets ETF (VWO), which tracks emerging market stocks, rose 9% in 2016. The iShares MSCI EAFE ETF (EFA), which tracks developed market stocks, dropped by about 2% in 2016. The underperformance of the Indian market was primarily due to panic selling after the overseas developments mentioned above.

Expectations for 2017

The increased consumer confidence in 2017 is expected to drive the consumption demand and growth due to policy reforms. The BSE Sensex and the Nifty are advancing in 2017 with gains of about 12% and 15%, respectively, as of April 5, 2017.

We’ll look at foreign portfolio investments (or FPI) in India in 2016 in our next article.