Looking for EM opportunities? Indian stocks are hitting new records

Indian benchmark indices the Nifty 50 and the Sensex are rallying to record highs as investors look through the pandemic in search of growth, notably in emerging markets.

 

Must know

  • Indian large cap stocks have erased the entire March collapse and are now up double digits in 2020 and at record highs
  • Reliance industries is the biggest company by market cap and the stock has been flying this year
  • BUT the opportunity may lay elsewhere. Midcap and small cap Indian stocks are now outpacing bluechips for the first time in three years
  • Indian Robinhooders!? Indian day traders have jumped both feet first into stock markets this year
  • Emerging markets have been underperforming the United States since the financial crisis but there are signs that is about to change
  • Risks? Indian equity valuations are some of the highest in the world, however mid/small caps are lower than large cap

 

What’s happening?

Indian stock markets have rebounded spectacularly since getting pummelled in the March sell-off this year. The Nifty 50 is up 11% with the Sensex up 12%. The gains extend a multi-year uptrend in Indian stocks.

 

 

The Nifty Midcap 100 Index has climbed 20% this year, and the Nifty Smallcap 100 Index has advanced 17%, outpacing the 11% gain in the large-cap NSE Nifty 50 Index. While the Nifty has set a series of new records this year, the smaller gauges remain below their peaks after two years of losses.

 

 

Indian day traders

India now has its own breed of Robinhooders! Indians are increasing their exposure to equities. That’s a shift from the traditional investment assets of gold and bank deposits.

 

 

NOTE: Demat Account is an account that is used to hold shares and securities in electronic format.

The number of new dematerialized accounts (demat accounts) opened during financial year 2020 was the most in at least a decade at 4.9 million, a 22.5% increase from the 4million demat accounts opened in the previous year according to the Securities and Exchange Board of India. Total demat accounts at the end of fiscal 2020 stood at 40.8 million, up from 35.9 million on 31 March 2019.

 

Why India?

Growth expectations had been flagging in India and equities – especially small/mid cap Indian equities (as well as the Indian rupee) had been suffering as a result. Earlier this year the IMF lowered its global GDP forecast in large part because of downgrade in its expectation for India.

Covid-19 initially fanned concerns that smaller companies could not withstand a nationwide lockdown that drove most business activity to a standstill. Now as the rebound takes hold, the outlook is more about expansion not a slowdown, and that could make cyclicals and small/mid-caps more attractive opportunities. 

India’s gross domestic product shrank a less-than-expected 7.5% in the three months ended September, a marked improvement from the June quarter’s record 24% contraction. The outlook for earnings has improved as a slew of indicators suggest a gradual recovery in activity across the key services and manufacturing sectors, as well as a gradual revival in consumption.

 

Reliance industries

India has its own equivalent of Tesla and it is called ‘Reliance Industries’. Reliance Industries Limited is an Indian multinational conglomerate company headquartered in Mumbai, Maharashtra, India. Reliance owns businesses across India engaged in energy, petrochemicals, textiles, natural resources, retail, and telecommunications.

 

 

The stock has been surging this year, leading the rebound in Indian equities, while cyclical stocks like banks have underperformed. Should the rally continue, much like the wider debate about US equities – there could be a rotation into more value-orientated Indian names.

 

Emerging markets

The story is not just about India. There is a bigger picture macro theme that may or may not play out in 2021 of investors moving into riskier Emerging Markets as a source of returns - and by definition dropping investments in the United States, which have been outperforming since the 2008 financial crisis.

 

 

Risk = valuations

There are risks to the Indian stock market boom and the top of the list is probably the consideration of earnings relative to the price action.

While the breakout in Indian stocks and EM equities is bullish, the lack of follow through in earnings is a risk-factor. Markets are forward looking mechanisms and the earnings may catch up next year, bringing valuations lower. However if that catch up does not materialise because of familiar risks like second and third waves of the coronavirus, then stock markets may need to correct the inflated P/E’s.

 

 

How to play it

Indian stocks

Company Name

Last Price

% Chg

52 wk
High

52 wk Low

Market Cap
(Rs. cr)

Reliance

1,976.05

0.10

2,368.80

867.45

1,273,583.48

TCS

2,813.25

1.89

2,885.00

1,504.40

1,055,639.63

HDFC Bank

1,410.75

1.46

1,464.00

738.90

776,844.27

HUL

2,344.50

1.04

2,614.00

1,756.00

550,853.46

Infosys

1,165.75

0.98

1,185.00

511.10

496,554.78

 

Indian ETFs

Symbol

ETF Name

Total Assets ($MM)

YTD

INDA

iShares MSCI India ETF

$3,806.96

11.48%

EPI

WisdomTree India Earnings Fund

$710.76

16.06%

INDY

iShares India 50 ETF

$642.73

7.39%

SMIN

iShares MSCI India Small-Cap ETF

$223.39

17.14%

INDL

Direxion Daily India Bull 3x Shares

$108.29

-39.82%

Chinese stocks hit record value. How to play it with China ETFs & ADRs
Stocks

Chinese stocks hit record value. How to play it with China ETFs & ADRs

Unearthing the investing opportunities in rare earth minerals
Stocks Commodities

Unearthing the investing opportunities in rare earth minerals

Buy British! Schroders talks up “once in a generation opportunity”

Buy British! Schroders talks up “once in a generation opportunity”

The charts of major Chinese equity benchmarks are pointing to a new multi-year bull market.
Technical Analysis

These 5 China stock indices are breaking out above multi-year peaks

bg_nwsletter