Global Market Commentary

Where Is The Growth Story Strong?

India Economics: Steaming Ahead

The Indian stock market has seen a strong year, continuing the rise from the bottom at the end of 2016.

Source:  Bloomberg Finance LLP

When expressed in U.S. dollars, however, the chart takes on a different hue.  U.S. dollar strength has meant that in U.S. dollar terms, the Indian market has still not returned to its January highs.

Source:  Bloomberg Finance LLP

In short, the domestic Indian economic recovery and transformation remains a durable theme.  This is a theme we have noted since Narendra Modi became Prime Minister in 2014.  We believed then as we believe now that Modi could be a transformative leader for India, and could help lead the country into a position as a strong global manufacturing power.  We also believed, both then and now, that India’s transformation, if it were successful, would be prolonged and arduous, due to a long tradition of corruption and inefficient state economic dominance.  Modi is doing yeoman’s work, but it’s a slow process.

Economic growth remains strong, and rough proxies — such as private credit growth and auto sales, as tracked and reported by excellent emerging-markets analyst Jonathan Anderson — confirm the official figures.  Indian corporate earnings are also strong.

Source:  Emerging Advisors Group

Inflation and the trade balance remain under control, with oil prices being the potential fly in the ointment for the country’s external trade deficit.  But for U.S. investors, the key remains the dollar.  India is a good story — long-term, probably a great story.  In the near-term, though, as we have said regarding many strong emerging-market economies, U.S.-dollar based investors should hold off until more favorable currency trends emerge.

Investment implications:  Indian economic transformation and growth remain a durable theme to which U.S. investors should be attentive.  However, the strong U.S. dollar alone makes Indian stocks currently unattractive to U.S. investors.  When U.S. dollar strength moderates, we will update investors on which emerging-market economies we view favorably.