ECONOMICTIMES.COM | Oct 30, 2013, 12.38PM IST | Morgan Stanley Report
NEW DELHI: Indian equity markets have seen some sharp swings in the past 20 years, taking Sensex from a little over 2000 levels in 1993 to 21,000 now.
Here’s a chart compiled by Morgan Stanley showing the ups and downs in Sensex over the last 20 years:
On the macro front, India’s GDP has also risen from $260 billion to $1,842 billion; average annual real growth of 6.9 per cent and the country’s equity market capitalization has increased from $70 billion to $940 bn, a 17 per cent CAGR, Morgan Stanley said in a September report.
The MSCI India index has also outperformed the MSCI Emerging Market index by 28 percentage points. These statistics mask the fact that these 20 years have been split into four distinct boom and bust cycles, says the global investment bank.
Over the period of time, India has been able to improve its balance sheet which led to strong fiscal and monetary policy responses to avoid the worst of the credit crisis.
However, increased stimulus measures were not justified, as loose fiscal and monetary policies led to a challenging macro environment.
In the past 20 years, growth increased, inflation stabilized, and the productivity dynamic improved with a rise in investment to GDP.
The improvement in macros was accompanied by benign global conditions marked by an increase in capital flows, which helped keep rates low, fund the current account deficit, and accrue FX reserves.
Earnings grew an annual average 24 per cent while ROE hit record levels and averaged over 20%. Indian equities re-rated significantly to trade at an average premium of 30% to emerging market equities.
The Indian equity market return CAGR was 44 per cent, beating emerging markets in US$ terms by nearly 90 percentage points, with industrials the best performing sector.
Average earnings growth declined to just 6 per cent while, ROE or return on equity went back to the lows of the late-90s. However, India’s PE premium held up, largely because of strong and consistent performance by the index heavyweights.
The market has been largely flat in this period, underperforming the emerging world by nearly 30 percentage points. Consumer staples proved to be the best performing sector as market participants rushed for quality stocks in a challenging macro and market environment.
Despite poor market performance, foreign investors (FIIs) have kept their faith in Indian equities and bought an impressive US$75 bn of stock in last five-year period, yet the rupee has lost 60 per cent of its value versus the US$ in this period.
However, going forward, the near-term outlook looks challenging for macro conditions and the market, yet the global investment bank believes that the confluence of demographics, productivity, and globalization will support higher growth in the medium to long term.
Morgan Stanley expects India to grow around 7 per cent on average over the next 10 years, with investment, exports, and consumption contributing to the growth.
India currently has the second-highest potential growth rate among emerging market and developed market economies, based on our macro team’s estimates.
(The above report is compiled from inputs from a Morgan Stanley report. The views and recommendations expressed in this section are the analysts’ own and do not represent those of EconomicTimes.com)
Source : http://goo.gl/SH3uyx