The S&P BSE Sensex has now fallen to 27,177 points, a level first seen early September last year. Compared with 1 September, almost eight months ago, the Sensex is up a mere 1.15% (see chart 1). The Shanghai Composite Index has, of course, done much better, but even the Korean market index and the Jakarta index have gone up 4.34% and 1.31%, respectively.
If we take the Indian markets’ performance since September, there seems to be little indication of the famed Narendra Modi premium. Among other indices not shown in chart 1, the Dow Jones Industrial Average has risen 5.93% since 1 September, the FTSE100 Index has gained 3.54% and the Philippine Composite Index is up 11.83%.
The surprising thing is the poor performance of the Indian markets is despite much lower oil prices, which benefit the Indian economy, and despite an improvement in the macro indicators.
Among BSE’s sectoral indices, the healthcare index has risen the most since 1 September, thanks to Sun Pharmaceutical Industries Ltd, which touched its lifetime high. But healthcare is a defensive sector and government policies have little to do with its performance. The same is the case with the packaged consumer goods sector, up 6.76% since last September. It is the cyclical sectors that are dependent on policy and as the chart 2 shows, while the Bankex and the capital goods index have done well, the same cannot be said of power and realty indices.
Investors seem to be realizing that it will take time for a turnaround in corporate earnings or in investment demand, despite the government’s best intentions. This begs the question, is the current weakness in the Indian markets a pause that refreshes, or a more sober assessment of the hard work that needs to be done on reforms?
The writer doesn’t own shares in the above-mentioned companies.