Mumbai: Indian equity markets are up 6.5% so far in calendar year 2016, and with expectations of better first quarter corporate earnings and a good monsoon after two years of drought-like situation, it seems good times lie ahead. While the Indian markets beat rival China, other commodity-driven emerging markets have delivered better returns on the back of a recovery in the commodity cycle.

Of course, the risk of unfavourable global developments and the consequent risk of reversal of hot money inflows are not ruled out for India and other emerging markets.

On Tuesday, the benchmark Sensex index closed 0.66% higher at 27,808.14 points, the highest level since 19 August. This takes its year-to-date gains to 6.47%, bettering China’s Shanghai Composite Index’s decline of 13.84% in the same period.

However, among its other BRIC (Brazil, Russia, India and China) peers, Brazil’s Bovespa and Russia’s RTS are clear winners with 24.48% and 26.06% gains, respectively, so far in 2016.

While Sensex dropped 5.03% in 2015, Shanghai Composite Index posted a rise of 9.41%. Bovespa recorded a drop of 13.31% in 2015 and RTS Index fell 4.26%.

“Brazil and Russia are clearly more attractive than India right now, given the turn in the commodities cycle. I would say India ranks third there, and China below India," said Shankar Sharma, vice-chairman and joint managing director of First Global Securities Pvt. Ltd.

The Bloomberg Commodity Index of 22 raw materials, from oil to metals, is up 10.28% so far in 2016. It fell to a 26-year low on 20 January, and has recovered 19.77% ever since.

The Indian market has weathered some difficult phases recently—the announcement by Reserve Bank of India governor Raghuram Rajan that he will not continue after his term ends in September and the unexpected decision by Britain to exit the European Union or Brexit.

There are some who also believe that emerging markets would actually benefit from Brexit.

Darshan Bhatt, co-founder and deputy chief investment officer of US-based Glovista Investments Llc, said his global macro evaluation of both the short- and long-term implications of Brexit leads to the conclusion that emerging markets’ equities in general and continental markets such as China, Brazil and India will benefit from Brexit in terms of relative return performance versus global benchmarks.

“EM economies’ general beneficiary status from a ‘lower for longer’ interest rate environment in the USA, Europe and Japan as those countries’ central banks are likely to intensify and also extend the duration of existing quantitative easing programs," Bhatt said in an email from New Jersey.

Bhat viewed emerging market equities as attractive in the current macroeconomic environment, and within emerging market equities, he is currently overweight on India relative to the MSCI Emerging Markets Index.

He pointed out that, specifically, continental economies such as India, China and Brazil are likely to experience a far smaller share of the adverse effects, in terms of trade and service flow sensitivity to Europe and the UK, from Brexit, while participating disproportionately more in its beneficial effects such as low interest rates, capped US dollar strength versus emerging markets’ currencies.

The respite for now for the Indian markets are ample monsoon rains and improving earnings. Monsoon rains, which are vital for agriculture, were 35% above average in the week that ended on 6 July.

“In global parlance, we have seen that for some time, trade is coming to overweight emerging markets. Some portion of the weightage of DMs (developed markets) is moving to EM (emerging markets), led by exit from European equities, including UK equities," said Vaibhav Sanghavi, managing director of Ambit Investment Advisors Pvt. Ltd.

Sanghavi pointed out that there were strong flows into commodities funds, with precious as well as base metals performing very well.

“In the emerging markets context too, commodity-producing markets are performing better. That said, India is overweight too, because of the strong growth in economy, and the belief that earnings have troughed in the last quarter," said Sanghavi.

India’s economic growth accelerated to 7.9% in the March quarter, making it the fastest growing major economy in the world. All the focus from hereon is on corporate report cards.

“We need to see the earnings to stand out in the Indian context. Earnings are expected to be in double digits for Sensex in the fiscal year 2017. If that doesn’t turn true, we may see some pressure. Otherwise, Indian markets are slated to rise," Sanghavi added.