Hemant Mishra/Mint
Hemant Mishra/Mint

Indian market does well among emerging peers

This is the fourth consecutive month when mid- and small-caps underperformed large-cap indices.

In August, MSCI India index outperformed many emerging markets (EMs) and Asian markets. India’s performance ranking rose to the eighth position in August from 16th in the previous month. Even as India’s year-to-date performance ranking in EM has slipped to the ninth position, India is the second best performing market in Asia.

The month-on-month returns were better than history. This is the fourth consecutive month where the mid- and small-caps underperformed large-cap indices. They underperformed the large-cap indices by 1.2 and 1.9 percentage points, respectively. With this underperformance, the year-to-date outperformance gap of mid- and small-caps against large-caps has shrunk to 3.7 and 2.2 percentage points, respectively.

Sector performance: Consumer staples and technology (from the worst in the previous month) were the best performing sectors, while telecom and materials were the worst. Relative to emerging markets, consumer staples outperformed, while telecom underperformed. For year-to-date, consumer staples and financials hold the top positions, while telecom and technology are at the bottom. The sector rotation breadth is off its 20- month high, while depth has risen to a 12-month high

Institutional flows: Foreign institutional investors (FIIs) bought another $1.8 billion in the cash market; domestic institutions remained sellers at $750 million. Since the start of the year, FIIs have bought stock worth $11.9 billion, while domestic institutions have sold stock worth $5.5 billion, with domestic mutual funds and insurance companies selling equities worth $1.9 billion and $3.6 billion, respectively.

Equity market activity: Market activity remained lacklustre during the month with cash and derivative volumes weakening further. Strikingly, trades settled for stock (deliveries) rose to its highest level since January 2008. Open interest rose to its five-month high. Among other indicators, put-call ratio and implied volatility rose marginally, while advance-decline ratio and realized volatility fell. Market breadth was weak even as the Sensex momentum, defined by the gap between 12- and one-month performance, turned positive after several months in the negative territory and the narrow index stayed above its 200-day moving average.

Valuations: Both absolute and relative valuations were flat month-on-month.

Earnings growth revisions: The earnings growth for MSCI India for FY13 was revised down by 1.6 percentage points to 13% year-on-year with telecom seeing the most downward growth revisions. In August, industrials saw the most negative revisions breadth.

Currency: The rupee appreciated month-on-month against the dollar by 0.5% and ended the month down 2% against the euro.

Bond market: The yield curve remained slightly inverted for the seventh consecutive month.

Edited excerpts from a report by Morgan Stanley.

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