Mumbai: Looks like the global markets are playing 'catch me if you can' with the Indian markets.

This last month, India was the only country that did not participate in the global stock rally.

The US market surged to an all-time high and returns of the S&P 500 surpassed 6.87% this past month. Thailand clocked returns of 6.8%. Philippines , Malaysia, Thailand, France, Germany, Japan, and many others did much better than India.

India is one of few major markets in the red, showing a return of -0.44%. What is going on?

Normally, Indian markets are known to have a so-called pre-budget rally. But there was a fair amount of excitement in the markets after the NDA got re-elected for its second term in May. The Indian markets are, therefore, have been taking a breather since June. But there are concerns too.

India, as is known, is in a state of contractions. Gross domestic product (GDP) was down to 6.8% in FY 2019, from 7.2% in FY 2018. In fact, fourth-quarter GDP growth was one of the lowest, coming in at 5.8%. The broader indicators show that consumption and investments have declined.

Buying by foreign portfolio investors (FPI) has slowed. FII buying in June was positive but lower than in May 2019

This market, though, has some support thanks to the domestic fund flows into equity funds. Besides, debt yields have come off significantly from about 7.75% a year ago to 6.75% at present. Hence, investors may continue to park some money in equity.

That said, some of the pockets in the stock market that did well may have got outpriced. “Within large caps, we find the risk-reward ratio quite unfavourable for many of the ‘growth’ stocks. There is downside risk to the high earnings growth expectation due to the weak macroeconomic situation," said analysts at Kotak Securities – Private Client Research in a note.

This only means that a broader pick up in stock prices will continue to remain elusive. The earnings concentration in a few companies might not be enough to drive stock markets up more higher. “On a one-year forward basis (i.e. Jul’20E) the Nifty-50 is trading at 18.5x, which is slightly on the higher side leaving less room for further expansion," point out Kotak PCG’s analysts.

Globally, of course, hopes that the US Federal Reserve will cut rates have buoyed sentiments. A likely settlement in trade wars between China and the US has also perked up global stock returns. And then, the dollar index is rising higher, driving some funds into global capital markets.

If the finance minister has some aces up her sleeves in the budget announcement, perhaps Indian markets can start playing catch up with global markets.

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