Mumbai: Indian markets, which trailed global peers in the first two months of 2019, finally caught up in March, as investors bet on a stable government coming to power after the general elections.

Local stocks missed the global rally in the early part of the year that followed the US central bank pausing interest rate hikes and easing trade war tensions.

Till February, both domestic equities and the currency were the worst performing among global markets. In March, however, Indian equities outpaced global markets and the rupee became one of the best-performing emerging market currencies.

The benchmark Sensex jumped 6.01% in March, while stocks in China and Hong Kong were up 2.75% and 1.32%, respectively. Dow Jones is down 0.8% in March so far. On Friday, the Sensex ended at 38,024.32, up 269.43 points or 0.72%. The 30-share index touched 38,000 for the first time in six months.

Escalating border tensions in recent weeks added to the macro risks in India, said Rahul Singh, chief investment officer (equities) at Tata Mutual Fund. “As a result, and partly due to the existing premium, Indian equity markets did not get the full advantage of a dovish Fed," he said.

The Nifty’s underperformance had led to a contraction in price-to-earnings premium, but the valuation remains stretched, especially because of the earnings decline post December quarter results, according to Credit Suisse.

“We expect the Nifty index to consolidate ahead of the general elections in April-May… We continue to believe any election-led volatility can offer a good buying opportunity as India’s structural outlook has improved and should start to reflect in corporate results," it said in a report on 6 March.

After hitting a fresh six-month high, the rupee was up 0.4% to close at 69.10 against the dollar on Friday. The rupee has risen 1.81% in the month to become one of the best performing currencies among emerging markets.

Sentiment improved in the past week, as easing border tensions were accompanied by stabilizing domestic election-related concerns, fuelling expectations of fresh foreign inflows, according to Radhika Rao, economist at DBS Bank.

“March is a seasonally strong period for the rupee, inferring from trends in the past five years. Real dollar flows from M&A deals have propped up the currency along with net portfolio inflows into equities," she said.

The rupee is significantly supported by the benign outlook on the Fed and ECB’s future action and foreign direct investment flows, while a broad-based revival of portfolio flows is still missing, said Soumyajit Niyogi, associate director at India Ratings and Research Pvt. Ltd.

Close