Mumbai: India slipped a rank among key emerging markets to find itself in the bottom half of Mint’s Emerging Markets Tracker, the latest update shows. India ranked sixth among 10 markets considered by the tracker in January, behind China, Russia, the Philippines, Indonesia, and Malaysia.

Mint’s Emerging Markets Tracker, launched five months ago to track seven high-frequency indicators across 10 large emerging markets, helps us make sense of India’s relative position in the emerging markets league table. The seven indicators considered in the tracker encompass both real activity indicators such as manufacturing purchasing managers’ index (PMI) and real gross domestic product or GDP growth, as well as financial metrics such as exchange rate movements and changes in stock market capitalization. The final rankings are based on a composite score that gives equal weight to each indicator.

India’s fall came even as it has outperformed most economies on real indicators, including manufacturing (Graphic: Pooja Dantewadia/Mint)
India’s fall came even as it has outperformed most economies on real indicators, including manufacturing (Graphic: Pooja Dantewadia/Mint)

An expanded version of this graphic can be seen here

India’s fall in the rankings came even as it has outperformed most economies on real indicators. In manufacturing, for instance, which is measured by PMI, India is at the top of the emerging market league table.

India’s PMI for manufacturing reached an eight-month high of 55.3 in January.

In terms of overall economic growth, even India’s subdued growth figure of 4.5% in the September quarter places it among the better performers among emerging markets behind China, the Philippines, and Indonesia. Yet the positive data does not necessarily suggest a recovery from the current economic slowdown.

“Improvements in the latest high-frequency indicators such as PMI data suggest that the economy may have stabilized. While the economy may well begin to recover in the current quarter, we expect any recovery to be slower than we had previously expected," said Moody’s as it revised India’s growth forecast to 5.4% for 2020 and 5.8% for 2021, down from its previous projections of 6.6% and 6.7%, respectively.

The relatively better performance in the real sector, though, could not offset rising inflation and the weaker performance of the stock market and rupee, all of which dragged down India’s overall ranking. India’s inflation surged to 7.6% in January, the second-highest among all emerging markets behind Turkey.

The selection of emerging markets in the tracker is based on the IMF’s classification of emerging and developing economies. The 10 emerging markets selected were the largest economies in this group for which consistent and comparable time series data were available.

India’s financial markets also remained subdued in January. The rupee slipped against the dollar compared to last month and India’s stock market capitalization rose less than most peers as foreign investors largely stayed away from the Indian market. The 2020 Budget has done little to lift investor sentiment with the stock market still subdued in February.

In contrast, economies at top of the rankings, such as China and Russia, enjoyed significant improvements in stock market capitalization. However, even these countries, and especially China, are likely to suffer because of the ongoing coronavirus crisis. The virus has crippled economic activity in China and this will hurt economies that are part of China-centred global value chains, such as the Philippines and Thailand.

India, though, is likely to be the least vulnerable among the emerging Asian economies from the impact of the virus outbreak, according to a report by Nomura.

“India stands as the least vulnerable to COVID-19 in Asia ex-Japan. It is not a part of the global value chains centered around China. It is less dependent on China for visitor arrivals (2.7% of total visitors) and China accounts for only 5.3% of its total exports. These factors should limit the indirect impact on India," said the Nomura report dated 17 February.

Naturally, the impact of the virus will be the greatest on China, which has consistently remained on top of the EM league table since the tracker was launched in September last year.

The Nomura report estimates China’s gross domestic product growth to halve to 3% in the March quarter from 6% in the December quarter. This alone could cause a significant rejig in Mint’s Emerging Markets Tracker rankings in the coming months.

My Reads Logout