India offers best returns among emerging markets

By agencies   |   Tuesday, 31 May 2005, 07:00 Hrs
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MUMBAI: A firm interest rate trend in the U.S. has triggered off a sell-off across global equity markets. Since April ’05, Morgan Stanley Capital International (MSCI)- managed MSCI World Index has fallen 2.5 percent.

However, emerging markets led by India continued to show resilience. The MSCI Emerging Markets Index rose a modest 0.3 percent and the MSCI India Index looked up 3.2 percent, outperforming all other markets in the peer group.

The picture is relatively mixed in other key emerging markets. The MSCI Korea Index remained flat, while the MSCI Taiwan Index rose 2.5 percent. The two markets have a 40 percent weightage in the MSCI Emerging markets Index, while India’s weightage is just over 5 percent.

The MSCI Brazil index rose 1.7 percent, while the MSCI South Africa Index fell 2.5 percent. The out-performance in Indian equities is attributed largely to the strong $1.2 billion inflows from domestic mutual funds, which is their highest investment in equities in any single year. In May ‘05, the MSCI India clocked a 9 percent gain in dollar terms.

The entire emerging markets pack was up only 3.4 percent. Low-domestic investor participation is a significant concern for most of these markets. “Asia generally has a high savings rate but currently majority of such savings tend to go into relatively low-yielding bank deposits,” Hazel McNeilage, MD, Asia, Principal Asset Management said.

The liquidity from foreign institutional investors (FIIs) remains the key driver for equities in the region. However, the strong buying from Indian funds has allowed local equities to outperform the emerging market pack.

Domestic MFs collected around $2 billion by selling new units in the past nine months and have invested around $1.5 billion. When it comes to domestic participation, India still has a long way to go.

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