Despite all the bad news on economy, Indian stock indices have performed better than global peers such as the Dow Jones, S&P 500, Nasdaq, FTSE 100, Dax and Nikkei in the first half of 2012.
While the Sensex rose 12.8 per cent in the January-June 2012 period, the Dow Jones gained 5.4 per cent, the S&P 500 8.3 per cent, the Nasdaq 12.7 per cent, the DAX 8.8 per cent, and the Nikkei 6.5 per cent.
Rupee effect
The recent sharp depreciation of the rupee against the US dollar had raised fears that the Indian market will become unattractive to foreign investors.
However, during the first half of this calendar, the Sensex returns in dollar terms at 8 per cent bettered the Dow Jones. FIIs pumped $8.5 billion into Indian stocks in the first six months of the year.
What explains the FII flows this year despite a weak rupee, sluggish economy and slowing corporate profits?
Market players explain that recent FII flows into India are a function of foreign investors increasing the emerging market allocations in their portfolios.
“These are not India-specific flows. These are automatic allocations being made to Indian stocks because the FIIs have been raising their emerging market allocations,” explained the CEO of one Indian brokerage firm.
While the rupee did depreciate, other global currencies fell even more sharply against the dollar. That reduced the attractiveness of those stock market too.
While the Brazilian stock index Bovespa declined 4.2 per cent in terms of the Brazilian real during the first half of 2012, foreign players saw higher losses of 11.8 per cent in dollar terms.
Similarly, foreign investors that pumped dollars into Euro Stoxx suffered a 4.57 per cent erosion, and returns on the DAX were also lower at 6.2 per cent in dollar terms.
Nifty scores
Between India’s benchmark indices, the Sensex and the Nifty, the latter was clearly the better performer. While the Sensex rose 12.8 per cent during the six-month period, the Nifty gained 14.2 per cent. However, neighbouring Pakistan’s benchmark Karachi 100 Index outdid both, shooting up 21.6 per cent.