Twist in plot. For FIIs, Nifty has beaten BRICS peers in $ terms since 2007, but lagged US

Indian equity markets hit a record high last week as FII buying added momentum to the positive sentiment amongst domestic investors.

While Nifty 50 (19,189) hit an all-time high of 19,201.7, Sensex (64,719) climed to its new peak registered its fresh new high of 64,767.56 on Friday. While the Nifty 50 has enriched domestic investors, how exactly has it played out for FIIs whose returns are also impacted by currency fluctuations? For example, if an FII had bought into Indian markets in dollarUSD at 2007 peak when USD-INR was around ₹40, and exiting today, what would how have the returns been? Analysis of returns in dollar terms USD indicates a mixed picture. While Nifty 50 has been the best performer amongst BRICS nations and amongst the better performers in emerging markets, the returns have lagged the US.

Emerging themes

From the peaks before the 2008 Global Financial Crisis (GFC), Nifty 50 leads the way among emerging markets, by appreciating 213 per cent in local currency terms. Trailing Nifty 50 are South Africa’s All Share Index and Indonesia’s JCI Index, which are up 163 and 143 per cent, respectively, since 31 December 31, 2007. Notably, China’s Shanghai Composite is yet to cross the high made before the GFC and it is down by 39 per cent since the end of 2007 calendar year. Further, the picture pales a bit when comparing the performance in dollar terms, which adjusts for inflation differences across countries and strength of economies. Of course, there is also the perception angle that influences currency performance. While Nifty 50 has fared well in dollar terms, FIIs may not have got the best deal. For example, the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite have significantly outperformed all emerging markets.

Among the emerging markets, Taiwan’s TAEIX and Indonesia’s JCI Index are the top performers in dollar terms, up 107 and 52 per cent, respectively. Nifty 50 ranks third with 50 per cent returns. But these returns appear no match the returns of nearly 628 per cent by Nasdaq 100. Thus, it appears the emerging theme of technology and innovation in previous decade has clearly outperformed emerging markets as a theme which was in vogue in 2007.

However, to its credit, India has outperformed all its peers among the BRICS nations by a wide margin. South Africa, Brazil, Russia, and China have all posted negative returns in dollar terms. South Africa, the second best amongst emerging markets in local currency terms, and turned negative when factoring for currency depreciation which was quite significant at 175 per cent.

What lies ahead?

India’s growth and macroeconomic stability is a sweet spot. Now, with China slowing and the world looking to India to drive incremental global growth, FIIs are likely to keep India in their core global investing strategy. Better macroeconomic stability could imply better stability in currency and exchange rates as well. In this context, if India delivers what is expected, FIIs could be in for a better deal than what was delivered in the last 15 years.