Indian stocks were one of 2018’s best-performing equities. Purchased by local funds, it allowed the country’s economy to grow despite the fact that overseas investors were pulling out. However, the party seems to be over as Indian stocks face lower demand this year as the global cash supply has shrunk. This potentially reduces the chances of further growth in the Indian economy.
According to Bank of America Merrill Lynch (BofAML), central banks are trying to cut back and this has negatively affected the liquidity of much of the world’s financial system. With less cash around, investors are being a lot more cautious.
In a statement, Sanjay Mookim, BofAML’s India equity strategist, said
Imagine you are at a New Year party and happy to find out that there’s more room to dance but suddenly you realize that’s because everyone is leaving and the music has stopped. Indian equities are somewhat like that at the moment.
This is bad news for Indian stocks. Despite outperforming the US and MSCI emerging markets index, the Indian equity market still suffered quite a bit of loss. Investors are reported to have taken out $4.6 billion in 2018 from the Indian stock market. That is the biggest withdrawal from the market in a decade and despite the seemingly good prospects in the region.
Mookim explains that the growth that India experienced in 2018 was the result of the lower cost of capital globally combined with investments finally bearing fruit after several years. In recent years, share prices have been rising ahead of earnings estimates but that will most likely stop as liquidity starts going away.
Despite the bad news, BofAML still expects gains for India’s stocks. It predicts that by the end of 2019, India’s NSE Nifty 50 Index will be at 11,300. This would be an increase of four percent but this would not be an easy rise. The bank predicts that many of the factors that gauge equity will fall by double digits. Political tensions may also drop Indian stock performance because of the coming national elections.
Mookim does offer some advice on what investors should be putting their money in. He thinks that farm-equipment makers and consumer companies will be benefiting this year as the Indian government seeks to boost rural incomes. Financing and lending are also good businesses to invest in, with banks being the best opportunity in the market.