Amid fears that despite good fundamentals, capital flows to India may sink if investor sentiment towards emerging markets turns negative, a Morgan Stanley report has said that India is expected to outperform emerging markets in 2016. India is expected to edge out other emerging markets despite there being a considerable weakening of conviction among investors regarding the country compared with that in the second half of last year, according to a survey conducted by Morgan Stanley. As per the survey, 52% of the respondents said they expected India to outperform emerging markets in 2016 and 85% had done so in the previous survey in 2015.
The concerns over the sluggish global economic outlook have prompted a negative sentiment among investors worldwide, who had withdrawn capital from riskier assets including India, and moved to gold and developed world bonds. However, foreign investors have recently pumped in considerable amount in Indian equities after they went on to withdrawing spree in the first two months of the year. The survey by the US based financial services firm clearly showed that the majority of foreign investors still have confidence in Indian economy.
Many experts believe that recent volatility has provided investors good opportunity to find companies with attractive valuations and good management record. With a sharp correction in commodities and oil prices, and a lower inflation and current account deficit, India is best positioned among the emerging markets. There are also concerns that if the US Fed decides to hike rates, it may stifle the overall emerging market investors’ sentiment. In 2015 too, Indian market witnessed flights of capital despite having good fundamentals as investors’ sentiment towards emerging markets turned adverse. However, the yuan devaluation poses a risk to the outlook.
There are factors that provide an edge to India against its peers. Factors like political stability compared to other emerging markets, not so much reliance on commodities and the financial discipline reflected in the budget put India on an advantageous position compared to others in terms of investment destination.
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