EMERGING MARKETS How India’s strong 2022 performance compares longer term

How India’s strong 2022 performance compares longer term

The country’s forecast economic growth is robust and it has demographic advantages

The Indian stock market has outperformed the wider emerging markets space so far in 2022, just as it did in 2021.

While this follows on from a period of underperformance, on a long-term view, the showing of Indian stocks compares favourably with both the developed and developing world.

According to data from MSCI, over three years its Indian index has delivered an annualised return of 18.3%, over five years 12.4% and over 10 years 13.2%. The comparable figures for the wider emerging markets index are 5.7%, 6.9% and 8.9% respectively.

The MSCI World developed markets index, despite being dominated by what has been a buoyant US market over the last decade, has also not kept pace with India. Over three years its annualised return is 10.1%, on a five-year view 9.4% and over 10 years 10.8%.

The removal of some of the bureaucracy which has plagued the Indian economy seems to be helping, and big tech consultancies like Infosys and Tata Consultancy Services are seeing buoyant demand thanks to a post-pandemic digitisation drive.

While inflationary pressures, particularly rising commodity prices, are an issue for India, the latest economic outlook from the International Monetary Fund still expects 7.4% growth in 2022 and 6.1% in 2021.

Longer term the country is expected to benefit from favourable demographics with a large working age population.

India has outperformed wider emerging and developed markets

MSCI India MSCI Emerging Markets MSCI World

18.3%

15.0%

10.0

5.0 10.1%

5.7% 12.4%

6.9% 9.4% 13.2%

8.9% 10.8%

Three-year annualised return Five-year annualised return 10-year annualised return

Chart: Shares magazine • Source: MSCI, data to 29 July 2022

This outlook is part of a series being sponsored by Templeton Emerging Markets Investment Trust. For more information on the trust, visit here

Emerging markets: Views from the experts

Three things the Franklin Templeton Emerging Markets Equity team are thinking about today

1. Latin American markets rebounded in July, with Chile, Brazil and Peru among the leading performers, while Mexico and Colombia lagged. In Brazil, a smaller-thanexpected increase in consumer prices in the first half of July, raised expectations of the start of a downward trend in inflation. Additionally, the labour market continued to recover with June unemployment falling to its lowest level since 2015. Although Mexico’s second-quarter GDP growth exceeded market expectations, investors expect to see easing growth in the second half of 2022 on the back of weaker US demand. downward pressure on earnings forecasts is likely. The first half 2022 earnings season is expected to be weak, but the market has already discounted this scenario. Investors are likely to focus on guidance for 2023. Consensus expectations for next year call for 8% growth, relatively unchanged since the start of the year.

3. The US dollar tradeweighted index weakened modestly in July after reaching a cycle high in the month as investors discounted the timing of a peak in the US interest-rate cycle. The direction of the US dollar matters to EMs as it influences capital flows and the availability of liquidity. A strong US dollar tends to coincide with capital outflows and reduced liquidity availability in EMs, whereas a weak US dollar tends to coincide with capital inflows and the opposite trend for liquidity. As the US dollar strengthens and liquidity declines, companies with foreign currency debt find it harder to refinance foreign currency debt or raise new loans and vice versa. Expectations that the US Federal Reserve may be closer to the end than the start of its rate-hiking cycle have recently led the US dollar to weaken, leading to an improvement in liquidity conditions in EMs –foreign fund flows have increased into selected EMs, including India.

TEMPLETON EMERGING MARKETS INVESTMENT TRUST (TEMIT) Porfolio Managers

2. Earnings growth in emerging markets (EMs) for 2022 has been cut to -6% from +6% at the start of the year, based on consensus estimates. China has driven the reduction in EM earnings growth, with forecasts for 2022 declining to 4% growth from 14% over the same period. Analyst earnings revisions indicate further

Chetan Sehgal

Singapore

Andrew Ness

Edinburgh TEMIT is the UK’s largest and oldest emerging markets investment trust seeking long-term capital appreciation.