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Lokeshwarri S.K.

BL Research Bureau Investors appalled by the mayhem in the equity markets on Monday can take heart from the fact that Indian equities have outperformed their Asian peers in the last two months.

India’s benchmark index, the BSE Sensex is up 7 per cent since July 16. This performance has been emulated by only one other Asian index, the PSE Composite Index of Philippines. All the other Asian indices are down sharply with some of them such as the Shanghai Composite Index (China) and Jakarta Composite Index (Indonesia) down as much as 30 per cent since mid-July levels.

Investors have plenty to gripe about in these countries. All the Asian economies have been grappling with slowing GDP growth and high inflation caused by soaring commodity prices. Most of the Central Banks in this region including the Philippines, Korea, Indonesia, Taiwan and Thailand have been hiking policy rates in a bid to rein in inflation thus impacting corporate profits.

So what was the reason behind the out-performance of Indian equities? The meltdown in commodity prices appears to be the prime reason behind this disparity. The July 14 trough formed in the Indian equity markets also coincided with the peaking of crude prices at $147. Since India imports 70 per cent of its crude requirement, cooling of crude prices is perceived to have a beneficial affect on inflation.

On the other hand, Asian markets, which were major exporters of commodities such as China, Malaysia and Thailand, were negatively impacted by the sharp decline in commodity prices as well as decrease in export volumes due to slowing growth in other world economies.

Higher contribution by the services sector to the GDP seems to be another significant factor that aided Indian equities in the period since July 15. The services sector contributes more than 50 per cent to the GDP in both India as well as the Philippines. Lesser reliance on commodity-based industry could have made external investors increase their exposure to these economies as opposed to those relying on manufacturing.

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