Rupee, which lost about 12% so far this year, has wiped out all the gains of FIIs

Dalal Street celebrated Diwali on Friday with the Sensex moving above its 2008 peak of 21,207 to a new lifetime peak of 21,293.8. The joy and cheer is justified since market participants have waited almost six years for this event. But if we compare the movement of the Sensex with that of developed market benchmarks over 2013, the performance of our own benchmark is not that impressive.

Not alone

To begin with, Sensex is not the only index that has moved to a new lifetime high this year. There is a party going on in many global markets, funded by money pumped by the Federal Reserve and other central banks to resuscitate their economies.

Other global benchmarks such as the US’ benchmark index S&P 500, Germany’s DAX index, Malaysia’s KLSE Composite Index and FTSE 100 have also hit new lifetime highs this year. Many other benchmarks such as Nasdaq 100, Netherland’s General Index, Spain’s Madrid General Index have moved on to multiyear peaks.

The Sensex has gained 9 per cent so far this year in rupee terms. But if we look at the returns in dollars — which is the return that Foreign Institutional Investors would worry about — the index has recorded a loss of 3 per cent. Weakness in rupee, which lost about 12 per cent so far this year, has wiped out all the gains of the foreign investors.

way ahead

Developed markets have performed far better in 2013 compared with emerging markets. While the US market benchmark, S&P 500 is up 23 per cent this year, European benchmarks such as Germany’s DAX and France’s CAC have recorded gains above 20 per cent.

Improving economic growth in the US appears to have led the stocks in US markets higher while European stocks benefited from bargain-hunting following the sell-off triggered by the sovereign debt scare in European markets. Japan’s Nikkei is also up 20 per cent spurred by Abenomics.

In contrast, many emerging economies have been struggling with slowing growth and high inflation. These markets were also hurt by the US Federal Reserve’s threat to taper its monetary infusion. The outflow of foreign money from emerging markets after this threat caused a sharp sell-off in emerging market stocks.

China’s Shanghai Composite Index, Brazil’s Ibovespa Index, Jakarta Composite Index and Mexico’s IPC Index are some of the emerging market indices that have given negative returns so far in 2013. India’s Sensex also belongs to this league.

The toppers

So who’s topped the charts? It is the frontier markets in Venezuela, Dubai, Ghana and Argentina that are at the top of the returns table this calendar. The lower liquidity in these markets makes the stock prices easier to move when compared to larger markets.

(This article was published on November 1, 2013)
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