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The must-know investor outlook for Indian markets

Russ Koesterich, CFA of BlackRock

Indian stocks: Is it time to ride the Modi wave? (Part 5 of 5)

(Continued from Part 4)

In short, Indian stocks look relatively expensive and despite investor expectations, it’s too soon to tell whether the government will be able to deliver on promised reforms, which have yet to be executed. Even more importantly, a majority market-friendly government is no guarantee of post-election stock outperformance. The latter depends on the speed of policy delivery and other external factors, and already Indian stocks appear to be giving up some of their election-related gains.

As such, I’m advocating that investors stick with a benchmark weight to India. While there are reasons for optimism, current valuations seem to already reflect a lot of good news.

Market Realist – The previous graph shows the price performance comparison between the iShares MSCI India ETF (INDA) and the iShares Core S&P 500 ETF (IVV). Indian equities highly correlate with U.S. markets, so they’re moving in lockstep with the S&P 500 (SPY). Indian markets have outperformed both U.S. equities (IVV) and emerging nations (EEM) year-to-date.

The recent sixth BRICS summit saw the leaders of the nations meeting and finalizing momentous decisions like setting up the BRICS development bank and the Contingent Reserve Arrangement, where a reserve pool worth $100 billion will be set aside for liquidity measures and crisis protection for the five nations.

The outlook seems bright for India (EPI), provided the Modi government delivers on its promises for economic reform and growth. Investors need to be cautious, as currently, the Indian markets seem overpriced compared to the rest of emerging market equities (VWO).

Read our series  Why the long-term prospects for the BRICS network are positive to learn the long-term prospects for all five nations.

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