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Why India has a weak market and weaker foreign exchange

Sr Emerging Markets Analyst

India continues toying with investors' feelings (Part 3 of 3)

(Continued from Part 2)

India’s consumer market

It seems that India is always on the verge of change, though little change has happened over the past year.

India (EPI) is one of the largest consumer markets in the world, yet despite its growing demand, the economy has faced many challenges preventing it from reaching its full potential.

Continued weakened currency

Over the past six months, the Indian rupee depreciated over 15%—though most of the depreciation occurred after May, initially driven by the global emerging markets sell-off driven by speculation about the timing on tapering of quantitative easing.

The vast majority of the drop in the MSCI India Index (INDA) has been driven by the currency depreciation. International investors should never underestimate the strong impact foreign exchange movements can have on returns.

Local market trading sideways

The local equities market dropped less than 5% in the same time, though driven by diminished growth expectations. The market has mainly traded sideways, trading within a band for several months.

It seems that every time the market falls, new investors are ready to price back in any remote expectation of growth. Nonetheless, the FX market has punished the currency and diminished any potential investment returns for foreign investors.

Read on to learn about inflation and industrial production, two more macroeconomic data points that have disappointed.

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