Daily Management Review

Experts Consider ‘Safe Haven’ Potential Of India Amidst Indian Stocks Hitting Record Highs


The Indian stock markets reached record highs last week with stocks gaining across the board and this positive movement has encouraged one emerging market investor to identify that asset class a "safe haven" for investments.
A record high for the forth consecutive day was touched by India's benchmark S&P Bombay Stock Exchange (BSE) at the end of trade on Friday with an increase of 0.95 percent at 37,336.85. there was also rise in the broader NIFTY 50 and on Friday marked a 0.99 percent increase at 11,278.35 following an all time high of 11,283.40.
Strong company results for the second quarter boosted performance of the stock markets in India.
This positive sentiment in the Indian market is a sharp contrast to the prevailing uncertainty covering the over global markets because of the escalating trade tensions between the U.S., China and Europe.
according to Jon Harrison, managing director for emerging markets macro strategy at research firm TS Lombard, the primary reason for this is that India is a "relative safe haven for equity investors."
"India is a relatively closed economy," he explained and added that the country was "less involved in regional supply chains than some of the more high-tech Asian economies." With an export figure for 2017 pegged at 18.9 per cent by the World Bank, it denotes that the Indian economy is comparatively cushioned form the uncertainties and upheavals of the international trade compared to other countries – Chin, South Korea and Vietnam for example.
Additionally, the turning away from China could benefit India. "India is the other large Asian equity market, so investors who want to maintain an exposure to Asian equities but fear the impact of the trade war would favor India over China," Harrison said.
The equity market is also favored by domestic politics.  state support for farmers has been enhanced by Indian Prime Minister Narendra Modi's government a year before general elections and is also set to extend greater support for social security. Both these strategies have the potential to enhance consumer spending.
It has been predicted by the World Bank that India would be the fastest growing major economy for 2018 and a 7.3 per cent growth in its gross domestic product in 2018,
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However, a caution was also sounded by Harrison, saying that India could only be considered a safe haven in what is "a very negative overall environment for emerging market assets."
India is a "domestic demand driven economy," said Roger Jones, head of equities at asset manager London and Capital. He added that "foreign direct investment remains strong and is unaffected by trade threats."
But India could be hurt by the ricochet effect of the global trade war, suggested Jones. He said that India could be hurt by rise in commodity prices – particularly oil of which India is a major importer, because of protectionism.
Over the past few months, there has been a strengthening of the US dollar against the Indian rupee. India "can't be a safe haven with a weak currency," Derek Scissors, an India expert at the think tank American Enterprise Institute, told the media last week .
"You'd have to be either willing to accept short-term currency risk for the sake of stock gains or believe U.S.-China trade will remain unsettled for several years," he explained. "Both (principles are) reasonable plays but India is not safe right now."