The world watched India's big dive, won Ma yesterday, fell crazy today, and the people are entangled in whether to vote? See the latest research

Finance Associated Press

2024-06-04 20:09Published on the official account of Cailianpress, a subsidiary of Shanghai Shanghai Poster Industry Group

Finance Associated Press, June 4 (Reporter Yan Jun) The day before it just hit a new high, causing the brokerage to go down, and today it crashed, and the Indian stock market once again made investors call "witness history".

On June 4, the stalemate in the general election caused the Indian stock market to dive en masse. India's NIFTY Index and India's SENSEX30 Index closed down 5.93% and 5.74% respectively, their biggest losses in four years, and both fell 8% at one point during the session. India's VIX fear index jumped 50% at one point.

Dragged down by the sharp drop in the stock market, ICBC Credit Suisse India Fund LOF dived, turning from a 1.6% rise in the morning session to a decline of 3.34% to close.

Can the strong performance of the Indian stock market continue? Are there potential risks? Recently, the foreign exchange bureau has just issued a QDII quota, and some Indian funds have just raised the purchase limit threshold and suffered a sharp fall. These are the issues that investors are most concerned about at present.

The four major reasons explain in detail why the flash crash, and some institutions have predicted the decline

Manulife fund manager Shi Jing said that the factor affecting the trend of the Indian market is the macro factor of the general election, although Modi's election is still a premise and a high probability event for many investors, but the current disagreement is how many votes Modi can be elected.

On the whole, the main reasons for the sharp decline in the Indian stock market are as follows:

First, it is customary for the stock market to become more volatile during the general election. Shi Jing said that historically, stock market volatility tends to increase in the run-up to elections, and investors may become cautious and adopt a "wait-and-see" attitude, which also leads to short-term stock price volatility. Uncertainty over election results and potential policy changes are the main reasons for this volatility.

Second, valuations are at a slightly higher historical valuation, making investors more sensitive. In addition to the election, India's MSCI index (rupee-denominated) has returned 11.58 per cent year-to-date, while the emerging market index (rupee-denominated) has risen 6.29 per cent over the same period. In the industry, the expectations of Prime Minister Modi's election were already full before the results were announced, and the expectations have been fulfilled.

Second, Modi's lead was less than expected, and the votes were counted. According to previous media reports, local exit polls in India showed that Prime Minister Narendra Modi will win a rare third consecutive term by a landslide, so the stock market hit a record high on June 3, but by the time the votes were counted today, the election results were more tense than expected. Modi's Bharatiya Janata Party (BJP) is still on track to win, but it will have a much smaller majority than the 351 seats it won in 2019 and will be less likely to reach the 400 seats Modi wants.

If the BJP's slim advantage means that the party will face greater challenges in implementing planned economic reforms, including increased spending on infrastructure and manufacturing. As a result, the decline in the stocks of state-owned enterprises and infrastructure-related companies was more pronounced, that is, the "Modi concept stocks" were the first to fall sharply.

Fourth, the counting of votes took place in the Indian market intraday, which undoubtedly exacerbated the real-time volatility of the market.

For the decline in the Indian market, a previous Bloomberg survey showed that the BJP needs to win more than 303 seats in the general election for the Indian stock market to continue its record gain, and the Nifty50 index may rise by about 3%; If there are fewer than 272 seats, the market is likely to fall.

Despite the sentiment concerns, overseas institutions are relatively optimistic about India's economy, and the United Nations recently raised India's GDP growth rate from 6.2% to 6.9% in 2024, citing solid public investment and strong private consumption. The International Monetary Fund and other countries have also shown positive signals for India's future, and India's market attention has increased unabated for a while.

Manulife India Opportunities Fund has just increased its quota

For a long time, the Indian market has performed well, but it is trapped in the overstretched quota, and domestic India-themed funds have been restricted for a long time.

At the end of May, the State Administration of Foreign Exchange issued a QDII quota, securities fund institutions received an additional quota of US$1.62 billion, and two fund companies with Indian theme funds in the whole market, ICBC Credit Suisse Fund and Manulife Fund, were approved with a QDII quota of US$50 million, and after the new scale, the two cumulative approved quotas were US$550 million and US$330 million respectively.

Manulife India immediately announced on May 31 that it would facilitate investors to better allocate Indian funds and increase the fund's daily limit of 300 yuan to 2,000 yuan. In terms of scale, as of the end of the first quarter of this year, the scale of Manulife India's opportunity stocks was 1.019 billion yuan, and the company also used more than half of the QDII quota for this fund. Therefore, after the new quota was approved, Manulife Fund also immediately raised the upper limit of the limit.

ICBC India market LOF has two products, RMB and USD, and up to now, the requirement of a limit of 100 yuan for RMB shares and 15 US dollars for US dollars is still implemented.

From the perspective of fund performance, as of June 1, the three funds were all positive returns, with the annual returns of ICBC India Market RMB and ICBC India Market USD 9.64% and 9.26% respectively, and Manulife India stock 8.88%. Although one of the two products is an ETF that tracks the overseas Indian market, and the other is an active stock selection, there is not much difference in performance in the short term, medium to long term. From the perspective of return since its establishment, the return rate of RMB in ICBC India market is 55.09%, and Manulife India is also more than 50%, at 51.75%; ICBC's share of the US dollar in the Indian market lagged behind at 40.23%.

Fund managers look at India: one of the world's fastest-growing economies with growth potential

The short-term volatility of the Indian market is not only reflected in the short-term bearishness of foreign institutions, in fact, according to Goldman Sachs data, due to the wait-and-see election results, foreign investors continued to sell Indian stocks in the second quarter, and the cumulative sales volume reached about $6 billion in April. Goldman Sachs data shows that from the beginning of the year to May 25, in terms of capital allocation, the Indian market showed foreign capital selling, and Indian domestic capital continued to buy Indian stocks, with a cumulative outflow of 3.3 billion US dollars from foreign capital and 23.1 billion US dollars from domestic capital.

Will the Indian market continue its bull market in the future? In Shi Jing's view, from the perspective of valuation, as of May 28, the MSCI India Index was at a valuation position of 26.1 times, slightly higher than the 25.7 times historical PE in the past two years and the 24.4 times historical PE in the past 10 years. But as one of the world's fastest-growing economies, the Indian stock market still has huge growth potential and investment opportunities in the long run.

"In the short term, in the face of the uncertainty of the general election, the market may be about to be in a short-term fluctuation stage after the vote count of the general election, and investors need to pay more attention to the direction of industrial support for the whole year mentioned in the mid-July budget." Shi Jing said that in the medium and long term, investors should still pay attention to India's reform situation and economic growth expectations. At the same time, Indian government bonds will be included in the JPMorgan Treasury Emerging Markets Index from June 28, and experts predict that the inclusion is expected to attract $25 billion of passive capital inflows into the Indian market.

(Financial Associated Press reporter Yan Jun)

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