India emerges as safe haven for investors amid AI frenzy
What's the story
As the artificial intelligence (AI) frenzy continues to disrupt markets worldwide, the Nifty 50 Index is emerging as a safe haven for global investors. In the first half of this year, it moved 1% or more on about one-third of trading sessions. This is less than MSCI Emerging Markets Index but slightly more than S&P 500 Index.
Market shift
Shift in investor sentiment
India's lack of participation in the AI sector has been a major factor this year, as investors have flocked to markets like South Korea and Taiwan that have provided stellar returns. However, with doubts growing over the sustainability of these trades, interest in India is slowly returning. In June, Nifty 50 outperformed MSCI Emerging Markets Index by its widest margin since November last year.
Economic outlook
Signs of recovery in Indian economy
Despite being one of the worst-performing markets this year, Indian equities are showing signs of recovery. The rupee has stabilized after hitting a record low, while oil prices have stabilized after causing a slump in shares of refiners and airlines. These developments have eased inflation concerns and improved India's economic growth prospects, according to a government report released at the end of June.
Earnings anticipation
Earnings season to provide further boost
Market players are looking forward to the upcoming earnings season, which will be kicked off by Tata Consultancy Services on Thursday. Sandip Sabharwal, founder of research house Asksandipsabharwal.com in Mumbai said, "The fall in commodity prices has altered the macro outlook for India almost overnight." He added, "Lower commodity prices, improving capital flows and stable interest rates create an environment where earnings upgrades are likely to exceed downgrades over the coming quarters."
Investment perspective
India as macro asset class
Morgan Stanley analysts, including Ridham Desai, noted last month that India has become a "much larger macro asset class." They said the less volatile inflation data in recent years support equity valuations and turn the market into one of defensive growth. This makes it more resilient to global shocks than before. Over the last decade, Nifty has nearly tripled with annual gains exceeding 10% on six occasions.