India becomes 2017's best-performing market after BJP win

Year-to-date dollar returns for Sensex at 14% following sharp gains in stocks, rupee on Tuesday

India is now the best-performing major market globally in 2017. The benchmark Sensex is up 14 per cent in dollar terms so far this year. India was the third best performing market on Friday, however, sharp gains in the stock prices and the rupee following the landslide victory of Bharatiya Janata Party (BJP) in Uttar Pradesh has catapulted it to the top slot. The index gained nearly three per cent in dollar terms on Tuesday.

India's top position in global markets is followed by Brazil and Singapore which are up around 12 per cent each so far in 2017.

Interestingly, the high returns posted by majority of other markets are largely due to strengthening of their local currencies against the dollar. For instance, South Korea and Taiwan are up over 10 per cent in dollar terms, however, the markets have returned only five per cent in local currency terms. Similarly, South African market is up seven per cent in dollar terms but is up less than two per cent in local currency terms.

Dollar-returns are important from overseas investors' point of view as they deal in greenbacks.

India's strong showing this year comes after two years of lackluster performance. In 2016, Indian market returned less than a per cent in dollar terms, while they lost close to nine per cent in 2015. In both the previous two calendar years, India was among the worst-performing major markets.

Sustained foreign portfolio investors (FPIs) and domestic flows into Indian equities has played a crucial role in the current rally, market participants said.

The FPIs have so far bought equities worth $3 billion from Indian markets, stock exchanges data showed. India's emerging market peers like South Korea and Mexico have managed to attract much higher flows. However, domestic flows in the Indian markets too have been strong to the tune of nearly over $1 billion.

Strong momentum in the equities has also led to a surge in the valuations of Indian stocks. The one year forward estimate of price to earnings (P/E) for Nifty is currently over 20 times, most in two years. The Indian markets command premium valuation compared to other Asian and Emerging Markets. The sharp gains this year have expanded the valuation premium further, which could cap further returns, say analysts.