 "September Surprise: Nifty returns 13.6% in dollar terms")
Emerging market like India are back in focus, after being hammered by foreign investors for more than three months, following the Federal Open Market Committee's announcement on 22 May to taper its fiscal stimulus. Indian equities have had an unbelievably good run in September, like many other emerging markets. Foreign investors have invested $2 billion in September, after selling over $4 billion worth of equities. After three consecutive months of heavy selling by FIIs, FIIs are back to buying EM assets. Foreign investors heavily sold bonds and equities of emerging markets like India, Indonesia, Brazil and South Africa, as yields of US Treasuries moved up sharply on hopes of a US recovery.
But come September and the surprising deferment of the famed taper of the third edition of the quantitative easing programme, India's suddenly become among the best performing markets both in local currency and dollar terms. In local currency terms the Nifty has returned 6%, but in dollar terms the benchmark has returned 13.6%, which is the best among all other BRICS (Brazil, Russia, India, China and South Africa) countries.
With the currency risk abating, foreign investors have started investing in Indian assets again. Though Korea and Taiwan witnessed higher FII flows in September, India continued to be the biggest recipient of FII flows on a year-to-date basis with inflows touching $13.4 billion. The rupee's appreciation in September has also helped improve the dollar returns from Indian equities, which had fallen sharply after the rupee fell to Rs 69 against the dollar in August. Analysts believe that with the rupee showing signs of stabilising within a tight range of 61-63 against the dollar, investor sentiment should return. Indian equities have fared better than China, MSCI Asia, Korea and Taiwan in September. Deutsche Bank has a December 2013 Sensex target of 21,000, based on the positive developments in September.
Not all the momentum in the markets is to do with sentiment alone or the deferment of the QE taper. Macro-economic data from India too has shown improvement over the last couple of months. Even though the current account deficit for the first quarter (quarter ended June) is at 4.9% of GDP, the trade deficit for the month of August is down to $11 billion against the $17 billion monthly average seen over April to June. Gold imports too are down to 63 tonnes in the second quarter compared to the 343 tonnes in the first quarter of FY14. Economists believe that improving trade data coupled with capital flows will not only help stabilise the currency but also facilitate recouping of dollars by the central bank. However, slower growth will slow down the capital account surplus. In a note, Indranil Sen Gupta of Bank of America Merrill Lynch says: "Although gold import curbs will likely pull down the current account deficit to 3.2% of GDP, poor growth is also likely to shrink the capital account surplus to $70 billion from $89.4 billion in FY13."
| Major Indices of BRICS in Dollar Terms | |||
| Name | 29-08-2013 | 30-09-2013 | % chg |
| NSE CNX NIFTY INDEX | 80.55 | 91.54 | 13.64 |
| BRAZIL IBOVESPA INDEX | 21,157.82 | 23,512.22 | 11.13 |
| MICEX INDEX | 41.31 | 45.17 | 9.33 |
| FTSE/JSE AFRICA TOP40 IX | 3,686.48 | 3,927.00 | 6.52 |
| SHANGHAI SE COMPOSITE | 342.66 | 355.26 | 3.68 |