Time to diversify to global equities as central banks hike rates?

Equity investors have been on the edge since the start of 2022. From Ukraine war, to a sharp turnaround in interest rate cycle, investors have been toiling with wild swings across global markets.

Lately, investors have become risk averse in the backdrop of rising inflation and have been ‘selling the rallies’.

Given this, most analysts say the risk-reward for investing in Indian equities remains favourable despite the global headwinds.

Vineet Bagri, Managing Partner, TrustPlutus Wealth India, says global markets in a flux. It’s complicated to guess what the market is saying. Existing and potential economic disruptions denting markets. India is well positioned. 

Back home, the retail inflation climbed to 7% in August – staying above the Reserve Bank of India’s target zone for the first eight months of 2022. 

Yet, the levels are not as high as being seen in developed countries, which is keeping analysts bullish on India’s growth outlook.

Joseph Thomas, Head of Research, Emkay Wealth Management says, India’s GDP growth is resilient compared to other emerging markets. Credit growth above 15% reflects improving business conditions. Manufacturing sector is expected to do well. Rupee-based investors should be careful. Wait till US Fed’s hawkishness moderates. Prefer domestic markets vs global equities, he suggests. 

Indian equities’ performance thus far in 2022 has been a testimony of this confidence.

The return of foreign institutional investors, who have pumped in over Rs 64,000 crore since July 2022, has also lent support. 

While key global indices including Dow Jones, S&P500, Nikkei, Heng Seng, and MOEX Russia have tumbled in the range of 4 to 36%, so far in 2022, the S&P BSE Sensex and the Nifty50 have gained over 1.5% each.

With this, the domestic equities have turned relatively expensive. But analysts still suggest investors focus on domestic equities for now.

“Global pain in the form of deflationary condition would help India in the form of cheap oil and moderation in trade deficits and inflation in the near future,” says G Chokkalingam, Founder and Chief Investment Officer, Equinomics Research.

“We continue to believe that the domestic markets would recover significantly after every major fall in the short-term and the Sensex would hit another record high level by end of CY22,” adds Chokkalingam.
 

As regards today, the US Federal Reserve’s interest rate decision will be on investors’ radar.