Can India be a hedge against US recession? | Real Time Headlines

This report comes from this week’s CNBC “Inside India” newsletter, which brings you timely, insightful news and market commentary on the emerging powerhouse and the big players behind its meteoric rise. Like what you see? You can subscribe here.

Disappointing U.S. jobs report follows Eventually pushing the stock market to the cliff and crashed an investor gathering.

Global stock markets suffered their biggest drop in more than two years on Monday. Japan’s Nikkei plunges more than 12% The S&P 500 fell 3%, while India’s Nifty 50 fell just 2.7%.

India’s benchmark index of emerging market stocks has also started to outperform the S&P 500 so far this year.

If the US does slip into recession, can these market moves be a sign of future performance for Indian stocks?

Assessing the current state of the global economy can partially address this issue. While Europe is struggling and China’s economy is slowing, India is booming.

Venugopal Garre, head of India research at Bernstein, told clients this week that such disjointed global economic conditions mean “macroeconomic woes in the United States are unlikely to become a global event in 2025.” Bank failures in the United States and Europe in 2023 and China’s multi-year housing market slump demonstrate that the effects of major shocks are localized rather than spreading globally.

Historically, US-led recessions have typically resulted in flows into safe-haven assets, e.g. Dollar, Treasury bonds and gold. In contrast, risk assets such as stocks and emerging market currencies fell. depreciated indian rupeeThis week’s record lows against the US dollar will weaken total returns in dollars, euros or pounds, potentially for foreign investors.

However, Garre said the Reserve Bank of India’s decision this week to keep interest rates on hold at 6.5%, while inflation continues to inch lower amid strong GDP growth, could help mitigate the severity of the rupee sell-off.

The rupee may also partially benefit from the US recession if commodity prices collapse. As a net energy importer, India is highly sensitive to crude oil prices. A fall in Brent crude oil prices caused by the U.S. recession could help support the Indian currency.

More broadly, the Indian economy is also consumer-driven, unlike China and Japan, which rely on exports. Data shows that the United States is not the main destination for India’s manufactured exports. Services such as IT and business process outsourcing, which account for 75% of exports, are unlikely to suddenly lose competitiveness.

“Even if the U.S. goes into recession, the fundamentals of the economy will not change,” Bernstein’s Garay said. “As a result, short-term adjustments … will not necessarily have long-term consequences, and we believe the risk of a U.S. recession is limited — If that is indeed the case.”

Elsewhere, the Indian government – after Prime Minister Narendra Modi suffered a major election blow – has also taken steps to mature the economy. Investors welcome lower budget deficit forecast Self-restraint in latest spending commitmentswhich could help push the stock price higher.

“Ultimately, India is likely to move into a state of near equilibrium, supporting corporate leverage, private investment and profits as a share of GDP,” Morgan Stanley equity strategist Ridham Desai said in a note to clients this month. The proportion hit a new high.

“The consequent rise in share prices will also be accompanied by a further increase in equity allocations on household balance sheets, a large global allocation to Indian equities (reflecting rising Indian index weightings), increased corporate issuance and new equity valuations. peak.

However, not everyone agrees with the idea that India could serve as a hedge if the US goes into recession.

“I wouldn’t say India will completely disengage, but I think India is well positioned to deal with the volatility noise,” said John Ewart, portfolio manager behind Aubrey Capital’s $600 million global emerging markets fund. More than half of Ewart’s funds are invested in India.

“The companies we’re covering are not affected by the short-term noise we’re seeing and reading from speculation about what the next Fed rate cut might be, when it might come, or what’s happening with the yen,” Ewart said. added. His fund’s major holdings are Varun Beverages – the distributor of Pepsi-Cola, food delivery company Zomato and real estate developer Macrotech.

In fact, Bernstein’s Garay said the “enemy is within” for Indian stocks. A major risk for investors is that stocks become overvalued in the current environment. Indian stocks continue to hit record highs even as analysts cut their profit forecasts for nearly half of the 200 largest Indian companies by 1%.

The strategist noted that despite two days of sharp selling, Indian stocks remain “highly valued but lack earnings support.”

Indian nifty 50 Now performing better than S&P 500 Index. As noted, the benchmark has soared 11.8% year to date, outpacing the S&P 500’s 9% gain, analysts told CNBC. The index may be higher. Traders are increasingly expecting the Federal Reserve to cut interest rates in September, an environment that could boost Indian stocks.

The Reserve Bank of India asked banks to stop shorting the rupee. Reserve Bank of India asks some large banks Not to increase its existing position against the rupee This is to support the currency, Reuters reported. Reuters said officials from India’s central bank’s financial markets supervision and operations department talked to the companies on Tuesday, when the yuan was at risk of breaching 84 against the dollar in the spot market.

Travelers react to IndiGo’s new booking feature. India’s largest budget airline has been trialling a booking feature that will allow women to avoid booking seats next to men on flights. Praise from many users on social media platforms X and Reddit Some people commented on IndiGo’s new initiative as “a piece of good news” after having a bad experience traveling alone.

India’s super-rich are expected to grow the fastest. The number of ultra-high net worth individuals is India is expected to grow by 50% in the next few yearsAccording to consulting firm Knight Frank. Earlier this year, India’s financial capital Mumbai overtook Beijing to become Asia’s leading billionaire hub. Globally, the city has the third highest number of billionaires, after New York and London.

Indian stocks fell 2.4% this week along with global equities. this nifty 50 The index has remained above 24,000 points since hitting 25,000 points for the first time last week. The index has gained 11% this year.

India’s benchmark 10-year government bond yield, like other global government bond markets, has fallen to 6.87%.

Tata Power CEO Praver Sinha told CNBC this week that the company was Projected to achieve 2045 target Net zero energy production. Currently, more than 40% of the company’s energy generation comes from renewable sources, and this proportion is expected to rise to 70% by 2030.

Meanwhile, Max Healthcare Chairman and Managing Director Abhay Soi said that he Don’t see any reason for growth to slow down. “Our growth rate is 18%, which includes two new hospitals acquired in the past three months and a new hospital opened last week,” he added.