India’s stocks have underperformed globally this year so far. The MSCI India Index saw a decline in the first quarter of this year, while the MSCI All-Country World Index was up more than 7%. Nevertheless, it is worth taking another look at the Indian stock market, believes Sukumar Rajah, Director of Portfolio Management for Franklin Templeton Emerging Markets Equity.

From a macro perspective, India has been faring well. “The country’s current account deficit has declined from prior peak periods, the fiscal situation is better and the economy’s risk profile has improved,” says Rajah. Also, inflation has been declining.

India has shown resilience amid recent challenges such as the banking turmoil impacting the US and Europe. The Asian giant’s GDP is expected to expand by 5.9% in 2023, which is impressive when compared to the anticipated numbers in parts of Europe and the US, with many forecasters predicting a recession.

Rajah points out, that the information technology (IT) sector comprises a significant part of India’s stock market and the sector has been growing in recent years. The global IT spending pie has seen Indian companies capturing substantial portion of it. The growth of Indian companies has exposed them to more global issues. However, the investment expert believes the long-term prospects of many Indian companies look good despite them showing growth rates lower than in the past.

“Overall, I think the market is still very attractive compared with other markets in the region, and I believe the recent underperformance is unlikely to continue. I think India has an opportunity to become even more resilient, and domestic investor net inflows should continue as a result. We are also seeing signs of global investors looking to allocate funds to India on a standalone basis. That should change the market picture materially,” Rajah writes.

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