Morgan Stanley Capital International compiles influential indexes from all over the world. It covers thousands of stocks under various categories. These indexes are used as a benchmark that measures the performance of portfolios. The indexes are reviewed quarterly, and it reflects changes in the underlying equity markets in a timely manner.
MSCI India index measures the performance of large and mid-cap segments of the Indian stock market. MSCI EM index measures the equity market performance of global emerging markets.
Many emerging economies, including India, have witnessed currency depreciation. Recently, the Indian rupee depreciated to a record low of ₹72.84 against the USD. Countries like Indonesia, Thailand and many other Asian countries are witnessing a fall in their currencies due to the contagion effects of the trade war between the US and China. The Turkish lira and the Argentine peso witnessed the largest fall in their currencies this year. The continuous domestic political turmoil in Brazil have resulted in its stocks prices to fall.
Thus, the recent turmoil in the emerging markets has affected the MSCI EM Index.
The MSCI India index has given around 12% returns on a year-to-date basis, with the SENSEX giving nearly 10% returns year-to-date. The MSCI EM Index lags behind with just around 6.6% year-to-date returns. This indicates that Indian markets are comparatively more expensive than their peer emerging markets. It was also witnessed that in terms of year-to-date basis, the Foreign Institutional Investors (FIIs) have maintained their faith in the Indian economy and have sold less. Read here about the impact of MSCI on FIIs.
India's Q1 GDP growth, recovering IIP and growth predictions by IMF and World Bank indicates that Indian economy is fundamentally better placed than other EMs. The current record high premium indicates the overvaluation of Indian equities in comparison to other emerging markets. Even though the investor sentiments in emerging economies are soft, Indian economy, in itself is doing well. Thus, an investor must understand the current contagion effect and be cautious about pressing the panic button. Read here about the current situation of the Indian economy.
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