Despite the Negative Sentiment Overshadowing Emerging Markets, India’s Economic Growth Remains Healthy

July 2018 India Markets and Strategy

After coming off their worst quarter in years, emerging markets began to bounce back in July, with Indian bourses outpacing the broader emerging market complex.  India remains outside of the depths of the “trade wars” given its service-oriented economy.  The country’s July composite PMI number, a measure of economic activity, surged to 53.3 from 50.4 during the month, confirming our view that, despite the current negative sentiment overshadowing the emerging market complex, India’s economy and corporate earnings growth remain healthy.  Other leading indicators during the month confirmed this strength as well.

We did well holding the largest and most liquid stocks trading in India during the month and employed modest long leverage.  Given the sharp correction that has taken place in Indian mid and small cap names this year, we now see an attractive entry point forming to re-engage faster growing business lower down the capitalization spectrum.  Mid cap stocks are now trading at cheaper P/E multiples than the Nifty 50 Index, something not seen since May of 2015.