Indian stock market: Even as the GST 2.0 reforms have unleashed the stock market bulls today, the reality is that the Indian stock market has fared poorly versus most other major markets in the last year, shedding 2% during this period.
This underperformance is starker against India's neighbours, Pakistan and China, whose stock markets have not only delivered stellar double-digit gains but are also at the top of the rung in the best-performing stock markets globally.
What's more?
Pakistan stock market's KSE 100 index has emerged as the top wealth creators in the last one year, with a whopping 95% return in the last year. The KSE 100 index, according to Bloomberg data, is up 94.44%.
Pakistan's surge is explained by its small market size -- where even limited foreign inflows can have an outsized impact -- alongside IMF support and domestic rate cuts that spurred liquidity, said Harshal Dasani, Business Head, INVAsset PMS.
Much of the momentum has been driven by incremental fund flows from the US and China, which, given Pakistan's scale, have been enough to trigger a sharp rally, he added.
Meanwhile, China's Shanghai index has jumped 34% in the last year, also dwarfing the Indian stock market's performance. Analysts believe the fall in the US dollar index and expectations of imminent Fed rate cuts have made long-tenure US Treasuries less attractive, prompting global capital rotation into emerging markets.
China, despite its governance overhang from communist policies, is trading at historically low valuations, making it a natural beneficiary of this flow, Dasani opined.
Another top global market performer is Hong Kong's Hang Seng index, which is up 44% this year. Meanwhile, the "mother market" US has jumped 16% and is trading at all-time high levels.
Canada's TSX Composite is up 25%, Japan's Nikkei has gained 15%, Britain's FTSE index has added 11% and the Brazilian Bovespa index has jumped 3% during this period.
"India's corporate earnings have slowed down over the last two to three quarters. That led Foreign Institutional Investors (FIIs) to perceive the market as lower in value. Second, the situation was compounded by the tariff wars in the US. Initially, the tariff war affected all markets, but in its second phase, the impact was more specific to India," explained G Chokkalingam, Founder and CEO, Equinomics Research.
He added that the relative performance of other markets in itself became a factor driving FIIs away from India. "Chinese market started doing quite well during the same period, making it more attractive for global investors. So, money started flowing out of India and into China," he added.
While India's growth fundamentals remain intact, the market's relatively expensive valuations compared to peers, coupled with near-term political and trade uncertainties, have capped performance, said Dasani.
Government reform in the form of GST will definitely help revive the markets significantly starting from the October-December quarter, when corporate earnings begin to reflect these changes, said Chokkalingam.
Furthermore, A) direct tax benefits have been given in the budget; B) oil prices are low -- about 18% down from the recent highs; C) monsoon has been excellent, so agriculture should perform well; D) and corporate earnings are expected to improve over the next two to three quarters, he added, which point to a recovery in the markets.