INDIA-The most preferred Emerging Market

A recent article in the Economic Times, said “Morgan Stanley upgrades India to ‘standout overweight’ market.” That is a positive endorsement for India as the preferred Equity Markets in the emerging economies. Another sign of India’s economic growth and prosperity. It illustrates that more people have more disposable income to spend as they want on goods and services. These facts join to enable entrepreneurs to access capital and create jobs, creating a virtuous circle of growth and economic development in a growing and young population.

The Indian equity market has been one of the best for value generation in recent years. It has consistently outperformed other major markets including the US and European markets. In numbers, from early 2021 until October 2022 the MSCI EM index increased by 45.5% (in USD terms. India is performing as the outstanding market in relative EPS [Earning Per Shares] in the emerging economies. As a bonus, this is in a country that is very independent with a low exposure in terms of revenue to both the US and China.

This is not to say that the Indian equity market is without risk. Global economic uncertainty, rising inflation, and geopolitical tensions are all factors that could impact the market in the future.

Being an outstanding market is helpful but what are the implications of this bull market? We have looked at these and opine:

For Investors:

Opportunities: The Indian equity market offers investors many opportunities:

-Access to a wide range of companies, sectors, and industries.

-The potential for high returns over the long term.

-An ability to develop diversified portfolios.

Risks: Investors need to understand the risks:

-The market can be volatile, with sharp swings in prices characteristic of a lack of share liquidity in some companies.

-Big players can take advantage of volatility and liquidity to game the market to their advantage and prevent the setting of prices based on commercial and economic fundamentals.

-As with all markets India is affected by macroeconomic factors such as interest rates, inflation, employment costs, and GDP growth.

For Businesses:

Opportunities: The Indian equity market provides businesses with opportunities:

-Access to capital for expansion and growth.

-Increased visibility and brand awareness.

-The ability to attract and retain talent.

Risks: Businesses need to be aware that equity markets introduce different dynamics:

-Public (listed) companies are subject to a higher degree of scrutiny.

-Compliance can be costly and time-consuming.

-Volatility happens sometimes without reference to business fundamentals and can cause financial disruption to stable businesses.

For The Economy:

Opportunities: the equity market plays positive roles in the economy, including:

-Mobilizing capital for investment.

-Creating jobs.

-Promoting economic growth.

Risks: the market can also exposure the economy to risks:

-Market volatility can lead to economic uncertainty and instability.

-Over valuation in the equity market can lead to bubbles and then to crashes.

-Negative sentiment can lead to selloffs that have a real-world impact reducing investment and forcing companies to change their management decision making.

Overall, the Indian equity market is a vibrant, growing market that offers opportunities and risks for investors, businesses, and the economy. It is important to understand these before investing in the market or making any business decisions.

The Indian Equity Market has an indirect impact on the Maritime industry through:

-The growth in the equity markets attracts funds and increases the availability of capital for shipping companies. When stock markets are performing well, investors push more funds into the market and some of this goes to shipping companies. This can be through direct investment in equities or through bonds issued by these companies. This access to funds can allow companies to make vessel acquisitions, expansions, and operational improvements.

-Most often a flourishing equity market is the sign of a strong economy that is doing more trade and needs more transportation. As a major transportation services provider, the maritime industry benefits through increasing domestic and international cargo movements.

-A stock market offering good returns attracts foreign investment, which leads to a more international outlook and increases trade. It also ensures foreign buyers as well as investors gain confidence and are more willing to engage in trade with India. Both these lead to more trade, transport demand increasing domestic and international cargo movements.

-As trade and the economy grows, stimulated by a strong equity market there is a greater need to modernizing and expand ports and increasing the numbers of ships, as well as to expand the support industries. All leading to a demand for new investment.

-A strong tock market supports a strong exchange rate for the Indian Rupee which improves the value of imports leading to more trade.

Overall, the Indian equity markets do not directly stimulate the maritime sector but they do provide a positive environment in which it needs to grow. Positive equity market growth leads to increased investments, trade, and infrastructure development, all indirectly benefiting the maritime sector.

As an outcome of the above one can reasonably expect higher interest and investment in India both by way of Foreign Direct Investment (FDI) as well as Portfolio Investments i.e., Investments by way of stock buys by both domestic and global investors. Also, it is pertinent to note that in this turbulent global geopolitical environment with headwinds for Europe and China, India stands out as a beacon of interest and hope. This would attract huge investments and such investments would be channelised into Infrastructure as well including the Port and maritime space which would have a positive spin off across the sector be it development or service in the maritime space. Positive equity market growth leads to increased investments, trade, and infrastructure development, all indirectly benefiting the maritime sector.