Indian equities outperform major bourses

Last week, India’s equity indices were the best performers in both the developed and emerging Asian markets category.

The Sensex and Nifty posted a strong end during the five days with a 3.2% and a 3.5% gain, while the US bourses remained mostly unchanged.

There were many factors, such as the better-than-expected corporate earnings, increasing net foreign fund inflows, efforts by the RBI Chief Rajan bolstered the stability in the financial sector and Diwali fuelled the momentum to an exuberant end to the trading week.

The better-than-expected earnings in the Sensex 10 out of 17 companies reported sales surprises that exceeded expectations by 13%, and earnings surprises that exceeded expectations by 5%. In the Nifty, 22 out of 29 companies reported earnings with sales surprises on the upside by 11%, while earning surprises were at 0.8%.

For both indices, the consumer goods sector was the outperformer with 152% in sales surprise. This shows the driver of growth in India’s economy is still in domestic demands. This was also reflected in the Markit/HSBC flash manufacturing PMI report in October, where it stated “consumer goods as the best performing sector with new orders and exports rising”. Foreign buyers bought $761m in Indian equities for the week ending 31 October.

Selling in Indonesia

In contrast, Indonesia performed poorly after exports fell and trade balance went back into a deficit. Investors exited the Indonesian equities, bonds and rupiah. Exports year-on-year has been on a decline since hitting a high in Jan 2010 and monthly exports have shown a decline for the past 18 months. The Jakarta composite lost 3%, and the rupiah lost 2.3%, in the past five days. However, it is not all bad with the HSBC flash manufacturing PMI for Indonesia showing an expansion of 50.9 in October, from 50.2 the month prior.

Global manufacturing upbeat

Taking in the broader view of manufacturing PMI, the October survey showed expansion in major economies such as the US , UK , and Japan , as well as emerging Asian economies in South Korea, Taiwan, Indonesia and Vietnam. India’s order flows on the other hand remain weak with manufacturers reducing their production in October and headline index unchanged from September at 49.6.

The bright spot is in exports, “anecdotal evidence suggested that the weaker rupee had boosted foreign demand in the latest month” according to the Markit/HSBC India Manufacturing PMI report for 1 November.

This week ahead

Investors will have to brace themselves for another busy week of economic data in the US and Asia. The market moving highlights in the US are US ISM non-manufacturing, 3Q GDP, personal income and spending, and consumer sentiment, and in Asia, it is the Indonesia GDP and China exports.

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