India Faces Downgrades in Emerging Market Status Amid Rising Energy Prices
India's portfolio rejig: How the country is losing its crown in EM basket
Business Standard
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India's position in emerging markets is weakening as global brokerages downgrade Indian equities due to rising energy prices and deteriorating macro conditions. Once a leader in the MSCI Emerging Markets Index, India now faces significant outflows while competing markets like Taiwan and South Korea thrive, raising concerns over future foreign capital inflows.
- 01India's weight in the MSCI Emerging Markets Index has decreased as brokerages downgrade Indian equities.
- 02Rising energy prices and weakening earnings visibility are major concerns for investors.
- 03India has recorded over ₹10 trillion in foreign equity outflows, while domestic investors have injected ₹12.5 trillion.
- 04Taiwan and South Korea have attracted significant capital inflows, contrasting with India's outflows.
- 05Analysts suggest that a moderation in energy prices and improved earnings growth could restore India's appeal.
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India's status in the emerging markets landscape is deteriorating as major global brokerages, including Goldman Sachs and JPMorgan, downgrade Indian equities amid rising energy prices and weakening earnings visibility. Once commanding about 20% of the MSCI Emerging Markets Index, India now faces challenges as foreign portfolio investors have pulled over ₹10 trillion from Indian equities. In contrast, domestic institutional investors have provided a cushion with ₹12.5 trillion in investments. The recent surge in Brent crude prices, now above $110 per barrel, exacerbates inflation and impacts corporate margins, leading to lowered GDP growth forecasts. As a result, India has seen over ₹3.5 billion in outflows in April, while Taiwan attracted roughly $12 billion in inflows. Despite these setbacks, analysts remain optimistic about India's long-term growth potential, emphasizing the need for moderation in energy prices and a revival in earnings growth to regain investor confidence.
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The downgrades could lead to reduced foreign capital inflows, affecting market stability and growth prospects for Indian businesses.
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