Reaction of Indian equities
The initial reaction of Indian equities after the monetary policy announcement on February 8 was that of shock. Since most market participants were expecting a rate cut, a status quo decision — announced just an hour before market closing — did not go down well with them.
However, benchmark equity indices like the S&P BSE Sensex and the Nifty 50 recovered from the day’s lows. While the Sensex remained 0.2% down for the day, the Nifty was flat. Meanwhile, their US dollar equivalents, the S&P BSE Dollex 30 and the Nifty 50 USD, did better as shown in the graph below.
The S&P BSE 100, which covers a broader segment of the market with 100 stocks compared to the S&P BSE Sensex’s 30, rose 0.1% for the day. Mid and small cap stocks outperformed their broad market peers. Mid-cap stocks, represented by the S&P BSE Midcap Index rose 0.5% for the day, while small-cap stocks, represented by the S&P BSE Smallcap Index rose 0.2%.
Investors should note that except for the Dollex 30 and Nifty 50 USD, returns are in Indian rupee terms.
Indian ADRs listed on US exchanges mostly rose
American Depository Receipts (or ADR) of Indian companies listed on US exchanges mostly rose on February 8. Vedanta Limited (VEDL) was the biggest gainer, up 1.8% for the day. The two decliners were Dr. Reddy’s Laboratories Ltd. (RDY) and ICICI Bank Ltd. (IBN), down 0.6% and 0.9%, respectively.
All India-focused mutual funds and ETFs posted gains on February 8. The Franklin India Growth Fund – Class A (FINGX) was the biggest gainer, up 0.8% for the day. On the other hand, all major India-focused ETFs, like the WisdomTree India Earnings ETF (EPI), the iShares MSCI India (INDA) and the PowerShares India ETF (PIN) were up 0.9-1.0% for the day.
The graph above shows that Indian equities improved on their performance on the next day of the policy announcement. At home, they’ll look at how remonetization pans out and whether it’s able to resuscitate consumer spending, which would be crucial for economic growth.
But for now, the focus would firmly be on external factors, primarily coming from the US, in the form of trade restrictions or taxation, and announcements on immigration policy. While banks and financial institutions would focus on domestic developments, technology firms would be looking to the US for cues.