Emerging Markets: Since March, when the WHO declared COVID-19 a global pandemic, India has surged as the top three emerging markets globally.
As per the emerging market tracker, India has positioned itself among the top three emerging in July (1). For three months since March, India was at the bottom of the rankings for emerging markets (2). However, in June, India moved up to three notches to get into the league tables. Currently, India is ranked right behind China and Brazil. The grooves are upward in direction due to the boom in the stock market, and exceeding rupees.
India’s average market capitalization has also surged to 7.7% to 1.9 billion USD from 1.7 trillion between June and July. The surge happened because of the poring of 1.2 billion USD by foreign investors into local stakes in July. The flow is still gushing, resulting in the local currency boost when other emerging markets currencies are struggling against the dollar.
Emerging Markets: Improvements in the Financial Metrics of India While the Real Sector Metric is Still Under Recovery
Indian financial metrics surged when the real sector metrics of India are still under-recovery. In the June quarter, the earning of corporate is multi-year low. The PMI of manufacturing in India has dropped to 46.0 in July after a rebound of 47.2 in June. It shows the impact of local lockdowns on India’s manufacturing activities.
Even though manufacturing is contracted in India in the previous month, other emerging markets are reporting expansion. It includes countries like China, Brazil, and Turkey. Their PMI is reported to be 51.1, 58.2, and 59.6, respectively. As per the readings, India is doing better than only two emerging markets; Thailand and Mexico. Their PMI is 45.9 and 40.4.
The challenge is the pick up in real economic activities that would justify the optimism in financial markets. The mobility level is also rising from the previous few weeks; however, it is still lower than the pre-pandemic level. The recovery pace of the economic activities will depend mainly on India’s ability to contain the COVID-19 pandemic. India is among the emerging three markets across the globe due to its high financial flows. However, we are yet to see if the real economic activities can justify that optimism.