Like Developed Market, Like Emerging Market

Terry Flanagan

India’s equity market soars while its economy is posed to slow; a phenomenon also witnessed closer to home.

The February 3 close reported that Indian shares rose for a fourth straight day, indicating a three month high, mainly through buying blue-chip, “best of breed” companies.

The Bombay Stock Exchange’s Sensitive Index (BSE Sensex) climbed 173.11 points, 1.0% to end at 17604.96, its highest close since October of last year. Its previous close was at 17,431.85.

The Indian rupee has also depreciated against the U.S dollar, with a current three month high at 49.095, making trading conditions favorable.

Yet, despite these recent boosts in the market, growth estimates for emerging Asia’s second largest economy in fiscal year 2012 have been cut four times in a row and it is now estimated to be approximately 7%. Slow growth is mainly attributed to a standstill among India’s policy makers, who have been battling inflationary pressures.

If you’re an investor familiar with the state of the U.S. markets, this might sound familiar: fiscal woes, divisive policymakers, and a dark cloud over economic growth.

And, when weakness in the economy prevails, investors often flock to safe names, or take an opportunity to buy into a cheap stock market. In the U.S., high market volatility and investor uncertainty has created “cheap” buying opportunities for bottom-up, fundamentally-focused investors.

Perhaps the same has held true for the emerging markets, such as India.

“We find undervalued publicly-traded companies in India on an established, stable market system where fewer than 300 of the 6,000 publicly-traded corporations are researched by the broader investment community,” said Pratika Sharma, managing director of Florida-based hedge fund, Atyant Capital. The firm doesn’t employ leverage or derivatives—just research to discover India’s most overlooked opportunities.

“Of course, the macro news coming out of India will affect us but the main issue is really policy paralysis. A lot of what you hear is noise, not necessarily facts,” Sharma continued.

Additionally, volatility brought forward by India’s current macro problems can reveal long term investment opportunities. Traders especially should not confused volatility with risk, according to Sharma.

“Equity investors can look forward to a 100% electronic market in India,” said Sharma. “Low short-term volume enhances price volatility, but also, India’s inherent volatility can be an asset in enhancing long-term returns since most investors have a three to five year investment horizon.”

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