📰Tough Month

Hello. Tomorrow, the United States will be electing its 47th president. The next day, the Federal Reserve will potentially announce a 25 bps rate cut. We’ll examine how investors are reacting to this volatility, and then close with Gupshup, a round-up of the most important headlines.

BTW: Who was the first U.S. president to meet an Indian leader? (Answer at bottom)

Markets

Read here for an appendix on the above.

Analysis

Investors Pull Out of India As U.S. Elections March Forward

Ahead of U.S. elections taking place tomorrow and the Federal Reserve policy decision on Wednesday, global equity funds saw $2.65 billion in outflows for the first time in five weeks as investors look to shelter in safety to hedge any volatility. 

India has been especially hit, with foreign investors pulling out $11.2 billion in October, more than they did in March 2020 on the news of sudden lockdowns. In the first half of the month, outflows in Indian equities were driven by foreign investors cycling money into China after its massive stimulus package caused a temporary roar in its stock markets. While India’s economy is still expected to be the fastest-growing emerging market of the year, investors have now become accustomed to high returns in the country. With rates still high, consumer demand weakening, and corporate profits growing slower, it’s unclear whether the country can deliver on its high expectations. For context, MSCI India Index companies are projected to achieve a 15 percent profit growth, short of the 20 percent average seen over the past decade.

The lowered demand in Indian equities has forced the rupee to an all-time low of 84.17 against the U.S. dollar. The NSE and BSE indices each dropped a percent, resulting in the largest single-day drop in the last month.  Indian traders told Reuters they expect the central bank is selling from its war chest of U.S. dollars to support the rupee from falling further.

Options markets are reflecting a defensive stance, with increased volatility and rising option prices, particularly for puts, amid declines in equities and the dollar. Treasury yields have dropped, while India's 10-year bond yield has risen by over 1%. These signals indicate that investors are moving towards cash and bonds in anticipation of heightened market volatility

After this month’s outflows, India lost its status as the most expensive equities in the world to the United States, with Indian indices’ P/E ratio falling to 25.53 compared to the U.S.’ 26.39. Indian equities still remain the second most expensive. The MSCI India Index is valued at 22 times its forward earnings, exceeding its two-decade average by more than 1.5 standard deviations.

Investors will be looking closely to see if India’s market rebounds after the dust settles in the United States this week, or if the outflows represent deeper concerns about India’s economy.

Macro

• India will boost imports of Russian oil if price is right, Indian Oil Minister Puri told Bloomberg today. India’s oil imports from Russia rose 11.7 percent in September from a month previous. In August, India surpassed China as the world’s largest customer of Russian oil.

• India is revamping power demand forecasting for better generation capacity. The Central Energy Authority (CEA) seeks to work with weather agencies to assess better environmental data and plan better forecasts for inclement weather patterns. Gauging future demand is also increasingly important to limit supply-demand mismatches plus keeping costs in utilities in check.

Equities

• Indian shares posted their worst session in over a month ahead of the US election. Indian equities fell over 1 percent due to huge outflows right before the US presidential election. Additionally, huge foreign outflows led to equities going down 6 percent in October after having gained all throughout 2024. Markets are unsure of which candidate will prove to be more bullish for foreign equities given that Trump is seen as pro-business but protectionist while Kamala is less protectionist but investors are unsure of her business policies as a whole. (Reuters) 

• Adani pushes Bangladesh to pay a $850 million (₹72 billion) electricity bill by cutting power by half. Adani’s power generation unit has started cutting power generation by half to Bangladesh as they continue to wait for payment in full. Internal Adani members report that cuts may escalate to full power cuts starting November 7th. Adani is requesting either a letter of credit or payment in full; the situation follows a series of violent protests against the government. (Mint)

Alts

• Kotak Alternate Assets looking to raise a new healthcare fund. Kotak is looking to raise $190 million (₹16 billion) to target equity in growing healthcare companies. The total value of India’s healthcare industry is expected to reach $218 billion (₹18.35 trillion) by 2027 and is growing at a pace of 18.24 percent according to government data. (BBG)

Policy

• RBI is looking for a new Deputy Governor following Michael Petra's stepping down in January. The move shows that the RBI is looking to avoid any last-minute decision making which can make markets more nervous. At the same time, Governor Das is also set to step down in December marking a shift where meetings going forward will have an entirely new rate-setting committee, setting India up for larger potential changes. (Economic Times)

Oh, and President Truman was the first U.S. president to meet an Indian leader; he met the inaugural Indian prime minister Nehru in October 1949, two years after India gained independence.

See you Wednesday.

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

1 USD = 84.17 Indian Rupee