June sell-off: Most EMs see deeper cuts than India after Fed's rate hike

Emerging markets (EMs) and currencies have seen a major rout this month, following the US Federal Reserve’s decision to hike interest rates by 75 basis points (bps) and signalling another 75-bp hike in July.

The safe-haven greenback has strengthened against most currencies this year amid reversal in capital flows. The dollar retreated somewhat last week as fall in commodity prices eased some inflationary fears.

Month-to-date returns for most stock market gauges are flashing red.

Domestic equity markets are down 5.3 per cent in local currency terms and 6.1 per cent in US dollar terms so far this month in the middle of a $6-billion outflow from overseas investors.

India’s performance is still better compared to other EMs. For instance, equity markets in Brazil, South Korea, the Philippines, and Taiwan are down between 11 per cent and 20 per cent in US dollar terms. Only China’s equity markets have managed to give positive returns this month. However, the gains come on the back of months of underperformance.

“India will continue to remain an attractive investment destination once the risk appetite improves. After the recent correction, Indian equity-market valuations have also turned more reasonable, moving closer to the historical long-term average in terms of the price-to-earnings multiple. Although volatility can remain high in the near term, it presents an attractive opportunity to build up on equity exposure as a healthy earnings momentum is expected to remain a key pillar for the markets,” says Milind Muchhala, executive director, Julius Baer India.