India Outperformance Reaccelerates

JC Parets
May 28, 2019

India's recent rally has reaccelerated its trend of outperformance relative to the rest of the Emerging Market space.

In this post, I want to outline two charts we use to track this trend and another that helps explain why it's happening.

First is a ratio of the Equally-Weighted BRICKS Nations relative to the Equally-Weighted BRICKS Nations Ex-India, which broke out in mid-2018 and quickly met our first upside price objective. Since then, prices have been basing above support and are now accelerating to 9-month highs, suggesting this corrective period is likely over and a move to new highs is coming.

(*Note: BRICKS = Brazil, Russia, India, China, South Korea & South Africa)

Click on chart to enlarge view.

From a US ETF perspective, we track this ratio through the India Nifty 50 ETF (INDY) relative to the Emerging Markets ETF (EEM). After nearly 4 years of consolidation and several failed attempts, price has successfully broken out to new highs and begun a new, cyclical uptrend.

Both of these charts suggest that any weakness should be seen as an attractive buying opportunity, as long as prices do not break back below their respective risk management levels.

One of the main factors driving this outperformance is the concentration of India's stock market. We've seen drastic outperformance from Large-Caps, which are hitting new all-time highs, despite Small-Caps sitting more than 45% below their all-time highs set in early 2018.

Here's a chart of the 10 largest Indian stocks equally-weighted, making new all-time highs and in a clear uptrend. If this custom index is trending higher, it's going to be difficult for the broader market, particularly the Large-Cap indexes, to break down.

We can also see this theme in the Nifty Index Reconstitution that occurred at the end of Q1, where the Financial Services Index grew to a third of the Nifty 500's weighting and the largest 10 stocks grew from 40 to 42%.

The bottom line is India's outperformance looks like it's here to stay, at least relative to the rest of the Emerging Market's space.

We're buyers of any and all weakness.

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Allstarcharts Team

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