Equities continue to scale new highs

Indian equities have continued to surge in August, with the benchmark Sensex stock index rising to a fresh record high of over 38,000 today. The recent strong performance in the Sensex compared to other equity markets is perhaps a reflection of the fact that India’s exposure to a more protectionist US is fairly low, while the fallout from the crisis in Turkey has been limited. But even so, we don’t expect the rally in Indian equities to last much longer. Valuations look pretty stretched and, more importantly, we forecast that the US economy will slow sharply in 2019. We suspect that this will cause the US stock market to slump with EM assets including Indian equities getting dragged down in its wake. The synchronised though short-lived downturn in US and EM equity markets earlier this year was in our view a foretaste of what is to come.