2018 has been a mixed bag for India’s financial markets. The bond market has seen significant gyrations, only for yields to end the year virtually flat from 12 months ago. Meanwhile, the 7% rise in the Sensex means it has outperformed most other major EM equity markets this year. However, the 9% slump in the rupee against the US dollar makes it one of worst performing EM currencies over the past 12 months. Looking ahead to 2019, we think that local equities will drop and the rupee will weaken further. Domestic factors including concerns over the central bank’s independence and heightened political uncertainty surrounding the general election will weigh on local markets. Meanwhile, we think that slower growth in the US will cause the S&P 500 to slump and investors to retreat from risky assets generally.
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