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Growth widens split between India stocks, oil to most since 2007

Mumbai - Prime Minister Narendra Modi must accelerate policy changes to bolster economic growth, according to Morgan Stanley.

Indian equities and global commodities are moving in opposite directions by the most in eight years, as the rout in crude oil prices cools inflation and improves public finances in a nation projected to outpace China as the world's fastest growing major economy.
The 12-month correlation between the S&P BSE Sensex index and the Bloomberg Commodity Index dropped to minus 0.2 on Thursday, the lowest reading since September 2007, data compiled by Bloomberg show. The gauges have moved in the same direction about 80 per cent of the time since Bloomberg began compiling the materials index in 1991.
While the divergence is good news for Indian stocks, Prime Minister Narendra Modi must accelerate policy changes to bolster economic growth, according to Morgan Stanley. The Sensex has fallen by less than half the 18 per cent slide in the MSCI Emerging Markets Index this year as the slump in crude oil has kept inflation below the central bank's target of six per cent for 12 months in a row, paving the way for three interest-rate cuts in 2015.
"In a growth-starved world, investors are betting on India for higher economic growth and corporate profits," Gopal Agrawal, chief investment officer at Mirae Asset Global Investments (India) , said. "All recent macroeconomic data have shown improvement. India also stands out because it is not a big exporter or a producer of commodities."
Foreigners have bought $3.8 billion of local shares this year, the highest among eight Asian markets tracked by Bloomberg, and $6.2 billion of bonds despite the global equity selloff sparked by China's yuan devaluation. The Sensex lost one per cent to 25,353.92 at 10:14am on Tuesday as a selloff in commodity-trading firms sent Asian equities toward an almost three-year low.
India's $2 trillion economy grew seven per cent last quarter, putting it on par with China as the world's fastest-growing major economy.