Indian stock surge draws investors leaving China

India is expected to become the world’s third-largest economy by the end of the decade, with projections indicating a robust annual average real GDP growth of 6 percent, outpacing mostother major economies. This forecast comes from the consultancy firm Capital Economics. The Indian stock market has been on a tear in recent months, with the benchmark Sensex index rising by over 20% since the start of the year. This surge has attracted a wave of foreign investment, with many investors choosing to leave the Chinese market and invest in India instead.

Fertile Investing Ground

India’s economy and stock market have been doing well recently and India has also
outperformed china. The MSCI India index, which measures the performance of Indian stocks,has gone up by 7.5% this year, while the MSCI China index, which tracks Chinese stocks, has gone down by 7.6%. Over the last five years, Indian stocks have risen by 63%, while Chinese stocks have fallen by 18%. India’s economy is growing faster than China’s, with a growth rate of 7.8% in the June quarter, compared to China’s growth rate of 6.3%.

Foreign investors have been moving their money from Chinese stocks to Indian stocks, even though Indian stocks are more expensive and has higher valuations. This is because China’s economy hasn’t rebounded as strongly as expected, which has raised concerns about deflation (a decrease in prices) and made investors less confident in the Chinese market.

“India’s markets seem really encouraging and promising. They’re experiencing substantial growth, and there’s a lot of money being invested in building infrastructure. India is one of the fastest-growing economies. On the other hand, in China, we’re seeing issues in the property sector,” explained Jonathan Curtis from Franklin Templeton during his recent trip to India.

Indian stocks have outshined Chinese stocks by a significant amount. This is thanks to the billions of dollars invested by foreign funds and a growing number of individual investors who have tripled in number since the pandemic started.

Allocators Enticed

Foreign fund managers, who handle a lot of money (billions of $), are taking their investments out of Chinese stocks and putting some of it into Indian stocks, even though Indian stocks are considered relatively expensive. In August, they withdrew around $12 billion from Chinese stocks, while India received approximately $1.5 billion in investments, with a significant portion going into financial stocks.

China’s economy, which was expected to rebound strongly after the pandemic, hasn’t
performed as well as anticipated. This is due to problems in the housing market and increasing local government debt. Chinese households are saving more, which is leading to weaker domestic demand. This economic uncertainty has made investors less confident and has put pressure on stock prices. Experts have noted that China is different from other countries in its post-pandemic recovery because it’s facing a risk of prices falling instead of rising. This uncertainty about investing in China has opened up an opportunity for India.

India’s economic foundation looks good, despite challenges like geopolitical tensions, rising prices, and supply chain disruptions. In September, foreign investors sold about $1.8 billion worth of Indian stocks, but the Sensex (an Indian stock market index) still rose by 1,000 points in the same month, thanks to continued investments from local investors, particularly mutual funds.

Indian markets are not heavily dependent on China’s weakness, there are other reasons for their strength. The growing number of individual investors in India plays a significant role. Additionally, consistent investments through mutual funds are considered a healthy trend. Strong corporate earnings growth is also attracting investors. Hong Kong-based brokerage CLSA recently upgraded its view on India, saying it plans to allocate more weightage to India compared to what index management company MSCI suggests. They’re moving money out of China and Australia to invest more in India.

Investment Destinations

India’s technology sector is a popular choice for investment due to its successful digitization efforts and a tech-savvy population. The nation’s strong education system and English speaking workforce have contributed to this tech focus, with Indian-born
CEOs leading major U.S. tech companies.

Early-stage venture capital is a way for investors to enter India’s tech scene, with success stories like Flipkart, an e-commerce company, valued at around $40 billion after being acquired by Walmart. However, India’s investment landscape can be less liquid, making it challenging to find buyers for venture-backed companies.

The growing Indian financial sector is appealing to foreign investors, with HDFC Bank and Bajaj Finance stocks being popular choices. Infrastructure is another promising area for investment, thanks to government initiatives like the Delhi Mumbai Expressway project, which will significantly reduce travel times. One significant factor driving India’s growth is its young population, which is expected to contribute to a robust GDP and make India the world’s second-largest economy by 2070, according to a Goldman Sachs study. Investing in India today may be a wise choice if this bright future unfolds as predicted.

https://www.equityright.com/indias-soaring-success-dedicated-india-funds-outperforming-emerging-markets/