This report comes from this week’s CNBC “Inside India” newsletter, which brings you timely, insightful news and market commentary on the emerging powerhouse and the big players behind its meteoric rise. Like what you see? You can subscribe here.
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The investment community has been rapidly changing logos over the past few weeks. But it’s reasonable when one’s loyalty is all about return on investment.
China appears to have emerged as the top investment destination for market participants after Beijing launched its most aggressive monetary stimulus package since the coronavirus pandemic and provided support for its sluggish property market.
Chinese CSI 300 Index Shares are up about 25% since the stimulus was announced. At the same time, India’s nifty 50 The decline has exceeded 3.5%. According to CNBC statistics, Indian stock markets have fallen on seven of the past 10 trading days, while Chinese stocks have risen every day except one.
The causal link between the two stock markets over the past two weeks raises the question of whether India’s outperformance comes at the expense of lower Chinese asset prices over the past four years. More importantly, will this situation be reversed in the near future?
In the short term, there appears to be some evidence of gains for China and losses for India. Citi strategists cautiously observed that “when there were large outflows from China, we saw a similar increase in inflows from India.”
Chris Ma, head of quantitative research for Asia at Citi, said, “While the flow of funds is fungible and difficult to determine, if investors start to profit from increasing positions in India and fund unwinding of positions in China, , we wouldn’t be surprised.
In addition, Rupal Agarwal of Beirstein downgraded India’s rating to “underweight” while maintaining the investment bank’s “overweight” stance on China. He said, “With regard to India, we have always remained neutral. But now we see markets that are quite vulnerable in the short term “driven by record high relative valuations in China and emerging markets that are already showing signs of peaking.”
Will Indian stock market investors suffer further pain if more rumored stimulus measures are confirmed? This will depend on whether the measures announced are likely to target the Chinese stock market or the real economy.
While stimulus has boosted stock prices so far, JPMorgan equity strategist David Aserkoff noted to investors that the rebound could have consequences. Wile E. Coyote Hour If the underlying economic environment remains challenging.
“The problem for (Central and Eastern Europe, Middle East and Africa) equities is that if these new/improved swap instruments only facilitate stock buying in China, and if the economic stimulus measures do not promote economic growth in China, then CEE, Middle East and Africa Where is the upside for Africa?
Likewise, the Morgan Stanley China Index is expected to be “range-bound” in the second half if no further policy measures are announced, Morgan Stanley strategists said.
Experts say even if China’s economy improves and its stock market soars, it is unlikely to hurt the growth prospects of Indian stocks in the long term.
Wall Street observers said that at present, a strong and fast-growing economy and a “resilient” domestic investor base remain important driving forces for the Indian stock market.
“There are a number of positive domestic drivers in the Indian market that underpin our Overweight recommendation,” Morgan Stanley’s Jonathan Garner said in a note to clients this week. “These include continued high real and nominal domestic GDP growth and income growth, along with the best demographic base for stock demand in our coverage.”
Citi strategists echoed a similar sentiment, adding: “We remain constructive and buy the dip.”
— CNBC’s Michael Bloom contributed reporting.
need to know
Ratan Tata dies at age 86. Indian Prime Ministers pay tribute to Tata ModiTo the Chairman of Reliance Industries Mukesh AmbaniTo Google CEO Sundar Pichai. Tata Sons, the parent company of the Tata Group, owns nearly 100 companies and its businesses include commercial aviation, steel production and automobile manufacturing. Tata retired as group chairman in 2012. Led more than 60 global acquisitions. Tata Sons Chairman N Chandrasekaran first confirmed the news, but he did not disclose the cause of death.
Ola received over 10,000 complaints. India’s Central Consumer Protection Bureau sent a “show cause notice”, an official document seeking an explanation, to Ola Electric after receiving about 10,000 complaints against the e-scooter manufacturer. Issues raised include substandard after-sales service and inaccurate invoices. Ola Electric’s shares have fallen about 40% since the company’s highs around two weeks after its listing.
The fourth country with foreign exchange reserves reaching US$700 billion. Indian Foreign exchange deposits increased by US$12.6 billion for the week ended September 27, according to the Reserve Bank of India. This brings its total reserves to US$705 billion, ranking behind China, Japan and Switzerland respectively. BofA Securities wrote that India’s central bank “appears to be relaxed about holding more foreign exchange reserves as it looks to build buffers against unexpected external risks.”
Green growth alone requires US$1 trillion. Zarin Daruwala, chief executive of Standard Chartered Bank’s India and South Asia region, said India’s willingness to grow cannot rely on conventional economic expansion. The country must also pay attention to Environmentally sustainable development$1 trillion will be needed over the next ten years. However, growth in private sector capital expenditure did not meet expectations. “Today, India accounts for only 1% of the global green bond market,” Daruvala said.
What happened to the market?
Indian stocks had a mediocre week, improving from last week’s 4.5% decline. The Nifty 50 index closed just below 25,000 points and has gained 15% this year.
India’s benchmark 10-year government bond yield has fallen to 6.76% after rising more than 20 basis points in the past week.
Liu Yang, chairman of Hon Hai Technology Group (also known as Foxconn), said on CNBC TV this week Foxconn’s production in India is likely to grow significantly in the next few years. Although India’s supply chain is still under construction, “they will eventually have their own supply chain,” Liu said, “just like China.” Liu added that the current government is very supportive of business and industry.
Meanwhile, James Thom, senior investment director at Abrdn, said the Indian market is “purely a fundamental one”. This is in stark contrast to the Chinese market, which is driven more by sentiment than fundamentals, he said. “We’re seeing strong economic growth filtering through through earnings growth,” Tom told CNBC. Although India’s stock valuations are high, Tom doesn’t think there will be a real downward revision because “fundamentally, its trajectory is Very stable.”
What happens next week?
Inflation reports from the US, UK and India will be the focus of investors next week. Meanwhile, civil construction company Garuda Construction and Engineering will go public on Tuesday.
October 11: US September PPI, UK GDP, JP Morgan and Wells Fargo profits
October 14: India’s September Consumer Price Index
Oct. 15: Garuda Construction & Engineering IPO, Bank of America, Goldman Sachs and Citigroup profit
October 16: UK CPI, Morgan Stanley earnings
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