This report is from this week's CNBC 'Inside India' newsletter, delivering timely and insightful news and market commentary on emerging powers and the big companies behind their phenomenal rise. Masu. Is it what you see? You can subscribe here.
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The investment world has rapidly changed its signage in recent weeks. But if loyalty is aimed entirely at investment return, it is justified.
China appears to have become a preferred investment destination for market participants as the Chinese government announced its most aggressive financial stimulus package since the coronavirus pandemic, coupled with support for the struggling real estate market.
china CSI 300 Index It has risen about 25% since the stimulus package was announced. Meanwhile, India nifty 50 It fell more than 3.5%. Indian stocks have declined on seven of the past 10 business days, while Chinese stocks have risen on all but one day, according to a CNBC tally.
The causal relationship between the two stock markets over the past two weeks raises questions about whether India's impressive gains came at the expense of falling asset prices in China over the past four years. More importantly, could this situation be reversed in the near future?
In the short term, there appears to be some evidence linking China's gains to India's losses. “At a time when there has been significant capital outflows from China, inflows to India have increased as well,” Citi strategists note cautiously.
“Fund flows are fungible and it's difficult to pinpoint the direction of flows, but investors could benefit from an overweight position in India,” said Chris Marr, head of Asia quantitative research at Citi. “I wouldn't be surprised if they start raising money to eliminate their underweight position in China.”
Additionally, Belstein's Rupal Agarwal downgraded India to 'underweight', but maintained the investment bank's 'overweight' stance on China, saying, 'We have remained neutral on India, but… “We now know that the market is very vulnerable in the short term.” It is driven by record high relative valuations of China and emerging economies (which are already showing signs of peaking).”
Could there be more pain for Indian equity investors if further rumored stimulus measures are confirmed? That will depend on whether the announced measures are more likely to target China's stock market or the real economy.
Stimulus measures have so far boosted stock prices, but JPMorgan equity strategist David Aselkov told investors that stock price gains could be affected. Wile E. Coyote moment the underlying economic environment remains challenging;
“The problem is [Central and Eastern Europe, the Middle East, and Africa] The stock market is wondering where the upside is in the CEEMEA stock market if these new/improved swap facilities just encourage buying of Chinese stocks and the stimulus doesn't boost China's economic growth. Is it? We don’t see that,” Aselkov said the day after the stimulus package was announced.
Similarly, Morgan Stanley strategists have indicated that the MSCI China Index is expected to remain “range bound” in the second half of the year unless further policy measures are announced.
Experts suggest that even if the Chinese economy improves and the stock market soars, it is unlikely to hurt the growth prospects of the Indian stock market in the long run.
For now, a strong and fast-growing economy and a “resilient” domestic investor base remain key drivers for India's stock market, Wall Street observers say.
“There are a number of positive domestic factors in the Indian market that support our overweight recommendation,” Morgan Stanley's Jonathan Garner said in a note to clients this week. “These include sustained high real and nominal GDP growth and earnings growth, and the best demographics to support demand for the stocks we cover.”
Citi strategists echoed that view, adding: “We remain constructive and intend to buy on a dip.”
— CNBC's Michael Bloom contributed reporting.
need to know
Ratan Tata passes away at the age of 86. Tributes pour in for Tata from Indian Prime Minister narendra modito the Chairman of Reliance Industries. Mukesh AmbaniGoogle CEO Sundar Pichai. Tata Sons, the parent company of the Tata Group, includes around 100 companies with operations across industries such as civil aviation, steel production and automobile manufacturing. Mr. Tata, who retired as group chairman in 2012, Led over 60 global acquisitions. The news of the death was first confirmed by Tata Sons Chairman N. Chandrasekaran, who did not specify the cause of death.
Over 10,000 complaints against Ola. India's Central Consumer Protection Authority has sent an official 'show cause notice' to Ola Electric seeking an explanation after receiving around 10,000 complaints against the electric scooter maker. Issues raised include substandard after-sales service and inaccurate invoices. Ola Electric's stock price has fallen about 40% from the high it reached about two weeks after it went public.
Fourth country with foreign exchange reserves reaching $700 billion. indian Foreign exchange reserves increased by $12.6 billion This will occur in the week ending September 27, according to the Reserve Bank of India. This brings its total reserves to $705 billion, placing it behind China, Japan, and Switzerland, respectively. BofA Securities said the Reserve Bank of India “appears to be open to holding foreign exchange reserves as it wants to build a buffer against incidental external risks.”
Green growth alone requires $1 trillion. Zarin Daruwala, CEO of Standard Chartered Bank India and South Asia, said India's growth aspirations cannot depend on regular economic expansion. The country must also focus on environmentally sustainable developmentwhich will require $1 trillion over the next 10 years. However, private sector capital investment has not increased as much as expected. “Today, India accounts for just 1% of the global green bond market,” Daruwalla said.
What happened in the market?
Indian stocks were flat this week, a significant improvement from last week's 4.5% decline. The Nifty 50 index ended the year at just under 25,000 points, up 15% since the beginning of the year.
The benchmark 10-year Indian government bond yield fell to 6.76% after rising more than 20 basis points in the past week.
Young Liu, chairman of Hon Hai Technology Group (also known as Foxconn), spoke on CNBC TV this week. Foxconn's production in India is likely to grow rapidly in the coming years. India's supply chain is still being built, but “like China, India will eventually have its own supply chain,” Liu said. Liu added that the current government is very pro-business and pro-industry.
Meanwhile, James Thom, senior investment director at Abdon, said the Indian market was “purely fundamental”. This is in contrast to the Chinese market, which is driven more by sentiment than fundamentals, he said. “We're seeing solid economic growth through revenue growth,” Tom told CNBC. Despite the high valuations of Indian stocks, Tom doesn't think there will be a major downgrade as the “fundamentally trajectory is very healthy”.
What will happen next week?
Inflation reports from the US, UK and India will dominate investors' attention next week. Meanwhile, civil engineering firm Garuda Construction and Engineering is set to list on Tuesday.
October 11: September US Producer Price Index, UK GDP, JPMorgan Chase and Wells Fargo Profits
October 14: India Consumer Price Index for September
October 15: Garuda Construction & Engineering IPO, Bank of America, Goldman Sachs, Citigroup earnings.
October 16: UK Consumer Price Index, Morgan Stanley earnings
