With the benchmark indices in the Indian stock market hitting new highs, FDI inflow burgeoning and strong investments happening in infrastructure, while China continues to reel under its property crisis, accelerated capital outflow and economic concerns, several experts believe that New Delhi offers a “real alternative” to Beijing, CNN reported.
The report further highlighted that market watchers are quite keen on Prime Minister Narendra Modi’s return to power for a third straight term in the upcoming Lok Sabha polls which will bring greater predictability to economic policies.
Financial professionals around the world are noticing India’s development since 2014 under PM Modi, who has said he wants the nation to become a USD 5 trillion economy by 2025. Notably, the optimism around the world’s most populous nation is in stark contrast to the mood found in China, which is grappling with a myriad of economic challenges, including an accelerated flight of capital from the country, CNN reported.
The Chinese stock markets have suffered a protracted slump since recent peaks in 2021, with more than USD 5 trillion in market value having been wiped out from the Shanghai, Shenzhen and Hong Kong bourses. Foreign direct investment (FDI) plunged last year, and fell again in January, down nearly 12 per cent compared to the same month in 2023.
On the other hand, India’s stock market, is hitting record highs. The value of companies listed on India’s exchanges surpassed USD 4 trillion late last year. According to CNN, the future appears even brighter as India’s market value is expected to more than double to USD 10 trillion by 2030, according to a Thursday report by Jefferies, which would make it “impossible for large global investors to ignore.”
Peeyush Mittal, a portfolio manager at Matthews Asia, a San Francisco-based investment fund said that there is no country like China other than India.
“China is a no go, so…which is the other country that can maybe replace China?” said Mittal. “There’s no country like China other than India … in some form or fashion, it is the substitute that maybe the world is looking for to drive growth,” he said.
Japan has also benefited from investors seeking an alternative to China — Tokyo’s benchmark index hit a new high for the first time in 34 years last week, helped by improving corporate profits and a weak yen. But the country is stuck in recession and recently lost its position as the world’s third biggest economy to Germany.
MSCI’s indexes help institutional investors worldwide decide how to allocate money and where to focus their research. The latest revision by global stock index compiler MSCI reflects the bullishness towards India. MSCI said this month that it would increase India’s weighting in its emerging markets index to 18.06 per cent from 17.98 per cent, while reducing China’s to 24.77 per cent.”
India’s weight in the MSCI emerging market index was about 7 per cent a couple of years back,” said Aditya Suresh, head of India equity research at Macquarie Capital. “Do I think that 18 per cent [in the MSCI index] is naturally gravitating more towards 25 per cent? Yeah, that’s kind of clearly where our conversations are leading us to believe.”
As India heads towards national elections in the coming months, market watchers are hoping for PM Modi-led Bharatiya Janata Party’s return to power for a third term, bringing greater predictability to economic policies for the next five years, CNN reported.
“If Modi is back with a majority and political stability is there, then I can certainly say with confidence that there’ll be a lot more investor interest in India on a more sustainable basis,” said Mittal.
Also, there are good reasons for the euphoria around India. From a surging young population to humming factories, the country has a lot going in its favour. The International Monetary Fund expects India to grow by 6.5 per cent next financial year compared to 4.6 per cent for China.
Analysts at Jefferies expect the country to become the world’s third largest economy by 2027. Much like China more than three decades ago, India is only at the beginning of an infrastructure transformation, spending billions on building roads, ports, airports and railways.Aditya Suresh said that there is a “very strong multiplier effect” on the economy from the investments in digital and physical infrastructure, which “you cannot roll back.”
The world’s fastest growing major economy is also trying to capitalize on the rethink underway among companies on supply chains. Global businesses want to diversify operations away from China, where they faced obstacles during the pandemic and are exposed to risks arising from tension between Beijing and Washington.
“India is a prime candidate to benefit from the ‘friend-shoring’ of supply chains, notably at the expense of China,” Hubert de Barochez, a market economist at Capital Economics wrote in January. As a result, some of the world’s biggest companies, including Apple supplier Foxconn, are expanding their operations in India. Tesla CEO Elon Musk said his company is looking to invest in India “as soon as humanly possible.”
“[PM Modi] really cares about India because he’s pushing us to make significant investments in India, which is something we intend to do,” Musk told reporters last June. But, some experts have also raised concerns that India’s confidence may be bordering on hubris, as per CNN.
According to Macquarie, retail investors alone own 9 per cent of India’s equity market value versus foreign investors at slightly under 20 per cent. Analysts, however, expect foreign investments to pick up in the second half of 2024, once the election is out of the way.
Another potential challenge highlighted is that despite its new economic swagger, India might not have the capacity to absorb all the money that is flowing out of China, whose economy is still about five times bigger.But the fact that India’s sizzling rally is driven by domestic investors adds to the country’s strengths and reduces its dependence on foreign fund flows, as per CNN.
Apart from geopolitical rifts and an uncertain economic outlook, foreign companies and investors have grown increasingly wary of domestic political risks in China, including the possibility of raids and detentions. Institutional investors are still very wary about buying Chinese stocks, even though many now look like a bargain.
“There are many good businesses in China, but with all the regulatory issues it becomes very difficult to predict what they will look like in the long run,” said Priyanka Agnihotri, portfolio manager at Baltimore-based Brown Advisory.
India, on the other hand, enjoys healthy relations with the West and other major economies, and is aggressively wooing large firms to set up factories in the country.Finance Minister Nirmala Sitharaman, in her budget speech said FDI inflows since 2014 stood at nearly USD 600 billion, which is twice the amount during the previous decade.
“For encouraging sustained foreign investment, we are negotiating bilateral investment treaties with our foreign partners, in the spirit of first develop India,” she added.
Analysts say that it would hard to stop the economic juggernaut India has set in motion, irrespective of what happens to China, CNN reported. “Even if China comes back to the table and resolves a lot of problems, I don’t think India is going back into the background anymore,” Mittal said. “It has arrived.” (Economic Times)