Will the current reopening of Chinese economy end India’s outperformance?

Compared to a year and a half ago, when its economy was just starting to recover after the devastating delta eruption, India’s stock market remained unchanged in dollar terms. And yet, its weight in the MSCI Emerging Markets Index has passed Taiwan and South Korea into second place, with almost all the gains coming from the gauge’s largest sector: China.

The world’s second-largest economy has shrunk by two-fifths since June 2021, due to Beijing’s Covid-19 isolation policies, turmoil in the real estate industry and a campaign to punish dissenters from the country’s top tech companies. If China is in a state of despair, then India is different. Due to the post-pandemic boom in urban areas, stocks have been doing well despite the US Federal Reserve’s monetary easing.

As a result, while China’s share of the MSCI EM has fallen to 28%, from 35% in May 2021, India’s has risen to 15%, from 10%.

Will China’s economic reopening undo India’s success? This will be the question for investors around the world in 2023.

If the experiences of other countries are any guide, the way to avoid the disease that helps the virus to pass through the countryside will be chaotic, and it will probably kill the elderly people of China, only 40% of whom are vaccinated. However, a positive change could help pull consumer and business sentiment away from history, shake the housing market from slumber and accelerate auto sales. This could also lead to analysts increasing their earnings by 4% over the next 12 months. Before the pandemic, those expectations were 17%.

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In India, the pain of Covid-19 – and the benefits of reopening – are all in the rearview mirror. The economy is now slowing down, although the market is still going strong. Even with some caution due to the rise in inflation (damaging the margins of local consumer companies) and the global recession (affecting software vendors), the consensus is that profits will increase by 18% in the next 12 months . Expectations are high with banks. They are benefiting from higher business volumes and higher prices: Rising commodity prices have increased the demand for working capital loans even as inflation has reduced interest rates.

The exchange case from India to China is already starting. BNP Paribas recently downgraded India to “neutral” from “overweight” by removing domestic products from its model and cutting back on software exporters. “Our prudential warning on India is based on high market prices and the possibility of money transfers to North Asia and reopening to China,” said Manishi Raychaudhuri, BNP’s head of Asia research. The consensus on India’s food consumption is probably the best, as the government’s budget – due to be finalized before the 2024 elections – could lead to further instability, he adds.


In the long run, India wants to strengthen its economic interests by emerging as an alternative to China. With President Xi Jinping’s policies deepening tensions with the West, Prime Minister Narendra Modi is positioning his country as a destination for multinationals to reduce their exposure to China’s shackles.

There is no guarantee that the gamble, backed by $24 billion in aid to developers, will work. As Arvind Subramanian, economic adviser to the Modi administration until 2018, and Josh Felman, a former International Monetary Fund staffer in New Delhi, wrote in a recent Foreign Affairs article: “India faces three major obstacles in its bid to become the ‘next . China;’ Financial risks are high, policy stability is strong, and financial imbalances are high.”

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Some countries may also have a clause. Vietnam, which is more open to trade than India, is in danger of dislodging Britain from the US’s seven-year list of biggest trading partners. Southeast Asian power producers have not been among the top 15 until 2019. Besides, regardless of how New Delhi’s policies are on paper, it is not guaranteed that they will be used impartially and not modified to benefit the country’s experts – “. General meetings of in India which the government likes,” said Subramanian and Felman.

Only companies controlled by Gautam Adani, India’s richest businessman, accounted for a third of the 33% jump, in local currency, from 2021 in the BSE 500, the main index of the country’s largest companies. Throw in Mukesh Ambani’s telecoms-to-petrochemicals empire, and half the profits are accounted for by two super-rich tycoons.

However, for now, the economic boom seems to have worked well for local investors – they are not too skeptical about the future of their country, or even opposed to where it is going. It is because their development is also linked to the same pro-capitalist principles. Four years ago, India’s largest companies earned 7 trillion rupees ($85 billion), from which the exchequer took about a third. Now, the profit before tax has increased to 13 trillion, but the share of the government has decreased by almost a quarter. The demand for indirect taxes – including on oil products – has increased.

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It is not a good result for India’s poor, who are hurt more than the rich by the consumption tax, especially in high-price areas. But as taxes are light on companies, the stock market cannot question the lack of purchasing power beyond a small group of riches. India’s salary-led economy has turned into a profit-driven business, and domestic investors seem to be fine with it. In five years, India’s managed funds — life insurance, mutual funds, retirement accounts, hedge funds and domestic services — have grown to 57% of gross domestic product from 41%, according to Crisil, an affiliate of S&P Global Inc. Like hunting. because the product reaches the cities and small towns, the trade of $ 1.6 trillion will not take time to find $ 2 trillion in regular banks.

With outflows totaling $187 billion, the outflow of global investors to China this year has been even more aggressive than the $17 billion outflow from India. As China opens up again, they need to invest more in jobs in the People’s Republic. Although some of the money will come from investments in India, it is important to remember that the company’s increased investment there is eroding the power of foreign managers. As long as India Inc. will provide a sufficient interest rate, tourists cannot ignore the country where the financial sector of the financial sector is coming to worship the profit.


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