'China's Loss, India's Gain,' Foreign Investors Ditch China To Invest Rs 72,000 Crore In Indian Stocks

At a time when India's Sensex and Nifty are nearing their all-time highs, China's stock market has not shown much promise of recovery, which has prompted foreign investors to ditch the latter and instead invest heavily in India's stock market.

Currently, Sensex and Nifty are both more than 3% up this year to date, whereas some of China's major stock market indices are bleeding, such as the SSE 50 Index, which is down more than 3.5%, and the Hang Seng Index, which is down 2.7% this year.

Foreign Investors Ditch China To Invest In India

Unimpressed with the post-Covid growth story of China, foreign institutional investors (FIIs) have been jumping ships, resulting in a nearly $9 billion catalyst for Indian stocks in the first quarter of FY24.

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In this financial year to date (from April 1, 2023, to June 19, 2023), foreign investors have made a net investment of $8.767 billion ($8767 million, or nearly Rs 72,000 crore) into Indian equities, as per NSDL data.

With daily average buying totaling around Rs 1,400 crore, foreigners have not only been the biggest buyers of Indian equities so far this financial year but have also taken over as Dalal Street's Mr. Consistent. NSDL records show that FIIs have been net sellers only on 8 days out of 51 trading sessions in FY24, as per the ET report.

On the other hand, domestic institutional investors (DIIs) have bought stocks only worth about Rs 6,500 crore during the period, compared to FII buying of about Rs 72,000 crore in INR terms.

China's Loss, India's Gain

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With the Nifty rallying 8.5% in the April-June quarter to near all-time peak levels, insiders reportedly say China's loss is India's gain as the Chinese economic rebound seen earlier this year has lost momentum in the second quarter.

Foreign brokerage firm Jefferies' Chris Wood had last week said global investors, as opposed to dedicated emerging market investors, do not want to invest in China stocks.

"India remains greed & fear¡¯s favourite stock market on a ten-year view which is why global investors, and not just Asian and emerging market specialists, should be invested in it, most particularly given the undeniable question marks surrounding the long-term direction of China," he wrote in his weekly newsletter, as per the report.

Refinitiv data shows foreign investors sold $1.71 billion worth of mainland shares in China during May after selling $659 million in April.

Not Just India, Japan & South Korea Too Have Benefited

Besides India, stock markets in Japan and South Korea have also benefited from the fizzling out of the China re-opening theme. Japan's Nikkei is up 30% this calendar year, and South Korea's Kospi is up 17.5%.

Despite the recent recovery in Chinese shares following the rate cut by its central bank, analysts think that there is a high probability that FII inflows will sustain on Dalal Street in the near term.

Global brokerage firm Nomura has given a target of 19,872 for Nifty by March-end while Goldman Sachs sees the index at 20,000.

Nifty earnings growth is projected by consensus to increase by 20% YoY in FY24, which, Jefferies said, appears high on a head-line basis, as per the report. "For FY24, partly on a higher base in financials, domestic earnings growth is expected to slow down to 19%. Meanwhile, foreign related earnings should rise 21% YoY, with a rebound in metals, oil, and gas being key drivers," it said.

Also Read: Why China Is Facing World's Biggest Millionaire Exodus This Year

Can China bounce back this year?

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Even as China¡¯s economy is said to be in 'balance sheeet recession' and burdened with structural challenges and geopolitical headwinds, and that its growth will likely slow over the medium term, analysts say it will remain an economic juggernaut by size, contributing over one-quarter of global growth.

HSBC Global Private Banking reportedly identified China's recovery opportunities as one of the top four investment themes. "Taking into account that the most significant incremental impact from China¡¯s reopening has already played out in the past six months, we have repositioned our theme on Asia¡¯s Reopening Winners into a new High Conviction Theme on China¡¯s Recovery Opportunities," said James Cheo of HSBC.

HSBC has maintained an overweight position on mainland China, Hong Kong, India and Indonesia within Asia ex-Japan equities. In the second half of 2023, HSBC believes that Asia will deliver strong market performance and cyclical momentum.

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