China’s provocation: Could this lead to more foreign capital outflow from India? experts are considering

indian stock market With the ‘Sell India, Buy China’ strategy gaining momentum, the outflow of foreign capital is increasing. from china The latest stimulus packages unveiled in September and October include cuts in reserve requirements, mortgage rate cuts and liquidity injections. It aims to promote overall economic growth and has attracted considerable interest from investors due to the attractive market valuation of the country.

NSDL data shows this foreign portfolio investor (FPIs) have sold Indian equities 82,845 crores so far in October (till October 21).

However, experts believe this trend may be short-lived, as many of China’s economic challenges are structural, and the government’s ability to provide further stimulus is constrained by its high debt-to-GDP ratio.

“FPI selling may continue for some more time. However, it is unlikely to last long. This enthusiasm for Chinese revival is unlikely to last long as China has some structural problems. Even That their fiscal stimulus is also unlikely to continue beyond a point because the debt-to-GDP ratio is high and the government has no leverage to prop up the economy beyond this point, said VK Vijayakumar, chief investment strategist at Geojit Financial Services. There is no money to increase.”

China’s central bank announced its biggest stimulus since the pandemic on Sept. 24, boosting the economy and moving it closer to the government’s growth target.

China on 21 October Cut your benchmark lending rates again. The one-year loan prime rate (LPR) was reduced by 25 basis points (bps) to 3.10 per cent from 3.35 per cent, while the five-year LPR was reduced by 25 bps to 3.60 per cent from 3.85 per cent earlier. The People’s Bank of China (PBOC) last cut both rates in July and they are at historic lows.

Could China’s encouragement lead to more foreign capital outflow from India?

China’s stimulus package to revive its economic growth attracted a lot of attention among investors, especially as Chinese stocks rose sharply over the past few weeks, outperforming global markets.

The sharp rise in the Indian stock market increased its valuation. The gap in valuation between China and India is increasing. Some investors have moved in to take profits after China announced a stimulus package.

However, this trend may not continue for long as the Indian economy is in solid shape and the medium to long-term outlook for the Indian stock market remains strong.

Shruti Jain, chief strategy officer (CSO), Arihant Capital Markets, emphasized that India is a long-term story that is much more stable and predictable with respect to government policies and corporate earnings.

Furthermore, the revived interest of global funds in China will put emerging markets back in the spotlight. This will benefit India as it will lead to an increase in portfolio allocation from global funds, with India being the top choice.

Jain believes that the revival of the Chinese economy through this stimulus, especially the housing and infrastructure sector, will also be good for Indian companies. This incentive may increase demand for domestic steel in China, which may reduce the pressure of Chinese steel exports on global markets. In some cases, we may also see an increase in imports from India by China.

“Although the stimulus announcement caused short-term volatility, it should not have any significant impact on Indian markets at this point in time. We believe India remains a good investment destination for domestic and global investors,” Jain said.

Narinder Wadhwa, managing director of SKI Capital, also said that the attractiveness of the Chinese market cannot last indefinitely.

Wadhwa said, “Although China has benefited from the stimulus, deep-rooted structural problems in its economy remain, such as real estate debt. India remains a more attractive long-term investment destination, especially given its strong economic fundamentals.” Because of principles.”

“The revival of the Chinese market may indirectly benefit India by reducing dumping of Chinese goods like steel, which has caused losses to Indian manufacturers. While China’s stimulus may lead to short-term FPI outflows from India, India’s long-term Growth prospects and situation Wadhwa said, the emerging market basket may continue to attract foreign investment.

Amit Goyal, co-founder and chief global strategist at Pace 360, said China’s stimulus may temporarily boost its attractiveness, but India’s long-term growth story still holds significant appeal. Investors can consider these factors before making a decision.

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