The MSCI India Index, which covers around 85 percent of India’s equities, rallied around 10 percent in the quarter from June to September, compared with a 23 percent fall in the MSCI China Index during the same period.
The 33-point outperformance of the Indian index over the Chinese MSCI index is the biggest margin since March 2000, according to Bloomberg.
Market analysts have reckoned that Beijing’s strict adherence to the ‘Zero COVID policy’ and trade tensions with western countries have caused supply chain disruptions and resulted in stock market losses to the tune of $5 trillion since early last year. At the same time, the MSCI India Index has risen around $300b in in the same period.
India has also emerged as an attractive alternative to China because of continuing economic growth despite the global headwinds.
Another economic indicator driving a preference for Indian stocks is the push by western economies to decouple with that of China’s. This month, American smartphone marker Apple Inc started manufacturing Iphones in India. Previously, China was Apple’s primary manufacturing hub.
The Reserve Bank of India last week revised the country’s annual economic growth forecast to 7 percent from 7.2 percent because of fears of “recession” in the western countries amid monetary policy tightening and high fuel and commodity prices in the wake of the Ukraine crisis.
However, India is still expected to emerge as the fastest-growing economy in Asia, which has led to bullish investor sentiment. On the other hand, Beijing’s economic growth this fiscal year is projected to be just under three percent.
“If you compare countries around the world, India looks very good, particularly if you look at the big countries and compare China with India. As you know China is going through a terrible time now and the market is very bad. The performance has been very bad and it looks as though the economy in China will continue to be in a bad shape, especially exports. Whereas India is in a much better position because software exports will probably continue to do very well,” Mark Mobius, a veteran market analyst and a partner at Mobius Capital Partners, said last month.
Other global fund managers – such as London-based Jupiter Asset Management – have also allocated India a greater share of investments among emerging markets, behind China.
The preference of global EM [emerging markets] funds for India over China is, however, still in its “early stages”, American firm EPFR Global pointed out.