February 23, 2024
Wall Street is more bullish on India than ever—but the real story is about China

Narendra Modi speaks during the 28th Conference of the Parties to the United Nations Framework Convention on Climate Change on December 1, 2023. Beata Zorzel/Nurfoto via Getty Images

For decades, China has been the world’s most remarkable growth story. This story is rapidly changing as Wall Street investors turn their attention to India. In the last three months of 2023, US-based Indian ETFs received record inflows, resulting in India briefly overtaking Hong Kong to become the world’s fourth-largest stock exchange. Morgan Stanley (MS) estimates that India’s stock market will become the world’s third largest by 2030. And the investment bank recently increased the weighting of Indian equities in its Morgan Stanley Capital International (MSCI) benchmark, a common measure for global stock funds. , at an all-time high of 18 percent.

However, the optimism may not be a reflection of India itself. Viral Acharya, a former deputy governor of the Reserve Bank of India and currently an economics professor at New York University, told the Observer that much of this movement is driven by a “move away from China”. He estimated that China could take five to ten years to resolve its debt crisis, which has been exacerbated by COVID-19 and its ongoing asset crisis, leaving Western investors eager to look elsewhere for opportunity . “You can avoid risk, but you can’t avoid uncertainty,” Acharya said.

Vikas Prasad, a Singapore-based portfolio manager focusing on Asian equities, echoes the sentiment. “People are interested in India for a number of reasons – one, it’s not China,” Parshad told the Observer.

In many ways, India is an impressive growth story in itself. The country overtook China as the world’s most populous country last year and is expected to become the third-largest economy by 2027. India’s current political party, Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP), has removed red tape that plagues industries, eased regulation around foreign direct investment, and implemented pro-business policies. India’s stock market rose on strong signs in state elections of Modi and BJP’s re-election in 2024. The country’s Nifty 50, a weighted average benchmark of the country’s 50 largest companies, hit records throughout 2023, marking eight years of consecutive gains. India’s economy is set to grow by 7.6 per cent in the third quarter of 2023, beating most banks’ forecasts.

However, Charles Robertson, head of macro strategy at FIM Partners, said, “India’s potential peak growth is still less than that achieved by China.” Compare the numbers: India’s share of global manufacturing is one-tenth that of China, and its economy is about one-sixth that of China’s. The country produces more than half of its STEM graduates and spends less than half of its GDP on research development. Of the world’s ten biggest tech companies, four are Chinese, none are Indian. A quarter of India’s human capital is illiterate, compared to 1 percent in China. China holds about 65 percent of the world’s AI patents, while the country’s AI companies received $95 billion in private investment between 2013 and 2022. For India, these figures are 3 percent and $7 billion respectively.

But for now, a common sentiment shared by US investors appears to be that India’s economy does not need to be larger than China’s to deliver consistent and higher returns from its financial markets. London-headquartered hedge fund Marshall Wace, led by Paul Marshall and Ian Wace, with $62 billion in assets under management, has made India its biggest bet after the US in its flagship fund, while Switzerland-based Vontobel Holding AG Made India its top. Catching up with emerging markets. Japan’s retail investors, traditionally the most cautious, saw five India-focused mutual funds in their top 20 by inflows. One by one, many investment firms are looking away from China to India for their emerging market capital allocation.

Source: observer.com

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