How will China stimulus impact India
NEW DELHI: China’s effort to revive its economy via a financial and monetary stimulus package is perceived to have a strong impact on India - positive as well as negative.
While the initial impact is being felt on Dalal Street as the foreign institutional investors (FIIs) are seen “selling India and buying China”, the success of the package might prove to be beneficial for India. Experts feel it may result in flight of higher foreign funds to India via emerging market route, negligible impact on “China + 1” and control of excessive dumping of finished Chinese products.
“The package is a bold set of interventions by the government. It will allay fears among foreign investors who were becoming sceptical about the Chinese government’s ability to make big-bang reforms. The last time they conducted major reforms was in 2008, which ushered China into to a new league of development backed by large foreign investor participation,” said Debopam Chaudhuri, chief economist of Piramal Group.
"I expect the Chinese investment instruments will gradually start to gain some of their lost sheen, starting with its equities followed by real estate,” Chaudhuri added.
As per him, this is piece of good news for India as well. “China serves as a lighthouse to foreign investors searching for emerging market (EM) opportunities. Reduction in uncertainties within China will attract higher capital allocation to EMs, and India with its growth potential can attract a large share of that pie.
While India may attract higher funds via the EM basket in future, so far the local market, which saw its biggest weekly slump this week in more than two years, has seen an exodus of FIIs.This week alone, FIIs sold shares worth Rs 40,000 crore in the Indian market as they find the valuation of Chinese stock much more attractive.
V K Vijayakumar, chief investment strategist, Geojit Financial Services, ay said geopolitical tensions in the Middle-East have become a worry for global equity markets. But the markets have, so far, shrugged off these tensions. The US market is resilient with 21 per cent returns year to date.
“FIIs turned sellers in the Indian market The selling has been triggered by outperformance of Chinese stocks. Hang Seng index shot up by 26% in last one month and this bullishness is expected to continue since valuations of Chinese stocks are very low and the Chinese economy is expected to do well in response to the monetary and fiscal stimulus,” Vijayakumar said.
“If the momentum in Chinese stocks continues, FIIs may continue to sell in India where valuations are elevated. It remains to be seen how long the optimism lasts. FII selling in financials, especially frontline banking stocks have made their valuations attractive. Long-term domestic investors may utilise this opportunity to buy banking stocks.”
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