As China grapples with economic challenges on multiple fronts, foreign institutional investors (FIIs) may seek alternative emerging markets, with India emerging as a prominent candidate. Industry experts suggest that the downturn in the Chinese market, characterized by mounting public debt, a distressed property sector, slowing exports, and geopolitical tensions, could prompt FIIs to increasingly turn their focus toward India. India’s long-term growth prospects, coupled with its efforts to attract investments, make it an attractive destination for foreign capital.
The Shanghai Composite Index, a key indicator of China’s stock market performance, has been stagnant for the year, reflecting the country’s economic struggles. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted that the index has shown flat performance not only for the current year but also over the last 16 years, highlighting the dismal long-term performance of the Chinese market. Vijayakumar pointed out that China’s declining population, slowing economy, political tensions, and anti-business economic policies have diminished the prospects of its market, leading many foreign investors to adopt an “avoid China” strategy.
Manish Chowdhury, Head of Research at StoxBox, echoed this sentiment, emphasizing China’s struggles on multiple fronts, including a property market slump, economic growth deceleration, deflationary pressures, and challenges in export due to the Western world’s efforts to secure their supply chains. From an Indian perspective, Chowdhury outlined two factors that could encourage FPI inflows to India as an alternative to China. First, India’s potential for nominal GDP growth of 12 percent in the longer term, driven by a robust consumption story, favorable demographics, strong corporate balance sheets, and proactive economic policies. Second, India’s ongoing efforts to attract long-term investments through measures such as strengthening the manufacturing ecosystem, structural reforms, improvements in ease of doing business, and stable governance.
Shrey Jain, Founder and CEO of SAS Online, highlighted the ongoing decline in property investment as a significant drag on China’s economic growth, despite recent measures like cutting the reserve requirement ratio. Negative news, low sentiment, and geopolitical uncertainties have continued to deter foreign investors from China. Jain noted that India’s announcement of the India-Middle East-Europe Economic Corridor (IMEC) at the G-20 summit has garnered significant attention as a response to China’s Belt and Road Initiative (BRI). This initiative could enhance foreign portfolio investor (FPI) confidence in the Indian market, potentially encouraging long-term investments.
China has faced mounting debt pressure due to extensive investments in infrastructure and a property market downturn. Approximately 70 percent of household wealth in China is tied to the property sector, making its weak demand and unemployment among youth significant challenges for sustainable growth. Growth forecasts for China range between 4.5 percent to 5.5 percent, and further downgrades in analyst ratings are expected. India, on the other hand, has been gaining an advantage in recent years due to its positive relations with various nations, which have led to increased inflows in sectors like semiconductors, new-gen technologies, and infrastructure. India’s status as the fastest-growing emerging economy worldwide makes it an appealing investment destination.
Abhishek Jain, Head of Research at Arihant Capital, noted that while regulatory issues and geopolitical tensions have led some investors to shy away from the Chinese market, specific sectors still exhibit potential and may attract investors. It remains to be seen how the evolving dynamics in both the Chinese and Indian markets will affect FPI flows and influence investment trends in the region.
Overall, the challenges faced by the Chinese market have spurred discussions among experts about the potential for increased foreign investment in India, as global investors seek alternative destinations amid changing economic landscapes and geopolitical factors.