China’s Stimulus Sparks FPI Sell-Off: Should Indian Investors Be Concerned?

China recently announced one of its most aggressive stimulus package since pandemic to pull the economy out from its deflationary funk and revive economic growth. This has attracted a lot of attention among investors especially as Chinese stocks rallied sharply in last few weeks outperforming global markets following the announcement.

Throughout 2023 and most of 2024, foreign portfolio investors (FPIs) were actively buying Indian stocks. However, they shifted to net selling in October, withdrawing a whopping ?80,217.9 crore so far triggered by outperformance of Chinese stocks.

For some time now, there has been a widening gap in the valuation between China and India, as Indian stocks have been attractive higher valuations. Some investors have moved quickly to take advantage of that after China announced the stimulus package. But investors should not worry about it. There will always be a section of investors who seek to exploit such opportunities for short term gains, and hence this move was not unexpected. ??

India has experienced rapid economic growth over the past decade, making it the fifth largest economy in the world, trailing only the U.S., China, Germany, and Japan. One of the biggest driving forces behind India’s economic growth is its vast domestic market, fueled by a working population that constitutes two-thirds of the country’s total population, which is the largest globally. India is a structural long-term growth story, which is much more stable and predictable both in terms of government policies and corporate earnings. Additionally, we also have strong and stable domestic flows from equity mutual funds and other domestic institutions, which also provided big support to the markets upon FPIs exodus.

In fact, revived interest by global funds in China will put back emerging markets in the spotlight. This benefits India, as it will lead to increased portfolio allocations from global funds, with India being a top choice. Moreover, revival of Chinese economy through this stimulus, esp the housing and infrastructure sector, will also bode well for Indian companies. The stimulus could boost domestic steel demand in China, easing the pressure of Chinese steel exports on global markets. In some instances, we might even see increased imports by China from India.

While the stimulus announcement led to short term gyrations, at this point in time it should not have any major impact on the Indian markets. We believe India is well-placed as an investment destination for domestic and global investors.

Written by Shruti Jain , CSO Arihant Capital Markets Ltd. Read her excerpts on the topic along with other experts here: https://www.livemint.com/market/stock-market-news/chinas-stimulus-can-it-trigger-more-foreign-capital-outflows-from-india-experts-weigh-in-11729509666189.html

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