During the day, Sensex fell 962 points to the day’s low at 80,726 while Nifty tumbled below the 25,700 level. Investors are fearing that all hell may break loose after the Chinese market opens for trading following a golden-week holiday from October 1 to 7.
While Hang Seng and Taiwan markets continue to be open, Shanghai will open tomorrow. On September 30, before being shut for the long holiday, Shanghai’s CSI 300 had ended 8.5% higher.
Global brokerage firm CLSA issued a report saying that it is taking a fiscal leap of faith by raising China to 5% overweight by cutting India overweight to 10% from 20%.
“After India’s 210% outperformance of China, relative valuations are stretched. Yet strategically we argue India still offers the strongest scalable EM growth story,” CLSA analysts said in a strategy note.
On Indian equities, it said there are three witches that could play spoilsport – oil price, new issuance (IPO boom), and retail investor appetite.Also read | CLSA bows down to China’s resurgence story, says India has 3 witchesMany emerging market investors have been pulling out money from India as well as other emerging markets to bet on the Chinese resurgence story despite the market having given many false starts in the past.
Last week, DBS Group also said India will underperform China for the rest of 2024 following Beijing’s swathe of monetary and liquidity measures. To free up liquidity, China has reduced the reserve ratio for banks by 50 basis points. It has also reduced the mortgage rate for existing housing by 50 bps – the move will boost consumption demand. Besides, the People’s Bank of China also signalled policy easing in the near term.
“India has performed strongly and we are looking at other markets. China and ASEAN could actually outperform. India is actually quite a domestic liquidity market,” Joanne Siew Chin of DBS Group had said.
Chris Wood of Jefferies, known as an India bull in global markets, had also reduced his exposure to Indian stocks by 1 percentage point in one of his Asian portfolios amid geopolitical risks.
However, most of the ‘Buy China, Sell India’ trade could be a tactical play to make the most out of momentum.
“Last year also there was a slight upsurge in China. However, it did not stay for long but this time when skeptics have turned believers of China as an economy, there are multiple reasons. China economy has not been doing well but this time it is a good collage of monetary as well as fiscal policies because of which skeptics who were waiting on the sidelines have now turned believers and they may be trying to play China tactically,” said Niranjan Avasthi of Edelweiss Mutual Fund.
Among global brokerages, Invesco, JPMorgan, HSBC, and Nomura have enough reasons to be skeptical.
Ed Yardeni, President of Yardeni Research, said the China trade will not last very long because China’s problems are structural and a lot of it has to do with their rapidly aging demographic profile.
“In addition, they have tried to offset the weakness in consumers by dumping goods in global markets and they are getting some pushback from Europe, from the United States, and other areas of the world and the Europeans recently responded with some tariffs on their electric vehicles coming out of China. So, I think this China trade is not going to last very long,” he said.
Besides the China factor, investors have also been worried about the impact on crude oil prices as a result of the tensions in the Middle East. Valuations on Dalal Street have long been a concern for many value investors.
India bulls may use the dip to load up on their favourite stocks.
