‘Expensive’ India lures investors avoiding China
India’s ability to turn its economic expansion into corporate profits makes it a better prospect for investors than Japan or China, according to the latest Bloomberg Markets Live Pulse survey.
The powerful rallies in Indian and Japanese equities as China’s market has slumped have reset Asia’s financial-market landscape, providing global investors with three competing poles for regional allocations.
Even with China’s attractively low stock valuations, and Japan’s progress in improving corporate governance, almost half of the 390 MLIV Pulse survey respondents selected India as the best investment among the three Asian giants. The survey is a vote of confidence in India Inc. as the world’s largest democracy is headed to general elections carried out over seven phases from April 19 until June 1.
“There are many reasons to prefer expensive India equities over cheap China ones such as better transmission of GDP growth into earnings growth,” Kieran Calder, head of equity research for Asia at Union Bancaire Privée, UBP SA in Singapore, said. A “better track record of delivering consistent earnings growth and supportive geopolitical environment” further bolster the case for Indian shares.
Key stock indexes in both India and Japan have climbed to records this year following a rally driven by rapid economic growth in the case of India, and the gradual return of inflation, along with corporate reforms in Japan. Indian equities now trade at around 23 times next year’s expected earnings, exceeding even the United States, and outpacing the 17 for Japan and about nine for China, according to data compiled by Bloomberg based on MSCI Inc.’s indexes.
CHINA STOCKS SLIDE
The main gauge of Chinese equities has tumbled about 40 per cent from its peak set three years ago as deflation and a rolling property crisis have weighed on the economy. More than half of the survey respondents said they expected China’s equity market to underperform India and Japan over the next 12 months.
Indian equities attracted US$25 billion in net inflows for the year through March, compared with just US$5.3 billion for China, according to data compiled by Bloomberg. The tailwinds behind India include the growing population and optimism the expanding middle class will feed corporate profits.
“India is the best market to own,” Vikas Pershad, portfolio manager at M&G Investments in Singapore, said.
Indian equities are likely to play a large role in regional benchmarks, he said.
India’s ruling party has committed to prioritizing infrastructure and maintaining popular subsidies in its election manifesto as Prime Minister Narendra Modi seeks a historic third term. The party has stated it will transform India into a global industrial hub and endeavour to make cities more habitable. Modi said he has already directed staff to begin work on measures that will be implemented when he returns to office.
Indian shares now make up 18 per cent of the MSCI Emerging Markets Index. China’s 25 per cent weighting is well down from its high of more than 40 per cent a few years ago.
Infrastructure in India was highlighted as a particular bright spot in the survey by 41 per cent of the respondents. The government has more than tripled its infrastructure allocation from five years ago to more than 11 trillion rupees (US$132 billion) for the 2025 fiscal year. Modi is projected to invest 143 trillion rupees to modernize critical infrastructure in the six years through 2030.
India’s infrastructure and capital goods bellwether Larsen & Toubro Ltd. is trading at a price-to-earnings ratio of about 30 times. At the same time, other firms such as PNC Infratech Ltd. and JSW Infrastructure Ltd. are still trading at or below their 10-year average valuations.
The South Asian nation has also quickly emerged as an alternative to China for global manufacturing, with the likes of Apple Inc. beefing up its production facilities in the country.
JAPAN STOCKS RALLY
Should he lose, it may derail the infrastructure and manufacturing push. Investors don’t seem concerned, though, with more than fourfifths of respondents saying the impact of the elections on markets would be negligible or doesn’t concern them.
Japanese value stocks, typically larger and well-established firms that trade at relatively cheap metrics, were also identified by more than a third of respondents as an attractive investment.
One of the main reasons for the rally in Japanese equities has been the corporate reforms pursued by the Tokyo Stock Exchange.
“Japanese companies are dealing with the TSE’S request seriously,” Fumie Kikuchi at GMO LLC in Singapore, said. “It means a lot that now corporate management speaks the same language that investors do.”
The MLIV Pulse survey was conducted among Bloomberg News readers on the terminal and online April 8-12 by Bloomberg’s Markets Live team, which also runs the MLIV blog.