Wall Street makes a major market shift by eschewing China for India

Wall Street makes a major market shift by eschewing China for India

With Wall Street heavyweights like Goldman Sachs Group Inc. and Morgan Stanley endorsing the South Asian country as a major investment destination for the next ten years, a large portion of that money is now destined for India.

India is the second-largest net long-term bet for $62 billion hedge fund Marshall Wace, which operates as its flagship hedge fund, behind the United States.

Global markets are undergoing a dramatic change as investors withdraw billions of dollars from China's collapsing economy, placing bets on the nation being the world's most promising growth story for the next twenty years.

With Wall Street heavyweights like Goldman Sachs Group Inc. and Morgan Stanley endorsing the South Asian country as a major investment destination for the next ten years, a large portion of that money is now destined for India.

Gold's bullishness is being fueled by this momentum. At the company's main hedge fund, Marshall Wace, a $62 billion hedge fund, ranked India as the fund's greatest net long-term bet after the US; a Vontobel Holding AG branch gave the country its top emerging market stake; Janus Henderson Group PLC, a fund-house, is thinking about a takeover; even normally conservative retail investors in Japan are jumping on India and reducing their exposure to China.

Investors are closely monitoring the divergent paths taken by Asia's two largest powers: China is struggling with persistent economic issues and widening rifts with the West-led system, while India, the world's fastest-growing major economy, has been building massive infrastructure under Prime Minister Narendra Modi in an effort to shift global capital and supply lines away from Beijing.

According to Vikas Prasad, Asia stock portfolio manager at M&G Investments in Singapore, "there's more is a real long-term growth story here." "People are drawn to investing in India for a number of reasons - one, compared to China."

Bullish sentiment regarding India is not new, but investors are now more likely to see a market that is similar to China's historical past: a sizable, dynamic economy that is opening up to global money in new ways. But the majority of individuals are doing crossovers regardless, figuring that the risks of betting against India are higher. Nobody expects a smooth journey; the country's population continues to be largely impoverished, stock markets are expensive, and bond markets are untouched.

India's stock market value has historically exhibited a strong positive correlation with economic growth; if the country's growth rate stays at 7%, the market size is likely to grow at least that rate on average. In the last 20 years, the country's GDP and market capitalization have increased from $500 billion to $3.5 trillion.

Aniket Shah, worldwide head of Jefferies Group LLC's environment, social, and governance group, stated that one of the company's most popular investor calls recently focused on India.

"People are really trying to come up with out what's happening in India," he said.

track the money

Enthusiasm is reflected in capital inflows. In the US exchange-traded fund market, the primary funds purchasing Indian equities saw record inflows in the final quarter of 2023, whereas the four largest funds in China recorded a combined withdrawal of almost $800 million. Based on data from EPFR, active bond funds invested 50 cents in India for every dollar removed from China by 2022.

India's stock market is expected to rise further, according to Morgan Stanley, which estimates that by 2030 it will overtake Hong Kong as the world's fourth-largest equity market. In January, the country's share of the MSCI Inc. benchmark for developing market equities reached an all-time high of 18%, while China's share fell to the lowest on record at 24.8%.

China will be smaller and India will be greater in terms of index weighting, according to Mark Matthews, director of Asia research at Julius Baer, a bank headquartered in Singapore that last year introduced its first India fund.

fresh financiers

the biggest asset, the Nomura Indian Stock Fund, is at a four-year high. Five of the liquid mutual funds currently appear in the top 20 by inflows. Japanese retail investors, who have historically supported the US, are now becoming optimistic about the nation.

Even while the market as a whole continues to trade at high prices, hedge funds such as Marshall Wace attribute their optimism about sustained growth on India's robust development and relative political stability.

US investors are especially keen to get into and understand the market, according to Karma Capital, which manages funds in India for organizations like Norges Bank. Rajneesh Girdhar, the fund's chief executive officer, recalled that one client had answered multiple Indian queries in an exceptionally quick manner.

"We would send everything on Friday and before we got back on Monday morning, she would have responded, considering she had been busy over the weekend," he said.

historical rivalry

India has profited from the shifting balance of power between itself and longtime adversary China.

Countries such as the US see the need of strong trade ties with India, even though they have been critical of the country's tax policies. India now accounts to feed more than 7% of global production of iPhones and is investing millions of rupees in upgrading infrastructure. If China is considered as a threat to the Western global order, India is perceived as a potential a competitor – a country that is rushing to establish its standing as a viable manufacturing alternative to Beijing.

Finance Minister Nirmala Sitharaman announced last week in her interim budget statement that the government would boost infrastructure expenditure by 11% to 11.1 trillion rupees ($134 billion) in the next fiscal year. These initiatives are part of Modi's goal to position India as the world's new development engine.

Public capital expenditure and infrastructure projects are speeding up the investment cycle, according to Zitaniya Kandhari, deputy chief investment officer of Morgan Stanley Financial Management's solutions and multi-asset business.

In an effort to attract a growing number of individuals to the digital market, India is also developing a vast array of technological infrastructure. Alphabet Inc.'s Google Pay intends to collaborate with India's mobile-based payments system, which facilitates billions of trades monthly, in order to extend its services outside the nation.

Ashish Chugh, money manager at Loomis Sales & Co., said that millions of Indians now have bank accounts and credit available to them. "This will certainly draw global companies to India - and with them too." foreign investors also concurred.

the cost of excellence

While earnings have only increased by double, the popular S&P BSE Sensex index has nearly tripled from its March 2020 low, but there are still some barriers. The gauge trades at more than 20 times future earnings, that has 27% more expensive rather than the average for the 2010 to 2020 period. The euphoria have rendered Indian equities the most expensive in the world.

Some investors are thinking about switching to a different approach due to inflated valuations and Beijing's recent attempts to support its markets. Global funds withdrew more than $3.1 billion from local equities in January, the highest amount in a year, as per Bloomberg statistics.

"Great success in India's markets comes with a price, but the question is not the extent to which it costs," said Mark Williams, the fund's manager at Somerset Capital Management. Indian markets might undoubtedly see a period of stagnation for a few years."

After eight years of annual gains in local stocks, investors are bracing for a correction. Modi is demanded to win a third term in office during this year's national elections, particularly since his party's recent victories in state elections suggest that the current policy will continue. However, a weak ruling party could cause short-term market shocks.

"It appears that we should stay in government given the results of the state elections, but you never say never," said Piyush Mittal, portfolio supervisor at Matthews International Capital Management LLC.

Modi's social agenda, which his detractors claim benefits the nation's Hindu majority, also poses a threat to stability in a nation home to over 200 million religious minorities. Turning India's potential into an economically viable reality for all of its citizens is a formidable task, particularly in a multilingual democracy with significant cultural variances amongst its states.

India's potential peak growth is still smaller than China's, according to Charles Robertson, director of macro strategy at FIM Partners Ltd. "India still has a long way to go."

large-scale view

Fans of India argue that despite these dangers, they are investing for the long run, noting that the country's low per capita income is paving the way for multi-year growth and new market possibilities.

Aninda Mitra, head of Asia macro as well as investment strategy at BNY Mellon Investment Management, stated, "There is always the potential for scandals, social polarization, as well as political noise. Despite all of this, if you consider that by this time the global economy was almost $8 trillion, and the stock is expected to increase to more than $8 trillion over the next decade, the opportunity cost is worth it."

The formerly closed-off financial markets in India will remain open. The $1.2 trillion sovereign-bond market in the country, which has more than 2% foreign ownership, will be included in JPMorgan Chase & Co.'s global debt index as of June. HSBC Asset Management estimates that this addition could result in investments of up to $100 billion over the next few years.

While India's efforts to globalize the rupee are not as ambitious as China's yuan expansion, they still have potential, especially in light of the government's establishment of GIFT City, a free market pilot project in western India that aims to become a global financial center devoid of taxes and regulations. This initiative has similarities to Shenzhen's establishment as a special economic zone in the 1980s.

Money manager Gaurav Narayan, who advises India Capital Growth Fund, says that rather than the short-term forecast for the nation's equities and bonds, investors should have faith in India based on the long-term effects of such efforts.

The man said, "This is 'buying India' from those who have knowledge of the positive changes.' We are no longer need the 'Sell the India Story' argument.”