The prospect of a fiscal stimulus package for the weak Chinese economy drove Chinese equities to surge 10% today, as they resumed trading after seven days of National Day festivities. This may raise concerns about additional foreign outflows from India. Gift Nifty futures were already trading down in early trade, pointing to a negative start for the domestic market later today.
Foreign brokerages are becoming optimistic about Chinese stocks. Goldman Sachs, in its most recent note, urged investors not to oppose the PBoC, the Chinese central bank, which is providing unprecedented and unconventional assistance to Chinese equities markets. It stated that this time is different in terms of governmental reaction, and Chinese stock investors are receiving much of what they hoped for.
"The pullback risks may have risen after 30 percent gains in 2 weeks, but policy (U-turn) provoked re-rating trades have seldom stopped there," according to the report.
While some experts thought that the current FPI outflow trend would reverse, rising crude oil prices due to Middle East tensions, a surge in 10-year US bond rates, and a potential deceleration in India Inc profit growth all point to greater pain for local equities in the medium term. The results of today's state elections may potentially have an impact on investor mood.
"Indian markets have entered a consolidation phase, with a strong danger of lagging their Asian counterparts. There is notable global arbitrage activity, with Chinese markets attracting significant inflows due to their attractive valuations and stimulus measures," said Vinod Nair, Head of Research at Geojit Financial Services.
According to data, foreign investors had already withdrawn out Rs 36,787 crore from the Indian stock market in October.
According to Nair, global investors are reevaluating their portfolio holdings, and FII outflows are worsened. In the short term, rising oil prices provide a new challenge to the domestic economy in the context of mounting international tensions.
CLSA's model portfolio has increased China to 5% overweight while reducing India's overweight to 10% from 20% before. Earlier, Jefferies' Chris Wood reduced India's weight by 1% while raising China's weight by 2%.
The NDRC news conference today may disclose the first batch, followed by the Ministry of Finance in the coming weeks, according to Morgan Stanley. The primary focus will be on supporting local government funding and recapitalizing six large commercial banks, but there may be a slight increase in spending and/or social benefits, according to the report.
According to marketing input, onshore investors will likely take the magnitude and timing of the Chinese stimulus positively, as it underlines Beijing's commitment to reflation through more concentrated policy initiatives, although, through the time-tested trial-and-error technique, Morgan Stanley said.
The international firm anticipates a 2 trillion yuan coming and believes the Chinese market's tactical rise will continue.
"A further 12% or more near-term upside could be driven by a value re-rating to close the gap with EM. A rising desire for diversity and benchmarking might result in more inflows and upside. We see large-cap internet and broad consumer stocks as well positioned should fiscal policy measures be implemented quickly and macroeconomic indicators improve, given their attractive valuations and substantial liquidity," it added.
The firm said that values for major Chinese indexes had mostly reached or exceeded 2023's post-Covid reopening top. Similar results may be found when compared to the 5-year average level.
At the sub-index level, ChiNext and the China internet area are still badly underperforming the rally, trading at 27-37% discounts to the 2023 top and 5-year average. Starboard is an anomaly, trading at a premium to 2023's peak (up 21%) and the 5-year average (8%).
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