2022 brought a continuous chain of bad news for investors in Chinese equities. The question on professional investors minds today is whether moving money from China and into India makes sense.
In many respects, the long term investment theses for India shares many top level commonalities with China, albeit with differences in the details:
The demographic story - India has a younger population that will drive urbanisation as they head for cities, educated and fully focused on wealth creation.
The corporate story - India boasts corporations and a new IPO pipeline focused on delivering on the new digitisation and e-commerce megatrends supported by software development services.
The geopolitical story - as long as tensions between the U.S. and China remain, diversifying supply chains away from China and into India makes good business sense.
The answer may lie in current valuations. Much of the good news in India may already be priced in. But with a diverse array of opportunities across multiple sectors to choose from, company fundamentals, governance and leadership may be able to unlock the significant opportunity presenting itself to India.
Investment Manager research inside RFPnetworks points to India becoming the China +1 for investors. From a macro perspective, India may match or exceed China's GDP growth target. Indian banks have delevered and exhibit strong balance sheets. This is driving local investment in parallel to new hard needed infrastructure initiatives. Middle-class Indian consumers are also in a strong financial position and directing their unspent wealth on property, travel and leisure.
The risks to the India investment case are primarily political and macroeconomic. The next general election is in May 2024, but Prime Minister Modi is still widely popular. Inflation is an issue, so overly aggressive monetary policy could impact the growth story.
On balance, the choice between India or China is not easy. But neither is it a mutually exclusive decision.
