Global investors investing in India, dumping China

India’s stock market is attracting billions of dollars of domestic and foreign money as investors flock to a fast-growing alternative to China, keeping aside the risks regarding overpriced shares, upcoming elections and regulatory uncertainty.

These investments have raised the benchmark NSE Nifty 50 Index, opened a new tab by a third in the last 10 months and attracted $20 billion in foreign inflows in 2023, as per India's national depository data.

As the global investors seek substitutes for sickly Chinese markets and it is also expected that this year’s national election will see the present Prime Minister Narendra Modi return for the third time, India’s attraction is getting a boost.   

And investors seem happy to overlook risks, such as the already lofty levels the market is priced at and any political surprises.

"The recent rally notwithstanding ... the upcoming elections notwithstanding, I think India is a good market for long term investors," said Vikas Pershad, Portfolio Manager for Asian Equities at M&G Investments.

A steady flow of cash into the stock market from regular retail investment plans, currently averaging $2 billion a month, and buying by domestic institutional investors have been tailwinds.

Goldman Sachs foresees the Nifty index hitting 23,500 by the end of 2024, at present it is around 22,000. ICICI Securities expects a nearly 14% jump.

The market has become one of the world's most expensive ones. The 12-month forward price-to-earnings ratio, a widely used valuation measure, is 22.8 for the Nifty 50, three times China's and higher even than the U.S. S&P 500 valuation at 20.23, according to LSEG data.

Despite lofty valuations, ICICI Securities expects Nifty earnings to grow at a compounded annual rate of 16.3%.

According to Remi Olu-Pitan, Head of Multi-asset Growth and Income at asset manager Schroders, global investors wanting to own a piece of the brightest market in the emerging world has been the catalyst but that has meant an under-appreciation of the vulnerability and risks.

"Whilst longer term we like India, we completely agree with the growth story, we just worry the market might not be pricing some of the risks that are brewing at the moment," she said.

According to the International Monetary Fund (IMF), India’s GDP is expected to grow by 6.5% in 2024, versus China whose growth estimate is 4.6%.