China’s economic boost: What experts say about its impact on Indian economy and stock market

Chinese authorities are making every possible effort and using all available measures to stimulate economic growth.

According to a Reuters report, China's central bank on Tuesday, September 24 announced its largest stimulus since the pandemic, in a bid to boost the economy and move it closer to the government's growth target.

As per the report, China's central bank will cut banks' reserve requirement ratio (RRR) by 50 basis points, releasing about 1 trillion yuan ($142.21 billion) for new lending. If required, the RRR may be further lowered by 0.25-0.5 percentage points later this year. Moreover, China's central bank will cut the seven-day reverse repo rate by 0.2 percentage points to 1.5 per cent.

Another Reuters report said after the measures announced by China's central bank, the country's leaders while acknowledging problems in the economy, pledged on Thursday to deploy necessary fiscal spending to meet this year's economic growth target of roughly 5 per cent.

The announcements influenced market sentiment. The Shanghai Composite Index jumped almost 4 per cent on Thursday.

A rebound in the Chinese market could spark a shift in foreign capital away from India and toward China, lured by its attractive low valuations.

Mint consulted experts to gather insights on how China’s new stimulus might impact its market and what the ripple effects could mean for the Indian stock market. Here's what they said:

V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services

The Chinese monetary stimulus measures lifted the Chinese and Hong Kong markets yesterday, and if the rally continues, FIIs may move more funds to invest in these highly attractive valuations.

It remains to be seen whether the Chinese monetary stimulus will have an enduring positive impact since China’s economic woes are structural and difficult to address through a monetary stimulus. It is more likely that the positive sentiments now being felt may soon dissipate and weaken.

Harsimran Sahni, EVP & Head - Treasury, Anand Rathi Global Finance

Chinese financial indices are very cheap based on historical valuation and a PE (price-to-earnings) basis compared to Indian indices, which trade expensively.

FPI has only lately started participating in Indian markets, and buying has picked up from FPI in the last two months.

India's fast-growing economy attracts positive interest from overseas investors and is well-placed to benefit if Western companies want to diversify their supply chains from China.

Even Prime Minister Narendra Modi wants to position the country as a key driver of the global economy, spanning from manufacturing to financial investments.

China’s GDP is larger than India’s GDP, but India’s pace of GDP growth is now outstripping Chinese growth.

India’s economic growth will continue to outpace the global averages, its share of global GDP will continue to rise, and therefore, stock market capitalisation will increase.

Sachin Shah, Executive Director and Fund Manager, Emkay Investment Managers

One of the big megatrends in global manufacturing supply chains is creating alternative supply chains, and this is a multi-year, multi-sector megatrend.

India and Indian corporates have established the right to win in capitalising on this opportunity in at least six to seven manufacturing industries, including pharmaceuticals (CDMO and CRAMS), speciality Chemicals, auto and auto ancillaries, electronic manufacturing, engineering, power equipment, textiles, and a few more.

“We believe what has been the potential for India for the last so many years is now converting into reality, with enquiries now converting into hard-core order books to be delivered over the next few years and much more,” said Shah.

“Indian corporates in the above industries have demonstrated they have domain expertise and scale to meet global demand. Therefore, not only China + 1 but also Europe+1 is playing out for many Indian companies,” Shah said.

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