Bubble-burst in China to benefit Indian mart

On Friday, Chinese shares plunged more than seven per cent amidst concerns of overvaluation after registering a 13.3 per cent loss last week.

According to market experts, global investors are likely to allocate more funds to Indian equities, as the country is now one of the fastest growing economies in the emerging market universe.

“India is now the best bet in the entire emerging market universe. India’s current account deficit (CAD) has come down, retail and wholesale price inflation is under control, monsoon is progressing well and interest rates are expected to come down in the medium term. So a combination of improving macro-economic factors coupled with the government’s effort to revive the investment cycle would help India attract higher capital inflows,” observed Ajay Bodke, chief executive officer (CEO), PMS, Prabhudas Lilladher.

According to him, the rally in the Chinese equity markets was driven by an excessive exuberance on the part of retail investors.

About four million retail investors in China had opened trading accounts in just the last one month, he said.

Even after such a steep fall in the Chinese equities, analysts are still not convinced about the valuations.

While asking its clients to refrain from buying Chinese shares, analysts at Morgan Stanley said, “Our stance on China ‘A’ shares is that this is probably not a dip to buy. In fact, we think the balance of probabilities is that the top for the cycle on Shanghai, Shenzhen and Chinext has now taken place”.

According to them, increased equity supply, continued weak earnings growth in the context of economic deceleration, high valuations and high margin debt to free float market capitalisation are some of the major concerns for the Chinese equities.

“During the last two months, global investors had pulled out money from the Indian markets to invest in Chinese equities. Some portion of that money will now come back to India,” said Ambareesh Baliga, a senior stock market analyst.