There has been a sharp divergence between Chinese and Indian equities since July, although both the economies face the same struggles. The benchmark Sensex touched a two-year high on 29 November, while China’s Shanghai Composite plunged to a four-year low the same day. The Sensex has gained 24% this year but the Shanghai Composite has plunged 7% in dollar terms.
But while India’s growth of gross domestic product (GDP) continues to languish and was reported at 5.3% in the September quarter, China’s GDP grew at 7.4% in the same period, its slowest in three years. When both the countries are growing at a slower pace, why are Indian markets outperforming Chinese equities?
Preliminary data published in November suggest that although concerns on growth have abated for China, political transition has delayed much-needed reforms. China’s new leadership is messy and has not articulated clearly on how it will turn the country around, according to Saurabh Mukherjea, head of institutional equities at Ambit Capital Pvt. Ltd.
That is not the case with India. In the past few months, finance minister P. Chidambaram and Prime Minister Manmohan Singh have breathed new life into the policy environment and made it conducive for foreign investors, although political hurdles remain. The government is planning to set up a National Investment Board to fast-track big-ticket projects, which will accelerate investments.