India Favored for Long-Term Investment, China for Trading Gains: Report

Mumbai, Oct 17 (PTI) Following the surge in Chinese markets lately, an Australian brokerage on Thursday said that while investors may flock to the market for trading gains, India remains a favourite from a longer-term investment perspective.

In a note, Macquarie said investors are in a situation of dilemma as the choice between India and China is getting "harder" and analysed the positives and negatives for both markets.

The stimuli by the Chinese may attract investors, and chances are that more such announcements can propel Chinese equities, but India holds the sway as a long-term story, it added.

"This (investments in China) is mostly a trading, not an investment call, which still heavily favours India," the note said.

Indian equities are currently grappling with three "negatives", including weakening economic growth and high valuations, the Australian brokerage said.

The Indian markets, which have seen a handsome rise largely fuelled by domestic flows over the last few months, are also up against expectations of higher earnings per share, a note from Macquarie said.

"India's equities are facing triple negatives: weakening GDP growth, high EPS expectations (17 per cent) and historically the highest multiples (23x)," the note said.

It can be noted that GDP growth declined to a five-quarter low of 6.7 per cent, leading to question marks in some quarters whether the fastest-growing major economy will be able to achieve the 7 per cent number.

However, the RBI is still sticking to its estimate of 7.2 per cent for the fiscal.

The brokerage said while domestic liquidity is continuing to build in India, the last fortnight has seen a meaningful net foreign equity outflows of USD 7 billion from the country.

Despite some recent erosion, the MSCI India index is still sitting on a 70 per cent cumulative four-year outperformance, it noted.

Meanwhile, in China, the report said investors expect the government to embark on "meaningful stimuli" to the economy, which extends up to 2026 as well, and it is also benefitting from lower valuations.

"Under normal circumstances, it would be easy to argue that China's recent rebound should continue. But, these are not normal times," it said.

Negative factors for China would include the lack of a pickup in exports as the global economy is sluggish, it said, adding that the recent moves are only an attempt at de-risking and underwriting growth targets with policies remaining underpowered from consumption and real estate perspectives.

"On the other hand, India will continue to add labour and capital while growing productivity," it said, adding that India will continue to grow at double-digits from a nominal perspective against 4 per cent for China.