Bernstein Societe Generale Group's Asia quantitative strategists have downgraded Indian stocks based on valuation concerns while projecting further growth for the Chinese market driven by policy support. India's market valuations have reached record highs compared to China and other emerging markets, making it appear vulnerable, according to strategists Rupal Agarwal and Cheng Zhang. They have reduced India's stock rating from neutral to underweight, citing anticipated capital outflows and weak earnings.
In contrast, the strategists reaffirm their tactical overweight stance on Chinese stocks following recent stimulus actions. They expect specific policy announcements to be made by the Finance Ministry soon, likely boosting the market further. The late September rise in Chinese stocks has prompted fund reallocations from other Asian regions.
This month, foreign investors have withdrawn over $5 billion from Indian stocks, resulting in a benchmark index drop of over 3%. Despite this, India remains one of the most highly valued markets globally, attracting value-focused foreign investors who may prefer lower-valued markets. The MSCI India Index has a forward price-to-earnings ratio of approximately 24 times, more than double that of the MSCI China Index.
