Bernstein has downgraded its rating on the Indian stock market from neutral to underweight while reiterating a tactical overweight stance on Chinese equities. This shift comes amid a significant capital outflow of over $5 billion by foreign funds from India's market, causing a drop of more than 3% in the benchmark index.
The decision to lower India's market rating stems from its high valuation, which Bernstein believes leaves the market vulnerable in the short term, especially compared to other emerging markets. Analysts Rupal Agarwal and Cheng Zhang from Bernstein observed that as capital continues to flow out and earnings expectations remain weak, the Indian market appears susceptible to further declines.
In contrast, Bernstein remains optimistic about China's market potential, driven by policy stimuli that could boost growth prospects. This confidence is underpinned by a remarkable surge in the Chinese stock market, marking the largest increase since 2008 and prompting fund managers to relocate their investments from other Asian markets into China.
It is noteworthy that global funds recorded a historic high in net sales of Indian stocks last week, marking the largest sell-off since January 1999. This further illustrates the shift in investor focus towards China, as explained by Goldman Sachs' Nikhilesh Kasi, who highlighted the clear trend of capital moving from India to China.
Despite the challenges, the Indian stock market remains one of the most highly valued globally. Bernstein's report indicates that the MSCI India Index trades at a forward price-to-earnings ratio of approximately 24 times, more than double that of the MSCI China Index.
Investors are advised to be cautious, as market conditions bear risks, and the information provided should not be considered personal investment advice.
