India's ability to translate its economic expansion into corporate profits makes it a better prospect for investors than Japan or China, according to the latest Bloomberg Markets Live Pulse survey.
The powerful rallies of Indian and Japanese stocks as the Chinese market has collapsed have reset the Asian financial market landscape, giving global investors three competing poles for regional allocations.
Even with China's attractively low stock valuations and Japan's progress in improving corporate governance, nearly half of the MLIV Pulse survey's 390 respondents chose India as the best investment among the three Asian giants. The survey is a vote of confidence in India Inc. as the world's largest democracy heads towards general elections to be held in seven phases from April 19 to June 1.
We asked ourselves: Which one has the most compelling investment case for the next twelve months?
“There are many reasons to choose expensive Indian stocks over cheap Chinese ones, such as better transmission of GDP growth to earnings growth,” said Kieran Calder, head of equity research for Asia at Union Bancaire Privee in Singapore. A “better track record of delivering consistent earnings growth and a supportive geopolitical environment” further strengthen the case for Indian equities, he said.
Major stock indexes in both India and Japan have risen to records this year after a rally driven by rapid economic growth in India's case and the gradual return of inflation, along with corporate reforms in Japan. Indian shares are now trading at around 23 times next year's expected earnings, surpassing even the US, and outpacing Japan's 17 and China's around nine, according to data compiled by Bloomberg from MSCI's indexes Inc.
The main gauge for Chinese shares has fallen about 40% from its peak three years ago as deflation and a rolling property crisis have weighed on the economy. More than half of respondents said they expect China's stock market to underperform those of India and Japan over the next 12 months.
Indian stocks attracted net inflows of $25 billion this year through March, compared with just $5.3 billion for China, according to data compiled by Bloomberg. The tailwinds behind Indian stocks include the growing population and optimism that the growing middle class will help boost corporate profits.
“India is the best market to own,” said Vikas Pershad, portfolio manager at M&G Investments in Singapore. Indian equities are likely to play a big role in regional benchmarks, he said.
Indian equities now make up 18% of the MSCI Emerging Markets Index. China's weighting of 25% is considerably lower than the peak of over 40% a few years ago.
Infrastructure in India was cited as a particular bright spot in the survey by 41% of respondents. Prime Minister Narendra Modi's government has more than tripled its infrastructure allocations from five years ago to more than 11 trillion rupees ($132 billion) for fiscal 2025. PM Modi is expected to invest 143 trillion rupees in the six years to 2030 to modernize critical infrastructure .
Indian infrastructure and capital goods provider Larsen & Toubro Ltd. trades at a price-to-earnings ratio of about 30 times. At the same time, other companies such as PNC Infratech Ltd. and JSW Infrastructure Ltd., still at or below their ten-year average valuations.
The South Asian country has also quickly emerged as an alternative to China for global manufacturing, with companies such as Apple Inc. have expanded their production facilities in the country.
Prime Minister Modi's party faces national elections this year, and he has made India's accelerating economy a key part of his argument. He is expected to return as prime minister with a strong majority to deepen investment in infrastructure and manufacturing. Should he lose, it could derail infrastructure and production. However, investors do not appear to be concerned: more than four-fifths of respondents say the impact of the elections on markets would be negligible or does not concern them.
Only a few investors are concerned about the elections in India | We asked ourselves: how big are the risk events for the markets in India?
Japanese value stocks, which tend to be larger and more established companies trading at relatively cheap numbers, were also identified as an attractive investment by more than a third of respondents.
One of the main reasons for the rally in Japanese stocks is the corporate reforms implemented by the Tokyo Stock Exchange.
“Japanese companies are taking the TSE's request seriously,” said Fumie Kikuchi, research analyst at GMO in Singapore. “It means a lot that company management now speaks the same language as investors.”
In China, slowing economic growth, the specter of deflation and the ongoing real estate crisis are likely to deter investors, said Adrian Zuercher, head of global asset allocation and co-head of global investment management APAC at UBS Global Wealth Management. .
“There is very little reason to allocate money to China,” he said. “We are still in a deflationary environment, and as long as we don't appear to be on an upward trend – which would drive more sales growth – there is little appeal.”
The MLIV Pulse survey was conducted at the terminal and online from April 8 to 12 among Bloomberg News readers by Bloomberg's Markets Live team, which also runs the MLIV blog. This week the research focuses on the quarterly figures. Will Nvidia's earnings make you increase your exposure to big tech? Share your opinion here.
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