‘Buy China, Sell India’ Trade Gains Momentum Amid AI Boom, Delayed Trump Tariffs

The ongoing shift in global investment trends is steering foreign capital away from Indian equities and into Chinese stocks. A combination of China’s AI-driven technology push, aggressive stimulus measures, and a softer-than-expected stance on US tariffs is attracting foreign institutional investors (FIIs), while India’s stock markets continue to witness heavy outflows.

China Gains Favor as Indian Equities Face Selling Pressure

Foreign Investment Trends

• India Faces Continued Outflows: Foreign portfolio investors (FPIs) pulled out $405 million from Indian equities last week, marking the fifth consecutive month of net selling.
• China Sees Record Inflows: Chinese equities recorded their highest weekly foreign inflow since October 2024, with FPIs investing $573 million.
• Market Performance:
  • MSCI China surged 28.9% in six months and 38% in a year.
  • MSCI India declined 13.2% in six months and 2% over the past year.

China’s Stimulus Measures Fuel Stock Market Rally

China’s government has introduced several economic stimulus packages that have renewed investor confidence and driven market growth.

• September 2024: The People’s Bank of China (PBOC) announced a major stimulus package, including:
  • Benchmark lending rate cuts.
  • Lower down payment requirements for homebuyers.
  • Funding support for equity purchases.
• October–November 2024: Additional measures included:
  • A 1 trillion yuan debt financing package.
  • Increased fiscal spending to boost growth.

Impact on Market Capitalization

• MSCI India’s market cap fell from $3.81 trillion to $3.17 trillion in six months.
• MSCI China’s market cap rose sharply to $9.66 trillion.

DeepSeek AI Revolution Boosts China’s Tech Stocks

China’s growing influence in artificial intelligence (AI) is a key driver of renewed investor interest.

• January 2025: Chinese AI startup DeepSeek launched an advanced generative AI model, built at a fraction of the cost of US-based AI models.
• Goldman Sachs raised its outlook for Chinese equities, predicting:
  • MSCI China to reach 85 within 12 months.
  • CSI 300 Index to hit 4,700.
• Analysts estimate that AI adoption could increase China’s earnings per share (EPS) by 2.5% CAGR over the next decade.

Xi Jinping’s Tech Push Further Strengthens China’s Position

• February 17, 2025: President Xi Jinping met with Alibaba co-founder Jack Ma and other technology leaders, signaling strong government support for the tech sector.
• Investors expect additional policy measures to further boost economic growth and market confidence.

Indian Equities: Will FIIs Return?

India’s stock markets remain under pressure due to persistent foreign outflows and expensive valuations.

• Valuation Concerns:
  • India’s forward P/E ratio: 18.5x.
  • China’s forward P/E ratio: 12x (offering more attractive valuations).
• Global Economic Factors:
  • High US bond yields and a strong dollar are keeping FIIs cautious.
  • A broad-based earnings recovery is essential for Indian equities to regain attractiveness.

Outlook: What’s Next for Indian and Chinese Markets?

According to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services:

• FIIs may return to India when:
  • The US dollar weakens.
  • Bond yields decline.
• Until then, China’s cheaper valuations, AI-led growth, and government-backed stimulus measures will continue to attract global investors.

With China’s economic recovery gaining momentum, Indian equities may remain under pressure in the near term. However, a potential revival in earnings and policy support could help attract foreign institutional investors back to India in the long run.