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Hindi-Chini Bye Bye🤝

Amrit Kal is a Vedic term that loosely translates to the most fortunate time to begin a new work and is said to be when the “gates to greater pleasure” open

While the term is one that has been ringing in everyone’s ears since 2023 (and quite frankly sounds like a double entendre), the next 25 years in India’s journey is set to be a physical manifestation of it.

On the other hand, the current throne-bearer of the term “Asian superpower” - China - is bleeding from wounds inflicted by its own hand, with the stock markets being one of them.

Nifty vs Hang Seng

Having crossed over the Hang Seng in January 2024, India stands as the 4th largest stock market in the world - and the whole world is watching every move.

In fact, the world is adjusting to this newer normal. If we look at the MSCI Emerging Markets Index in the past 5 years, while China has declined from being more than 40% of the index to about 24% now, India has gone from a mere 8% to about 17% now!

Coupled with the China Plus One initiative (wherein the world is looking into markets other than China), India is on-track towards a superpower title of its own, despite the legacy of the Chinese dominance that has spanned over 40 years!

Therefore, it is only fitting that we take a step back, and compare ourselves to our neighbours in the North-East, and since we aren’t experts at the Chinese markets, we asked someone who is - Sagar Singh Setia, founder of Marquee Finance!

He has highlighted 2 major focus areas to look at China’s demise and India’s eventual rise - demographics and industry structure.

1. Demographics

What Happened?

Beginning in the 90s, the Chinese government took unprecedented reforms and started an enormous exercise to upgrade the infrastructure and pull millions of Chinese out of poverty.

The thrust on manufacturing got a big boost when China was inducted into WTO in 2001. This further helped the Chinese economy become the manufacturing powerhouse of the world, taking advantage of their rich demographics.

From the beginning of the 1990s to 2010, the Chinese active workforce increased by a massive 650 million to 800 million, with a majority being added to the manufacturing sector!

China and India Per Capita GDP

However, even though India increased its workforce from less than 450 million to 600 million, the majority of the workforce in India during these years was in rural areas employed in traditional businesses.

As a result, the real income growth captured via GDP Per Capita in India has lagged massively from China.

What Now?

Nonetheless, we are now at an inflection point as India has the golden opportunity to reap demographic dividends while China faces a moment of truth. The One-Child Policy is now bearing fruits as Chinese population has begun to decline; while India is witnessing declining but healthy growth.

India and China population

As a result of the population decline and reduction in active workforce, the labour costs have significantly increased in China which is a significant tailwind for the China+1 policy.

Furthermore, as countries across the world race to diversify their supply chains, India has an opportunity to become the leader in manufacturing exports especially in segments such as Chemicals, Auto Exports and Pharma!

2. Structural

What Happened?

China’s building boom of the last two decades was fuelled by enormous debt. The private sector took on colossal debt which has resulted in the Non-Financial Sector Debt/GDP to reach a mind boggling 288%!

China debt to GDP

These unprecedented levels of debt binge have to end and the deleveraging that is under process in China will be really painful.

We’ve already seen the beginning of this, with country’s largest developers’ assets worth US$ 300 billion vanishing!

History is testimony to the fact that when asset bubbles burst, it takes decades for the economy to recover.

We saw this with in the 90s when Japanese Real Estate Bubble Burst and in 2001 when Dot Com Bubble Bursts. It took Microsoft 14 years to reach its 2001 highs and some companies like CISCO were never able to reach those levels.

Real Estate forms a lion’s share of China’s GDP (around 35%) as most of the Chinese Households Savings are locked in the property sector. Furthermore, housing has a high multiplier effect and thus we have seen that Chinese Consumer Confidence is at depressed levels.

What Now?

The structural problems in Chinese economy coupled with the regulatory overhang (recent decisions to curb tech influence) increases the appeal of India as an investment destination.

India’s private sector has undergone a massive deleveraging in the past decade.

foreign investment into india

As a result, India’s private sector is ready to undertake massive capex to meet the burgeoning demand of millions that will move out of poverty in the next decade.

Furthermore, India’s thrust on exports by investor friendly policies like PLI Scheme and cutting red tape will lead to increase in foreign capital and reduce the Current Account Deficit (CAD).

Already, we have seen massive growth in the FDI flows in the last decade. The inclusion of India in the key global bond indices will also result in billions of dollars of inflows thus increasing the much needed FX reserves.

Bottom Line

All the evidence seems to point towards the same direction - China had its time on the throne, and India is now using a similar playbook (minus the glaring errors) and taking a shot at that throne!

With the support from fiscal and monetary prudence going forward, the boost given to the infrastructure and manufacturing sectors maturing, and various other sectors like defence, auto and chemicals seeing meteoric rise in relevance on a global scale, investing in India is a no-brainer (to an extent).

One must still be wary of the inflated valuations that the market might correct for in the near term, but being selective in your investment process by choosing companies with a proven track record, optimum capital utilisation and reasonable valuations will pay its dividends.

While hindi-chini may never truly be “bhai-bhai”, the power handover is almost poetic, and being exposed to this story in your portfolios might just be the thing that sets you apart!


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