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Global Brokerages Project Major Fund Flow Shifts From China To India

Much of the cash leaving China is heading for India, with Wall Street giants like Goldman Sachs Group Inc. and Morgan Stanley endorsing the South Asian nation as the prime investment destination for the next decade, Bloomberg is reporting.

By Govindraj Ethiraj
New Update
Funds Flow China India
On today’s episode, financial journalist Govindraj Ethiraj talks to Karan Taurani, Senior Vice President at Elara Capital as well as Ketharaman Swaminathan, founder and CEO of marketing company GTM360.

Our Top Reports For Today

  • (00:00) Stories Of The Day
  • (00:50) Global brokerages project major fund flow shifts from China to India .
  • (03:35) China’s Xi Jinping steps in to prevent market fall in unprecedented move.
  • (06:42) India to see $67 billion of energy investments in next 5-6 years, PM.
  • (09:58) Move over pizzas, fried chicken and burgers are gaining ground
  • (19:11) Understanding payment rails, understanding how payments happen in India in the context of Paytm

NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.


International Brokerages Project Shift In Flows To India

Indian markets looked up again on Tuesday with the BSE Sensex going up 455 points to end at 72,186, while the Nifty50 ended at 21,929, up 158 points.

So the theme of this week is not just China’s markets coming under huge selling pressure and of course the Government increasingly stepping up to halt the outflows but the shift to India.

Much of that cash leaving China is heading for India, with Wall Street giants like Goldman Sachs Group Inc. and Morgan Stanley endorsing the South Asian nation as the prime investment destination for the next decade, Bloomberg is reporting.

The trend of course is not new and has been visible and evident as The Core Report has been reporting in the last few months.

But there are new names and bigger bets.

The $62 billion hedge fund Marshall Wace has positioned India as its biggest net long bet after the US in its flagship hedge fund. 

An arm of Zurich-based Vontobel Holding AG has made the country its top emerging-market holding and Janus Henderson Group Plc is exploring fund-house acquisitions. 

Even Japan’s traditionally conservative retail investors are joining the party, says Bloomebrg as investors are now seeing India as a market that is similar to what China was once, all betting that the stock market will at least grow as much as GDP, around 7%. 

Bloomberg quotes the example of the US exchange-traded fund market where the main fund buying Indian stocks received record inflows in the final quarter of 2023, while the four largest China funds combined saw outflows of almost $800 million. 

Active bond funds have put 50 cents to work in India for every dollar they pulled from China since 2022, according to EPFR data.

Morgan Stanley predicts India’s stock market will become the third-largest by 2030. Its weight in the MSCI Inc.’s benchmark for developing-market equities is at an all-time high of 18%, even as China’s share has shrunk to its lowest on record at 24.8%.

There is of course a flip side to the story as Bloomberg points out and of course everyone has been tracking here. Which is valuations.

The BSE Sensex Index has almost tripled from its March 2020 low, while earnings have only about doubled. The gauge trades at more than 20 times future earnings, 27% more expensive than the average for the 2010 to 2020 period.

The bet is of course on multi-decadal growth, even as markets and valuations adjust for earnings. Which is that if a corporation or company grows 15% then the market will also grow 15% or has grown in recent years.

China’s Leadership Steps in To Prevent Market Fall

In what is considered as an unprecedented move, Chinese President Xi Jinping is meeting with financial market regulators among others to get a briefing on the state of the stock markets and presumably the responses to it.

Chinese stocks have been hammered in recent weeks extending losses to five year lows.

Right now, Chinese stocks have bounced back after Bloomberg reported regulators led by the China Securities Regulatory Commission will meet with the country’s top political leadership. 

Some $7 trillion of value has been wiped off Hong Kong and China equities since their peaks in 2021 and there is increasing clamour for Government and Government led institutions to do something as they already have begun doing.

An analyst at Societe Generale SA told Bloomberg their view has been that state support can indeed lead to a tactical rebound but we are not sure if that can be enough for a sustained rally. Even if we see 2015, the buying started in the summer but the rebound didn’t last and the market only bottomed out in early 2016.

Either way, the markets are watching quite keenly to see if the increased political interest in the markets and economy will cause any noteworthy shifts in the overall direction of the economy.

Economists Give Up Predicting Recession

Remember the talk of recession for the last couple of years. Well, now there seems to be a definitive view that there is no recession.

Deutsche Bank is no longer expecting the U.S. economy to tip into recession this year, given cooling inflation and the labour market returning to a "better balance" without unemployment rising significantly, Reuters reported.

The brokerage earlier expected the economy to enter a mild recession as the Federal Reserve tightened interest rates to tame inflation, narrowing the window for a soft landing.

Deutsche Bank said in a note on Monday that it now expects the U.S. economy to grow by 1.9% this year, on a quarterly average basis, compared with its prior forecast of 0.3%.

"Though the economy continues to face several headwinds – namely, still-tight credit conditions, rising consumer delinquency rates and a slowing labour market – the resilience to date points to a more benign slowdown in 2024 than we had previously projected," Matthew Luzzetti, the brokerage's chief U.S. economist, told Reuters.

The Fed is expected to start easing interest rates from June and not March as many had hoped and expected.

The U.S. economy grew a faster-than-expected 3.3% in the fourth quarter, amid strong consumer spending, with growth for the full year coming in at 2.5%, shrugging off dire predictions of a recession after the Fed's aggressive rate hikes.

India Projects Massive Energy Investments In Next 5-6 Years

Prime Minister Narendra Modi has said India would see investments worth $67 billion in the energy sector over the next 5 to 6 years.

He was speaking at the second edition of the India Energy Week 2024 which started off in Goa yesterday.

India will earmark a major share of the $134 billion in planned infrastructure spending in next year’s budget to the energy sector to meet surging demand, he said, adding India’s  primary energy demand is expected to double by 2045 and we are making preparations for that and at the same time we are also trying to ensure there is affordable energy for our citizens.”

The PM said India would significantly raise refining capacity, from 254 MMTPA (million metric tonnes per annum) to 450 MTPA by 2030, Mint newspaper reported.
He also emphasised the progress in renewable energy and ethanol blending pointing out that India's solar installed capacity has increased by more than 20 times over the past decade. Additionally, he mentioned the remarkable rise in ethanol blending, which has surged from a mere 1.5 per cent to over 12 per cent.

India’s energy demand will double to about 38 million barrels by 2045, the PM said, adding that the percentage of natural gas in the overall energy mix is being raised from 6 to 15 per cent even as many as 5,000 compressed biogas plants are being worked upon," he said.

India is  the world's third-biggest oil importer and consumer, and is dependent on crude oil from various sources in the global market to meet its domestic demand.

Meanwhile, on crude prices, not much action except that it is around $78.52 or under $79 a barrel, but higher than over the weekend prices.

The energy segment was brought to you by IndiaEnergyWeek now underway in Goa. For more details log onto www.indiaenergyweek.com

Novo Invests In Manipal

In an interesting healthcare sector investment, Novo Holdings, the controlling shareholder of Danish drugmaker Novo Nordisk said on Tuesday it was investing in Indian private hospital chain Manipal Hospitals, as it seeks to tap into growing market potential in Asia, Reuters reported.

The Danish holding company, which invests in life science companies and had assets of 108 billion euros ($115.86 billion) at the end of 2022, did not disclose further detail on the size of the investment, but said it was its largest in Asia to date.

Novo Nordisk is most recently known as the maker of Wegovy and Ozempic, the slimming and diabetes drugs that have taken the world by storm.

Manipal Hospitals has 33 hospitals across India, with around 6 million patients annually, Novo Holdings said.

Novo Nordisk had said in September last year that it would bring Wegovy to India in 2026. Novo Nordisk already sells Ozempic’s Indian version under the brand name of Rybelsus.

India Goes Slow On Pizza, Steps Up On Fried Chicken And Burgers

The topline news is that Indians are eating more and ordering more, including from what are known as quick service restaurants.

India’s QSR market is set to post a CAGR of 32% between 2023 and 2027, faster than the F&B industry growth of 19% and faster than many other countries.

The reasons for this are several and include growth in non metro markets, greater contribution of delivery, newer brands including local or hyper local ones.

But within that, there are some interesting shifts.

KFC India has grown 30% during FY19-23 vs peers across categories that have grown by a mere 17% during the same period, also representative of the fact that non-veg consumption is growing, a new report from Elara Capital called Hunger Games says.

Moreover, pizzas have slowed down though they still represent the lion’s share of the market. 

The way Elara Capital sees it, India has 3.9 pizza outlets per mn vs a mere 1.05 fried chicken outlets per mn, which means the opportunity is still large.

Delivery is a big factor in all of this, with most non-pizza QSR chains reaching 35-38% in the post COVID era. Delivery could overall go higher, including in fried chicken and burgers but not beyond 40 to 42% in delivery contribution in the near term as consumers continue to return to restaurants.

I reached out to Karan Taurani, Sr VP at Elara Capital and author of this report and began by asking him what were the food consumption trends he was seeing.


Understanding The Payment Rails

The recent PayTM imbroglio and the Reserve Bank asking the company on January 30 to stop accepting new deposits in its accounts and digital wallets from March due to supervisory concerns and non-compliance with rules has caused caused considerable confusion and even panic on not just the specific role of the payments bank here but also on how money transfers happen in general and specific within India and also in contrast to other countries.

India has a thriving UPI system that is the toast of the global financial world but why is this system not so prevalent elsewhere ? And what is the difference between the wallet mode and the UPI mode. You will get the answer shortly.

I spoke with Ketharaman Swaminathan, founder and CEO of marketing company GTM360 who has worked with fintech and IT over the years and also author of the book ‘from disloyalty to omnichannel customer engagement.’ 

S. Ketharaman, a graduate of IIT Bombay and an MBA from Jamnalal Bajaj Bombay was head of global business development for Oracle Financial Services Software Limited (formerly i-flex solutions) and worked on banking and payments verticals.

I began by asking him to pick up from what we have been reading about PayTM but to talk about what this means in a broader context of understanding the payments universe and how, essentially, money moves.