Is India the Anti-China?

Having made the quantum leap to becoming an urban service economy, India is retracing its steps to best China in manufacturing 

James Gard 22.07.2022
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Taj Mahal

As China has struggled in the last eighteen months, Indian equities have been on a winning run. But more recently they've come back to Earth.

The two emerging superpowers are often pitted against each other in the battle for investor capital, although both are likely to be dominant economies in the next decade and beyond.

In reality, EM investors in funds that mimic the benchmark are likely to have a bit of both, with a heavier weighting towards China. Still, specialist China and India funds are popular with investors keen to direct more direct exposure.

We’ve recently featured some potential reasons for buying back into China, from its undervalued tech stocks to its role as a hedge against a US recession. Now let’s turn to the arguments in favour of India in its great rivalry with China, from the lens of an India investing expert.

India Has Outperformed

2021 was a standout year for Morningstar India with a total return of 30%. Over 10 years the index has posted trailing annualised returns of 10%, over five years this has been 7.43%, and over three years, 10.71%.

While Morningstar China had a strong 2020 as it was first out of the blocks during the pandemic (rising 31% before losing 21.1% in 2021) over 10 years the index has posted annualised returns of 5.67%, 1.58% over five years and -1.15% over three years.

While India has outperformed over these periods, a look at the individual year’s performance is not clear cut: investors wanting a "when China underperforms, India outperforms" headline may be disappointed. India had great years in 2012, 2014, 2018 and 2020, while China did well in 2012, 2017, 2019 and 2020.

Professional EM managers often reallocate capital to better performing countries, but for private investors this is expensive and an attempt to time the markets. Who could have predicted that China, the source of the Covid outbreak in 2020, would be the best performing global stock market that year?

Government Influence is Weaker Than You Think

Compared with China and Russia, India is a country where the government has a relatively small stake in commerce, points out Ayush Abhijeet, associate director of investments at White Oak Capital, and adviser to the Ashoka India Equity Investment Trust.

In emerging markets, the battle between the state and the private sector is often not a level playing field, but Western companies like Vodafone have successfully sued the government and won.

"Key to the rule of law is property rights and the enforceability of property rights," he adds.

Security experts in the US and the UK have recently stepped up warnings about Chinese espionage, both government and corporate. China’s effective overnight nationalisation of online education firms, following on from high-level intervention in the Ant Financial IPO, have alarmed some foreign investors.

China’s Manufacturing Edge May be Waning

Abhijeet says India essentially skipped one of the key stages of industrial development, moving forward in a quantum leap from agrarian to urban service economy. In that period, China became the factory of the world.

As a result, India is retracing its steps to build up its manufacturing capabilities, for example in generic pharmaceuticals. In parallel, Chinese labour costs have soared and Abhijeet estimates these as four times the price of labour in India. The south Asian country is "doing it better, faster, cheaper" than China, he says.

Coupled with India’s strong tradition of IP protection, this is a compelling argument for companies wanting to "rebuild" their supply chains by diversifying them, Abhijeet says.

India isn’t a One Sector Market

Many EM markets have strong sector bias, which can work in their favour (and vice versa) when global trends are supportive.

For instance, technology was one of the big winners during lockdown, and China’s Tencent and Alibaba rode the wave of that rebound. Recently, oil producing countries have put 2020 behind them and posted strong gains: the United Arab Emirates, Qatar, Kuwait, and Saudi Arabia are among the rare stock markets in positive territory this year.

Financial companies have a heavy weight in India’s benchmark because of HDFC, ICICI, Bajaj, but information technology, energy, consumer staples, healthcare are also well represented. As such, "India has a very heterogenous set of investable opportunities," Abhijeet says.

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James Gard  is content editor for


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