China’s stock market loss becomes India’s gain as money floods in
The Chinese stock market’s rapid plunge into bear territory this month has brought unexpected gains for the equity capital markets of another large emerging economy — India. ECM bankers in that country have started to see a big uptick in interest from international investors eager to park their funds in a safe haven, writes Rashmi Kumar.
Market sentiment around India has been largely positive since prime minister Narendra Modi came to power in May last year, and equity markets have been one of the beneficiaries of that change in outlook.
The actual performances of the National Stock Exchange CNX Nifty Index and the S&P BSE Sensex Index have not overwhelmed — the former has posted year-to-date gains of just 5.37% and the latter around 5%. But their stability has generated a consistent air of optimism, say ECM bankers.
This confidence has only strengthened over the past few weeks on the back of the spectacular collapse in China’s stock markets. Chinese onshore indices had seen huge inflation over the previous 12 months, picking up speed in April and May to post gains to the tune of more than 150% by June.
The euphoria came to a shuddering halt between the end of June and early July, with stock markets plunging and wiping out trillions of dollars of market value. But China’s loss now looks like India’s gain.
“As volatility increased in China, we started seeing a lot of emerging market money flowing from China to Indian equities,” said an India head of ECM syndicate at a bulge-bracket bank. “Why be in a market losing 50%-60% in days, when you’d rather be in a more stable market like India?”
While there are no precise numbers to reflect the growing foreign interest, the banker added that most of the conversations he had had over the past few weeks were with international funds looking to move money out of China and into India.
“The volatility [in China] has massively helped equities here,” he added. “And that's only the beginning. Not everyone is exiting China, of course, but India has shot up the pecking order of emerging equities and there are more proactive discussions happening with investors.”
Since the end of June — when Chinese stocks tumbled — India’s Nifty has gained about 4%, while the smaller Sensex has risen about 3%.
What is also driving the buyside to take a closer look at India is the way the crisis in China was handled, reckons a managing director of investment banking at an Indian firm. The unprecedented nature of the Chinese government’s interference in curbing the freefall to help prop up markets has shaken foreign investors.
Investors would never dream of that kind of a micromanagement if a similar situation befell India, added the MD.
“[The Securities and Exchange Board of India] would not step in so dramatically,” he said. “The Chinese government made fools of themselves and of their own market by coming out with so much force so quickly. I don’t think it would ever happen in India and that gives more comfort to investors, who want to see true market factors driving indices.”
Lots in store
That optimism might come in handy considering the hefty pipeline many ECM desks are sitting on. So far this year, the Indian primary market has seen some 71 deals worth $14.433bn, according to Dealogic. And there are more in the offing.
Drug research firm Syngene International plans to open books for its Rp5.5bn ($86m) listing on July 27. A source also told GlobalCapital Asia this week that deals for Nuziveedu Seeds and InterGlobe Aviation, which operates passenger airline IndiGo, are expected to hit the market soon. The investment banking MD, meanwhile, said his firm was hoping to launch two new IPOs in August.
Not everyone is eager to jump on the bandwagon just yet, however. A Mumbai-based director of ECM said a few of his clients had postponed their roadshows as they wanted to take stock of market conditions, after being rattled by China’s collapse and the ongoing debt saga in Greece.
“Some of my issuers are putting their deals on hold for now and letting the volatility go by,” said the director. “[Qualified institutional placements] can still happen anytime when markets turn for the better, but given the last few weeks of volatility no one wants to launch their deals. They want clarity on market movement before they step up.”
That’s not the only reason holding back some potential issuers. Companies in India are now heading into results season, with announcements by big businesses often affecting movement on the main indices. For instance, when IT giant Infosys reported strong results for the quarter ending June 2015 this week, its shares soared following the announcement. This led the benchmark index to rise in tandem, before then paring some of the gains.
All eyes are also now on the Indian parliament, which started its monsoon session on Tuesday July 21, which will go on until August 8. Among the topics to be debated include the goods and sales tax bill, and the land acquisition bill.
“Investors want clarity on some of the tax issues, so everyone is glued to their screens for now,” said another senior ECM banker at a domestic firm. “Some issuers are taking a wait-and-see approach for their deals, so I expect September to really heat up.”