India versus China: How two key emerging markets performed in 2023

China, once lauded as one of the fastest-growing economies globally, has entered a period of uncertainty post-pandemic. In 2023, while the country’s growth is projected at 5%, a slowdown is expected in the following year, indicating a cooling phase following years of rapid expansion. This is in line with the country’s post-Covid recovery, which has raised doubts about the sustainability of its previous rapid growth, prompting Beijing to consider significant economic strategies for 2024 and beyond. Despite expectations of beating targets after a consumption-driven growth spurt due to lifted Covid-19 restrictions, industrial earnings in the first 11 months of 2023 shrank by 4.4% from a year earlier, reflecting an uneven and stumbling recovery. These figures underscore the challenges China faces in reigniting its economic engine. Adding to the domestic economic challenges are the increasing tensions between China and foreign companies operating within its borders. There’s a growing scrutiny and pressure on these entities, stemming from anti-corruption, security, and other investigations, highlighting the precarious position of foreign investments under President Xi Jinping’s regime. US companies, in particular, have voiced concerns over China becoming “uninvestible”, citing issues like fines, raids, and slow deal approvals, reflecting a broader sentiment of distrust and uncertainty. This situation is further exacerbated by new laws with vague language and broad scope, granting the Chinese government extensive leeway to punish foreign investors and businesses, potentially as a pretext for actions against those critical of the Chinese government or its policies. Further, in 2023, the Chinese property market continued to grapple with significant challenges, notably exemplified by the ongoing Evergrande crisis. The Evergrande Group’s financial struggles, which became public in 2021 following a letter warning of a cash crunch, had profound effects on the sector. This situation led to a plunge in the company’s shares and a notable slowdown in foreign investment in China. By July 2023, Evergrande reported substantial net losses for two consecutive years, starkly contrasting with its profitable operations in previous years.

Evergrande’s downfall was a significant factor in the wider property market crisis in China. The troubles weren’t isolated to Evergrande alone; other major developers like Country Garden also faced severe financial distress, with losses amounting to $7.1 billion in the first half of 2023 alone. These difficulties in the property sector were further compounded by the general market conditions. The Chinese property market faced a significant slump, with new home prices projected to show no growth in 2023, adding to the economic pressures. Despite these challenges, the Chinese government continued to implement policies aimed at stabilising the property market. These included city-specific strategies and targeted policies to meet housing demands and develop new mechanisms for the sector’s growth. However, the effectiveness of these measures in the face of such a significant downturn, exemplified by major developers like Evergrande and Country Garden facing severe crises, remained a topic of considerable concern for the market’s future stability and growth. As far as performance of equity is concerned, an analysis by Goldman Sachs Group Inc. has brought to the fore the flawed anticipation of China’s post-pandemic economic surge, which was one of the most significant misjudgments by Goldman in 2023. Initially, Goldman, alongside other major financial institutions, projected a robust year for 2023, buoyed by a 15% surge in the Chinese stock market, expecting China’s rebound to boost global emerging markets. Contrary to these forecasts, Chinese stocks plummeted over 15%, sharply diverging from the performance of other emerging markets. Goldman emphasised the distinct nature of Chinese assets, which have shown little correlation with other emerging markets, both in equity and fixed-income sectors. Despite facing challenges like the Fed’s aggressive rate hikes, a robust dollar, and China’s economic slowdown, broader emerging markets have shown remarkable resilience. Without China’s inclusion, emerging-market stocks saw a 16% increase, outperforming the broader MSCI emerging-market index significantly influenced by Chinese stocks. Goldman attributed the resilience in other emerging markets to proactive and aggressive policy actions by central banks to counter inflationary pressures, positioning them favourably against developed markets. Despite the disappointing slowdown in China, which adversely impacted emerging markets throughout the year, there’s optimism for positive returns in the future. India on the other hand has been a standout economy in 2023 India’s real GDP registered a remarkable growth rate of 7.6% in the July-September quarter, surpassing expectations. This growth was noted to be faster than that of China, positioning India’s compound annual growth above China’s 4-5% rate, and also above the global average. India’s growth in 2023 was forecasted to be the highest among 13 large economies, expected at 6.7%, with China trailing at 4.8%. Despite challenges such as food and oil supply shocks, India’s economy demonstrated resilience and stability. The government took measures to mitigate these shocks, such as suspending rice exports and extending subsidies, to avoid feeding into consumer price inflation. The Reserve Bank of India, in response to these conditions, was cautious about cutting interest rates, indicating a stable but careful approach to monetary policy. The industrial manufacturing sector in India received a significant boost, attracting global technology giants and being supported by state industrial policies and sector-specific incentive schemes. Substantial investments in logistics and infrastructure, such as new roads and rail tracks, showcased the government’s commitment to strengthening this sector. This focus is pivotal for India’s ambition to become a key player in global supply chains. The Indian government’s policy focus and spending on enhancing infrastructure and logistics, coupled with efforts to streamline bureaucracy, have attracted significant global MNC investments. Production-linked incentive (PLI) schemes have revitalized the manufacturing sector, helping build up value chains and industrial clusters. Additionally, the government has made strides in ease of doing business reforms, reducing compliances and decriminalising legal provisions, further enhancing India’s attractiveness as an investment destination. Despite a decline in foreign direct investment (FDI) inflows in 2023 due to global economic uncertainties, India remained a significant destination for FDI, particularly in states like Maharashtra, Karnataka, and Gujarat. The country’s efforts to position itself as a key production and assembly base in Asia, and its strategic initiatives in this regard, have contributed to its sustained growth and development. In 2023, the Indian stock market experienced a significant bull run, with both the Sensex and Nifty 50 indices achieving consecutive record highs. This bullish momentum was fueled by investors’ increased risk appetite, driven by strong domestic economic growth and optimism about expected global interest rate reductions. The Nifty 50 index surged by nearly 20%, while the Sensex yielded returns exceeding 18%. The overall market capitalization of companies listed on the BSE surpassed ₹366 lakh crore, highlighting the market’s substantial growth and value. December 2023 stood out as the best month for returns in the Indian market, with the Nifty 50 recording an impressive surge of over 7%, marking the highest monthly rally of the year. This growth was followed by gains of more than 5.5% in November. Throughout the year, the Indian stock market achieved several key milestones, including a remarkable increase in the market cap to GDP ratio and the crossing of the $4 trillion mark in market capitalization, placing India fourth globally in this metric. Additionally, the NSE gained global prominence, becoming the third-largest exchange worldwide in the cash market segment and the largest in equity derivatives. The number of registered investors in the stock market also saw a significant increase, underscoring the expanding investor base and the market’s resilience amidst periodic volatility. As 2024 approaches, the Indian economy is poised to shine brightly as a north star among emerging markets. With its robust growth, resilient economic policies, and strategic focus on infrastructure and industrial development, India is expected to maintain its high-growth trajectory. In contrast to China’s cooling phase and increasing uncertainties, India’s stable and reform-oriented approach is likely to make it an attractive destination for investors and a key driver of global economic growth, continuing its standout performance as a high-growth emerging economy. Aditya Sinha (X:@adityasinha004) is OSD, Research, Economic Advisory Council to the Prime Minister. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost’s views

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