Surging India Internet stocks trounce China peers
INDIA’S consumer technology stocks are on a tear this year, handsomely beating their larger rivals in China and widening the divergence between two of the world’s largest equity markets.
An equal-weighted custom index of India’s five flagship Internet stocks including Paytm parent One 97 Communications and Zomato has risen more than 20 per cent in 2023, bolstered by the companies’ focus on profitability and a buzzing economy. That compares with a lacklustre performance among China’s tech behemoths, whose share prices are languishing below their January highs.
India’s outperformance highlights a broader shift as global money managers look for opportunities outside China. While dwarfed in terms of market cap and revenue, Indian companies are luring investors given the nation’s growth potential and favourable ties with the West. That comes as Chinese growth stocks lag a global tech boom amid geopolitical and regulatory risks.
“Investors are turning to India as it remains one of the best consumption stories in Asia,” said Rajat Agarwal, Asia equity strategist at Societe Generale. India is still an under-penetrated market for digital tech, and “there is definitely a long runway of growth ahead”, he added.
India’s consumer tech stocks are recovering after a weak 2022 when the US Federal Reserve’s tightening and global recession worries crushed the still nascent sector. Given the renewed focus on profitability, One 97 Communications has gained nearly 60 per cent in 2023. Food delivery platform Zomato is up 26 per cent.
It is a grimmer picture for China, where investors see little reason to be optimistic as the reopening boom sputters and tension with the US remains high. A Hang Seng gauge of China tech stocks is down 6.2 per cent this year till Monday (Jun 26) while JD.com and Meituan have lost at least a quarter of their market cap. More importantly, investors said, the heydays of unfettered China tech growth are over as policymakers curb private-sector expansion.
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To be sure, the steep declines in Chinese stocks have made valuations attractive for some investors. Members of the Hang Seng Tech Index are trading at 21.4 times their forward earnings, below their three-year average of 29.2. Hopes for a turnaround remain on bets that the government will deploy new stimulus, while a string of stronger-than-expected sales data is also positive.
For India’s digital tech stocks, frothy valuations have been a concern since their debut. On Monday, Macquarie Group downgraded Paytm to neutral, citing regulatory and competition risks.
“The Chinese Internet sector remains significant undervalued in my view, despite improving earnings outlook. I see opportunity here,” said Jian Shi Cortesi, a fund manager at Zurich-based GAM Investment Management.
While the market cap of India’s equity exchange is barely one-third of China’s nearly US$10 trillion stock market, the South Asian economy is riding on a boom like never before. Its population is now the world’s largest; equity benchmarks are at record highs; and global firms such as Tesla are mulling investment. All of that makes the case for India’s stocks to continue to shine, analysts said.
For Sol Ahn, a senior investment analyst at Mirae Asset Global Invest HK, Internet firms in both countries offer attractive prospects. However, while the industry growth rate for Chinese tech companies may slow, Indian companies offer a promising outlook. “We have seen several online companies getting listed in India since 2021, and we expect to see more interesting investment opportunities with more companies getting listed in years to come,” she said. BLOOMBERG
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