China-bound FIIs may change course to India as stocks overheat

MUMBAI: Will foreign investors consider investing in India over China in the near future? That’s the question to which emerging market strategists are struggling to find an answer as of now as Chinese equities swing wildly amid news of restrictions on margin financing by brokers.

Chinese stocks have run up 142 per cent in the last one year, compared to 10 per cent gains in the Nifty, resulting in the price-to-earnings ( P/E) ratio, a key valuation measure, running past that of India’s recently.




The Shanghai index (SSE Composite Index) is now trading at a P/E ratio of 24.7 times compared with 22.5 times of the Nifty and 19 times of the Sensex. The 10-year high PE for India’s stock benchmarks is around 28 times.

Though on the P/E ratio basis both markets appear expensive, the bias may be tilting slightly towards India, which is still an ‘overweight’ at several foreign brokerages, because many foreign investors are still optimistic about growth recovery over the next three to five years.