Surging India Internet stocks trounce China peers, widening Gap

India’s consumer technology stocks have had a tear this year, handsomely beating out their larger rivals in India China And widen the difference between two of the largest stock markets in the world.

An equal-weighted custom index of the five major internet stocks in India including parent company Paytm One 97 contacts And Zomato It rose more than 20 percent in 2023, buoyed by companies’ focus on profitability and a booming economy. That compares with the lackluster performance among China’s tech giants, whose share prices are falling below their January highs.

India’s outperformance highlights a broader shift as global money managers look for opportunities outside of China. While dwindling in terms of market capitalization and revenue, Indian companies are tempting investors looking at the nation’s growth potential and favorable relations with the West. This is because Chinese growth stocks are lagging behind the global tech boom amid geopolitical and regulatory risks.

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“Investors are turning to India because it remains one of the best consumption stories in Asia,” according to Rajat Agarwal, Asian equity strategist at Societe Generale SA. India remains a poorly penetrated market for digital technology and “there is definitely a long growth path ahead,” Agarwal said.

Shares of consumer technology companies in India are recovering after a weak 2022 when Federal Reserve fears and a global recession crushed the still nascent sector. Due to a renewed focus on profitability, One 97 Communications gained nearly 60 percent in 2023. Food delivery platform Zomato was up 26 percent.

It’s a much bleaker picture for China, as investors see little cause for optimism as reopening fades and tensions with the US remain high. Hang Seng’s measure of Chinese technology stocks is down 6.2 percent this year through Monday, while JD.com Inc. And Meituan at least a quarter of its market value. More importantly, investors say the periods of unfettered technological growth in China are over, as policymakers limit private sector expansion.

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The sharp declines in Chinese stocks certainly made valuations attractive to some investors. Hang Seng Tech Index members trade at 21.4 times their forward earnings, below their three-year average of 29.2. Hopes of a turnaround in bets remain that the government will use a new stimulus, while a series of stronger-than-expected sales data is also positive.

For India’s digital technology stocks, buttery 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 undervalued in my view, despite the improved earnings outlook. I see an opportunity here,” said Jian Shi Cortese, a fund manager at Zurich-based GAM Investment Management.

While the market capitalization of the Indian stock exchange is barely a third of the $10 trillion Chinese stock market, South Asia’s economy is on an unprecedented boom. Its population is now the largest in the world, stock standards are at record highs, and global companies such as Tesla is considering investing. All this, analysts say, makes the case for Indian stocks to continue to shine.

For Sol Ahn, Senior Investment Analyst at Mirae Asset Global Invest HK Ltd. Internet companies in both countries present attractive prospects. However, while the rate of industry growth for Chinese tech companies may slow, Indian companies offer a promising outlook. “We have seen many online companies get listed in India since 2021 and we expect to see more interesting investment opportunities with more companies getting listed in the coming years,” she said.