World Economy

Investors Fleeing China Look to India

Investors Fleeing China Look to IndiaInvestors Fleeing China Look to India

With global emerging markets again under pressure, India might seem an unlikely port in the storm. Promises of far-reaching economic reforms under Prime Minister Narendra Modi are still to be delivered, while hopes of a rapid investment-led recovery under his leadership remain unfulfilled.

But with China’s equity market convulsed by a painful sell-off, India finds itself the happy recipient of investment searching for safety in the developing world, Yahoo News reported.

The benchmark Sensex index has lost more than 2% over the past two days, reflecting investor unease over much larger falls in China. Since the Chinese sell-off began on July 15, the Shanghai index has dropped nearly 30%. Indian stocks, meanwhile, are up around 5%.

The rupee has also been relatively stable, losing 1.6% against the dollar this year.

With Chinese equities tumbling, India has become one of the main winners as investors reallocate in the other direction, argues economist Eswar Prasad of the Brookings Institution.

“For money that wants to stay in emerging markets and for which China is now too hot a destination, India seems the best alternative,” he says.

Foreign investors have also sunk Rs73 billion ($1.1 billion) into Indian equities so far this month, in part because of worries over China, reversing outflows over the previous two months. Falls in oil prices have also helped to draw funds back into India’s economy, which relies on foreign energy imports.

“There was some reallocation out of India and towards China earlier this summer. That has now stopped, and some of it seems to be coming back,” says Rashesh Shah, the founder of Edelweiss, a Mumbai financial services group. “Investors I speak to see China as a lot riskier now.”