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Investors Stick To India, But Look At China

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Emerging market investors have adopted "a modest overweight" position on Indian shares for the first time since July 2010, according to Bank of America-Merrill Lynch's survey of fund managers, which was out on 16 January.

However, among Asia-Pacific investors, India was among the least favoured region, alongside Australia and Philippines, according to the BofA-ML survey.

The BSE Sensex rose 25.7 per cent in 2012, outperforming the regional benchmark MSCI Asia Ex Japan index, which rose 18.56 per cent in the same period.

In a separate report, BofA-ML says investors are "generally overweight" on India, based on feedback from investors in the UK and Europe, having added to their positions in the past six months.

However, part of that preference was driven by an "underweight" position in China.

With the risk of a hard landing receding in China, and with a potential cyclical shift in the making, BofA-Merrill says, "there is a possibility of a move towards China over next few months".

India needs to improve its financial system supervision and crisis preparedness while at the same time liberalising some sectors to reduce distortions and risks created by heavy state involvement in banking, the International Monetary Fund said on 15 January.

The IMF's Financial System Stability Assessment Update said India had improved its supervision and regulations in the 20 years since it started liberalising its economy and that its financial system fared well in the global financial crisis.
"Despite these recent successes, India's financial sector still confronts longstanding impediments to its ability to support growth as well as new challenges to stability," said the 116-page study.
Read Also: India Needs Greater Financial Supervision: IMF
Read Also: WB Expects India To Inch Closer To China In Growth

Meanwhile, India's growth is expected to inch closer to that of China in near future, World Bank Chief Economist Kaushik Basu said on 16 January.

The World Bank had released its latest issue of Global Economic Prospects 2013 on 15 January, in which the economies of developing countries like India, China and Brazil are projected to be recovering and higher growth rate.

The World Bank expects that by 2015, the growth rate of China would be 7.9 per cent and that of India 7 per cent, World Bank Chief Economist Kaushik Basu told reporters during a conference call.

He added that the gap between the two Asian giants has been closing.

"We do expect India to inch closer to China and for a very, very good reason--not an analysis of what's happened over the last one year or two years, but a bit of a sweep of history," he said.

While the growth of the world economy growth is projected to inch up from 2.3 per cent in 2012 to 2.4 per cent in 2013, with the high-income countries remaining at the same level of growth of 1.3 per cent in both 2012 and 2013, it is the emerging markets like India, China and Brazil that would show significant signs of recovery.

"Growth in Brazil had gone down quite sharply in 2012 of 0.9. We at the World Bank are expecting Brazil to make a recovery to 3.4 per cent in 2013. We are expecting recovery in the case of China from 7.9 per cent growth in 2012 to 8.4 per cent in 2013.

"We are expecting a recovery in India from 5.1 per cent growth in 2012 to 6.1 per cent growth in 2013," Basu said.

"China is growing at a phenomenal rate right from 1978 or 1980 and you can't grow at 10 per cent for more than a couple of decades.

"China has done it for 30 years and this has been expected in China and expected by us that China will continue to grow very rapidly but it will probably come down from these great highs," Basu said.

"So, there is going to be a catch-up of India's growth getting closer to China's growth and, who knows, a couple of years down that road, they may be completely neck to neck," Basu said in response to a question.

Basu said the next one or three years will remain difficult as structural reforms are put in place primarily in the euro zone countries, but even elsewhere in the world. 


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