The spate of emerging market outflows triggered by China’s rising mortgage defaults has not hit Indian markets. On the contrary, India received foreign portfolio flows to the tune of nearly $15 billion during April-November. China, on the other hand, saw funds worth over $41 billion flying out of the country during January-June.
China’s economic woes have deepened as defaults by Chinese borrowers reach a historic high since the onset of the coronavirus pandemic. The rising number of defaulters poses a significant challenge to bolstering consumer confidence in the world’s second-largest economy.
Overseas funds outflow has hit the entire Emerging markets basket as foreign funds pare holdings due to geopolitical tensions and rising US bond yields. However, India remained resilient.
Amid global uncertainties, India reported GDP growth of 7.6 percent in the July-September quarter. The Reserve Bank of India (RBI) is expected to revise its FY24 GDP forecast upwards to 6.7 percent or even higher in the upcoming Monetary Policy Committee (MPC) meeting.
With India as the best-performing economy globally, and US bond yields falling, there is little incentive for foreign investors to move away from emerging markets like India.
India’s Gain in China’s Economic Chess
If China’s economic situation worsens only gradually and FIIs’ outflow continues in a calibrated manner, India may benefit marginally. As foreign investors look to reallocate money out of China, India could be among the most preferred destinations in the emerging market basket, said experts.
On the other hand, a large-scale meltdown in China’s debt markets could force FPIs to withdraw money from all emerging markets, negatively affecting India. A complete meltdown in China is though unlikely.
