India’s consumer technology stocks are on a tear this year, handsomely beating their larger rivals in China and widening the divergence between two of the world’s largest equity markets.
An equal-weighted custom index of India’s five flagship Internet stocks including Paytm parent One 97 Communications Ltd. and Zomato Ltd. has risen more than 20% in 2023, bolstered by the firms’ focus on profitability and a buzzing economy. That compares with a lackluster performance among China’s tech behemoths, whose share prices are languishing below their January highs.
India’s outperformance highlights a broader shift as global money managers look for opportunities outside China. While dwarfed in terms of market capitalization and revenue, Indian companies are luring investors given the nation’s growth potential and favorable ties with the West. That’s as Chinese growth stocks trail a global tech boom amid geopolitical and regulatory risks.
“Investors are turning to India as it remains one of the best consumption stories in Asia,” according to Rajat Agarwal, Asia equity strategist at Societe Generale SA. The country is still an under-penetrated market for digital tech and “there is definitely a long runway of growth ahead,” Agarwal said.
India’s consumer tech stocks are recovering after a weak 2022 when the Federal Reserve’s tightening and global recession worries crushed the still nascent sector. Given the renewed focus on profitability, One 97 Communications has gained nearly 60% in 2023. Food delivery platform Zomato is up 26%.
It’s a grimmer picture for China, where investors see little reason to be optimistic as the reopening boom sputters and tensions with the US remain high. A Hang Seng gauge of China tech stocks was down 6.2% this year through Monday while JD.com Inc. and Meituan have lost at least a quarter of their market value. More importantly, investors say the heydays of unfettered China tech growth are over as policymakers curb private-sector expansion.
To be sure, the steep declines in Chinese stocks have made valuations attractive for some investors. Members of the Hang Seng Tech Index are trading at about 21 times their forward earnings, below their three-year average of 29. Hopes for a turnaround remain on bets that the government will deploy new stimulus, while a string of stronger-than-expected sales data is also positive.
For India’s digital tech stocks, frothy valuations have been a concern since their debut. On Monday, Macquarie Group downgraded Paytm to neutral, citing regulatory and competition risks.
According to Jian Shi Cortesi, a fund manager at Zurich-based GAM Investment Management, the Chinese internet sector remains significantly undervalued despite an improving earnings outlook. “I see opportunity here,” she said.
While the market value of India’s equity exchange is barely one-third of China’s nearly $10 trillion stock market, the South Asian economy is riding on a boom like never before. Its population is now the world’s largest, equity benchmarks are at record highs, and global firms like Tesla Inc. are mulling investment. All of that makes the case for India’s stocks to continue to shine, analysts say.
READ: Population Boom Spurs Hunt for Stock Market Winners in India
For Sol Ahn, a senior investment analyst at Mirae Asset Global Invest HK Ltd., internet firms in both countries offer attractive prospects. However, while the industry growth rate for Chinese tech companies may slow, Indian companies offer a promising outlook.
“We have seen several online companies getting listed in India since 2021 and we expect to see more interesting investment opportunities with more companies getting listed in years to come,” Ahn said.
Tech Chart of the Day
The Nasdaq 100 dropped 1.4% Monday, more than its decline for all of last week, which was the index’s worst weekly performance since March. Profit taking in the technology sector is continuing as some of the year’s hottest names including AI-favorite Nvidia Corp. and Facebook parent Meta Platforms Inc. dip. Tesla Inc. slumped 6.1% on Monday after Goldman Sachs Group Inc. joined the list of brokers turning less bullish on the electric-vehicle maker.
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--With assistance from Youkyung Lee, Paul Jarvis and Kit Rees.
(Updates with Tech Chart of the Day section, adds more top tech stories)
