📰China and India Are Friends Again?

Hello. The number one question we have been asked this week is the forecasted impact of an incoming Trump presidency on Indian markets and U.S.—India relations. While it is too early to make definitive conclusions, we plan to release a comprehensive write-up to answer this, which will be released sometime in the coming weeks.

Today, we’ll discuss warming relations between India and China, and why this is great news for India. Then we’ll close with Gupshup, a round-up of the most important headlines.

As always, feel free to reply to this email with your most pressing questions.

BTW: How tall is India’s tallest man? (Answer at bottom)

Markets

Read here for an appendix on the above.

Analysis

India and China Are Becoming Friends Again

After meeting at the BRICS summit in Russia, Indian Prime Minister Narendra Modi and Chinese President Xi Jinping announced a border dispute agreement aimed at lowering tensions after a 2020 deadly clash in the Himalayas froze relations between the two countries. Both countries have agreed to lower the presence of armed soldiers in the area.

The deal reflects the changing dynamics between the countries. India has become a favored destination for multinational companies looking to diversify supply chains away from China, while India has struggled to enter the global manufacturing supply chain due to its bans on Chinese investment and numerous businesses. Warming relations allow India to rise to the opportunity while allowing China to remain a significant presence in global trade.

India’s role in global manufacturing supply chains has grown over the last few years with total exports of around $780 billion (₹65.6 trillion) for 2023 but it still lags behind China’s count of $3.5 trillion (₹294 trillion). For India, China is its largest bilateral trade partner with a total balance of around $118 billion though India only exports $18 billion there. The deficit with China exists even after the de-risking of Indian supply chains following border disputes; India banned hundreds of Chinese apps, raided offices, and launched new government oversight for any investments. Imports now include electronics, telecoms, and industrial machinery which has greatly advanced India’s own global standing. 

Another theme in India has been the shift of global demand for goods under China+1 strategies. The issue has been a lack of ability to export homegrown products which is why the government has been keen on foreign companies like Microsoft, Hyundai, and Walmart to invest more. India has now started to loosen restrictions on Chinese manufacturers forming JVs with domestic companies. China’s SAIC Motors (which owns MG Motors) announced a JV with India’s JSW Group to capture 30 percent of India’s electric vehicle market by 2030 through 1 million cars being sold annually. 

Infrastructure growth has been at the forefront of PM Modi’s agenda and China’s involvement is seen even more explicitly. Chinese crane companies have been outfitting private Indian port operators like Adani to supercharge exporting capacity. 

For China, a weaker economy and trade barriers have made India more important as a trade partner. Though India does have tariffs and anti-dumping duties to prevent extreme numbers of Chinese imports, India has become important as a steadily growing export destination. While China became a global leader by leveraging its built-up manufacturing base to a global audience, India is still developing that base which comes through China. India is still importing from China to sell to a local audience which gives China leverage to export and invest to build India out. A testament to this idea is that China has invested $5.4 billion in India as compared to $944 million the other way around (cumulative end of 2021). 

Warmer relations have been evident throughout the year even before the BRICs bilateral talks which led to border de-escalation. Ambassadors from both countries have had useful talks with each other throughout 2024, Modi described Indo-Sino relations as “significant”, and Beijing has let India court Taiwan and the Dalai Lama without rebuke.

Macro

• India's consumer price inflation is expected to reach a 14-month peak of 5.81 percent in October, driven largely by rising vegetable and edible oil prices, according to a Reuters survey of economists. This figure hovers just under the central bank's upper limit of 6.0 percent. Food costs, which account for nearly half of the inflation index, likely accelerated, with tomato prices projected to have soared in double digits due to production disruptions from uneven rainfall. (Reuters)

• India is considering raising the Foreign Direct Investment (FDI) cap in the insurance sector to 100 percent, up from 74 percent, to attract more investment. Additionally, the government is working on a unified license for insurers, allowing companies to operate across various sectors like life, health, and general insurance.

• Equity cash trading in India hit its lowest level in nearly a year as a broader market selloff brought the NSE Nifty 50 Index close to correction territory. The 10-day moving average of turnover on Indian exchanges dropped to $12 billion, a level not seen since December, with the index down about 8% from its September peak. (BBG)

• India’s foreign exchange reserves fell for the fifth consecutive week, dropping by $2.675 billion to $682.13 billion as the central bank likely intervened to stabilize the rupee. The currency, pressured by record foreign stock sales and concerns over high valuations and economic slowdown, hit a record low of 84.3750 against the dollar. (BBG)

• India has made 100 billion rupees ($1.2 billion) worth of green bonds eligible for inclusion in JPMorgan’s emerging market debt index, signaling a push towards sustainable capital raising. The bonds, set to be issued in the second half of the 2024-2025 fiscal year, will fall under the fully accessible route category for index inclusion. (BBG)

Equities

• The RBI has fined South Indian Bank $6.34 million (₹59.20 lakh) for failing to comply with regulations on deposit interest rates and customer service standards. This penalty followed a supervisory inspection of the bank’s financial position as of March 31, 2023, which revealed instances of non-compliance.

• India's antitrust body has found that food delivery giants Zomato and Swiggy violated competition laws by favoring certain restaurants through exclusive deals, according to documents from the Competition Commission of India (CCI). Zomato reportedly secured lower commissions through exclusivity contracts, while Swiggy promised business growth to partners who listed exclusively on its platform. The CCI's investigation, launched in 2022 after a complaint from the National Restaurant Association of India, concluded these practices stifled market competition. (Reuters)

• Ola Electric, India’s leading e-scooter maker, reported a reduced Q2 loss of 4.95 billion rupees, thanks to a 39.1 percent jump in revenue driven by sales of mass models. While recent service requests surged, the company noted that most were for minor issues, even as regulatory scrutiny and consumer complaints have increased since its strong market debut in August.

• India’s Life Insurance Corporation (LIC) reported a 3.8 percent decline in Q2 profit to 76.21 billion rupees due to increased benefit payouts, though its net premium income rose 11.6 percent and new business margins expanded for the half-year. (Reuters)

• India's rice stocks hit a record 29.7 million metric tons in November, nearly three times the government’s target, thanks to export restrictions over the past two years. This surplus allows India, the world’s largest rice exporter, to increase shipments without concerns over domestic supply shortages, which led to export curbs last year. (Reuters)

Alts

• Swiggy’s $1.4 billion IPO was oversubscribed over three times on its final day, with institutional investors alone placing bids for six times their allotted shares. Despite this strong demand, analysts predict a modest stock market debut next week due to weak market conditions and concerns about Swiggy’s path to profitability.

• Gold prices dropped on Friday, heading for their largest weekly decline in over five months, as markets reacted to Donald Trump's victory and its potential effect on U.S. interest rates. Spot gold fell 0.7 percent to $2,688.30 per ounce, down 1.7 percent for the week, while U.S. gold futures decreased 0.4 percent to $2,696.30.

Policy

• Prime Minister Modi has refused demands to reinstate partial autonomy for Kashmir, a pledge made by Jammu and Kashmir’s National Conference party during their campaign, though the authority to grant it rests with the central government. The region’s lawmakers can now pass legislation on local matters like other Indian states, but they lack control over public order and policing. Financial policies also require approval from a federal administrator. Previously, under partial autonomy, Kashmir operated with its constitution and could legislate on all issues except foreign affairs, defense, and communications.

Oh, and India’s tallest man is 8’1.

See you Monday.

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

1 USD = 84.4 Indian Rupee