India and China’s stock market trends and investor confidence amid economic stimulus and capital outflows

The Indian stock market is one of the oldest in Asia, with the Bombay Stock Exchange (BSE) in Mumbai established in 1875. In contrast, the People's Republic of China (PRC) has more modern stock exchanges, with the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE) both founded in the early 1990s.

Key stock market indices

The stock market of India has two prominent indexes namely the BSE Sensex and the Nifty 50. The Sensex is constituted with a market capital of only top 30 companies making up a market capitalisation of 45% of all companies listed on the BSE and NIFTY50 with top NSE 50 companies. On the other hand, The Republic of China has the Shanghai Composite Index, the Shenzhen Component Index, and the CSI300 Index among others.

Foreign investment and market dynamics

In early October, FPIs sold over ₹30,000 crore worth of Indian stocks, driven by China's stimulus and high Indian market valuations (23x forward earnings). China's market, boosted by stimulus measures, attracted global investors, putting pressure on India’s high valuations. While China rallied in early October 2024, liquidity in Indian markets looked like shrinking. Despite challenges, long-term confidence in India’s outlook remained stronger than in China.

China's economic stimulus measures

China has announced plans to boost its economy with fiscal stimulus, focusing on tackling local government debt, supporting low-income households, and aiding the property market. However, the overall size of the stimulus package was not disclosed. The announcement included measures like subsidies and capital injections into state banks. The absence of concrete financial figures has delayed full market confidence.

India's market boost amid global challenges

Talking about India, a sharp drop in crude oil prices boosted the markets, with banking, IT, and realty stocks leading the gains with Q2FY25 earnings. However, strong bullish sentiment remains limited due to foreign investors pulling out of Indian markets and ongoing uncertainty from the West Asia conflict.

Short-term and long-term index performance

In the short term, both indices experienced a jump, with the Shanghai Composite Index showing an 18.66% increase over the last month, while the BSE Sensex, saw a 1.43% decline. Looking at the one-year horizon, the Shanghai Composite Index continued its positive trend with a 3.91% increase, while the BSE Sensex showcased resilience, recording a 23.63% gain. However, over the past decade, the Shanghai Composite Index demonstrated substantial growth of 36.27%, whereas the BSE Sensex significantly outperformed, achieving a remarkable surge of 204.61%.

Inclusivity and market capitalisation

In terms of inclusivity, India's stock market surpasses China's, particularly for smaller companies. As of the end of January 2024, India boasted around 7,575 listed companies across its two exchanges, including two foreign companies. In contrast, China's SSE and SZSE had a combined total of 5,658 listed companies by August 2024.

As of October 2024, the total market capitalisation of India's National Stock Exchange is at $5.47 Trillion and the Bombay Stock Exchange is at $5.5 Trillion, while China's Shanghai Stock Exchange is at $6.41 Trillion and Shenzhen Stock Exchange is at $3.48 Trillion.