A few months ago, Mililing was just another unremarkable village in China. After January 20 though, when DeepSeek released its R1 version, the place was suddenly on the map. Liang Wenfeng, the brain behind DeepSeek, turned out to be from this village.
Overnight, Mililing, with a population of just 700, became a tourist hotspot, with 10,000 tourists visiting daily during the spring holidays. Roads were widened, houses were painted, and new trees were planted. No one would have imagined that a young techie could boost tourism like that.
DeepSeek's impact has shown up in other ways. Investors have since flocked to buy Chinese tech companies through the Hong Kong Stock Exchange. To buy these shares, investors need Hong Kong dollars. The demand for the dollars rose so much that by February 18, banks ran low on cash. The Hong Kong Monetary Authority had to inject HK$5.5 billion in overnight lending - the biggest intervention in five years.
This rush into China seems to have come at India’s expense. FIIs have sold over Rs. 2 trillion in Indian stocks since October last year. The big question: is this just temporary or a sign of a bigger shift in global investor sentiment?
In this week's Analyticks,
- Choices, choices: FIIs take another look at their India and China investments
- Screener: Rising momentum stocks with high Forecaster target price upsides
Let's check in on this rivalry.
A twist in the story for Indian markets
India at the start of 2024, was all positive vibes. Corporates expected healthy profits, the IMF projected steady Indian GDP growth at 6.3% for both FY24 and FY25, and investors bet on policy continuity. Goldman Sachs even called India ‘the port of calm’ in a turbulent world.
China however, was struggling. GDP growth would fall from 5% in 2023 to 4.2% in 2024. Until mid-September 2024, markets agreed. India was the clear winner: Nifty 50 Index was up by 20%, while China’s SSE 50 Index had fallen by 5%.
But as the summer heat faded and we entered September, the mood changed. Worries about high valuations, and a consumption slowdown in India hit market sentiment. And China unveiled an economic stimulus package. Within ten days, China's SSE 50 Index was up by 29%.
In 2025, DeepSeek’s breakthrough pushed Chinese stocks higher, with foreign investors coming back in.
is the ‘Buy China, Sell India’ trend real?
Market experts have been talking about the ‘Buy China, Sell India’ trend this year — but it’s not new. In just the last 15 quarters, it’s played out four times. One example is June 2022, when FIIs pulled money from emerging markets but found value in beaten-down Chinese stocks, especially as Shanghai reopened after long lockdowns.
But the battle is not necessarily India vs. China. In 8 of the last 15 quarters, investors have either bought both or sold both. Perhaps it's a lack of imagination that drives investors to pit India and China against each other, as if it's always the dragon or the elephant, not both.
Global sentiment and country-specific triggers matter more than simple either/or choices. And Charlie Dutton from Manulife has a contrarian viewpoint. He believes domestic Chinese investors drove this most recent rally, not FIIs. Unfortunately, we cannot verify this as China does not update FII data regularly.
Valuations don’t matter…until they do
Why have FIIs been pulling out of Indian markets in recent weeks? The biggest reason is valuation. India’s stock market capitalisation was around 1.3 times its GDP in 2024 (now down to 1.2x), while it was close to 0.7x in China, making it a more attractive market for many investors.
For value-focused funds, India is a tough fit right now. Take GMO’s value fund, for example. Arjun Divecha, Partner at GMO, said, “We're very underweight in India - close to zero - because of the valuation."
Rising US bond yields and a stronger dollar have also played their part. When safer assets like US bonds and dollars become more attractive, emerging markets like India take a hit.
Is the government stimulus enough for China?
The China stimulus has caught attention, but the results are still unclear. The government cut policy rates by 50 basis points, encouraged property purchases, announced childcare subsidies, increased wages, and subsidised the replacement of old home appliances, automobiles, and electronics with newer, energy-efficient models, among other things.
The focus is enticing people to buy more. But the response has been lukewarm.
Retail sales growth slowed from 7.2% YoY in 2023 to 3.5% YoY in 2024. Demand is so weak that consumer inflation turned negative in February — a clear sign of deflation and fading consumer confidence. To keep things moving, the government has raised its fiscal deficit target to 4% for 2025, up from 3% in 2024. But it's not certain if these measures will revive demand and hit the 5% GDP target.
The wind is on India's back
While domestic measures are underway, China is also under pressure from shifting global trade patterns, especially ‘China+1’. It won’t happen overnight, but the signs are already visible. For instance, the share of Chinese products in US imports has fallen from 22% to 11% in six years, creating opportunities for countries like Vietnam, Thailand, and India, according to investment firm GMO.
China, on the other hand, is setting up factories in other countries to bypass tariffs and remain the world's go-to supplier. At the same time, it doesn’t want to pass the baton to India. Recent reports show that China is also blocking its companies from investing in India, limiting the flow of Chinese workers and equipment to India, and limiting exports of key materials — all to put roadblocks in India's manufacturing growth.
Here, China may be fighting the inevitable. When we look at the long term, India is much better positioned. A young population, a growing domestic market, political stability, and deepening global partnerships work in its favour. In contrast, China faces structural weakness — a shrinking, ageing population, heavy dependence on exports and state-owned enterprises, an opaque, non-democratic system, and growing geopolitical tensions that risk isolating it from the West.
Franklin Templeton’s Brian Freiwald highlights that India’s consistent GDP growth and market returns over the past two decades offer a better broad-based opportunity than China, which still needs careful stock picking. He also pointed out that with global portfolios still underweight on Indian equities, there’s room for significant capital inflows once valuations stabilise. Charlie Dutton from Manulife expects FII interest in India to return in the second half of 2025.
So the long-term story is intact. As Howard Marks said, ‘You don’t want to miss out on India in the next 10 years.”
Screener: Rising momentum stocks with high Forecaster 12-month target price upside
Top Forecaster picks with momentum: High growth potential stocks
With the Indian market seeing a gradual recovery over the past week, we look at stocks with the highest target price upside potential over the next year, which are seeing an uptick in momentum. This screener shows stocks with an MoM improvement in Trendlyne Momentum scores and high Forecaster estimates 12-month upside %.
The screener consists of stocks from the aluminium & aluminium products, commodity chemicals, healthcare facilities, housing finance, and iron & steel products industries. Major stocks that feature in the screener are Lloyds Metals & Energy, Aadhar Housing Finance, Deepak Fertilisers & Petrochemicals Corp, Coforge, Minda Corp, Krishna Institute of Medical Sciences, Bharti Hexacom, and Hitachi Energy India.
Lloyds Metals & Energy shows up in the screener as Forecaster estimates a 40% target price upside over the next year. This coal & mining stock’s Trendlyne momentum score increased by 5.2 points MoM to 57.9. Analysts at ICICI Securities expect the company’s top line to improve on the back of the expansion of its steel plant, while the acquisition of Thriveni Earthmovers is expected to improve margins. They expect the firm’s revenue and EBITDA to grow at a CAGR of 49% and 59% over FY25-27.
Deepak Fertilisers’ Trendlyne momentum score jumped by 17.8 points MoM to 61.1. Trendlyne’s Forecaster expects this commodity chemicals company’s stock price to grow by 28.3% over the next year. Analysts at Keynote Capital believe the firm’s expansion of the technical ammonium nitrate (TAN), weak nitric acid (WNA), and concentrated nitric acid (CNA) capacities, to be completed by H2FY26, will help in revenue growth. They expect its revenue to grow at a CAGR of 13% over FY25-26.
You can find some popular screeners here.
