FIIs may not prefer Chinese equities over Indian after Fed’s hawkish pause: Anand Tandon

Anand Tandon- market expert on Fed hawkish pause impact on Indian Equities

As anticipated, the US central bank held interest rates after 15 months of hikes but forecast another two-quarter percentage point moves before the end of the year — a stance widely seen as hawkish by the markets. Meanwhile, China's central bank has cut its key medium-term lending rate by 10 basis points after 10 months.

However, Anand Tandon, a market expert, does not see Foreign Institutional Investors (FIIs) turning to Chinese markets.

Indian equities, thus far, have been in a sweet spot with FIIs being net buyers for the last three months.

In an interview with Moneycontrol’s Opening Bell show, Tandon said, while assessing the investment potential of the Chinese market, it is important to consider both the positive and negative aspects.

On one hand, the market appears relatively cheap, and recent rate cuts by the government and central bank suggest a positive outlook for the economy. However, the key question arises: Is it still an attractive investment option for foreign investors?

Changing paradigm

The paradigm in China has shifted significantly. It is no longer solely a capitalist economy operating within a communist framework. Instead, it has become a market where the government exercises greater control and discretion over income redistribution. This unpredictability creates a sense of uncertainty that looms over the entire market.

Additionally, the current geopolitical climate further dampens the appeal of China for US-based investors, he added.

He said while some money may still flow into China as a trend, it is unlikely to match the level it had previously enjoyed, and the investors are more likely to look for alternatives from moving out of China or at least reducing their exposure in the country.

Indian equities

Having said that, Tandon isn’t too optimistic about incremental flows to Indian equity markets, given the valuations. Explaining this, he said, the interest rate spread between India and the US is currently at one of the narrowest levels ever.

Although it may be argued that inflation in India has decreased, the calculation methods used for the consumer price index (CPI) may be biased. In reality, inflation in India remains relatively high for most people. Given this scenario, the interest rate differential does not provide a strong incentive for investors to shift their funds from dollars to India.

Nevertheless, with growing uncertainty around the US rate hikes, flows towards emerging markets would increase and India will attract its fair share, he concluded.