Short Call | Will China's aggressive stimulus eclipse India's investment allure? Sapphire Foods, Ipca Labs in focus

The People's Bank of China rolled out its biggest stimulus package since the pandemic, aimed at reversing a deflationary spiral.

China's bold move to pull its economy out of a slump made waves across Asian markets on September 24. The People's Bank of China unveiled its most substantial stimulus package since the pandemic, designed to reverse a deflationary spiral. This package includes cuts to the reserve requirement ratio, interest rates, and mortgage relief for households—an aggressive attempt to reignite growth in the world's second-largest economy. But will it work?

While the bold measures have sparked a wave of optimism, analysts are raising eyebrows about their long-term effectiveness. Narendra Solanki, Head of Fundamental Research at Anand Rathi, dubs the stimulus a "short-term positive for domestic cyclicals, like metals," yet remains wary about its lasting impact on China's growth.

As China revs up its economic engine, investors may start hunting for bargains in its undervalued markets, potentially diverting flows from India. Sugandha Sachdeva, Founder of SS WealthStreet said, "Some investors may find better value in China, pulling capital from Indian markets, where valuations have become relatively stretched."

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Despite this backdrop, India continues to shine as a beacon for foreign investors due to its solid fundamentals. September alone saw Indian equities reel in FPI inflows of Rs 50,913 crores (as per NSDL), a testament to strong investor confidence.
The bottom line? While China's stimulus could stir the pot, India's growth narrative remains potent. As Sachdeva puts it, the capital shift isn't a sign of waning faith in India; it's all about the search for better value—a captivating balancing act between India and China, driven by evolving growth prospects, market dynamics, and valuation considerations.

Sapphire Foods India (372, +5.53%)

The KPC, Pizza Hut operator's stock surged to a fresh record high of Rs 401 after a large trade worth Rs 30.5 crore occurred in the counter

Bull Case: Sapphire Foods’ focus on expanding the KFC portfolio, addressing key price points, and improving operational efficiency with express pickup positions it well for growth. Strategic marketing, improved margins, and calibrated store expansion can boost same-store sales growth (SSSG) and profitability.

Bear Case: Weak consumption demand, heightened competition in the chicken QSR segment, and rising inflation in key raw materials may pressure Sapphire Foods' margins. The uncertain macro environment and lower discretionary spending could challenge the company’s growth trajectory in the short term.

Also Read | India set to be among fastest-growing economies until 2030: Goldman Sachs

IPCA Labs (Rs 1,480, +2%)

Shares rose after Nomura raised its price target for the stock, forecasting a 20 percent upside.

Bull case: US revenues including from Unichem and Bayshore can scale to $200 million in the near-term with new launches and tender wins. Consistent outperformance in the domestic market over industry. Also, the scope for improvement in other business segments in the near to medium term further ushers bullishness, according to Nomura.

Bear case: Any regulatory struggles at its Dewas facilities can derail plans of a revival of its API business. Capex likely to swell up to Rs 500 crore in FY25/26. Higher than estimated cost of expansion and execution risks are key monitorables.

(With inputs from Harshita and Vaibhavi)