Surging Indian internet stocks trounce China peers, widen gap

By Ashutosh Joshi

India’s consumer technology stocks are on a tear this year, handsomely beating their larger rivals in China and widening the divergence between two of the world’s largest equity markets.

An equal-weighted custom index of India’s five flagship Internet stocks including Paytm parent One 97 Communications Ltd and Zomato Ltd has risen more than 20 per cent in 2023, bolstered by the firms’ focus on profitability and a buzzing economy. That compares with a lackluster performance among China’s tech behemoths, whose share prices are languishing below their January highs.

Also Read | War of billionaires: Musk, Tata, Mittal & Amazon on one side, Ambani on other for satellite spectrum

India’s outperformance highlights a broader shift as global money managers look for opportunities outside China. While dwarfed in terms of market cap and revenue, Indian companies are luring investors given the the nation’s growth potential and favorable ties with the West. That’s as Chinese growth stocks lag a global tech boom amid geopolitical and regulatory risks.

“Investors are turning to India as it remains one of the best consumption stories in Asia,” according to Rajat Agarwal, Asia equity strategist at Societe Generale SA. India is still an under-penetrated market for digital tech and “there is definitely a long runway of growth ahead,” Agarwal said.

India’s consumer tech stocks are recovering after a weak 2022 when the Federal Reserve’s tightening and global recession worries crushed the still nascent sector. Given the renewed focus on profitability, One 97 Communications has gained nearly 60 per cent in 2023. Food delivery platform Zomato is up 26 per cent.

It’s a grimmer picture for China, where investors see little reason to be optimistic as the reopening boom sputters and tensions with the US remain high. A Hang Seng gauge of China tech stocks is down 6.2 per cent this year through Monday while JD.com Inc. and Meituan have lost at least a quarter of their market cap. More importantly, investors say the heydays of unfettered China tech growth are over as policymakers curb private-sector expansion.

	Market Cap (as of June 26)	Share Price Change (YTD)
China Tech
Alibaba	$220 Billion	-3.50%
Meituan	$99 Billion	-29%
Tencent	$408 Billion	4.90%
India Tech
Paytm	$6.5 Billion	58%
Zomato	$7.8 Billion	26%
Policybazaar	$3.8 Billion	56%

To be sure, the steep declines in Chinese stocks have made valuations attractive for some investors. Members of the Hang Seng Tech Index are trading at 21.4 times their forward earnings, below their three-year average of 29.2. Hopes for a turnaround remain on bets that the government will deploy new stimulus, while a string of stronger-than-expected sales data is also positive.

For India’s digital tech stocks, frothy valuations have been a concern since their debut. On Monday, Macquarie Group downgraded Paytm to neutral, citing regulatory and competition risks.

Also Read | Internet shutdowns cost India more in the first half of 2023 than they did in all of 2022: Report

“The Chinese internet sector remain significant undervalued in my view, despite improving earnings outlook. I see opportunity here,” said Jian Shi Cortesi, a fund manager at Zurich-based GAM Investment Management.

While the market cap of India’s equity exchange is barely one-third of China’s nearly $10 trillion stock market, the South Asian economy is riding on a boom like never before. Its population is now the world’s largest, equity benchmarks are at record highs, and global firms like Tesla Inc are mulling investment. All of that makes the case for India’s stocks to continue to shine, analysts say.

For Sol Ahn, a senior investment analyst at Mirae Asset Global Invest HK Ltd, internet firms in both countries offer attractive prospects. However, while the industry growth rate for Chinese tech companies may slow, Indian companies offer a promising outlook. “We have seen several online companies getting listed in India since 2021 and we expect to see more interesting investment opportunities with more companies getting listed in years to come,” she said.