Chindia Inc: trading places（315words）

by Lex,March 11, 2015 3:40 pm

Does India look too expensive versus China?

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Countries are not companies (unless they are Apple, considerably bigger on some measures than many sovereign states). But stripped to the basics, they have some similar characteristics. So if China and India were companies, what sort might they be?

China Corp, once a racy growth stock, attracted dollars eager to take part in its anticipated rise. Broadly, this panned out as expected — and, arguably, better. Up until this decade, China Corp tended to deliver positive profit warnings as GDP and fixed asset investment accelerated.

This phase is past. In recent years, GDP growth targets have been falling; profit warnings have turned negative. The latest forecast for this year is “about” 7 per cent, down from last year’s target of 7.5 per cent. And even that lower target may be missed. Yesterday, economic figures including retail sales, industrial production and fixed asset investment all came in uncomfortably below forecasts.

By contrast, India Inc is making a comeback after a disappointing decade. The country’s 1.3bn people, favourable demographics and under-developed economy make it the land of opportunity. We may have heard this before but a new chief executive (Narendra Modi, prime minister) has inspired new hope. GDP growth has been revised up, and has room to surprise if more restructuring occurs. Not everything is rosy — infrastructure is a challenge and reform is slow — but India Inc’s room to make small changes which have a large impact contrasts favourably with China Corp. The latter’s management seems flummoxed by the challenges to its model.

Maybe this is in the price. MSCI’s India index trades on 16 times next year’s earnings; China on nine times. India is forecast to grow by 17 per cent, with China at 13. Not such a vast difference in growth, perhaps, to warrant such valuation disparity. But in a world where growth is scarce, small differences are worth a lot. Upgrades are worth even more.