After beating Hong Kong to win the crown of the world’s fourth-largest stock market, India has now beaten China’s Special Administrative Region in terms of trading volumes as well. Stock trading volumes in both BSE and NSE have surged to a one-month average of $16.5 billion per day higher than Hong Kong’s average of $13.1 billion a day.

“We think in some ways this reflects the prevailing consensus narrative toward India and HK/China stocks. Speaking to investors, we sense there is almost a consensus structurally positive view on the Indian stocks (although valuations are widely cited as a stumbling block). However, in contrast, we sense that investors’ appetite for HK/China stocks remains quite low,” said Nomura’s Chetan Seth.

Market data shows that while trading volumes in Hong Kong have been falling, India has seen a sharp surge – particularly in the last 2-3 months.

“This is likely on the back of the Fed’s pivot (and a rally in global stocks) and positive state elections results. Separate data shows that this surge has been driven by increasing non-institutional trading participation,” he said.

With ‘Buy India, Sell China’ being the strategy of many emerging market investors, India’s Sensex has jumped about 17% in the last year, while Hong Kong’s Hang Seng is down about 27%.

Last month, India overtook Hong Kong as the world’s fourth-largest hub of equities.”A significant shift is occurring as investors withdraw billions from China’s slowing economy, once seen as a major growth engine. India and China closely observe the differing paths: On one hand, India, the fastest-growing major economy is expanding its infrastructure to attract global investment, while China faces economic challenges and a growing divide with the Western-led order,” Wodehouse Capital Advisors said.In some ways, the recent exponential rise in trading values in India is also a concern, from a contrarian perspective. “Thus, we do not rule out an “air pocket” for India stocks,” Nomura said, while highlighting economic slowdown, tightening banking liquidity, profit-booking ahead of Lok Sabha elections, and stretched valuations as risks.

Another threat is the possibility of some reallocation of flows back to other large Asia ex-Japan markets like Korea (on expectations of the push towards greater corporate governance reforms on of its Value-up program) and China (only tactically, in anticipation of more forceful measures from authorities to stem the rout in stocks and the closing of large underweight positions), the brokerage said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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