India's Consumer Tech Stocks Outperform China's In 2023

India's consumer technology stocks have outperformed their larger counterparts in China this year, leading to a widening gap between two of the world's biggest equity markets.

A custom index of India's five flagship internet stocks, including One 97 Communications Ltd. and Zomato Ltd., has risen by over 20% in 2023. Reportedly, this is due to the companies' focus on profitability and a thriving economy.

In contrast, China's tech giants have had a lacklustre performance, with their share prices remaining below their January highs.

India's outperformance is part of a broader trend as global fund managers seek investment opportunities outside of China. Despite being smaller in terms of market capitalisation and revenue, Indian companies are attracting investors due to the country's growth potential and favourable relations with the West.

Meanwhile, Chinese growth stocks are lagging behind the global tech boom due to geopolitical and regulatory risks.

According to Rajat Agarwal, Asia equity strategist at Societe Generale SA, "Investors are turning to India as it remains one of the best consumption stories in Asia." India's digital tech market is still under-penetrated, and there is a long runway of growth ahead.

India's consumer tech stocks are bouncing back from a weak 2022, which saw the sector crushed by the Federal Reserve's tightening and global recession concerns. One 97 Communications has gained almost 60% in 2023, while food delivery platform Zomato is up 26%, thanks to the renewed focus on profitability.

Investors in China, however, are less optimistic, with the reopening boom stuttering and tensions with the US remaining high. The Hang Seng gauge of China tech stocks is down 6.2% this year, and JD.com Inc. and Meituan have lost at least a quarter of their market cap.

Investors believe that the heydays of unfettered China tech growth are over as policymakers curb private-sector expansion.

Although 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.

The Indian economy is experiencing an unprecedented boom. With the world's largest population, record-high equity benchmarks, and global firms like Tesla Inc. considering investment, analysts believe that India's stocks will continue to shine.