As China faces headwinds, India likely to benefit: SBI

India seems to be enjoying the TINA (There Is No Alternative) factor, as globally all countries are facing the churn and India seems to be the best placed jurisdiction in terms of growth and inflation outlook in FY23, according to a report by SBI Research.

"We share such optimism as China is also facing a bleak outlook on the back of a construction sector meltdown. In fact, we believe the China story may now be facing clear headwinds and India is likely to benefit from such stark realities over the longer term," says SBI group chief economic adviser Soumya Kanti Ghosh in the lender's Ecowrap report.

Home sales in China have fallen for 11 months in a row, according to official data. That is the longest slump since China created a private property market in the late 1990s.

Since the default by Evergrande Group, once hailed as the toast of Chinese infrastructure resurgence, the financial situation of the construction sector in China has steadily moved southwards. The debt default by the Evergrande group spread to other large and mid-tier construction companies. Bank loans to the real estate sector have dropped for the first time in 10 years.

The construction sector, which accounts for over 20% share in overall GDP, has been the primary engine of China's growth over the years.

The long-term trends in retail prices show that since 2016, prices have been steadily declining along the linear trend. In 2022, even the nominal price index has witnessed de-growth which is a worrying sign, Ghosh says, adding that the real price index growth has been in negative growth since December 2021.

Chinese demographers are now predicting that negative population growth in China will be the dominant trend in the coming years for a long time. The housing demand will eventually decline in the long run in China as seen in Japan.

India is likely to be the beneficiary as China slows down in terms of new investment intentions, says Ghosh. Global tech major Apple's recent decision to shift part production of its flagship iPhone 14 model for worldwide shipping from India, with a negligible time lag of a few weeks post its slated launch on September 7, bears testimony to such an optimism, he says.

The move by Apple, the most recognisable face of tech infused innovation in the last two centuries, that captures aspirations of an upwardly mobile population should open the floodgates for other major conglomerates to follow suit, he adds.

Even as China is grappling with a meltdown in the construction sector, housing unit sales in India in the first half of 2022 have reached the highest level since 2013.

Low interest rates and comparatively low home prices along with the renewed need for home ownership sparked by the pandemic, have been the primary drivers for this growth, says SBI Research. Growing by 60% year-on-year, the sale of 158,705 units during H1 2022, was 19% higher than the preceding period of H2 2021, the report says.

Equity and currency markets in India were quick to recoup some of the losses this year with portfolio inflows turning positive even though marginal at $30 million as on August 29. The overall foreign portfolio inflows stand at $7.6 billion since July 29, as against an outflow of $14.7 billion in FY23 prior to July 29, says SBI Research.