The market may not have anticipated: This year, China's stock profit growth may exceed that of India!

Will China's stock profit growth rate in 2024 be faster than India's? HSBC: It's possible!

On Wednesday, October 30, Herald van der Linde, Head of Asia Pacific Equity Strategy at HSBC, and his team released a report stating: Recent economic data from India has been disappointing, with a slowdown trend prevalent across various industries. In contrast, after economic policy stimulus, some sectors in China are beginning to show signs of accelerated growth, with a recovery in real estate transactions and over 20 listed companies conducting stock buybacks... Additionally, local provinces have started issuing special bonds to release funds into the real economy, driving economic development.

According to Factset data, the market originally expected Indian stock profits to grow by 16% in 2024, but this expectation has been repeatedly downgraded, while the market initially anticipated a 15% growth rate for Chinese stock profits, which has now been upgraded.

India's profit growth seems to be losing momentum

In recent years, the market seems to have become accustomed to the high profit growth of the Indian stock market—since 2020, the annualized growth rate of earnings per share in India has reached 25%.

However, HSBC stated that India's profit growth seems to be losing momentum.

Recently, macro indicators in India, such as PMI and Goods and Services Tax data, have been disappointing. After a weak second-quarter earnings season, the third-quarter earnings season has also started poorly.

Moreover, India's earnings per share growth has mainly benefited from small-cap and mid-cap stocks. The market expects that the stock profit growth of Indian small-cap and mid-cap stocks can reach 30% this year, while large-cap stocks are only expected to grow by 12%—a significant departure from the trends of the past three years. Currently, the market has not only downgraded the growth target for the Indian stock market in 2024 but has also lowered expectations for 2025.

HSBC pointed out that although India's economic growth is more diversified than in other parts of Asia, the trend of a slowing stock market is not limited to a few stocks but is widespread across various industries.

As the largest weighted bank stocks among listed companies, Indian banks are suffering from reduced interest profits—more and more Indian households are putting their savings into stocks rather than bank deposits, leading to increasingly fierce competition for deposits among banks.

India's second-largest sector, the technology industry, is also experiencing weak growth due to slow recovery in overseas demand and a slowdown in urban consumer demand. However, rural demand may recover in the coming months, but its contribution to the stock market is relatively small.

China: Signs of accelerated growth in some sectors

Since 2020, the average annual growth of stock profits in China has been 6%. In the first half of this year, earnings per share grew by 5% year-on-year, mainly from large internet companies. From the data, it appears that the growth of the Chinese stock market has been slower than that of India in recent years However, after the recent implementation of a series of policies to stimulate economic growth, HSBC believes that certain sectors of the Chinese economy are beginning to show signs of accelerated growth. For example, China's technology and consumer goods industries are experiencing stable growth, which is driving upward revisions in profit forecasts for the Chinese stock market.

The market has high hopes for China's economic stimulus measures, and HSBC stated that some recent phenomena are favorable for the Chinese stock market:

First, real estate transaction activities and volumes are gaining momentum. HSBC's real estate team is optimistic about China's real estate sales in the fourth quarter, believing that sales will continue to benefit from policy support.

Second, local provinces in China have begun issuing special bonds, thereby releasing funds into the real economy to promote economic development.

Finally, more than 20 listed companies in China have chosen to apply for loans under stock refinancing plans to conduct stock buybacks—Chinese companies are repurchasing shares, while Indian companies are actively issuing additional shares, leading to the dilution of earnings per share.

Currently, investors are still waiting for further details on the fiscal stimulus plan, but sell-side analysts have already begun to raise growth expectations.