In the last three years, it is estimated that Chinese companies have returned around RMB2 trillion ($369 billion) back to shareholders through buybacks and dividends, with this number expected to grow to over RMB3 trillion in 2024.
While Asia has broadly been a region where companies provide higher levels of dividend payouts, Nayar notes that Chinese companies have historically been perceived to be at the lower end.
To this end, Nayar remains on the lookout for Chinese companies that are providing higher dividend payouts as well as trading below their intrinsic value.
Further to his report, Nayar notes that Indian stocks have risen “inexorably” over the last four years but have drifted lower since September, seemingly denting confidence.
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According to Nayar, geopolitical tensions, China’s stimulus measures, a stronger US Dollar and weaker 2Q2024 earnings have contributed to falling markets and foreign investors being net sellers of US$14.5 billion ($19.5 billion) since early October.
Bharatiya Janata Party’s (BJP) comfortable election victory in Maharashtra, which was initially predicted to be a narrow win, provides further comfort of greater political stability.
As large state elections are over, the market perceives that a BJP-led government can implement reforms and increase government spending on capital projects, which have been in a “lull” for the past six to nine months, Nayar notes.
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However, a rise of income transfer schemes, alongside a more accommodative government approach, could stimulate credit, consumption and job creation, particularly as GDP remains sluggish heading into December.
Nayar sees the recent market correction as a “healthy pause”, reflecting the near-term slowdown. This is partly due to regulatory driven credit contraction, which is likely to help reduce market risks in the long term.
As such, Nayar remains “structurally positive” on Indian equities.
