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Distracted from real thing

Distracted from real thing

China bank’s stake in HDFC shouldn’t set alarm bells ringing. The Govt must be wary of the Chinese industry

Let us be honest, the collapse in the value of several top-notch companies over the past two months has meant that there are some very good value blue chip stocks available in the market. So, one should see the People’s Bank of China (PBoC)’s acquisition of one per cent stake in the country’s largest private home loan lender, HDFC, as a savvy move. In fact, the PBoC only acquired 0.2 per cent of HDFC this time round, to add to the 0.8 per cent it already held. PBoC, which manages the People’s Republic of China’s sovereign wealth fund, must have felt that the 40 per cent reduction in HDFC’s share price represented good value, just like ordinary punters, who are doubling down on blue chips right now. Shouldn’t India be worried about Chinese investments in Indian companies? Yes it should be but not in this particular case. Because China’s sovereign wealth fund isn’t the single-largest holder of financial assets to own a stake in HDFC. That would be Singapore with 3.3 per cent. In fact, the Abu Dhabi Government and the Norwegian Central bank hold larger stakes in HDFC than China. So China’s extra investment should actually be seen as a vote of confidence in Deepak Parekh, the promoter of HDFC, and in the Indian economy, once we emerge from the Coronavirus episode.

That said, there are some worrying trends about China that Indian policymakers should be wary of. The first is that there is a genuine fear among Indian manufacturers, large and small, that Chinese companies will use their head-start in opening from the lockdown to dump products on them. The Indian economy, particularly small and medium scale manufacturing, may take time, perhaps, till the end of the monsoon, to get back to normalcy. And while countervailing duties are anti-consumer, the Government should look long and hard at imposing such duties if for nothing else to protect manufacturing in the country. Then there is the other issue. Chinese firms have an overweight investment presence in several areas that are strategically important, such as in the financial services space with Jack Ma’s Alibaba Group being the largest shareholder in PayTM. Similarly, in educational technology and several other start-ups, India has allowed wanton investment by China. While Chinese money will bail out the world to a great extent after this incident, India is no exception. We should welcome those investments like the recent one in HDFC. But we have to protect industries and sectors, which are strategically important for India, from undue Chinese influence. This requires strategic thinking as well as an understanding of China, which is buying influence across the world. As the saying goes, there’s no free lunch.

(Courtesy: The Pioneer)

Distracted from real thing

Distracted from real thing

China bank’s stake in HDFC shouldn’t set alarm bells ringing. The Govt must be wary of the Chinese industry

Let us be honest, the collapse in the value of several top-notch companies over the past two months has meant that there are some very good value blue chip stocks available in the market. So, one should see the People’s Bank of China (PBoC)’s acquisition of one per cent stake in the country’s largest private home loan lender, HDFC, as a savvy move. In fact, the PBoC only acquired 0.2 per cent of HDFC this time round, to add to the 0.8 per cent it already held. PBoC, which manages the People’s Republic of China’s sovereign wealth fund, must have felt that the 40 per cent reduction in HDFC’s share price represented good value, just like ordinary punters, who are doubling down on blue chips right now. Shouldn’t India be worried about Chinese investments in Indian companies? Yes it should be but not in this particular case. Because China’s sovereign wealth fund isn’t the single-largest holder of financial assets to own a stake in HDFC. That would be Singapore with 3.3 per cent. In fact, the Abu Dhabi Government and the Norwegian Central bank hold larger stakes in HDFC than China. So China’s extra investment should actually be seen as a vote of confidence in Deepak Parekh, the promoter of HDFC, and in the Indian economy, once we emerge from the Coronavirus episode.

That said, there are some worrying trends about China that Indian policymakers should be wary of. The first is that there is a genuine fear among Indian manufacturers, large and small, that Chinese companies will use their head-start in opening from the lockdown to dump products on them. The Indian economy, particularly small and medium scale manufacturing, may take time, perhaps, till the end of the monsoon, to get back to normalcy. And while countervailing duties are anti-consumer, the Government should look long and hard at imposing such duties if for nothing else to protect manufacturing in the country. Then there is the other issue. Chinese firms have an overweight investment presence in several areas that are strategically important, such as in the financial services space with Jack Ma’s Alibaba Group being the largest shareholder in PayTM. Similarly, in educational technology and several other start-ups, India has allowed wanton investment by China. While Chinese money will bail out the world to a great extent after this incident, India is no exception. We should welcome those investments like the recent one in HDFC. But we have to protect industries and sectors, which are strategically important for India, from undue Chinese influence. This requires strategic thinking as well as an understanding of China, which is buying influence across the world. As the saying goes, there’s no free lunch.

(Courtesy: The Pioneer)

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