Modi’s Surprising Rapprochement With Xi Could Spark a Rally in Indian Stocks

Indian Prime Minister Narendra Modi met Chinese President Xi Jlnping in Tianjin on August 31. The meeting was more than symbolic — it came at a time when Indian equities have been significantly underperforming global peers, with foreign investors pulling $16 billion from the market this year.

Indian Stocks Under Pressure The Nifty 50 has gained just 4.6% year-to-date, compared with a 19% rise in the MSCI Emerging Markets Index. Weak performance, capital outflows, and Donald Trump’s 50% reciprocal tariffs are pushing New Delhi to seek new economic partners. That’s why Modi’s diplomatic outreach to China is being read as a strategic shift aimed at calming investor nerves. According to Bloomberg, talks focused on restoring direct flights, addressing border disputes, and boosting trade — all issues with the potential to lift market sentiment.

India Could Benefit More Than China The trade balance between the two nations remains heavily skewed. In the fiscal year ending March 2025, India exported $14.2 billion to China while importing $113.5 billion. Analysts believe any thaw could deliver greater upside to India. Jasmine Duan of RBC Wealth Management in Hong Kong explained: “Improved Sino-Indian relations may significantly benefit Indian equities, since India is the one facing 50% tariff hikes. For Chinese stocks, the impact is likely to be marginal at best.”

Skeptics and Optimists Some fund managers caution that without concrete policies, market impact may be short-lived. Kunjal Gala of Federated Hermes said: “It’s too early to tell which sectors will benefit, as no specific measures have been announced.” Others, however, see a turning point. Pramod Gubbi of Marcellus Investment Managers in Mumbai noted that the recent decline in India’s weighting in emerging-market portfolios could soon stabilize or even reverse.

Domestic Stimulus Adds Fuel Beyond foreign policy, domestic measures are also lending support. The Reserve Bank of India has cut benchmark rates by 100 basis points since February to stimulate demand. Meanwhile, a panel of federal and state finance ministers approved cuts to the goods and services tax on nearly 400 categories, representing 16% of the consumer price basket. The move immediately boosted shares of consumer-focused companies and automakers. Anna Wu of VanEck Associates in Sydney tied both developments together: “The warming of China-India ties can be a positive catalyst, while the tax cuts act as a structural tailwind for Indian equities.” She added that India could gain resilience by aligning with China and Russia amid Trump’s tariff aggression: “The China-Russia-India axis is now forming against historic tariffs, and it may strengthen India’s economic defenses.”

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