Prime Minister Narendra Modi’s recent handshake with Chinese President Xi Jinping is boosting optimism that Indian equities could finally narrow the gap with their emerging-market peers, Bloomberg reported.
The symbolic meeting in Tianjin on August 31, where both leaders pledged to act as partners rather than rivals, coincided with fresh domestic tax cuts and the prospect of further interest-rate cuts by the Reserve Bank of India, creating a positive backdrop for investors. Discussions covered border tensions, resumption of direct flights, and expanded trade links between the two nations.
“Improving trade links with China, combined with domestic policy support, could arrest or even reverse the decline in India’s allocation within emerging-market portfolios,” said Pramod Gubbi, co-founder of Marcellus Investment Managers in Mumbai, according to Bloomberg. He added that concerns over U.S. tariffs may be offset by the boost to India’s economic growth and eventual earnings recovery.
Indian equities have underperformed global peers this year. The Nifty 50 index has gained just 4.6% in 2025, trailing the 19% rise in the MSCI emerging-markets index, as global funds withdrew a net $16 billion from Indian shares amid U.S. tariffs and weak earnings.
Analysts see several potential benefits from the thaw in India-China relations, including increased investment inflows, access to Chinese manufacturing know-how, and engagement in China’s clean-energy supply chains. RBC Wealth Management Asia’s Jasmine Duan noted that India may benefit more than China due to the 50% U.S. tariff hike on Indian exports, while the impact on Chinese equities is expected to be limited.
Policy support at home is also strengthening investor sentiment. The Reserve Bank of India has cut its benchmark rate by 100 basis points since February to support growth, and a recent panel of federal and state finance ministers approved cuts to goods and services taxes on nearly 400 product categories, covering around 16% of the consumer-price basket. Shares in consumer firms and carmakers rallied following the announcement.
However, some remain cautious. Kunjal Gala, head of global emerging markets at Federated Hermes Ltd., told Bloomberg that details of concrete steps from the Modi-Xi meeting remain limited, suggesting any positive market impact may be short-lived.
Despite the uncertainties, market watchers see the combination of improved Sino-Indian relations, domestic tax cuts, and potential central bank easing as a structural tailwind for Indian equities, offering a rare boost amid ongoing U.S.-China trade tensions.
