What key rate cuts in China mean for India

Easing of interest rates is expected to support China's property market, which is facing a slump in sales with developers burdened under piles of debt. Last year, a default on debt repayments by Evergrande and other major developers in the country had fuelled fears of a contagion effect sending the global economy into a crisis.

The country's central bank has taken out some cash from its banking system in a bid to revive credit demand.

The surprising policy action from the world's second largest economy comes at a time when investors around the world are already concerned about a global slowdown, following two back-to-back quarters of GDP contraction — also known as a technical recession — in the US.

China's central bank lowered its loan prime rate, a target for market rates, after a crackdown on debt caused a real estate slump in the country on account of pandemic-related lockdowns.

Analysts say China's rate action reflects the seriousness of weakness in its real estate market and sets the alarm bells ringing for major economies around the globe.

"China's surprise rate cuts when the rest of the world is hiking rates is a reflection of a sharp slowdown in the economy. The Chinese slowdown along with the sharp slowdown in Europe will impact global growth this year and this is bad news for markets," VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, told CNBCTV18.com.

But there's a silver lining. A prolonged crisis in China's realty market can aid inflows into emerging markets such as India.

Foreign portfolio investors remained net purchasers for 13 straight days in a buying spree that paused last week.

The inflows into Indian shares is among the primary boosts for Dalal Street, helping benchmark indices come within five percent of their all-time peaks in October 2021 after sliding to what experts refer to as one of the slowest bear markets of all time earlier this year.

Simply put, more of sustained buying by FPIs may augur well for the Indian market, though some say bouts of correction in the near term cannot be ruled out.

According to market veteran Nilesh Shah, some correction is on the cards for Indian equities given the worse-than-expected earnings season.

"We are at a stage where there is a need for consolidation and the next move of the market will depend on whether global uncertainty starts to recede or to increase,” Shah, Managing Director at Kotak AMC, told CNBC-TV18. 

China has a high credit-to-GDP ratio, which implies a higher participation of the banking sector in a country's real economy.

The real estate sectors of India and China are two opposite ends of the spectrum, Jitania Kandhari of Morgan Stanley told CNBC-TV18.

"The share of GDP from real estate and ancillary industries — this is work done academically — is 25 percent in China, a huge part of the economy. In India, depending on estimates, it's anywhere between 7-9 percent. The starting point in terms of the real estate contribution to both the absolute GDP and GDP growth is much more favourable," she said.

Besides, China's moves have triggered a decline across commodity prices after months of wild swings, in anticipation that the Chinese economy will need further stimulus to gain the lost momentum.

"The fall in commodity prices may aid India’s property market which has been battling with a rise in input costs, with these increases being eventually passed on to the buyers," said Prashant Thakur, Senior Director and Head-Research at ANAROCK Group.

"With China’s interest rates on a decline and with India increasing the same, higher investments may flow into our country, which may also benefit the property market," he told CNBCTV18.com.

Many experts believe India's property market is much better positioned compared with China's

Real estate prices in India have been flat over the past 10 years, Kandhari pointed out.

"In terms of the consumer, the affordability and the developer, Chinese developers are completely clogged. There's a lot of debt. It's sloshing around all over unseen," she added.