From DeepSeek to BYD, China’s Equity Markets Rally Restricts Foreign Investments in India

Over the span of six months, Foreign Portfolio Investors (FPIs) have pulled out nearly $29 billion from the Indian equity markets, giving a huge blow to the market sentiments. On the other hand, China is making a roaring comeback, buoyed by the emergence of DeepSeek and BYD, which is, in turn, driving investors to splurge money in the Dragon.

Though the year began on a positive note, India lost its momentum amid slowing corporate earnings and a weak economic outlook, while China’s tech-fueled rally and aggressive stimulus push have turned the tables in their favour.

The Hang Seng Index surged by 36% since September, driven by a rally in tech stocks and renewed optimism in the Chinese economy. On the other hand, India’s benchmark indices have fallen by 13% from their record-highs, wiping out nearly $1 trillion in market value.

BYD’s role in attracting investors

Shares of BYD, China’s leading EV maker, have surged by over 40% in 2025, clocking a market cap of $165.7 billion. This has surpassed the combined valuation of India’s top five automakers. BYD’s rally can be attributed to the EV maker's ultra-fast charging technology, which can deliver 400 kilometers of range in just five minutes.

Drawing a stark contrast, India’s auto sector looks in poor shape. The market value of leading automakers including Maruti Suzuki, Tata Motors, and Mahindra & Mahindra has fallen by 6% this year to $151.5 billion.

“China is also outperforming year-to-date, which creates its own pressure on active managers,” noted Chris Wood, Global Head of Equity Strategy at Jefferies. Wood recently increased portfolio weightings in Chinese names including Alibaba, BYD, Tencent, and CATL, at the expense of Indian industrials.

DeepSeek’s entry

The global equities market went berserk when Chinese AI Startup DeepSeek introduced its R1 reasoning model, prompting a tech stock rally. The Hang Seng Index is up by over 35% in 2025, its best performance in more than three years.

Investors also found comfort in Chinese President Xi Jinping’s outreach to tech leaders and the absence of new U.S. sanctions. Now, China’s so-called “Terrific Ten” — including Tencent, Alibaba, Baidu, and BYD — are being pitched as credible challengers to the U.S. “Magnificent Seven,” offering global funds fresh avenues for growth at more reasonable valuations.

In USD terms, the MSCI China Index has moved up by 24% on a year-to-date basis, compared to MSCI AC World’s 0.3% decline.

India’s current growth outlook

As per the brokerage's data, India is set to report its slowest growing pace in four years. Corporate earnings have also taken a hit as Nifty 50 firms booked a profit of just 5% in the December quarter.

Bank of America’s Asia Fund Manager highlighted that China is the second-most preferred market after Japan. India now languishes in the ranks alongside Indonesia and South Korea.

Outlook on India

Though some strategists like Santosh Rao of Manhattan Venture Partners believe “foreign funds will ultimately return to India given its solid fundamentals,” most agree that the near-term picture remains subdued.

“The market is likely to move in a range in the near term without a sharp breakout or breakdown,” added Vijayakumar.

Notably, China’s pro-growth policies, AI breakthroughs, and EV dominance will continue to pose a tough challenge to India.