India vs China stock market, FII return: China and Hong Kong stocks fell sharply on Friday. Its blue-chip CSI300 and Shanghai Composite index saw the biggest intraday decline since October 9. This was attributed to low earnings estimates of major tech companies and concerns over US President-elect Donald Trump's future policies towards China. Where the Shanghai Composite Index fell 3.06% to close at 3,267.19. The CSI300 index fell 3.1%.

Why are Chinese stocks crashing? Two reasons

1. Concerns about the potential impact of Donald Trump's election win on the economy and disappointing earnings reports from companies led to further selling.

2. PDD and Baidu, considered indicators of consumer demand, reported lower revenue. AI giant Baidu's sales fell the most in two years, while online shopping platform PDD's profits fell, according to Bloomberg.

What is the 'Sell India, Buy China' trade strategy?

Recently, the ' Sell India buy China ' business strategy has been in the news amid reports of stimulus from China. The Chinese government implemented several stimulus measures to boost economic growth, including spending on infrastructure, tax cuts, and monetary policy easing. In contrast, India suffered several poor quarterly results. Due to this, FIIs started reducing their stake in Indian equities and increasing their investment in Chinese stocks.

FII exodus: Selling worth Rs 15,5730 crore

Dr VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services said, "The FIIs continued to sell equities till November 22. After selling equities worth Rs 1,13,858 crore through exchanges in October, FIIs have sold equities worth Rs 41,872 crore through exchanges till November 22. However, he added that the trend of FIIs buying through primary markets also continued and there was a purchase of Rs 15,339 crore till November 22."

This means that the total FII selling through the exchanges from October 1 to November 23 was Rs 15,5730 crore. Vijaykumar said that this is the kind of selling that happens in the year when FIIs are in a selling mood.

Does this mean that FIIs will return to India?

Citing the above reasons, FII selling in India is likely to taper off soon, Vijayakumar said. Valuations of large-cap companies in India have come down from highs, he added. "FIIs are buying IT stocks and this is providing resilience to IT stocks."

The investment strategist said that despite FII selling, banking stocks remained firm, mainly due to DII buying.

Why are FIIs moving out of India?

According to Vijayakumar, there are three main reasons behind the massive sell-off by FIIs in India. First, the 'sell India, buy China' trade.

Second, concerns over FY25 earnings. Third, the 'Trump trade'. Of these, the 'sell India, buy China' trade has fizzled out, and the Trump trade also seems to be losing momentum as valuations in the US have reached high levels.