Due to the high valuation of the stock market, Bernstein has downgraded its rating on the Indian stock market from neutral to underweight. Meanwhile, the brokerage predicts further upside potential for the Chinese stock market under policy stimulus.

On Thursday, the Asian quantitative strategist Rupal Agarwal and Cheng Zhang from Bernstein and Societe Generale Bank group released a report stating that the Indian market's valuation is historically high compared to other emerging markets, making the market appear quite fragile in the short term.

At the same time, due to continuing outflows of capital from this market and expectations of weak returns, Bernstein has downgraded its rating on the Indian stock market. In contrast, with a series of bullish measures introduced in China, they have reiterated their 'tactically overweight' stance on China.

In late September, the Chinese stock market witnessed its largest scale increase since 2008, prompting funds to withdraw from other regions in Asia. This month, foreign funds have withdrawn over $5 billion from the Indian stock market, leading to a decrease of over 3% in benchmark indices.

Additionally, it is worth noting that last week, the global funds' net sales of Indian stocks hit a record high, marking the largest net sell-off of Indian stocks by global funds since January 1, 1999.

Goldman Sachs India trader Nikhilesh Kasi stated that when the Chinese stock market experiences 'intense' buying pressure, the Indian market becomes vulnerable, acknowledging the view that funds are flowing from India to China. He further explained:

"Based on the capital flow we observe, this trend is very clear."

Nevertheless, the Indian stock market remains one of the most highly valued markets globally. Bernstein pointed out in the report that the MSCI India Index's one-year forward P/E ratio is around 24 times, more than double that of the MSCI China Index.

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