China buys 1% stake of HDFC, Results in Downfall of HDFC Share Price

As COVID-19 takes over the world, the world economy is in crisis and on the verge of being collapsing. Indian Economy is safe from Covid19 crisis, “India will see it’s per capita income rise at above the 4% level in 2020” said the UN report, it also forecasted that Indian growth can get a 5% boost for current fiscal.

While India and China are safe from the worldwide economic crisis and may have positive growth in the next quarters. China plays a treacherous part in this crisis by buying Indian financial assets and flooding Indian share market with China-backed funds after the COVID-19 outbreak caused a major slump in the valuation of local companies reported by ET (Economic times).

According to the shareholding disclosures for the March quarter, China’s central bank has bought 1.01 per cent stake in HDFC, it held 1.75 crore shares of India’s biggest housing mortgage lender as in March Quarter. It resulted in 40% fall in HDFC shares this year.
The price of shares fell from ₹2,493 to ₹1,499.

How would it affect India?

HDFC owns 19.43 per cent stake in HDFC Bank and 51.45 per cent in HDF Life Insurance Company and 52.7 per cent in HDFC Asset Management Company. HDFC Bank owns a 96 per cent stake in HDB Financial services and 98 per cent in HDFC Securities.

The world’s second-largest economy is rapidly expanding its economic footprint, especially in Africa and South Asia. Of course, when China buys shares anywhere in the world, alarm bells start ringing and raises red flag.

China’s already-weak banking sector is bracing for a further setback from the coronavirus-led crash.
Chinese investors have been scouting for attractive investments and HDFC, India’s biggest private mortgage lender, is among the safest bets.
“One of the most vivid examples of China’s ambitious use of loans and aid to gain influence around the world” stated The New York Times.

India has reason to be worried because China is investing heavily in infrastructure projects in our neighbourhood, as part of its Belt and Road Initiative. Pakistan alone will get investments worth $60 billion to build the China-Pakistan Economic Corridor and $5.8 billion for building Gilgit-Baltistan Dam.

Sri Lanka has got billions of dollars of Chinese investments since the early 2000s.

India took the initiative to save its economy from being further exploited by making changes in India’s FDI(Foreign Direct Investment) policy. The central government has now revised FDI policy, “with respect to the revised FDI policy, investments from China will now require a clearance from the Centre”.

The amendment to the FDI policy done by Central Government states, “A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, an entity of a country, which shares a land border with India or where the beneficial owner of investment into India is situated in or is a citizen of any such country, can invest only under the Government route.”

In addition, the Centre has blocked the indirect acquisition of investments by entities based in China. Now, change in ownership of the investment will also have to be cleared by the Union government.

Interestingly, the central government opted to use “country which shares a land border with India” refrained from naming China in the amended policy of FDI. Pakistan and Bangladesh based investors are already covered under the same rule.

Not just the Chinese, even the state-controlled Temasek in Singapore and the sovereign fund from Saudi Arabia have a stake in HDFC(India), said Chairman Deepak Parekh.

However, if an investor’s stake crosses 1 per cent only then companies need to disclose shareholding changes to the exchanges at the end of every quarter. Thus, it is not known yet whether the Chinese central bank bought all the shares between January and March.

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