Modi met Xi in Tianjin to reset ties and discuss trade, flights, and border issues

Prime Minister Narendra Modi met Chinese President Xi Jinping in Tianjin on August 31, and the timing couldn’t have been more deliberate.

With Indian stocks underperforming and global funds pulling back, the diplomatic handshake between the two leaders signaled something larger than symbolic goodwill.

It came as part of a broader push that includes domestic tax cuts and central bank rate easing, offering new reasons for investors to reconsider their positions in India.

According to Bloomberg, the meeting focused on border issues, restarting direct flights, and growing trade, three areas where any progress could directly affect market sentiment.

As the U.S. under President Donald Trump continues to enforce 50% reciprocal tariffs on India, this new diplomatic tone with China is being read by market watchers as a possible shift in regional strategy.

The combination of improved China relations and internal economic stimulus is being interpreted by bulls as enough to neutralize Trump’s aggressive trade stance.

The year-to-date performance says a lot: the Nifty 50 has risen just 4.6%, while the MSCI Emerging Markets Index is up 19%. On top of that, global investors have pulled out $16 billion from Indian stocks this year alone.

India may benefit more than China from this new alignment

The imbalance in trade between the two countries remains massive. In the fiscal year ending March 2025, India exported $14.2 billion to China while importing $113.5 billion.

That gap gives India more to gain if trade flows improve. Analysts say this could create opportunities in manufacturing, energy tech, and capital inflows, three areas where China has scale and India has demand.

Jasmine Duan, senior investment strategist at RBC Wealth Management in Hong Kong, said, “Improved Sino-Indian relations may benefit the Indian stock market more significantly, as India is currently the one facing the 50% tariff hike. For Chinese stocks, the impact is likely to be indirect and marginal at best, making it difficult to drive a major market trend.”

Some fund managers are skeptical that anything real will come from this. Kunjal Gala, who manages $2.3 billion at Federated Hermes in London, said, “It’s too early to tell which sectors or industries will benefit, as no concrete policies have been announced.”

Gala warned that the effect on markets might be temporary unless actual trade reforms are put in place.

Still, others are paying attention to the broader shift. Pramod Gubbi, co-founder at Marcellus Investment Managers in Mumbai, said, “The decline in allocation to India in EM portfolios we have seen in recent months could be arrested or potentially reversed.”

He believes the effects of the tariffs may “get offset by this boost to Indian economic growth and eventual earnings recovery.”

Tax cuts and rate easing fuel more investor interest

Alongside the foreign policy reset, domestic economic support is also playing a role. Sanjay Malhotra, Governor of the Reserve Bank of India, confirmed that the central bank remains in a rate-cutting cycle. Since February, the RBI has lowered the benchmark rate by 100 basis points to stimulate sectors hit by tariffs and slowing demand.

In another action designed to support consumption, a panel of state and federal finance ministers approved cuts to goods and services tax on nearly 400 product categories. These items make up about 16% of India’s consumer-price basket. Following the announcement, shares in consumer-facing firms and carmakers moved higher.

Anna Wu, a cross-asset strategist at VanEck Associates in Sydney, tied the two developments together. “The warming of China-India ties can be a positive factor, while the tax cuts are also a structural tailwind for Indian equities,” she said.

Wu pointed out that India could benefit from forming a new economic axis with China and Russia in the face of Trump’s aggressive tariffs. “The China-Russia-India block is in formation now amid historic tariffs, and could help India to increase its resilience against US tariff aggression,” she said.

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