What is happening in China’s stock market? After soaring to near-historic highs this year, Chinese stocks dived from their peaks on June 12. The benchmark index has fallen 19 per cent from its June 12 high, after rising 125 per cent since October 2014. The rapid decline has sparked fears that Chinese stocks may be entering a long-term bear market.Investors who built sizeable bets on China with borrowed money are unwinding their positions as authorities tighten rules on margin financing, which involves using borrowed money to buy stocks. The MSCI’s decision to not include China A shares in its emerging market indices also resulted in global investors paring positions.Morgan Stanley, while slashing its target for Shanghai Composite by nearly 19 per cent to 3,250 by mid-2016, said, “This is probably not a dip to buy.” A survey by Bank of America-Merrill Lynch revealed that seven of 10 global investors agree that China’s equity market is in a bubble. Credit Suisse expects significant correction in Chinese’s stock markets and sees the current drop as the first stage of correction given that the market is still significantly up this year, leaving scope for major profit-taking.Indian stocks have managed to stay relatively resilient to the turmoil in Chinese stocks of late. While the Shanghai Composite has dropped 19 per cent since June 12, the Sensex has gained 5 per cent in the period. Some India optimists have argued that China’s recent pain may be India’s gain, but it will not be all that simple. With its own set of problems, the Sensex is still trading at 16 times 2015 estimated earnings compared with China’s 17 times. This may be no reason for foreign institutional investors to start lapping up domestic stocks aggressively. Investors are still waiting to see economic and corporate earnings' recovery before pumping fresh money into India.