Imports from China at risk, but some firms may benefit, says CLSA

At a time when the global economy and financial markets are grappling with the spreading coronavirus, analysts believe India could stand to benefit over the longer term as companies look at setting up alternative manufacturing base than China. In the short-term, however, there could be some supply-chain disruptions.

In their latest report, analysts at CLSA have pegged the total Indian imports from China in financial year 2018-19 (FY19) at $70.4 billion. A deep-dive in this import basket from China suggests Indian pharma, chemicals and electronic companies could see a disruption in supply chain in case of a prolonged issue with production activity in China. That apart, commodity plays, i.e. metals, and upstream and downstream oil companies, will witness the impact of lower global demand impacting commodity prices, wrote Shaun Cochran, global head of research at CLSA in a co-authored note with Vikash Kumar Jain, an analyst at the firm.

Dixon Technologies, Havells India, Voltas and Cipla are some of the Indian companies that could face issues over the next few months in case the coronavirus threat does not subside, CLSA says. On the other hand, any shift in global supply away from China, it believes, could see some beneficiaries in India like garment and textile exporters which could see busier order books in the short-term.

“Indian electronics and white-goods manufacturers rely heavily on Chinese supplies for television panels, LED chips, compressors for refrigerators and air-conditioners, and motors. There has been a disruption in the supply chain with regards to these critical components for Indian brands. Prices of these products have increased by 5-10 per cent and could increase further if the supply disruption is prolonged,” the CLSA note says.

That said, most analysts have already started to trim global growth (GDP) forecast for 2020 in this backdrop. Global GDP, according UBS for instance, could to 0.7 per cent in the January 2020 quarter (Q1-2020) from 3.2 per cent in the December 2019 quarter (Q4-2019). Though UBS expects growth to rebound in the April – June 2020 quarter, the impact could slow the overall 2020 GDP growth by 20 basis points (bps) to 2.9 per cent.

Stock market impact

CLSA, however, believes the impact of coronavirus (nCoV) on the stock market is unlikely to come from a domestic consumption slowdown, but from China supply-chain linkages and global demand slowdown fears. India stocks, they believe, could outperform if the impact of the virus is extended. 

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“With little evidence of people overly concerned about the coronavirus outbreak, we do not expect it to be a factor that would exacerbate already-weak consumption demand in India. If the impact on the global economy continues for a longer duration, India could possibly be a beneficiary of positive flows since it appears to be the least impacted market. Nonetheless, parts of the stock market are linked to the global economy and have supply chains in China, which could pose some concern,” the CLSA note says.


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