Impact of India-China Clash on Indian Stock Market
The simmering tension in the border between India and China is definitely concerning. However, what is even more concerning is, the impending economic fallout that might take place due to the souring relationship between these two countries. Even though the border escalation has whipped up a surging anti-China sentiment across India, there is no denying that the economic interdependence between these two countries is rooted too deep to ignore.
The United States of America and China are two of the largest trading partners of India. While exports to the US outnumber the imports from the country, the same can’t be said for China. That means the tighter controls on the Chinese imports can cause a supply chain disruption in many business sectors including pharmaceuticals, auto, consumer durables and telecom.
As the stock options tips suggest, the stock market will be the first one to get affected due to restrictions on Chinese imports. Read the following section of this article to know more about the tension between China and India, and how it can impact the stock market of our country significantly.
India’s Top Trading Partner
During the period between April 2019 and February of the current year, 11.8 per cent of India’s total import is acquired from China. Contrarily, India’s total export to China accounted for a mere 3%. That means compared to selling, we buy more from China.
This trade deficit with China is one of the major reasons for India’s total trade deficit as well. Not only that, but it is also one of the biggest trade deficits between the two countries across the world.
What The Market Experts are Saying?
The current India-China tension at the LAC is one of the incidents that deserve the alertness of the investors. The market experts, like Shyam Advisory, opine that the rift between these two neighbors can escalate and lead to market volatility.
However, the investors of the Indian market need to be more cautious, as the restrictions on the imports from China can significantly affect some of the industries. The market experts said that the day to day development might be tumultuous, but the investors should not get afraid of that. The traders should, however, remain alert about the changing conditions if they do not want to lose money.
The stock market is volatile by nature, and the trend of the market can change at the blink of an eye. That’s why the traders should remain extra vigilant during these shifty times. The tension between India and China has hit hard on the market sentiments. That is why the market is showing such volatile features. If the traders do not stay alert of the sentiment of the market, they can get affected the most.
The Effect of the Tension
Due to the ongoing pandemic, the bi-lateral trade has reduced drastically over the past few years. The rising cold vibes between the nations was yet another factor that contributed to this. After the spat in Galwan Valley, the Confederation of All India Traders (CAIT) released a list of 500 products that India used to import from China. This decision also impacted the stock market in a strange way. After the initial downward spiral, such positive steps from the CAIT and Indian government have helped the stock market of the country to shrug off the impact of the scuffle.
Compared to the trade, the foreign direct investments between the countries have not grown that much. However, over the last few years, China has successfully penetrated the online ecosystem with their smartphones and applications.
The venture investment sector has also seen significant Chinese investment in recent years. The financial experts have noted that Chinese tech investors have put about $4billion as an investment into the Indian start-ups.
Tiktok, the video application, had over 200 billion subscribers across India. In a rapid speed, it has overtaken the number of Youtube users in India. Alibaba, ByteDance, and Tencent are easily competing with Google, Facebook and Amazon in India.
The smartphone companies like Xiaomi and Oppo lead the Indian smartphone market with an astounding 72% share, leaving products of Apple and Samsung far behind.
Implications on the Markets
The supply chain of certain Indian sectors heavily relies on Chinese imports. With the economy of the country already struggling due to the pandemic, the tension between these two countries can cause operational as well as supply chain risks. While CAIT has promised to find Indian alternatives for Chinese products, market experts like the Shyam Advisory think that it would be expensive as well as tedious.
The Stocks That Had Been Affected Due to This Tension
As we have already discussed, some of the business sectors of India are heavily dependent on China when it comes to sourcing. Sectors like pharmaceuticals, chemicals, renewable power, telecoms, auto and consumer durables seem to be most dependent on China.
The reasons for the dependency of these sectors varies according to the sectors. While the consumer durable sector heavily relies on China for a different component, the Pharmaceutical businesses are dependent on API sourcing.
Telecom is dependent on China for the network equipment as well as the handsets. Chinese companies meet about 75% of the handset demands of India. The stock tips indicate that if the import curbs remain in place, the stocks of Bharti Airtel and Vodafone would be the two most affected companies of India.
In the chemical sector, the negative impact of the tension could be seen on stocks like Dhanuka, Sumitomo India, Rallis India and Insecticide India. Other companies like Coromandel, UPL, PI Industries and Bayer can see a somewhat mellowed down negative impact of the situation.
In the e-commerce sector, Info Edge will be one of the companies facing the biggest impact. Market experts say that the investors of Info Edge, like Policy Bazar and Zomato face heavy investment exposure from China. They should keep a close watch on the stocks.
If the restrictions stay, then these investee companies can land in jeopardy resulting in significant problems for Info Edge. Many e-commerce and tech start-up companies of India, like Snapdeal, Paytm, Swiggy, BigBasket, Byju, Ola etc. also get significant investment from different Chinese companies. The reports of the financial advisory companies, like Shyam Advisory, indicate that the tension will impact the stocks of these companies as well.
While this turbulent situation can cause problems for many, for some companies, this condition creates a golden opportunity. The startups of India are now facing a unique situation, thanks to the geopolitical tension between the two countries. They just have to rise to the occasion and build products that help India to become more self-dependent.
That means, the traders and investors should keep an eye on the smaller companies and their future plans. The chances are they will start producing the necessary equipment to meet the need of the huge market. Stock tips indicate that when that happens, the price of their stocks will go up giving the investors an opportunity to gain hugely.
The Stocks That Might Gain Due to This Turmoil
? Autos: As we have discussed earlier, the auto sector is largely dependent on Chinese imports for its parts. Given the situation, Motherson Sumi, Tata Motors and Bharat Forge will face the least impact as their business is highly diversified in nature. The financial advisors think that their global operations can also help them to skip the impact of this tension. The stock options tips note that the tyre industries have already seen multiple enhancements in anti-dumping duties. This has benefitted the tyre companies across India and will continue to do so in future.
? Consumer Durables: Crompton Greaves and Havels are two of the least affected companies as they have less exposure to Chinese investments. On the other hand, the stocks of Voltas would be most affected if the tariff hike sticks.
? Pharma: Most Indian pharma companies import about 60-70% of their key starting materials. So, the only handful of them will be able to skip the negative impact of the current situation. Among the precious few, the names of the Sun Pharma and Cipla should be mentioned. According to stock options tips, these companies are truly integrated and have the right exposure to the branded business, which most other companies lack.
? Telecom: As explained before, the stocks of Vodafone and Bharti Airtel would be the most impacted if the restrictions on the imports are imposed on the network equipment. Whereas Reliance Jio would face the least impact as it does not have any exposure to China in the network equipment sector.
? Chemical and Agro Chemical: While some companies like rallies, Insecticide India and Dhanuka will face the harsh impact of the current situation, the companies like Aarti Industries, Excel Industries, SRF, Bharat Rasayan would benefit from the current problem.
? E-Commerce: Companies, like Byju, Ola, Swiggy etc. that have significant investment from the Chinese companies can face a lot of troubles in the upcoming months. The traders should be wary while dealing with these stocks.
Implications on your Portfolio
As we have already mentioned, there is no looming or immediate danger to your portfolio if you are an investor. If the situation escalates and the stocks mentioned above take a hit, there would be other stocks in the market that would gain or at the very least remain unaffected. You just need to keep an eye on the behavior of the market and dynamically adjust the asset allocations accordingly.
All in all, the market experts think that if the problem persists, the market will get re-rated and behave accordingly. As long as the problems are in the hands of the army, the market will remain under control. The problem will only arise if the government has to move all three of its fighting forces. The stock tips of the experts are to stay wary of the current situations, especially about the mammoth rebound from the lows of the March.
The swings that the market is experiencing can continue in the coming months as well as we are mirroring the global markets. Right now, the stock market seems to have set aside the news coming from the border, and banking on the hope that liquidity will continue to prop the market.