The dive in Chinese markets on Wednesday may have rattled investors across the globe, but prospectors in India need not panic: any trickle down impact of the crisis on the South Asian nation will be limited to certain sectors.
The Shanghai Composite index has lost around a third of its value over the past month and concern is growing that Beijing’s failure to prop up its equity markets means it will be unable to push through its broader agenda of liberalizing the economy to mitigate the country’s slowing growth.
India’s metals companies are likely to be affected the most as China is the world’s biggest importer of steel and iron ore. Any further slowdown in China’s economy will bring down global prices, hurting Indian firms’ profitability.
Meanwhile, luxury-car manufacturers are also likely to take a hit. Tata Motors 500570.BY +1.62%’ share price has already lost about 8% in the past two trading sessions on concerns that the problems in China could further worsen the slowdown in demand for its Jaguar Land Rover luxury cars there, which is now the single-largest market for JLR.
But long-term effects are expected to be minimal. India’s benchmark S&P BSE Sensex index has gained about 5% during the past month.
Though India’s benchmark index fell 1.7% yesterday, analysts and fund managers attribute it to a domino effect from China that won’t last. India’s improving domestic fundamentals are capable of thwarting a similar meltdown.
“India is relatively better off among the emerging markets as we don’t have too many negatives compared to other countries,” said Deven Choksey, managing director of Mumbai-based brokerage K.R. Choksey Shares and Securities.
He said investors will give preference to the ongoing reform process in India and key legislation such as the Land Acquisition Bill and the Goods and Services Tax Bill, rather than global events.
Analysts said upcoming corporate earnings will also matter more to Indian stock prices than the Chinese turmoil. Though corporate earnings are expected to take some time to improve, analysts are confident that a sharp recovery in profits is likely from the second half of this financial year. The January-March period was the worst earnings season in the past two years.
“Both (China and India) can’t be compared and, in fact, the developments in China will only serve to reinforce confidence in India and India’s market structure,” said Aashish Somaiyaa, chief executive of Motilal Oswal Asset Management Co.
In fact, foreign investors, who own about 43% of the publicly-traded shares of companies in the Sensex, have invested about $600 million already in July, after pulling out nearly $1.8 billion in the previous two months.
And domestic investors have not lost faith in the Indian story as they have poured in nearly $2.4 billion into stocks since May.
“Whenever there is a correction in [the] Indian market, we are getting more enquiries,” said Nandkumar Surti, chief executive of J.P. Morgan Asset Management India Pvt. Ltd.
via How India Could Be Hit by Chinese Stock Slide – India Real Time – WSJ.
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