Uncertainty does not bode well for the share market. As February drew to a close, the Sensex registered one of its worst crashes in history owning to the domestic economic slowdown and amidst fears of the impact of the Coronavirus. The different sectors in share market have been affected in different ways due to the global panic.
The single biggest reason for the impact on India’s economy and its share market has been due to its high dependence on China for its imports and exports. India imported goods worth $52 billion and exported goods worth $13 billion from April-December 2019, a significant number in both the countries’ trade.
With China on lockdown to contain further spread of the virus, there are many implications for the different sectors of the share market in India. Let’s take a look at coronavirus’ impact on various sectors in share market.
A sizeable number of Indian pharmaceutical companies import the critical material needed for their products from China. Necessary chemicals, intermediates, and active pharmaceutical ingredients, essential starting materials come from China. The Hubei province in China, which is the hub of the Coronavirus, is one of the biggest centres for manufacturing active pharmaceutical ingredients. China’s lockdown means that up to 67% of the pharma companies raw material inventory may go unfulfilled if an alternative is not found. This can severely affect the supply of pharmaceutical products in India, which will, in turn, give rise to higher prices and cause a disturbance in the share market.
Goods like air conditioners and refrigerators require essential components like compressors which majorly come from China. The shutting down of compressor manufacturing units in China will affect the supply of these components to India, stalling the final production of these white goods. Companies selling these goods may face a loss and lose out in the share market.
Some of the biggest clients for IT service companies are travel and transportation entities such as airlines and hotels. With global travel being restricted and cautioned against, this sector is likely to take a hit, too.
India imports 10-30% of the needed automotive components from China. If China cannot resume the exports in the next few weeks, the whole assembly of some automobiles could stop. This may add to the current slowdown in the automobile industry and add to investor concerns.
Yet another significant import from China is that of chemicals and intermediates. Agrochemical users in India usually stock around 60 days-worth of raw materials. If the supply from China isn’t restored in the next 4-5 weeks, the Indian agrochemical industry may find itself falling short of production. Thankfully, Indian agrichemical stakeholders had reduced the reliance on China’s exports in the last couple of years due to their increasingly stringent environmental policies. This has relatively reduced the dependence on China, but it still is considerable enough to impact the sector if the supply isn’t resumed soon.
Oil and Gas
Downstream companies, companies engaging in refining, processing, and purifying oil and gas will be hit due to the weakened demand. This weakened demand is due to the reduced demand in the travel sector, which is seeing reduced east-west traffic and mobility.
China commands an enviable 40% of the global apparel exports. Since China’s shutdown of many of these textile plants fearing the spread of the virus, these exports have drastically reduced as well. Domestic Indian textile companies are leveraging this disruption in the supply chain and are likely to gain through stock prices.
Positives for Certain Indian Listed Companies
With the exports from China, reducing, listed companies with a ‘Make in India’ label is set to gain. Their reliance on raw material and manufacturing units set in India will help them meet the demand for products that were otherwise fulfilled by Chinese brands or brands dependent on China for their production. China’s restricted exports will prevent the blitz of the relatively inexpensive Chinese products, especially consumer goods, into the Indian market, providing an opportunity for domestic players to gain.
Indian chemical manufacturers could also potentially occupy the void left by Chinese chemical manufacturers in Indian markets. Although Indian producers may not be equipped enough to fill the gap, this will be a beginning, and market buyers will want to invest in these companies.
The paint and plastics industries are set to gain with the falling crude oil prices since oil is a primary raw material required in its production. As such, listed companies manufacturing paints or plastics are likely to gain more investors and better stock market standings.
The Final Word
Succumbing to fear in such an uncertain scenario is not uncommon for buyers and sellers in the share market. The Indian stock market is robust and opportunistic and has seen itself recover after similar instances during the Ebola and Swine flu outbreak of the past decade. As always, some sectors will financially benefit from the impact of the Coronavirus; some will stand to lose.
It is vital to monitor global market indices and incoming reliable news surrounding the cure and treatment for the Coronavirus to understand the potential ups and downs of the various sectors of the Indian share market.