#Indo-China
Trade War
A
recent clash between Indian and Chinese soldiers at Galwan Valley on 15th
June 2020, resulting in the martyrdom of 20 Indian soldiers, has stirred up a
storm in India-China trade relations. As an immediate measure after the
conflict, the government of India banned total 59 Chinese Apps. Some of the most
popular Apps banned were #TikTok, #Shareit, #Club_Factory, #WeChat, #Clash_of_Kings,
and #Cam_Scanner among others.
In
the near future, the #Indo-China conflict only seems to be widened. With both
sides buckling up to impose trade sanctions on one another, economies are going
to be affected. Let’s first understand the Indo-Chinese trade relationship
before assessing the prospects of a trade war of a full scaled war.
Basics of Indo-China Trade
India
– China trade relations are too deeply rooted into the economy of India than on
the China side. It is so because – China is the largest trade partner of India,
also India imports more from China than it exports to it; something in trading
terms called as having a ‘trade deficit’ with China.
Moreover,
if we look at the data of past 10 years, India’s trade deficit with #China has
almost doubled. This means that, in the past 10 years the import of Chinese
goods to India has doubled while the exports of goods to China has largely
remained unaltered. As on February 2020 China accounted for 11% of total Indian
imports, while its share in Indian exports was only 3%. Also, as on February
2020, India trade deficit was $9.8 billion.
India’s
primary export to China includes organic chemicals, plastic items, cotton,
mineral fuels, slag, natural pearls, fish, iron, and steel etc. In the FY 19-20
India exported goods worth $16.6 billion to China.
On
the other hand, #India imported goods worth $62.4 billion from China in the FY
19-20. The imports from China include significant #machineries and #telecom
equipments – mobile phones, telecom equipments, #toys, #automobile parts, #heavy_electrical_machines,
fertilizers, foods, pharmaceutical ingredients, textiles etc.
To
sum it up – in case of a full scaled war with China, Indian economy will be
more adversely affected that that of the China. Unless of course if we take
some serious measures towards self reliance, but it wouldn’t be as easy as it
sounds.
Stocks Likely to be affected by
Indo-China War
Any
escalation of border dispute between India and China would impact Indian
Pharmaceutical firms, consumer durables, telecom, power, and automobile
industry etc.
Indian
pharmaceutical industry currently imports around 70% Active #Pharmaceutical
Ingredients from China, so in case of a war it is likely to be impacted.
Similarly,
India automobile industry imports huge amounts of spare parts, engines, etc
from Chinese manufacturers. Also, the influence of China on Indian mobile phone
industry needs no explanation. Chinese companies have a 60% share in Indian
mobile phone market. India imports around Rs 7000 to Rs 8000 Crore worth of
mobile phone components every month from China.
So,
the bottom line is that the mentioned companies and their stocks will be most
affected in case of an Indo-China war. Let’s get into a little more detailed
analysis of company wise stocks.
Sector Wise Analysis of Stocks
Let’s
do a brief sector wise analysis of Indian companies least affected and most
affected by an Indo-china war.
·
#Automobile Industry
Although, Indian automobile giants like #TataMotors, #Mahindra&Mahindra,
#MothersonSumi, and #BharatForge ETC. import a good deal of spare parts from
China, a war is going to have a negative impact on their supply chain. However,
they would be least affected given to their diversified business and global
presence.
·
#Consumer_Durables
Industry
Indian consumer durable companies listed in NSE/BSE are #Bajaj_Electricals_Ltd,
#Crompton_Greaves Consumer electric Ltd, #Blue_Star Ltd, #Godrej & #Boyce Manufacturing
Company Ltd, etc are least likely to be affected. 95% of equipments sold in
India are manufactured locally. Moreover, the companies have already started
looking for local part manufacturers in wake of supply chain disruption due to
COVID-19.
·
#Pharmaceutical Sector
Indian pharmaceutical industry depends around 60-70% on
imports of Active Pharmaceutical Ingredients from China. However, big names
like #Sun_Pharma and #Cipla would be least affected because they are mostly
self reliant and don’t rely much on imports from China.
·
#Telecom Sector
Some of the big names in the Indian Telecom Sector like #Bharti_Airtel
and #Idea_Vodafone are likely to be most affected by Indo China rift escalation
as they depend hugely on imports from China. However, Indian telecom giant
Reliance Jio is least likely to be affected because it doesn’t depend on China
for network equipments.
·
#Chemical and #Agro_Chemical
Sector
Some of the most impacted stocks in this sector would be of
the companies – #Dhanuka, #Insecticide_India, #Rallis, etc. However, companies
like #Bayer_India and #Coromandel would be least affected. On the positive
side, there would be some likely gainers as well – #Aarti_Industries and #Bharat_Rasayan,
etc.
·
#E-commerce Sector
Companies in the sector with maximum Chinese investment will
be most impacted. Such companies include #Paytm, #Zomato, #Info_Edge, #Snap_Deal,
#Ola, #Swiggy, etc.
The Positive Side of the War
The
escalation could be an opportunity for Indian startups to come up and expand
their reach in the domestic market. With the government of India reiterating its
commitment to making India self reliant, there is some hope for domestic
manufacturers. As for now the future seems bright. If the dream of self
reliance is completed then we will have local products manufacturers instead of
importing them from China.
*Investment in securities market is subject to market risk.
* Mr. Vinay Prakash Tiwari is a SEBI Registered investment Advisor
Investing Daddy
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