The outbreak of ‘Coronavirus’ in China has got the investors worried across the globe. The economic impact of Covid-19 or Novel Coronavirus to the world equity markets will be bigger than that of SARS in 2003, which did not impact the world economy.
China is the focal point, and the role of the Chinese economy in providing incremental growth to the world economy cannot be ruled out. Hence, any slowdown in China is likely to impact companies across the globe both negatively and positively.
“During the period, the pie (share) of the Chinese economy (in the world economic growth) has grown 4 times to 16.3% from 4.2% of the world economy. If the situation takes longer to stabilize, the impact on the world economy will be higher,” Vinod Nair, Head of Research, Geojit Financial Services said in a report.
“The trade between India & China has also grown in the same period to USD 87 billion in FY19, imports being the major component. It will have some positives and negatives for India in the short to medium-term,” he said.
India imports large amounts of raw materials & semi-finished goods for sectors like auto, pharma (APIs), consumer durables and electronics. Costs are likely to increase which will also impact profitability.
Revenue and exports to China are limited to sectors like Agriculture, Auto, Aquaculture and Engineering.
Stocks that are likely to get impacted positively include companies that are in the electronic equipment, organic chemicals, fertilizers and plastics space that are top import areas from China, and are going to get the benefit from the fall in imports from China.
Eight stocks that are likely to benefit from the outbreak of Coronavirus are Dixon Technologies, PI Industries, Supreme Industries, Aarti Industries, UPL, KPR Mills, Asian Paints and Tata Steel, experts say.
Stocks that are likely to get impacted negatively from the Coronavirus outbreak are Tata Motors, Motherson Sumi, Havells India, Sun Pharma, and PI Industries, according to Geojit Financial Services report.
“The world wants to diversify its high trade exposure with China. India has been emerging as a strong source of the exporter in segments like Manufacturing, Chemicals, IT and Engineering. India can capitalise on “Make In India” in the long-term,” Geojit Financial Services said in a note.
Indian markets witnessed a knee-jerk reaction in January when the reports first emerged and since then the market has been volatile.
The economic effect of SARS in 2003 was very low but it had a much higher impact on the world equity market since it was the first epidemic fear post the 9/11 terror attack of 2001.
Reports suggest that the market has handled it with more stability and with a limited impact on world financial markets and in South-East Asian regions.
“This is because of the belief that a large part of the epidemic effect will be limited to certain regions, that too for H1CY20 and reduce as the climate gets hotter. China has started opening its essential services, ports and manufacturing hubs slowly,” Geojit said in the report.
“This is expected to have a short-term effect, but maybe an in-built blessing for other emerging economies like India to develop as a long-term investment destination when the world adopts diversification to reduce sourcing risk,” it said.
Geojit Financial Services list out sectors which are likely to benefit positively and negatively from the outbreak of Coronavirus:
Negatively Affected Sectors... Auto: Shut down in China to impact sales volumes. Auto Ancillaries: Supply chain disruptions to impact production.
Chemical: Basic raw material and intermediaries will lead to an increase in prices.
Pharmaceuticals: Higher exposure to Active Pharmaceutical Ingredient (API) & intermediary supplies from China
Consumer Durables: Shortage of supply products & an increase in prices. Positively Affected Sectors… Chemical: Players with strong supply chain & global exports to benefit.
Oil & Gas: Benign commodity price to boost margins in the medium term.
Textile: Better export opportunities for domestic companies.
Metals & Mining: Fall in imports will improve sector outlook. Here is a list of top 8 stocks which are likely to benefit the most from the outbreak of Coronavirus: Expert: Santosh Meena, Senior Analyst, TradingBells Dixon Technologies:
Dixon technologies are our top pick in the electronic equipment segment. "Make in India" theme is the key reason for the stellar performance of Dixon Technologies.
Synergy with marquee names like Samsung and Xiaomi is also a key factor for the vertical growth of the company.
The cost of production is increasing in China where companies are moving from China to India and Dixon technologies is a major beneficiary of this phenomenon and the company has a strong order book for FY20-21. Cut in corporate tax is also boosting the bottom-line of the company.
PI Industries is leading players in Agro Chemicals which is getting major benefits from falling imports from china of Fertilizer and Chemical products.
PI Industries is ready for multi-year growth in the CSM segment because of its enhanced R&D, supply scarcity related issues in China.
Recently, it has witnessed big product wins and a significant surge in the deal pipeline. The company is in the mode of capacity expansion as management sees decent growth opportunities in the future.
Plastic products are the major beneficiaries of falling Crude oil prices and imports from China where Supreme industries are one of the leading players in the industry.
Recently, it has witnessed decent margin expansion amid a slowdown in the volume where future growth outlook is bright as management expects volume to pick-up led by a revival in demand from the packaging and plastic piping segment.
Pipes and fittings are likely to witness strong demand from the government’s ‘Nal se Jal’ Scheme. The company witnessed strong demand from that scheme in Bihar and Uttar Pradesh.
Expert: Vinod Nair, Head of Research, Geojit Financial Services Ltd Aarti Industries: It is a backward integrated player, and has limited exposure towards China. UPL: Newer export opportunities & fully backward integrated. KPR Mills: Fully backward integrated player to benefit from Improved outlook for the sector. Asian Paint: Reduction in the raw material cost will benefit the company. Tata Steel: Domestic companies capacity utilisation to improve.
-by Kshitij Anand