The good news is that the recovery rates are showing signs of improvement worldwide, and the encouraging news that the coronavirus does not survive under conditions of higher temperatures.
Coronavirus outbreak is a black swan event for markets, but is not a major threat to India's economy, experts and brokerages said.
The concerns over the impact of coronavirus on economic growth have kept the markets across the globe jittery.
The good news is that the recovery rates are showing signs of improvement worldwide, and the encouraging news that the coronavirus does not survive under the conditions of higher temperatures.
For India, this is a relief as the winter is drawing to a close.
The epidemic is seen as a black swan event by brokerages and analysts, and they believe that the slowdown in China will have a ripple effect across the globe, and to a certain extent, equity markets are factoring that in.
Experts and brokerages are of the view that supply disruptions due to travel ban, global commodity price movements, levels of inventory, etc. are factors that will impact companies from India Inc.
"The cases of Covid-19 have outnumbered all of the previous pandemics and at a much higher rate of change. Although the fatality rate is the lowest, the ramification of such a virus infecting the production hub and trading partner of the world could have a cascading effect on the global supply chain," said brokerage firm Centrum Broking.
Centrum also highlighted while SARS affected the global economy for a few quarters but the impact was short-lived and the global economy recovered soon, but this time around, the situation remains quite grave as the outbreak occurs at the time when the global economy is already undergoing a slowdown.
A threat or opportunity for India?
China has a prominent role in global economic growth with strong trade linkages with emerging markets. Any disruption in Chinese economic activity is most likely to have significant ramifications on the global economy.
However, this is also an opportunity for India to fill in the gap and find ways to reduce its dependency on imports from China.
"Imports of parts from China would certainly be affected for a while due to coronavirus, but at the same time, there is an opportunity for Indian companies to fill in the gap left behind by their Chinese counterparts," EA Sundaram, Executive Director & CIO- Equities- o3 Capital, said in an interview with Moneycontrol.
On the other hand, Kotak Institutional Equities highlighted that India is relatively immune to a slowdown in Chinese activity as China constitutes 14 percent of its imports and 5 percent of its exports.
"Imports from China are mostly in electrical, electronics, chemicals, plastics and metals sectors while exports to China are concentrated mostly in chemicals, petroleum products, ores and fish. Companies will be able to tide over in the near-term, though prolonged production stoppages will have supply risks for import-dependent sectors," Kotak said.
However, the possibility of a prolonged production stoppages looks overdone.
Covid-19 has caused large-scale quarantines across China but the outbreak has predominantly been contained in Hubei province, which accounts for 1.3 percent of the total exports of China. Besides, recent reports suggest a declining trend in new cases.
India's consumer durables, electronics, chemicals and pharmaceuticals are high-risk sectors. However, if the cases of coronavirus continue to fall, India need not worry much.
"We believe that the macro impact as a fallout of disruptions in China will be limited assuming the Covid-19 spread stabilizes hereon, and large exporting hubs in China remain relatively less affected," said Kotak.
On February 19, RBI Governor Shaktikanta Das said that the coronavirus outbreak will have a limited impact on India but the global GDP and trade will definitely get affected due to the large size of the Chinese economy."Only a couple of sectors in India are likely to see some disruptions but alternatives are being explored to overcome those issues," PTI reported him saying so.
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