India has been getting queries from the EU and the US for textiles, homeware, ceramic tiles, engineering goods, furniture, etc, seeking to replace China as a supplier.
Coronavirus has spooked the Dalal Street but experts say some sectors are likely to do well as supply chains get disrupted and global crude prices tumble, with the virus spreading to more than 80 countries, including India.
There are opportunities for a country like India that could emerge as a destination for manufacturing after China, from where the outbreak began. Central bankers across the world have cut rates and are working together to cushion their economies from the impact of the flu-like virus.
Back home, the Reserve Bank of India (RBI) is considering using unconventional policy tools to spur lending, three government officials told Reuters.
The consensus is that the world economy will slow down as the virus brings China, the world’s factory, to a standstill. Agencies have already lowered the growth forecast for the world economy.
“India has been getting queries from the EU and the US for textiles, homeware, ceramic tiles, engineering goods, furniture, etc., seeking to replace China as a supplier,” HDFC Bank said in a report.
“In relative terms, India seems insulated from the virus and could emerge as an alternative global sourcing base for a number of items. Developing an ecosystem to complete manufacturing rather than just assembly,” said the report.
The report further added that coronavirus would help in making India a manufacturing destination for global companies.
A list of sectors that brokerage firms think can benefit from the coronavirus outbreak:
Brokerage Firm: Geojit Financial Services
Domestic specialty and agro-chemicals players with a strong supply chain and a global export footprint will benefit from a hike in international prices. Chemicals and related products from China accounted for 20 percent of the total imports in FY19 versus 14 percent in FY18. Supply disruptions of basic raw material and intermediates will lead to an increase in prices.
Few crop protection companies source their active ingredients from China. Hence, any disruption in supply may lead to increased costs for these companies and impact margins.
Crude prices will moderate in the near term, offering cost benefits to players relying on crude and its derivatives. The outbreak has a marginal benefit for FMCGs due to a drop in prices of oil and derivatives.
“In the longer run India could get the benefit of lower crude oil price, which has seen a sharp cut in the last two months. India imports close to 85% of its annual crude oil requirements, and its dependence on purchases from overseas has only risen in recent years, as domestic production falters in the absence of adequate incentives,” Devarsh Vakil, Head-Advisory (PCG), HDFC Securities, told Moneycontrol.
“India’s crude import bill may decline by a massive $17 billion or 17% year-on-year in FY21 if the Indian basket price remains subdued around the current level of $50/barrel through the next fiscal,” he said. It could give a big relief to the country’s current account.Geojit Financial Services recommends Asian Paints, Berger Paints, Jyothy Lab and Bajaj Consumer Care among stocks likely to benefit in the FMCG space.
Of the sector’s total revenue, the Asia-Pacific region accounts for about 10 percent and China 1-2 percent. Indian IT companies may have close to 3,000-4,000 workforce in Chinese cities like Beijing, Tianjin, Shanghai and Hangzhou.
For the time, the impact on the software space is expected to be neutral but hardware components will have a negative impact -- Huawei, which is headquartered in Shenzhen, is a major player in the segment.
Metal & mining
Exports from China, the largest producer of metals, are expected to fall, which will benefit domestic producers in the long run as manufacturers will look to diversify sourcing base.
However, in the near term, demand is expected to be down due to lower global growth, which may affect the pricing power of metal companies.
China’s annual imports to India stand at around $5,500 million, while exports are below $800 million, offering Indian players a big opportunity to meet domestic demand.
Brokerage Firm: Edelweiss Financial Services
Edelweiss is of the view that the coronavirus outbreak could provide an opportunity—whether riding along with the expected global response, or going more aggressive. “India’s market has been peppered with consistent domestic equity flows—and we do not see that materially changing at this point,” it said in a note.
India probably does have more of a backstop in the form of domestic flows but its swings will be globally driven. That said, with India’s relatively high nominal interest rates and falling global yields, fixed income flows could well be a sweet spot for India, adding liquidity and providing tailwinds for the currency.
Liquidity-sensitive sectors such as financial and real estate.
Agri and rural: A combination of volumes given good rains and water buffers and global soft commodity prices, which have lost some steam but will do better than hard commodities.
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