Indian markets woke up to negative cues with the Asian markets at a two-month low and the Taiwanese stocks (Taiwan SE Weighted Index) trading 8 percent lower over fears of a coronavirus surge. Though Taiwanese shares recouped some of the losses, they closed more than 4 percent lower to post their biggest fall since March 2020.
Indian markets, too, recovered a bit in the afternoon as investors bought the dip but the COVID-19 continues to weigh heavy, threatening the economy as well as the earnings of India Inc.
Investors are worried about the rise in COVID cases that could restrict business activity in Taiwan, which is the world's semiconductor hub. However, it might not have a lasting impact on Indian markets.
The bigger risks for Indian markets could be a rise in the US Fed rate earlier than anticipated and the shortage of semiconductor chips, which could hurt some businesses, experts said.
Here is what experts have to say on the impact of Taiwan's COVID-19 alert on Indian markets:
Mohit Nigam, Head, PMS, Hem Securities
The index has gone down due to a possible escalation in COVID alert levels and more restrictions in the light of a rise in cases after a long time.
The Taiwanese market has given substantially higher returns in the range of 65-70 percent against 42 percent for the US, 20 percent for the UK and 40 percent for European markets. Among emerging economies, returns have ranged from 50-60 percent for Brazil and India and 20 percent for China on the rolling 12-month basis.
Hence, the COVID-19 alert might have been a knee-jerk reaction and a profit-booking opportunity. At the same time, there is a global chip shortage and adverse movement in IT companies, which is creating some pressure in the market.
We think there might not be a hug outflow of FII money since the situation in Taiwan is much better than other emerging economies like Brazil and India, the latter witnessing FII outflows for almost two months after a record inflow last year.
Geopolitical developments, however, related to Chinese aggression towards the region is to be watched out for.
Also read: Taiwan, Moody’s cut in India GDP forecasts weigh on markets
Gaurav Garg, Head of Research at CapitalVia
Taiwan is the hub of semiconductors in the world. The pandemic has confined everyone to their homes and in a way, the reality now exists in the virtual plane. Digital is the “new normal” and requires all sorts of smartphones, laptops and desktops that has created a new demand in the space.
The drought in Taiwan has created this problem as this process requires huge amounts of water. The shortage of semiconductor chips is not going to simplify things as the shortage is expected to continue till 2023. In the current scenario, this might be colossal.
Many countries are now trying to make the most of this situation. The Biden administration is willing to subsidise 50 billion dollars for chip manufacturers and India is offering $1 billion as cash incentive to chip-makers to set up units in the country.
If the Indian policymakers take the right steps, our economy can benefit significantly. As of now, the growing numbers of coronavirus cases is the real worry for the Indian market.
Kunj Bansal, CIO, Karvy Capital
The shortage of semiconductors is a bigger challenge. It is affecting some businesses, however, strangely enough, the Indian stock market is not taking cognisance of this.
In fact, the recent diversion of oxygen capacity towards health sector will also affect production in some of the industries and some shortage of parts in the supply chain of some final products,
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services
A perfect storm caused by high retail leverage, escalation of COVID-19 alert, and concerns over tech shares wreaked havoc on the Taiwanese market, with the index crashing by a whopping 8 percent in the morning trade.
The selloff was exacerbated by technical factors like options expiry, which led to forced selling. The selloff in tech-heavy Nasdaq on May 10 has impacted tech stocks in EMs like Taiwan too.
Satish Kumar, Research Analyst, Choice Broking
The sharp fall in the Taiwan index was due to the tightening of COVID- led restriction and selloff in tech shares. Investors are worried that a widening coronavirus outbreak threatens Taiwan's status as one of the safest places in the world to endure the pandemic.
On the domestic front, FPIs have already turned negative on equity due to the second COVID wave, which can derail the economic recovery.
Since April, FPIs have sold domestic equity worth Rs 15,600 crore, though the impact was offset by a similar level of buying by domestic institutions and retail investors.
We expect foreign investors to continue to remain cautious on India until the second wave fades away.
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