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Moneycontrol Pro Panorama | Evergrande’s debt cup of woes is spilling over

In today’s Moneycontrol Pro Panorama: China’s property pain, metals in the line of fire, Paras Defence IPO, Recovery Tracker, GuruSpeak, and more

September 21, 2021 / 04:38 PM IST
Source: AFP

Source: AFP

Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

A possible default by a large Chinese real estate company, Evergrande, is sending shockwaves across the globe. Stocks dropped on Monday and are trading cautiously on Tuesday. Investors fear Evergrande, whose liabilities amount to as much as 2 percent of China’s gross domestic product (GDP), may not be able to pay the interest amount due this month. Credit rating agencies have cut the company’s ratings and bonds of other property developers are also facing the heat. To know about why this event is sending shivers down China's property sector, do read today's selection from the Financial Times (free to read for Pro subscribers).

The immediate impact of this simmering crisis is a possible erosion in value of the funds invested in China’s bond market. Faced with ultra-low yields in the home market, investors from the US and Europe have been investing in emerging market bonds. Real estate and property companies now face tighter credit norms and a possible rise in finance costs. Default by a large indebted company can shake confidence in the financial system, as was seen in the IL&FS episode in India. The size of China's economy means its woes can weigh on the nascent global economic recovery, too.

Many on the Street believe that China may eventually restructure Evergrande’s debt to contain its impact on the economy and populace. However, China’s reluctance to put together a bailout package on the first signs of the crisis reflects its strategic reset in policy and a changed approach to the corporate sector. This column explains why the country is doing this, pinning the reason down to its "bang-bang control system". Read to know more.

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The country which encouraged unbridled investments in the past is cracking down on big businesses and trying to exert greater control over funds flows and private enterprises. This can weigh on growth, private investments in the near term. As this analysis in today's edition points out, these fears are resulting in a sharp fall in prices of industrial metals, especially iron ore, as fears rise of what a slowing property sector could do to demand for metals such as steel, copper and aluminium. The impact of these policy shifts in China will be known only over a period of time.

Meanwhile, a different transformation is taking place in Indian equities. As more start-ups come of age and list on local bourses, the benchmark indices could look different in coming years. Goldman Sachs Research forecasts that new economy initial public offerings (IPO) and shares can add as much as $400 billion to India’s market capitalisation in the next 2-3 years.

“Indian equity indices are among the ‘oldest’ in the region with the average listing age exceeding 20 years and dominated by old-economy sectors. As the large digital IPOs get included, the new economy sector exposure could rise from 5 percent to 12 percent (at 50 percent float) and 16 percent (full inclusion) over the next 2-3 years,” Goldman Sachs said in a note. Policybazaar, OYO and Byju’s are among the notable companies that are exploring IPOs.

On the primary market front, a new IPO opened today. Our research team has a cautious view on the company, do check out their view below.

Investing insights from our research team:

Paras Defence IPO: Extreme caution warranted

Sona BLW Precision Forgings: A compelling bet on the sunrise EV space

City Gas Distribution sector: Is a de-rating imminent?

What else are we reading today?

Economic Recovery Tracker | Mobility, jobs flash green, but others in the red

Cement price increase critical as companies feel the cost pinch

Big Data roped in to transform India's agriculture

GuruSpeak | Sourav Sengupta on how learning from retail traders' mistakes helped him succeed in the market

Picks from our technical analysts: Reliance IndustriesL&T Finance and Dixon (These are published every trading day before markets open and can be read on the app)

R Sree Ram

Moneycontrol Pro
R. Sree Ram

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