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A powerful earthquake (intensity 8.9 on Richter scale) hit northern Japan and
triggered a massive Tsunami along the coastline areas. The quake occurred
230 miles North-East of Tokyo.
Japan’s equity markets were about to close when the tremors hit, but
Japanese Yen (JPY) fell sharply in a knee-jerk reaction. However, the
currency recovered equally sharply thereafter, possibly, in expectation that
money would be repatriated back to Japan given its safe-haven status.
Notably, JPY exhibited a similar behaviour after Kobe earthquake in early
1995, appreciating in the days following the earthquake. Therefore, if money
flows back to Japan, it might have implications for EM assets in the very
short-term.
In any case, we do not see this event to have a substantial long-term impact on
markets. We believe that medium-to-long-term performance of the Indian markets will
continue to be shaped by macro-economic concerns. However, the quake in Japan
could have some effect on a few sectors/companies as highlighted below:
Impact on sectors
1) Oil & Gas: Positive impact on refining margins and LNG prices: Japan is heavily
reliant on nuclear energy. Nuclear power plants in two locations have been shut,
following the quake. While the Japanese government has stated that the plants
are safe, they may take some time to resume production. Until all reactors start,
demand for diesel and LNG will have a positive impact as they will be used to
meet the power requirements. Further, Cosmo Oil’s 0.228 mbpd Chiba refinery
has caught fire. Depending on the magnitude of the fire, the refinery might take
6-12 months to resume production. Both these factors could raise refinery
margins. We see lower risk of cut in Japanese crude demand estimates, as we had
earlier already estimated -0.17 mbpd (-3.9%) fall in crude demand from Japan.
2) Pharma: Overall limited impact - Lupin has the largest revenue exposure in Japan
among Indian pharma companies, but the impact is expected to be limited as its
production facility is in southern Japan.
3) Autos: Overall limited impact - Any disruption in port or production facilities of
vendors could affect Maruti’s production (imports one-third of its raw materials).
However, the company has, so far, not received any negative news to this effect.
4) Hotels/Hospitality: Immediate impact on outbound travel of Japan - Cox and
Kings generates ~8% of its total revenue from Japan. As Japan is an outbound
center, revenues could get negatively impacted.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
A powerful earthquake (intensity 8.9 on Richter scale) hit northern Japan and
triggered a massive Tsunami along the coastline areas. The quake occurred
230 miles North-East of Tokyo.
Japan’s equity markets were about to close when the tremors hit, but
Japanese Yen (JPY) fell sharply in a knee-jerk reaction. However, the
currency recovered equally sharply thereafter, possibly, in expectation that
money would be repatriated back to Japan given its safe-haven status.
Notably, JPY exhibited a similar behaviour after Kobe earthquake in early
1995, appreciating in the days following the earthquake. Therefore, if money
flows back to Japan, it might have implications for EM assets in the very
short-term.
In any case, we do not see this event to have a substantial long-term impact on
markets. We believe that medium-to-long-term performance of the Indian markets will
continue to be shaped by macro-economic concerns. However, the quake in Japan
could have some effect on a few sectors/companies as highlighted below:
Impact on sectors
1) Oil & Gas: Positive impact on refining margins and LNG prices: Japan is heavily
reliant on nuclear energy. Nuclear power plants in two locations have been shut,
following the quake. While the Japanese government has stated that the plants
are safe, they may take some time to resume production. Until all reactors start,
demand for diesel and LNG will have a positive impact as they will be used to
meet the power requirements. Further, Cosmo Oil’s 0.228 mbpd Chiba refinery
has caught fire. Depending on the magnitude of the fire, the refinery might take
6-12 months to resume production. Both these factors could raise refinery
margins. We see lower risk of cut in Japanese crude demand estimates, as we had
earlier already estimated -0.17 mbpd (-3.9%) fall in crude demand from Japan.
2) Pharma: Overall limited impact - Lupin has the largest revenue exposure in Japan
among Indian pharma companies, but the impact is expected to be limited as its
production facility is in southern Japan.
3) Autos: Overall limited impact - Any disruption in port or production facilities of
vendors could affect Maruti’s production (imports one-third of its raw materials).
However, the company has, so far, not received any negative news to this effect.
4) Hotels/Hospitality: Immediate impact on outbound travel of Japan - Cox and
Kings generates ~8% of its total revenue from Japan. As Japan is an outbound
center, revenues could get negatively impacted.
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