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India Equity Research Reports, IPO and Stock News
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Implications of
Chinese Moves
What’s New: China seems to be letting its currency
appreciate at a faster pace. Simultaneously, labor costs
appear to be rising in China. In summary, China seems
focused on stimulating domestic consumption demand.
The risk is that these trends accentuate with implications
for Corporate India.
Implications: We are hearing from a select group of
Indian companies that Chinese goods are getting more
expensive. China is India’s single-largest trading
partner with just under one-tenth of India’s total trade.
Statistically speaking, UAE is a tad bigger, but one can
argue that UAE is a trading hub for Indian output and
input rather than a direct consumer/supplier.
Capital goods: The ongoing developments appear to
be very positive for industrials. Nearly two-thirds of all
imports from China are capex related. Indian industrial
suppliers including Larsen & Toubro (LART.BO,
Rs1,640.75) will likely benefit from more-expensive
Chinese imports in the medium term.
Power companies: Several power companies have
placed orders with Chinese firms and may face higher
equipment costs. These include LANCO Infra (LAIN.BO,
Rs17.60, Reliance Infra (RELI.BO, Rs773.40) and Adani
Enterprises (ADEL.BO, Rs572.15).
Pharmaceutical companies: India imports a fair bit of
its API intermediates from China. We estimate rising
Chinese costs will hurt Indian players with an
approximate 1% margin impact. However,
simultaneously, Chinese competition in the international
market will become less intense, possibly pushed back
by three to four ears. This would help Indian companies
further entrench themselves as global generic players.
Indian consumers: Indian consumers have benefited
from cheap Chinese goods in recent years, especially in
segments such as clothes, toys, sports goods, ceramics,
leather, silk and even umbrellas. These goods will become
expensive, at the margin. On the other hand, Indian SMEs
stand to gain competitiveness over time.
Indirect implications: Indian companies compete with
Chinese companies in sectors such as textiles, and we expect
them gain competitiveness. Consumer goods, which may be
coming to India via other countries but are manufactured in
China, may also lose competitiveness to Indian companies.
Commodity complex: The impact on commodities is quite
complicated and beyond the scope of this short report, but in
our view is something to keep in mind.
Conclusions: It is still early days, but we would keep a watch
on this space for medium-term implications on business
models.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Implications of
Chinese Moves
What’s New: China seems to be letting its currency
appreciate at a faster pace. Simultaneously, labor costs
appear to be rising in China. In summary, China seems
focused on stimulating domestic consumption demand.
The risk is that these trends accentuate with implications
for Corporate India.
Implications: We are hearing from a select group of
Indian companies that Chinese goods are getting more
expensive. China is India’s single-largest trading
partner with just under one-tenth of India’s total trade.
Statistically speaking, UAE is a tad bigger, but one can
argue that UAE is a trading hub for Indian output and
input rather than a direct consumer/supplier.
Capital goods: The ongoing developments appear to
be very positive for industrials. Nearly two-thirds of all
imports from China are capex related. Indian industrial
suppliers including Larsen & Toubro (LART.BO,
Rs1,640.75) will likely benefit from more-expensive
Chinese imports in the medium term.
Power companies: Several power companies have
placed orders with Chinese firms and may face higher
equipment costs. These include LANCO Infra (LAIN.BO,
Rs17.60, Reliance Infra (RELI.BO, Rs773.40) and Adani
Enterprises (ADEL.BO, Rs572.15).
Pharmaceutical companies: India imports a fair bit of
its API intermediates from China. We estimate rising
Chinese costs will hurt Indian players with an
approximate 1% margin impact. However,
simultaneously, Chinese competition in the international
market will become less intense, possibly pushed back
by three to four ears. This would help Indian companies
further entrench themselves as global generic players.
Indian consumers: Indian consumers have benefited
from cheap Chinese goods in recent years, especially in
segments such as clothes, toys, sports goods, ceramics,
leather, silk and even umbrellas. These goods will become
expensive, at the margin. On the other hand, Indian SMEs
stand to gain competitiveness over time.
Indirect implications: Indian companies compete with
Chinese companies in sectors such as textiles, and we expect
them gain competitiveness. Consumer goods, which may be
coming to India via other countries but are manufactured in
China, may also lose competitiveness to Indian companies.
Commodity complex: The impact on commodities is quite
complicated and beyond the scope of this short report, but in
our view is something to keep in mind.
Conclusions: It is still early days, but we would keep a watch
on this space for medium-term implications on business
models.
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