Stocks & Coronavirus

The share market is not in a good place if there's uncertainty. The Sensex suffered one of its worst crashes since February due to fears about the Coronavirus and a slowing domestic economy. Global panic has affected different parts of the share market in different ways.

India's dependence on China for imports and exports is the single most significant reason for India's economic woes and share market impact. Between April and December 2019, India imported goods in the amount of $52 billion and exported goods in the range of $13 billion. This is a significant increase in trade between both countries.

There are implications for India's share market sectors as China is under lockdown to stop further spread of the virus. Let's examine the impact of coronavirus on different sectors of the share market.

Pharmaceuticals

Many Indian pharmaceutical companies import critical materials from China. China is home to essential chemicals, intermediates, active pharmaceutical ingredients, and starting materials. One of the largest centres for the production of active pharmaceutical ingredients is Hubei, China. China's lockdown could mean that 67% of the raw material inventories for pharma companies may be unfulfilled, if there is no alternative. This could severely impact India's supply of pharmaceutical products, leading to increased prices and a disruption in the share markets.

Consumer Durables

Components such as compressors, which are mainly made in China, are essential for refrigerators and air conditioners. This will result in India not being able to import these components from China. These goods could result in a loss for the companies selling them and a decrease in share prices.

Information Technology

Travel and transport entities like airlines and hotels are some of the largest clients for IT service providers. This sector will also be affected by global travel restrictions and cautions.

Automotive Industry

India imports between 10-30% of the required automotive components from China. The entire assembly of certain automobiles may be stopped if China does not resume exports within the next few weeks. This could increase the industry's current slowdown and raise investor concerns.

Agrochemicals

Chemicals and intermediates are another important import from China. Indian agrochemical users usually have around 60 days worth of raw materials. The Indian agrochemical sector may be unable to produce if China's supply is not restored within the next 4-5 week. The stringent environmental policies of the Indian agrichemical industry have helped reduce dependence on China's exports over the past few years. Although this has somewhat reduced dependence on China, it is still significant enough to have an impact on the sector if supply isn’t restored soon.

Oil and Gas

The weakened demand will affect downstream companies, those involved in oil and gas processing and refining. The reduced demand from the travel sector is responsible for the weakened demand. There is less east-west traffic and mobility.

Textile

China accounts for an impressive 40% of global apparel exports. These exports have also been drastically decreased since China shut down many of its textile plants in fear of the spread of the virus. This disruption in the supply chain is being leveraged by domestic Indian textile companies, which are likely to profit from stock prices.

Positives for Certain Indian Listed Businesses

Companies with a 'Make in India label are set to benefit as China's exports decrease. They will be able to meet demand for products not fulfilled by Chinese brands, or brands that are dependent on China for their production. China's restrictions on exports will stop the flow of relatively cheap Chinese products into India, particularly consumer goods. This presents an opportunity for domestic players.

Indian chemical producers could potentially fill the gap left by Chinese chemical makers in Indian markets. Indian chemical producers might not be well-equipped to fill this gap, but it will be a start, and buyers will be keen to invest in these companies.

Since oil is the primary raw material for its production, it is expected that the oil price will fall. This will be good news for the paint and plastics industries. Companies that produce paints and plastics will likely gain more investors and better stock markets standings.

The Last Word

Buyers and sellers of the share market are not likely to succumb to fear in an uncertain environment. Indian stocks are robust and open to opportunities and have seen themselves recover from similar situations during the Ebola or Swine flu epidemics of the past decade. Some sectors will see financial benefits from the Coronavirus, while others will suffer.

To understand the possible ups and downs in the Indian share markets, it is important to keep an eye on global market indices as well as reliable news regarding the treatment and cure for Coronavirus.