Indo-China Trade War
A recent clash between Indian and Chinese soldiers at Galwan Valley on 15th June 2020, resulting in the martyrdom of 20 Indian soldiers, has stirred up a storm in India-China trade relations. As an immediate measure after the conflict, the government of India banned a total of 59 Chinese Apps. Some of the most popular Apps banned were TikTok, Shareit, Club Factory, WeChat, Clash of Kings, and Cam Scanner among others.
In the near future, the Indo-China conflict only seems to be widened. With both sides buckling up to impose trade sanctions on one another, economies are going to be affected. Let’s first understand the Indo-Chinese trade relationship before assessing the prospects of a trade war of a full-scale war.
Basics of Indo-China Trade
India – China trade relations are too deeply rooted in the economy of India than on the China side. It is so because – China is the largest trade partner of India, also India imports more from China than it exports to it; something in trading terms called as having a ‘trade deficit’ with China.
Moreover, if we look at the data for the past 10 years, India’s trade deficit with China has almost doubled. This means that in the past 10 years the import of Chinese goods to India has doubled while the exports of goods to China have largely remained unaltered. As of February 2020, China accounted for 11% of total Indian imports, while its share in Indian exports was only 3%. Also, as of February 2020, India’s trade deficit was $9.8 billion.
India’s primary export to China includes organic chemicals, plastic items, cotton, mineral fuels, slag, natural pearls, fish, iron, and steel, etc. In FY 19-20, India exported goods worth $16.6 billion to China.
On the other hand, India imported goods worth $62.4 billion from China in the FY 19-20. The imports from China include significant machinery and telecom equipment – mobile phones, telecom equipment, toys, automobile parts, heavy electrical machines, fertilizers, foods, pharmaceutical ingredients, textiles, etc.
To sum it up – in case of a full-scale war with China, the Indian economy will be more adversely affected than that of China. Unless of course if we take some serious measures towards self-reliance, but it wouldn’t be as easy as it sounds.
Stocks Likely to be affected by Indo-China War
Any escalation of border disputes between India and China would impact Indian Pharmaceutical firms, consumer durables, telecom, power, and automobile industry, etc.
Indian pharmaceutical industry currently imports around 70% Active Pharmaceutical Ingredients from China, so in case of a war, it is likely to be impacted.
Similarly, the Indian automobile industry imports huge amounts of spare parts, engines, etc from Chinese manufacturers. Also, the influence of China on the Indian mobile phone industry needs no explanation. Chinese companies have a 60% share in the Indian mobile phone market. India imports around Rs 7000 to Rs 8000 Crore worth of mobile phone components every month from China.
So, the bottom line is that the mentioned companies and their stocks will be most affected in the case of an Indo-China war. Let’s get into a little more detailed analysis of company-wise stocks.
Sector Wise Analysis of Stocks
Let’s do a brief sector-wise analysis of Indian companies least affected and most affected by an Indo-china war.
Although, Indian automobile giants like Tata Motors, Mahindra&Mahindra, Motherson Sumi, and Bharat Forge import a good deal of spare parts from China, a war is going to have a negative impact on their supply chain. However, they would be least affected given to their diversified business and global presence.
Indian consumer durable companies listed in NSE/BSE are Bajaj Electricals Ltd, Crompton Greaves Consumer electric Ltd, Blue Star Ltd, Godrej & Boyce Manufacturing Company Ltd, etc are least likely to be affected. 95% of the equipment sold in India are manufactured locally. Moreover, the companies have already started looking for local part manufacturers in wake of supply chain disruption due to COVID-19.
Indian pharmaceutical industry depends around 60-70% on imports of Active Pharmaceutical Ingredients from China. However, big names like Sun Pharma and Cipla would be least affected because they are mostly self-reliant and don’t rely much on imports from China.
Some of the big names in the Indian Telecom Sector like Bharti Airtel and Vodafone are likely to be most affected by Indo China rift escalation as they depend hugely on imports from China. However, Indian telecom giant Reliance Jio is least likely to be affected because it doesn’t depend on China for network equipment.
Some of the most impacted stocks in this sector would be of the companies – Dhanuka, Insecticide India, Rallis, etc. However, companies like Bayer India and Coromandel would be least affected. On the positive side, there would be some likely gainers as well – Aarti Industries and Bharat Rasayan, etc.
Companies in the sector with maximum Chinese investment will be most impacted. Such companies include Paytm, Zomato, Info Edge, Snap Deal, Ola, Swiggy, etc.
The Positive Side of the War
The escalation could be an opportunity for Indian startups to come up and expand their reach in the domestic market. With the government of India reiterating its commitment to making India self-reliant, there is some hope for domestic manufacturers. As for now, the future seems bright. If the dream of self-reliance is completed then we will have local product manufacturers instead of importing them from China.
