The Key Sectors That Are Likely To Be Affected By Coronavirus Outbreak

Most analysts expect the outbreak of the novel coronavirus, that killed more than 1,000 people in China, to have a limited impact on the Indian economy.

If the outbreak continues, global commodity prices may fall. And that, according to Nomura and Citi Research, may benefit users of such commodities such as oil and gas. But sectors such as pharmaceuticals and automobiles, which are heavily dependent on import of raw materials, are likely to be impacted, the brokerages said.

Brokerages’s take on the sector-wise impact of the coronavirus outbreak:

Nomura

• Over 60 percent of Chinese imports comprise electrical machinery and equipment, nuclear reactors and boilers, and organic chemicals, with an additional 7 percent in the form of plastic articles and fertilisers. A disruption in these imports will adversely affect key industries such as pharmaceuticals, auto, electronics, solar and agriculture, and could lead to higher prices if inventories are depleted.
• Domestic textiles, fertiliser and MSME firms should benefit owing to less competition from cheaper Chinese imports.
• In base case scenario, weaker global growth to reduce India’s GDP growth in 2020 by 0.1 percentage point to 5.4 percent. In ‘severe’ case, India’s GDP will be 4.7 percent for 2020.

CITI Research

• Limited market share shifts, especially in chemicals and agrichemical sectors, are possible.
• Commodity price declines may be positive for oil marketing companies, city gas distribution companies, consumer companies; and negative for upstream players and metals.
• Electronics and electrical machinery, chemical, pharmaceutical and textiles are the most vulnerable sectors.
• Due to higher tech-intensity of Chinese imports, it might be difficult to substitute suppliers in a short span of time.

Emkay

Positive Impact

• Cooling-off in crude prices should benefit fast-moving consumer goods companies and tyremakers.
• Higher refining and marketing margins could support OMCs.
• Battery makers should see improved margins on lower lead costs.

Companies that can benefit:

• Auto Ancillaries: Apollo Tyres Ltd., Exide Industries Ltd., Amara Raja Batteries Ltd.
• FMCG: Hindustan Unilever Ltd., Dabur India Ltd., Marico Ltd., Colgate-Palmolive (India) Ltd., Godrej Consumer Products Ltd., Asian Paints Ltd., Berger Paints Ltd., Pidilite Industries Ltd.
• Oil & Gas: Gujarat Gas Ltd., Gujarat State Petroleum Corporation, Indian Oil Corporation Ltd., Hindustan Petroleum Corporation Ltd., Bharat Petroleum Corporation Ltd.
• Pharmaceuticals: Divi’s Laboratories Ltd., Granules India Ltd.

Negative Impact

• Share of China in imports of consumer durables industry is high.
• Chemicals and agrichemical companies with weak backward integration appear vulnerable.
• Steel and aluminium companies could be at risk from a slowdown in demand.
• Weak crude prices will impact oil companies.

Companies that will be hurt:

• Agrochemicals: Dhanuka Agritech Ltd., Rallis India Ltd.
• Automobiles: Tata Motors Ltd.
• Consumer durables: Voltas Ltd., Blue Star Ltd., Havells India Ltd., Whirlpool Of India Ltd., Dixon Technologies (India) Ltd.
• Metals & Mining: Jindal Stainless Ltd., Nalco, Steel Authority Of India Ltd., Vedanta Ltd., Tata Steel Ltd., JSW Steel Ltd., MOIL Ltd.
• Specialty Chemicals: Vinati Organics Ltd., Camlin Fine Sciences Ltd.
• Oil & Gas: Oil & Natural Gas Corporation, Oil India Ltd.

Kotak Institutional Equities

These are the sectors that are actively engaged in trade with China and are likely to be negatively impacted.

Imports

• Parts of mobile phones, integrated circuits, solar panels, lithium ion batteries, components of cameras, etc
• Laptops/palmtops
• Antibiotics, heterocyclic compounds, etc
• Urea and DAP or di-ammonium phosphate
• Iron and steel products
• Parts of motor vehicles

Exports

• P-Xylene (used in apparels and plastic products)
• Light oils and preparations
• Iron ore pellets
• Shrimps and prawns
• Polyethylene
• Battery chargers
• Cotton