India-China border dispute to impact near sentiment, say brokerages

Auto, consumer durables and chemicals could be the worst impacted if the situation worsens

The military stand-off between India and China is unlikely to have a major impact on earnings, but could be a dampener for the markets in the near term. The Sensex has declined 1 per cent in the past three sessions. 

Even before the current escalation, supply disruptions from China because of Covid-19 impacted companies' revenues in the June quarter. Among sectors, most dependent on China is consumer durables.

About 90 per cent of compressors and a large share of printed circuit boards are imported, say analysts at Emkay Research. Among other sectors, analysts led by Sunil Tirumalai of the brokerage highlight that companies in the chemicals and agro chemical segment that have weak backward integration such as Dhanuka Agritech, Rallis, Vinati Organics, and Camlin Fine Sciences will be impacted the most. Within the auto space, Tata Motors and, to a lesser extent, Motherson Sumi 

will be hit if the border situation worsens. 

 

 

Most brokerages and analysts, however, say that there is too much at stake for the two countries and will deter them from going on the offensive. 

Deepak Jasani, head of research-retail at HDFC Securities, believes that the situation is unlikely to get out of hand, though there could be some posturing by both sides in the interim.

Experts believe while escalation with Pakistan might not have a significant impact on trade economics, both India and China have major trade and investments in each others’ economies. While the dispute might continue, it could have a temporary effect on the markets.  

According to Dhananjay Sinha, director and head of institutional research at Systematix Group, "Face-off between India and China looks like a temporary event and may not have a significant impact on sectors and markets."