ETMarkets survey: Dalal Street not apprehending further escalation on China border

NEW DELHI: Despite the recent clashes on the India-China border and increased troop movement on both sides, analysts on Dalal Street are not apprehending any escalation in the situation into a full-fledged war, showed an ETMarkets survey among a dozen brokerages.

However, if the matter does escalate, a sharp selloff is guaranteed, they warned.

Most analysts felt the market is not done with earnings downgrades yet and the most bullish yearend targets for the benchmark indices suggest single-digit returns on domestic stocks this year. (Read: Most bullish Nifty estimates suggest 10% fall in 2020)

Any escalation in the border situation looks less likely, given the economic situation on both the countries in the wake of Covid-19 disruption, said Siddharth Sedani, Vice President for Equity Advisory at Anand Rathi.

Naveen Kulkarni, Chief Investment Officer at Axis Securities, said the global geopolitical environment had become quite sensitive, and market reaction to any escalation would depend on the level of escalation.

“In case it aggravates, it would be a big challenge for India, as it heavily relies on Chinese imports in a number of sectors. China accounts for 14 per cent of India’s total imports, while India’s total shipment to the country is a mere 5 per cent. Any geo-political tension could further add to the uncertainty for domestic companies that are already reeling under the coronavirus pandemic,” said Hemang Jain of Motilal Oswal Securities.

Fresh reports suggest Chinese troop deployments along the Line of Actual Control have crossed 10,000. India acknowledged for the first time on Thursday that it has matched China in amassing troops at the contested Himalayan border region.

The activity of Indian Air Force aircraft has also increase in the Leh region. Many of the Chinese projects in India have been halted and strict vigilance has been maintained on goods coming in from China, leading to clearance delays at customs.

Hit on bilateral trade, economies
Jani said a large number of companies import parts or capital from China and they would thus have to find alternative sources if the tension escalates.

“They had suffered when China saw the initial phase of the Covid-19 outbreak that shuttered plants. Now if another disruption erupts, it can prolong their economic recovery. Hence, a large number of sectors such as consumer durables, electronics, pharma/chemicals, auto components, engineering goods and some of the e-commerce companies may have to rework their business strategies,” Jani said.

G Chokkalingam, Founder of Equinomics Research & Advisory, said any possible prolonged battle on the border could impact investor sentiment, especially those of foreign portfolio investors.

“Disruptions in both exports to and imports from China would prove to be deflationary in nature for India. Therefore, investors should remain alert on the border developments,” he said.

Umesh Mehta of Samco Securities said a snowballing of this issue would certainly lead to further pain across sectors.

The Doklam incident & now
Rusmik Oza Executive, Vice President of Kotak Securities, recalled June 2017, when the Doklam standoff surfaced, which then went on for more than two months. Oza said the development did not escalate into a real war and the market did not correct sharply. The second half of 2017 saw Nifty50 climb nearly 1,000 points.

“In 2017, there was a global rally and we were also witnessing a very broadbased rally. But this time the situation is different, and the economy is witnessing a serious slowdown. Hence, any escalation in the standoff could lead to some correction,” he said.

Deepak Jasani of HDFC Securities and Vinod Nair of Geojit Financial Services do not expect the situation to snowball. “If it does, it will be a big negative for markets,” Nair warned.

Despite the recent tally, equity benchmarks Sensex and Nifty are down 15 per cent year to date.

Even the biggest bulls on Dalal Street is not expecting Nifty50 to move past the 11,000 mark in Calendar 2020. More analysts are betting on a drift in the NSE barometer towards the 9,000 mark.