www.geojit.com

Retail Equity Research

Corona Impact on India Equity Market

SENSEX : 41,566 NIFTY : 12,201

12th February, 2020

1

A moderate effect on India... The economic impact of Covid-19 (Novel Coronavirus) to the world will be bigger than the consequence of SARS in 2003 which did not impact the world economy. During the period, the pie of Chinese economy has grown 4 times to 16.3% from 4.2% of world economy. If the situation takes longer to stabilize, the impact on the world economy will be higher. The trade between India & China has also grown in the same period to USD 87 billion in FY19, imports being the major component. It will have some positivity and negativity to India in the short to medium-term.

The world economic growth could slowdown by 0.4% as per IHS Markit, if standstill in China continues, IMF had projected growth rate of 3.3% in CY20.

Experts view that this epidemic will dissipate as temperature rises in China during the summer season starting June 2020.

India imports a large amount of raw materials & semi-finished good for sectors like Auto, Pharma (APIs), Consumer Durables and Electronics. Costs are likely to increase impacting the profitability.

Revenue and Exports to China is limited, marginally to sectors like Agriculture, Auto, Aquaculture and Engineering.

Crude prices are coming down which could be a blessing in disguise in the medium-term given our huge oil deficit, while in the short-term inventory losses are expected.

The world wants to diversify their high trade exposure with China. India has been emerging as a strong source of exporter in segments like Manufacturing, Chemicals, IT and Engineering. India can capitalise on “Make In India” in the long-term.

The World’s Macro effect is likely to be limited... The world economy will slowdown as the virus brings the second largest economy to a standstill. The economic consequence of SARS epidemic of 2003, which held for about 8 months, impacted the Chinese GDP by 1%. China used to account for about 4.3% of the world economy compared to 16.3% in 2019. Additionally, the epidemic cases of Coronavirus is much bigger with more than 40,000 people officially infected and economy at standstill, until further notice by the government. On a precaution, countries have cut their inter-transportation with Chinese, IHS Markit forecast 0.4% fall in global GDP growth in CY2020. The Macro effect to India is likely to limited at manufacturing sector...

In FY19, total current account deficit of India as a percent of GDP stood at 2.1 percent. In FY19, trade deficit (commodities) with China as percent of GDP was minimum at 0.03 percent. In 2003, the total commodities trade between India and China was USD 20 billion compared to USD 87 billion in FY19, growing by 10% CAGR. The manufacturing trade deficit has enlarged to USD 57.3 billion in FY19. In FY19, the share of imports from China of the total imports is at 14 percent, whereas the share of exports to China of the total exports is at 5 percent.The major items India imports from China are electronics and engineering goods while the major exports are chemicals and related products. Negatively Affected Sectors...

Auto: Shut down in China to impact sales volumes.

Auto Ancillaries: Supply chain disruptions to impact production.

Chemical: Basic raw material and intermediaries will lead to increase in prices.

Pharmaceuticals: Higher exposure to Active Pharmaceutical Ingredient (API) & intermediary supplies from China

Consumer Durables: Shortage of supply products & increase in prices. Positively Affected Sectors…

Chemical: Players with strong supply chain & global exports to benefit.

Oil & Gas: Benign commodity price to boost margins in the medium term.

Textile: Better export opportunities for domestic companies.

Metals & Mining: Fall in imports will improve sector outlook.

Market View… The economic effect of SARS in 2003 was very low but it had much higher impact on the world equity market, since it was the first epidemic fear post the 9/11 terror attack of 2001. Presently, the market has handled it with more stability and with limited impact on world financial markets and in South-East Asian regions. This is because of the belief that a large part of the epidemic effect will be limited to certain regions, that too for H1CY20 and reduce as the climate gets hotter. China has started opening its essential services, ports and manufacturing hubs slowly. This is expected to have a short-term effect, but may be an inbuilt blessing for other emerging economies like India to develop as a long-term investment destination when world adopts diversification to reduce sourcing risk.

Sector Negatively Affected Rationale

Auto & Auto Ancillaries Likely to be impacted due to

import of component

Consumer Durables Likely to be impacted due to

import of semi electrical

Pharma API imports

Chemical Marginal loss in raw materials

Capital Goods Compressor & other compo-

nents imported from China

Sector Positively Affected Rationale

Chemical

More demand for organic

chemical in international

market.

Textile China accounts for 40% of

global apparels & textile.

Oil & Gas Fall in crude may marginally

benefit in the medium-term.

FMCG Drop in crude & derivatives

Metal & Mining

Fall in Chinese demand to

increase prices & demand in

the medium-term.

Stocks Negatively Affected Rationale

Tata Motors 17% of volume & component

imports from China

Motherson Sumi 7% of revenue & components

import from China.

Havells Medium term impact on con-

sumer division cost.

Sun Pharma

Higher exposure to API &

intermediary supplies from

China

PI Industries Sourcing from China.

Stocks Positively Affected Rationale

Aarti Industries Backward integrated player.

Limited exposure to China.

UPL Newer export opportunities &

fully backward integrated.

KPR mills

Fully backward integrated

player to benefit from Im-

proved outlook for the sector.

Asian Paint Reduction in raw material

cost

Tata Steel Domestic companies capacity

utilisation to improve.

www.geojit.com 2

Sectors Stocks Impacted

Corona Impact : Sector wise

Consumer Durables and Capital Goods

Of the total imports, engineering goods contributes 31% with dairy machinery (5.5%), Electric machinery (3.8%), Refrigeration machinery(2.4%), Metals(8%) being the major contributors.

Supply disruption of components like compressors for refrigerators and air conditioners, television panels, LED chips and motors etc, will lead to rise in prices and shortage of supply products in channels.

Electronic goods contribute 32% of total imports with mobile and telephone equipment contributing 10.5%, electronic components 8.3% and computer hardware 5.7%. China accounts for 85% of total value of components used in smartphones and 75% in television. Price are likely to increase and launch of new models are expected to be delayed.

Engineering goods accounts for 10.5% and electronic goods 4% of total exports in India.

Negative

Voltas

Whirlpool

Havells

V-Guard

Auto & Ancillary

In the last 5 years, Import of car equipment's from China have gone up by 22.1% (USD 27 million to USD 33 million) whereas exports have come down by 54% (USD 23 million to USD11 million). For Tata motor’s JLR’s 17% volume mix comes from China.

In the last 5 years import of 2/3 wheeler equipment's from China have gone up by 46% (from USD 3.5 million to USD 5.1 million). Will marginally disrupt the inventory management . Current inventory cycle is 30 days.

72% increase in import of Auto Components/Parts from China in the last 5 years . 7% of revenue mix comes from China for Motherson Sumi.

India imported USD 93mn from China in FY19, 21% of total tyre imports. Truck Bus Radial tyre import from China accounted for 24% in 2018-19 of the total import. Marginal benefit can be expected from reduction in competition.

Auto & Ancillaries: Negative

Tata Motors

Motherson Sumi

Bosch

Tyres: Marginally Positive

MRF

Apollo Tyres

JK Tyre

Cement

Indian cement sector mainly caters to domestic consumption. Exports are insignificant. Some companies source fuel material through imports also but can be switched to domestic sources.

Neutral

JK Lakshmi

Dalmia Bharat

Aquaculture

The main export destination country is US followed by EU. The exposure of companies to China ,in our coverage, is less, ~1.5% to 4% only, but it will marginally impact its plans to increase exposure in China & change in international clients preferences.

Marginally Negative

Avanti Feeds Ltd

Apex Frozen Ltd

www.geojit.com 3

Sectors Impact

Corona Impact : Sector wise

FMCG

Crude oil price to moderate in the near term, offering cost benefits to players relying on crude and it’s derivatives.

The outbreak has marginal benefit on FMCG’s due to drop in crude and derivative prices.

Positive

Asian paints

Berger paints

Jyothy Lab

Bajaj Consumer Care

Marginally Positive

Godrej consumer products

Jubilant Food works

Marico

HUL

Metal & Mining

Exports from China, the largest producer of metals is expected to fall, which will benefit domestic producers in the long run as manufacturers focus on diversifying their sourcing base going forward.

However in the near term, demand is expected to be downward due to lower global growth which may affect pricing power of metal companies. Currently, imports from China to India stands at around USD 5,500 million while exports are below USD 800 million, which signifies a huge opportunity for Indian players to meet domestic demand.

Neutral

Tata Steel

JSW Steel

Hindustan Zinc

Hindalco

Chemicals

Domestic speciality and Agro-chemicals players with strong supply chain & with global exports foot prints to benefit from hike in international prices.

Imports of chemicals and related products from China forms 20% of total imports in FY19 versus 14% in FY18 . Supply disruptions of basic raw material and intermediates will lead to increase prices.

Few crop protection companies source their active ingredient requirements from China. Hence, any disruption in supply may lead to increased costs for these companies and impact margins.

Positive

UPL

Aarti Industries

Kiri Industries

Negative

PI industries

Godrej agrovet

Information Technology

From the total revenue about 10% is generated from Asia-Pacific region and China accounts for 1-2%. Indian IT companies may have close to 3000-4000 workforce in Chinese cities like Beijing, Tianjin, Shanghai and Hangzhou. For the time being, impact in the software space is expected to be neutral while hardware components to have a negative impact (Huawei is a major player in the segment).

Neutral

TCS

INFOSYS

WIPRO

www.geojit.com 4

Sectors Impact

Corona Impact : Sector wise

Oil & Gas Marginally negative in the short-term but will benefit in the medium-term:

RIL

BPCL

IOCL

HPCL

GAIL

Petronet

China is the 2nd largest consumer of oil and 3rd largest consumer of gas in the world. Due to coronavirus, there is a fear that Chinese demand would be severely impacted, as a result, crude oil and gas prices have dipped almost 15% over the last one month.

Fall in crude oil prices may lead to inventory losses and impact Gross refining margins and profitability of OMCs in the short term.

However, lower crude prices in the long term will enable OMCs & Refineries to recover profitability by reduction in under-recoveries of public sector oil marketing companies (PSU OMCs) on domestic sale of LPG and kerosene at controlled prices.

Cheaper crude will help in containing current account deficit, rupee & inflation.

Pharmaceuticals Negative:

Sun pharmaceuticals

Lupin,

Dr Reddy’s

Torrent

Aurobindo pharma

Indian pharmaceutical companies imports both bulk drugs (API) and intermediates constituting around 68% of total imports of the raw material. Thus any prolonged supply disruptions from China will impact the industry growth over the next 2 quarters.

Fall in crude price to reduce raw material cost of those companies which has less reliance on API supply from China.

Incidences like this is expected to spearhead steps on increasing API manufacturing within India by way of quick regulatory approvals. India has enough capacity to manufacture API for many medicines. Currently, many such facilities are underutilised. Neutral:

Apollo Hospitals

Positive:

Granules

Natco

Textiles Positive

KPR Mills

Raymond

Trident

Gokaldas Exports

China’s 40% share in global textile & apparel trade may fall in the near term which is seen positive for Indian exporters considering the scalability and strong cotton base in the country. The exposure of sourcing from China is negligible.

Domestic companies outsourcing from China to be in short of supplies in the near term. Sourcing raw materials and supplies from new destinations can impact margins significantly.

Negative

Kewal Kiran clothing

www.geojit.com 5

China share in global economy China with a GDP of USD13 trillion has a share of around 16 percent in the global GDP. In 2018, China’s economy registered a growth rate of 6.5 percent against the global average of 2.9 percent. China is one of the major contributors to global trade. In 2018, merchandise trade as percent of China’s GDP stood at 34 percent. In 2018, exports of goods and services from China stood at USD 2.65 trillion, with a share of 10 percent in the global exports of goods and services. Similarly, imports of goods and services to China stood at USD 2.2 trillion, having a share of 9 percent in the global imports of goods and services.

China’s importance to Indian economy China is the major trading partner of India. In 2018-19, India imported USD 70407.7 million worth of commodities, and exported USD 16782.5 million worth of commodities, running a deficit of USD 53625.2 million. The below graph shows India’s exports and imports (with China) for the last 5 years:

-80000

-60000

-40000

-20000

0

20000

40000

60000

80000

100000

2014-15 2015-16 2016-17 2017-18 2018-19$ in m

illion

India' exports and imports (with China)

Exports Imports Deficit

India’s Exports to China Manufactured goods have the highest share in

India’s exports to China (60.5 percent), followed by Petroleum and Crude products (17 percent).

17.1

13.5

8.6

60.5

0.3India's exports of major commodities to China(%)

Petroleum products

Agricultural products

Ores & minerals

Manufactured goods

Other commodities

Within manufactured goods, Chemical and related products have the highest share (35percent), followed by Engineering goods (17 percent) and Textiles (15percent).

1

35

177

15

11

34

6

Share of commodities in India's manufacture goods exports to China(%)

Leather & leather manufactures

Chemicals & related products

Engineering goods

Electronic goods

Textiles

Plast ic & linoleum produc ts

Gems & jewellery

Granite, natural stone & produc ts

Other manufactured goods

India’s imports from China Manufactured goods constitute the highest share

in India’s imports from China. All other commodities have only a negligible share of the total imports from China.

95.9

India's imports of major commodities from China(%)

Petroleum products

Agricultural products

Ores and minerals

Manufactured goods

Other commodities

Within the manufactured goods, Electronic goods constitute the highest share (33 percent), followed by Engineering goods (32 percent), and Chemicals & related products (20.4 percent).

The above three items constitute nearly 82 percent of the total imports.

Source: CMIE

Source: CMIE

0.4

20.4

3233

3.1

0.5

10.8

Share of commodities in India's manufacturing goods imports from

China(%) Leather

Chemicals

Engineering goods

Elec tronic goods

Textiles

Readymade garments

Other manu factured goods

www.geojit.com 6

Novel Coronavirus (COVID-19)… Fast spreading but low fatality rate...

Coronavirus is a generic term for a large family of viruses known to cause illness ranging from the common cold to more severe diseases such as Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS). This particular disease has been officially named as Covid-19 and is related to SARS and MERS viruses. It is a zoonotic virus, which means these viruses transmit from animals to people. Covid-19 could have been transmitted from Bats through Pangolins (Unconfirmed). SARS was transmitted from Civets and MERS (Middle East Respiratory Syndrome) from Camels.

As with other respiratory illnesses, infection with Covid-19 can cause mild symptoms including a runny nose, sore throat, cough, and fever. It can be more severe for some persons and can lead to pneumonia or breathing difficulties. However, this disease is much less fatal than MERS, which caused 30% deaths, and SARS which had a 10% fatality rate. The fatality rate for Covid-19 is currently around 2-3%, as per published figures.

Virus Year Identified Cases Deaths Fatality Rate Timeline

Ebola 1,976 33,577 1,3562 40% As of Jan 31, 2020

SARS 2,002 8,096 774 10% Over 8-9 months in 2003

MERS 2,012 2,494 858 34% Over 8 years. Data as of Nov 2019

H7N9 Bird Flu 2,013 1,568 616 39% NA

Covid-19 2,020 45,171 1,115 2.5% As of Feb 12, 2020. 1st case on Dec 8, 2019

Source: WHO, CDC, Business Insider, Reuters

Latest Situation Report...

The first case, as per WHO, was reported on December 8, 2019 and since then, in just 2 months, there are 40000 plus confirmed cases of the disease, mainly in China. Till date, there is no specific medicine recommended to prevent or treat Covid-19 . However, data is now being published stating that the number of people recovering from the disease exceed the number of deaths, which could prove that the virus is not as fatal as initially feared. Although it spreads much faster than the SARS virus the fatality rate is lower, for now.

It has also generally been accepted that the Chinese Government is more transparent this time around, when compared with the SARS outbreak period. The sharing of information about this virus, has enabled international organizations to quickly develop a diagnostic test and to work towards developing a potential vaccine. There are reports of the Chinese government easing restrictions on work and travel and some factories and offices have commenced work. An advance team of international experts led by the World Health Organization (WHO) is also heading for Beijing to help investigate the epidemic. With the recovery rate increasing and adequate measures being taken to contain the spread of the virus, we hope that we have seen the worst of this Coronavirus.

www.geojit.com 7

27th December 2018

General Disclosures and Disclaimers

CERTIFICATION

I, Vinod Nair and Geojit Research Team, authors of this research note, hereby certify that all the views expressed in this research Note reflect our personal

views about any or all of the sector or securities. This research Note has been prepared by the Research Team of Geojit Financial Services Limited, herein-

after referred to as Geojit.

This research Note is only our general outlook and the impact it may have on sector specific stocks cited therein, which are only by way of examples. Cer-

tain stocks included in the research Note may not be within our coverage and are only used for illustrative purposes. For those stocks which are within our

coverage, you may refer the General Disclosures given hereafter.

COMPANY OVERVIEW

Geojit Financial Services Limited (hereinafter Geojit), a publically listed company, is engaged in services of retail broking, depository services, portfolio

management and marketing investment products including mutual funds, insurance and properties. Geojit is a SEBI registered Research Entity and as such

prepares and shares research data reports, notes and recommendations periodically with clients, investors, stake holders and general public in compliance

with Securities and Exchange Board of India Act, 1992, Securities And Exchange Board Of India (Research Analysts) Regulations, 2014 and/or any other

applicable directives, instructions or guidelines issued by the Regulators from time to time.

DISTRIBUTION

This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any

other person. Geojit will not treat the recipients of this research Note as clients by virtue of their receiving this research Note. This research Note is offered

to our clients without any fees/cost.

GENERAL REPRESENTATION

This research Note do not constitute an offer or solicitation for the purchase or sale of any financial instruments, inducements, promise, guarantee, war-

ranty, or as an official confirmation of any transaction or contractual obligations of any kind. This is provided for assistance only and is not intended to be

and must not alone be taken as the basis for an investment decision. The information contained herein is from publicly available data or other sources

believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. We have also reviewed the research

Note for any untrue statements of material facts or any false or misleading information.

RISK DISCLOSURE

Geojit and/or its Affiliates and its officers, directors and employees including the analyst/authors shall not in any way be responsible for any loss or dam-

age that may arise to any person from any inadvertent error in the information contained in this research Note. Investors may lose his/her entire invest-

ment under certain market conditions so before acting on any advice or recommendation in these material, investors should consider whether it is suitable

for their particular circumstances and, if necessary, seek professional advice. This research Note does not take into account the specific investment objec-

tives, financial situation/circumstances and the particular needs of any specific person who may receive this document. The user assumes the entire risk of

any use made of this information. Each recipient of this research Note should make such investigation as deemed necessary to arrive at an independent

evaluation of an investment in the securities of companies referred to in this research Note (including the merits and risks involved). The price, volume

and income of the companies cited as examples referred to in this research Note may fluctuate and investors may realize losses that may exceed their origi-

nal capital.

www.geojit.com 8

27th December 2018

FUNDAMENTAL DISCLAIMER

We have prepared this research Note based on information believed to be reliable. The opinions expressed herein are subject to change but we have no

obligation to inform our clients if our opinions or recommendations change. This research Note is non-inclusive and does not consider all the information

that the recipients may consider material to investments. This research Note is issued by Geojit without any liability/undertaking/commitment on the

part of itself or any of its entities. We may have issued or may issue on the companies covered herein, reports, recommendations or information which is

contrary to those contained in this research Note.

The actual performance of the companies represented in the research Note by way of examples may vary from those projected. These are not scientifically

proven to guarantee certain intended results and hence, are not published as a warranty and do not carry any evidentiary value whatsoever. These are

not to be relied on in or as contractual, legal or tax advice. Prospective investors and others are cautioned that any forward-looking statements are not

predictions and may be subject to change without notice.

JURISDICTION

Distributing/taking/sending/dispatching/transmitting this document in certain foreign jurisdictions may be restricted by law, and persons into whose

possession this document comes should inform themselves about, and observe any such restrictions. Failure to comply with this restriction may consti-

tute a violation of any foreign jurisdiction laws.

GENERAL DISCLOSURES

Geojit represents that : 1. It/its associates have no financial interest or any other material conflict in relation to the companies covered herein. 2. It/its associates have no actual beneficial ownership greater than 1% in relation to the companies covered herein. 3. In the last 12 months, it or its Analysts have not received compensation from the companies featured herein. Like all Geojit employees, analysts

receive compensation that is impacted by overall firm's profitability. 4. In the past 12 months, it or its Analysts have not managed or co-managed any public offering for the companies featured herein. 5. In the past 12 months, it or its Analysts have not received any compensation for investment banking or merchant banking or brokerage services

from the companies featured herein. 6. In the past 12 months, it or its Analysts have not received any compensation for products or services other than investment banking, merchant

banking or brokerage services from the companies featured herein. 7. It or its Analysts have not received any compensation or other benefits from the companies featured herein or any third party in connection with

this research Note. 8. It has not engaged into market making activity for the companies featured herein. Further, the Analyst confirms that: 1. He, his associates and his relatives have no financial interest in the companies covered herein, and they have no other material conflict in these

companies (except in Tata Motors, UPL, Asian Paint, Tata Steel, Avanti Feeds, Apex Frozen, Dalmia, Kiri Industries, Natco Pharma, PI Industries wherein he/his associates/his relatives holds shares in the mentioned companies /has other financial interest in the mentioned company).

2. He, his associates and his relatives have no actual/beneficial ownership greater than 1% in the companies covered in this research note. 3. He has not served as an officer, director or employee of the companies featured herein. Please ensure that you have read the “Risk Disclosure Documents for Capital Market and Derivatives Segments” as prescribed by the Securities and Ex-change Board of India before investing.

Geojit Financial Services Ltd. (formerly known as Geojit BNP Paribas Financial Services Ltd.), Registered Office: 34/659-P, Civil Line Road, Padivattom, Kochi-682024, Kerala, India. Phone: +91 484-2901000, Website: www.geojit.com. For investor queries: customercare@geojit.com, For grievances: grievances@geojit.com, For compli-

ance officer: compliance@geojit.com.

Corporate Identity Number: L67120KL1994PLC008403, SEBI Stock Broker Registration No INZ000104737, Research Entity SEBI Reg No: INH200000345, Investment Adviser SEBI Reg No: INA200002817, Portfolio Manager: INP000003203, Depository Participant: IN-DP-325-2017, ARN Regn.Nos:0098, IRDA Corporate Agent

(Composite) No.: CA0226