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MG ARUN   @mgarun1

MONEY | 3-minute read | 09-08-2015

 

 When the Chinese stock markets crashed in early July, there were at leastsome who pronounced that China’s loss would be India’s gain. China’s stock

markets lost $3.25 trillion in a month to July 9, as a result of "margin

trading" where retail investors used borrowed money to hoard shares. The

Indian markets, too felt the jitters, with the bourses registering huge falls in

early July, in tandem with China’s exchanges. But there was recovery, and

Indian bourses are presently finding their own "unsteady" rhythm,

characterised by big falls on a day, and big gains on another. Amidst thisuncertainty, caused partly by poor performance of companies in their

quarterly earnings, and high inflation that is holding the central bank back 

from reducing key interest rates, and partly by global cues, much is

happening. The most significant among these is the retail investors’

confidence slowly returning to the market, as the success of the initial public

offerings (IPOs) of companies such as Syngene, VRL Logistics and Inox

Why Chinese tremors will rock Indiancompanies like Tata Motors

China is one of the biggest consumers of products, and any adversity can cause

much pain for firms with an exposure there.

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 Wind demonstrate.

Read more: Can a falling China mean India shining?

However, it is now becoming clear that China’s loss is not always India’s

gain. China is not only the manufacturing hub of the world, it is also one of the biggest consumers of products, and any adverse eventuality can cause

much pain for Indian companies with an exposure there. On Friday, Tata

Motors, India’s largest auto maker by revenues, said its first-quarter net

profit fell by half to Rs 2,769 crore as sales at its UK luxury car unit, Jaguar

Land Rover Automotive Plc (JLR), declined as Chinese demand slipped.

China, which became the world’s largest car market surpassing the US, is

also the biggest market for JLR. At one point, it was the Chinese market thatsaved JLR and Tata Motors from slipping into the red, as sales in Europe

slowed. But as China’s economic boom slows down, so does the demand for

luxury cars, including those from BMW and General Motors. JLR sales

dropped 33 per cent in China in the first quarter. By a strange twist of 

events, the company is now betting on revival in other developed countries

to pep up sales, including Europe, the UK and the US, where JLR sales grew

27 per cent, 20 per cent and 13 per cent, respectively.

Read more: Lessons for India from the Chinese stock market

crash

The trouble in China is not going to get rectified too fast. The country’s GDP

grew seven per cent in the second quarter, but according to a Bloomberg

analysis, when the GDP is adjusted for price changes, growth could be twopercentage points below than that achieved last year. Moreover, the jury is

still out on the credibility of the growth numbers that China puts out. That is

not good news at all for Indian companies such as the Tata Group and

Mahindra & Mahindra, whose units have been doing brisk sales in China so

far. Mahindra, which had two joint ventures for sales of its tractors in China

consolidated its operations there a few years back and is one of the top

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Writer

MG ARUN @mgarun1

The writer is Deputy Editor, India Today.

players in the Chinese market. M&M had said in February that its tractor

sales will be under pressure in the following months, and it will be

expanding its focus on the US, Africa and Latin America, with no mention of

China. Larsen & Toubro folded up its manufacturing facility in China years

ago as it found it difficult to compete in the Chinese electrical market agains

cheap products from competitors. Early last year, component maker BharatForge exited its eight-year joint venture in China, which had Rs 600 crore in

revenues and made parts for the Chinese auto industry.

The signs are clear. Tremors in the world’s second largest economy will have

their aftershock in India for sure, and Indian companies will need to devise

 ways to mitigate the pains.

#Jlr, #Tata Motors, #Chinese economic crisis, #China,

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