China GDP reports slowest growth in decades, how will it impact India?

Hit by a surge in Covid cases and property sector troubles, China GDP growth slowed down to its lowest levels since the 1970s. The world’s second largest economy reported a GDP growth of 2.9% in the October-December quarter.

The rate was slower than the 3.9% growth reported in the previous quarter. However, it exceeded the 1.8% growth expectations of the market.

With a sudden lifting of the Covid curbs in December, experts believed that growth will sharply rebound in China. However, this led to a sharp rise in cases which is expected to hamper growth in the near term at least.
 

But how is this slowdown in growth in China going to affect India? Which sectors are expected to be the most affected? Let’s find out

Automobile Sector: A major portion of the raw materials required for the manufacturing automobile sector in India is sourced from China. In a scenario of a slowdown in China, supply chains are likely to be disrupted. This in turn can lead to a rise in prices for components for automobile companies. Subsequently, these companies can experience shrinking margins and profitability just when the situation was seeming to turn around for the sector.

Below are the top 3 automobile companies in India in terms of market cap:

Data as on 16 Jan 2023

Steel Sector: China is the largest producer as well as the largest consumer of steel in the world. A slowdown in the Chinese economy may lead to an adverse effect on global steel demand. Shrinking demand will lead to lower steel prices which in turn can negatively impact the steel industry in India. Profitability decline for the steel industry can pose problems for the Indian Government’s massive Capex push as steel is a vital component required for manufacturing.

Below are the top 3 steel companies in India in terms of market cap:

Data as on 16 Jan 2023

Electronics Sector: The Indian electronics sector is highly dependent on China. According to a recent report by Counterpoint, India, local sources just 14% to 15% of the components for the smartphones used in India and the rest are sourced from China. As a result, a slowdown in China’s GDP can jolt the electronics sector in India considerably. This is especially concerning as the electronics sector is a large employment generator for the country. Further, demand for electronic products in the country has been rising at a rapid pace over the years and a supply issue in such a situation can be a problem.

Here are the top 3 electronics companies in India in terms of market cap:

Data as on 16 Jan 2023

Pharmaceuticals Sector: The Indian pharmaceuticals sector has been a shining light for the country in recent times. For instance, as of February 2022, the country exported pharmaceuticals worth $22 billion, according to a report by Statista. However, the industry is still grossly dependent on China to source raw materials such as Active Pharmaceutical Ingredients (APIs). Right from making paracetamols to antibiotics, India is hugely dependent on China for the APIs to make these drugs. As a result, a Chinese economic slowdown would greatly hurt Indian pharmaceutical production.

Here are the top 3 pharmaceutical companies in India in terms of market cap:

Data as on 16 Jan 2023

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.