{"id":4667,"date":"2021-09-22T17:48:52","date_gmt":"2021-09-22T12:18:52","guid":{"rendered":"https:\/\/www.tickertape.in\/blog\/?p=4667"},"modified":"2022-05-24T18:36:48","modified_gmt":"2022-05-24T13:06:48","slug":"chinas-evergrande-crisis-impact-india","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/chinas-evergrande-crisis-impact-india\/","title":{"rendered":"Will China\u2019s Evergrande Crisis Drag the Indian Stock Market?"},"content":{"rendered":"\n<p>On Monday this week, Hong Kong equities witnessed a major sell-off during the Asia trading session. Hang Seng, the benchmark <a href=\"https:\/\/www.tickertape.in\/blog\/stock-market-index\/\">index<\/a>, plummeted 4% mainly because China\u2019s real estate giant Evergrande Group is on the verge of defaulting. They are a Fortune 500 company having over $300 bn in liabilities that became due for payment starting this week. Listed in Hong Kong, Evergrande itself has tumbled 16.4% this week and 84.5% in the year so far.<\/p>\n\n\n\n<p>US stocks also entered the week deep in red. S&amp;P 500 fell 1.7% and Dow 600 points. The tech-heavy Nasdaq Composite also dropped 2.2%. A similar scene played out in the Japanese market, where indices Topix and Nikkei 225 shed over 1.5% each. Back home, Dalal Street tumbled, dragging domestic steel stocks along.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/chinas-evergrande-crisis-impact-india\/#Travelling-back-in-time-%E2%80%93-Lehman-Brothers\" title=\"Travelling back in time \u2013 Lehman Brothers\">Travelling back in time \u2013 Lehman Brothers<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/chinas-evergrande-crisis-impact-india\/#Chinese-regulatory-crackdown-in-its-Edtech-sectors\" title=\"Chinese regulatory crackdown in its Edtech sectors\">Chinese regulatory crackdown in its Edtech sectors<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/chinas-evergrande-crisis-impact-india\/#How-did-this-impact-Indian-markets\" title=\"How did this impact Indian markets?\">How did this impact Indian markets?<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/chinas-evergrande-crisis-impact-india\/#A-defence-mechanism\" title=\"A defence mechanism\">A defence mechanism<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.tickertape.in\/blog\/chinas-evergrande-crisis-impact-india\/#On-the-contrary\" title=\"On the contrary\">On the contrary<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.tickertape.in\/blog\/chinas-evergrande-crisis-impact-india\/#Coming-back-to-the-Evergrande-crisis\" title=\"Coming back to the Evergrande crisis\">Coming back to the Evergrande crisis<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.tickertape.in\/blog\/chinas-evergrande-crisis-impact-india\/#Is-the-company-not-too-big-to-fail\" title=\"Is the company not too big to fail?\">Is the company not too big to fail?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.tickertape.in\/blog\/chinas-evergrande-crisis-impact-india\/#Just-how-big-is-Evergrande\" title=\"Just how big is Evergrande?\">Just how big is Evergrande?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.tickertape.in\/blog\/chinas-evergrande-crisis-impact-india\/#Are-Indian-markets-in-trouble\" title=\"Are Indian markets in trouble?\">Are Indian markets in trouble?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.tickertape.in\/blog\/chinas-evergrande-crisis-impact-india\/#The-bright-side\" title=\"The bright side\">The bright side<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\" id=\"Time\"><span class=\"ez-toc-section\" id=\"Travelling-back-in-time-%E2%80%93-Lehman-Brothers\"><\/span><strong>Travelling back in time \u2013 Lehman Brothers<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Back in 2008, America had witnessed a similar crisis with realty giant Lehman Brothers declaring bankruptcy. Forgetting the resultant global financial crisis of 2008 is hard, right? Is a similar situation around the corner? Well, analysts expect not. Some say that 2008 was a long, long time and also that a lot has changed since then. And so both the situations don\u2019t run parallelly. But this doesn\u2019t negate the possibility of a spillover of the contagion.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"Edtech\"><span class=\"ez-toc-section\" id=\"Chinese-regulatory-crackdown-in-its-Edtech-sectors\"><\/span><strong>Chinese regulatory crackdown in its Edtech sectors<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Earlier this year, the Chinese tech and education sectors were tied down with regulatory restrictions, whose impact reverberated across the globe. Companies such as Didi, Tencent, and Alibaba faced regulatory challenges due to reasons including data privacy concerns of users and prohibition of EdTech companies from raising money in overseas markets.<\/p>\n\n\n\n<p>Global investment in Chinese stocks and bonds shot 40% to over $800 bn through the last year. Around the time of the <a href=\"https:\/\/www.tickertape.in\/blog\/chinas-crackdown\/?utm_source=blog&amp;utm_medium=article\">Chinese Edtech crackdown<\/a>, the country\u2019s weightage in FTSE emerging markets <a href=\"https:\/\/www.tickertape.in\/blog\/exchange-traded-funds\/\">ETF<\/a> was 40%. And although Shanghai Composite, a broader index, was down 2%, Tech and Education related stocks plunged ~90%.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"How\"><span class=\"ez-toc-section\" id=\"How-did-this-impact-Indian-markets\"><\/span><strong>How did this impact Indian markets?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Although of Chinese origin, these technology companies\u2019 top investors are Western and not domestic. For instance, Naspers Limited, a South African MNC and the Vanguard Group, Inc., a US company, are top international investors in Tencent. And Goldman Sachs International is one of the major investors in Alibaba. These investors have also poured their funds into Indian <a href=\"https:\/\/www.tickertape.in\/blog\/how-to-invest-in-stock-market\/?utm_source=blog&amp;utm_medium=article\">equity markets<\/a>.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"A-defence-mechanism\"><\/span><strong>A defence mechanism<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The natural instinct of such investors incurring significant losses in any country, be it China or others, would be to limit their risk exposure in other countries.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"On-the-contrary\"><\/span><strong>On the contrary<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>India and the US, saw a generous inflow of funds as the big investors redirected their funds from China to emerging markets. However, experts say that this is a situational advantage for India as it wouldn\u2019t last in the long run.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"Evergrande\"><span class=\"ez-toc-section\" id=\"Coming-back-to-the-Evergrande-crisis\"><\/span><strong>Coming back to the Evergrande crisis<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The real estate sector accounts for close to 29% of the Chinese economy. Evergrande Group is the second-largest property developer in China. Failure to repay the liabilities could cause repercussions for both China and the global markets. A default could either call the Chinese government to rescue Evergrande or would need liquidation of the company\u2019s assets. The latter could have a ripple effect impacting both banking and non-banking institutions having exposure in Evergrande.<\/p>\n\n\n<span class='bctt-click-to-tweet'><span class='bctt-ctt-text'><a href='https:\/\/twitter.com\/intent\/tweet?url=https%3A%2F%2Fwww.tickertape.in%2Fblog%2Fchinas-evergrande-crisis-impact-india%2F&#038;text=The%20real%20estate%20sector%20accounts%20for%20~29%25%20of%20the%20Chinese%20economy.%20Evergrande%20Group%20is%20the%202nd%20largest%20property%20developer%20in%20the%20country%2C%20and%20owes%20%24300%20bn.%20Failure%20to%20repay%20could%20cause%20repercussions%20for%20both%20China%20and%20global%20markets%21&#038;via=TickertapeIN&#038;related=TickertapeIN' target='_blank'rel=\"noopener noreferrer\">The real estate sector accounts for ~29% of the Chinese economy. Evergrande Group is the 2nd largest property developer in the country, and owes $300 bn. Failure to repay could cause repercussions for both China and global markets! <\/a><\/span><a href='https:\/\/twitter.com\/intent\/tweet?url=https%3A%2F%2Fwww.tickertape.in%2Fblog%2Fchinas-evergrande-crisis-impact-india%2F&#038;text=The%20real%20estate%20sector%20accounts%20for%20~29%25%20of%20the%20Chinese%20economy.%20Evergrande%20Group%20is%20the%202nd%20largest%20property%20developer%20in%20the%20country%2C%20and%20owes%20%24300%20bn.%20Failure%20to%20repay%20could%20cause%20repercussions%20for%20both%20China%20and%20global%20markets%21&#038;via=TickertapeIN&#038;related=TickertapeIN' target='_blank' class='bctt-ctt-btn'rel=\"noopener noreferrer\">Click To Tweet<\/a><\/span>\n\n\n<h2 class=\"wp-block-heading\" id=\"Fail\"><span class=\"ez-toc-section\" id=\"Is-the-company-not-too-big-to-fail\"><\/span><strong>Is the company not too big to fail?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>But will the Chinese government bail out the ailing developer? Chinese authorities have already rejected Evergrande\u2019s plea for a bailout once. However, the significant global impact in case of the company\u2019s default has prompted the policymakers to step in.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"Big\"><span class=\"ez-toc-section\" id=\"Just-how-big-is-Evergrande\"><\/span><strong>Just how big is Evergrande?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Evergrande has 1.5 mn residential units that are sold but not yet completed. Besides having a presence in the real estate sector, Evergrande also has an auto unit, health food vertical, online media platform, and healthcare projects.<\/p>\n\n\n\n<p>As mentioned, the company\u2019s debt problem is just as big. As of now, Evergrande owes over $300 bn to investors, suppliers, and lenders. This accounts for ~6.5% of the Chinese property segment\u2019s total liability.<\/p>\n\n\n<span class='bctt-click-to-tweet'><span class='bctt-ctt-text'><a href='https:\/\/twitter.com\/intent\/tweet?url=https%3A%2F%2Fwww.tickertape.in%2Fblog%2Fchinas-evergrande-crisis-impact-india%2F&#038;text=Evergrande%E2%80%99s%20debt%20problem%20is%20as%20big%20as%20the%20empire%20itself.%20They%20owe%20over%20%24300%20bn%20to%20various%20stakeholders%2C%20accounting%20for%20~6.5%25%20of%20the%20Chinese%20property%20segment%E2%80%99s%20total%20liability%21&#038;via=TickertapeIN&#038;related=TickertapeIN' target='_blank'rel=\"noopener noreferrer\">Evergrande\u2019s debt problem is as big as the empire itself. They owe over $300 bn to various stakeholders, accounting for ~6.5% of the Chinese property segment\u2019s total liability! <\/a><\/span><a href='https:\/\/twitter.com\/intent\/tweet?url=https%3A%2F%2Fwww.tickertape.in%2Fblog%2Fchinas-evergrande-crisis-impact-india%2F&#038;text=Evergrande%E2%80%99s%20debt%20problem%20is%20as%20big%20as%20the%20empire%20itself.%20They%20owe%20over%20%24300%20bn%20to%20various%20stakeholders%2C%20accounting%20for%20~6.5%25%20of%20the%20Chinese%20property%20segment%E2%80%99s%20total%20liability%21&#038;via=TickertapeIN&#038;related=TickertapeIN' target='_blank' class='bctt-ctt-btn'rel=\"noopener noreferrer\">Click To Tweet<\/a><\/span>\n\n\n<p>As per UBS, Evergrande\u2019s liabilities could involve over 130 banking and 120 non-banking institutions. The company\u2019s debt is ~2-3% of Chinese bank\u2019s core Tier 1 capital \u2013 around 18.5 trillion as of Q2.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"Trouble\"><span class=\"ez-toc-section\" id=\"Are-Indian-markets-in-trouble\"><\/span><strong>Are Indian markets in trouble?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The real impact of the Evergrande crisis is yet to be seen. Indian <a href=\"https:\/\/www.tickertape.in\/blog\/sensex-and-nifty\/\">benchmark indices<\/a> <a href=\"https:\/\/www.tickertape.in\/indices\/nifty-index-.NSEI?utm_source=blog&amp;utm_medium=article\" target=\"_blank\" rel=\"noreferrer noopener\">Nifty<\/a> and <a href=\"https:\/\/www.tickertape.in\/blog\/sensex-companies\/\">Sensex<\/a> fell on this account on Monday, they seemed to have recovered to an extent on Tuesday.<\/p>\n\n\n\n<p>But a slowdown in Chinese real estate could also hamper the growth in the global economy including ours. Besides, it would also impact the prices of industrial commodities, which is why Indian sectors such as steel, <a href=\"https:\/\/www.tickertape.in\/indices\/nifty-metal-index-.NIFTYMET?utm_source=blog&amp;utm_medium=article\" target=\"_blank\" rel=\"noreferrer noopener\">metals<\/a>, and iron ore could take a hit if the Chinese government doesn\u2019t rescue Evergrande on time.<\/p>\n\n\n\n<p>The Chinese government could also depreciate Yuan to support its economy by levelling up exports, intensifying competition in Indian sectors such as textiles, chemicals, tyres, and garments.<\/p>\n\n\n\n<p>After rallying sharply so far this year, metal and <a href=\"https:\/\/www.tickertape.in\/blog\/best-chemical-stocks-in-india\/\">chemical stocks<\/a> slowed down with the change in the US Federal Reserve\u2019s stance. Overall markets have also been facing headwinds given the possibility that the Fed could initiate withdrawing the quantitative easing programme toward the year-end. The Evergrande issue has only escalated the woes.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"Bright\"><span class=\"ez-toc-section\" id=\"The-bright-side\"><\/span><strong>The bright side<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Although it can\u2019t be said for sure, part of the exodus of investors from the Chinese market could fly to India. Think on the lines of <a href=\"https:\/\/www.tickertape.in\/blog\/can-china-plus-one-strategy-put-india-on-an-upwards-growth-trajectory\/?utm_source=blog&amp;utm_medium=article\">China plus one strategy<\/a>. But a clear picture is far from visible as of now. However, it is best to be cautious because the market is generously valued and is thus prone to corrections.<\/p>\n\n\n\n<p>On the contrary,&nbsp; the earlier regulatory crackdown in China coupled with the recent Evergrande crisis could attract increased funds in the Indian market in the medium to long term. But a clear picture is far from visible as of now.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>China\u2019s Evergrande crisis may not be as severe as the US\u2019 Lehman Brothers. But it will likely impact these 7 sectors of the Indian economy.<\/p>\n","protected":false},"author":27,"featured_media":4669,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"no","footnotes":""},"categories":[10,1744],"tags":[783,785,784,787,786],"acf":[],"modified_by":"Aradhana Gotur","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2021\/09\/9.png?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/4667"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/27"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=4667"}],"version-history":[{"count":8,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/4667\/revisions"}],"predecessor-version":[{"id":8700,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/4667\/revisions\/8700"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/4669"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=4667"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=4667"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=4667"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}