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Transcript of Why Chinese tremors will rock Indian companies like Tata Motors.pdf
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Print | Clo
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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