Mar 15, 2011|
Effects of Japan tsunami on Indian stock markets
Every time a natural disaster strikes some part of the world, we see business media predicting gloomy days ahead for the world stock markets. This time we already came through a few sensational headlines like, 'Japan Tsunami rattles world stock markets'. True, that the earthquake was devastating for the people of Japan but it may not really mean depressing times for the Indian stock markets or the Indian economy. Here are a few parameters that will help gain perspective to assess the impact of this event.
Impact on Indian Stock Markets
Generally when we refer to the Indian stock markets it typically means the Indian indices - Sensex or Nifty. These indices basically are weighted averages of selected stocks from different sectors/industry. So to understand the effect of the earthquake and tsunami in Japan on the Sensex, we need to understand the exposure of Sensex companies to Japan. The main sectors having exposure to Japan are Autos and Information Technology. But the effect on companies should not be too significant.
Impact on Indian Economy
- India's trade with Japan is just 2% of India's total foreign trade.
With this information in mind, the impact on the Indian economy prima facie looks negligible.
- Exports to Japan are half of imports from Japan.
Impact on Crude Oil
Japan is third largest consumer of crude and consumes around 4.3 m barrels a day of crude oil. World crude oil consumption is 85 m barrels a day. Due to the catastrophic earthquake, few of the refineries in Japan have been shut due to fire. Bloomberg report suggests that Cosmo Oil's and JX Nippon Oil shut down its refineries totaling a production of 742,000 barrels a day of crude oil. Other refineries may also follow suit depending on the damage. This may lead to decrease in temporary demand for crude oil and may lead to softening of crude oil prices.
What after earthquake?
The aftermath of earthquake will spur demand in reconstruction activities, buying new cars, healthcare and consumer products in Japan. But this comes at a price. The reconstruction activities like ports, roads, rail, and airports among other will have to be paid off by the government of Japan and that can weaken its economy further. Plus there would be a huge psychological impact that also comes into play.
We are in no position to forecast the actual impact of this episode on India but we can surely say that be very cautious when you next read a sensational headline like 'Japan Tsunami rattles world stock markets'.
Although this may cause a temporary blip in the stock markets, what matters is the scenario from a long term perspective. And this looks positive, given that India's growth story remains on track. This means that any correction in prices should be looked upon as an opportunity to pick up good quality stocks if the valuations are right.
Data Source: India Exim data, Bloomberg, www.eia.gov
More Views on News
Jun 10, 2017
Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.
Aug 19, 2017
Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.
Aug 18, 2017
Buying the index now will hardly help make money in stocks even in ten years.
Aug 18, 2017
Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.
Aug 17, 2017
PersonalFN simplifies the mutual fund account statement for you.
More Views on News
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 10, 2017
Bitcoin hits an all-time high, is there more upside left?
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407