Effects of Japan tsunami on Indian stock markets - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Effects of Japan tsunami on Indian stock markets

Mar 15, 2011

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
Consider this:

- India's trade with Japan is just 2% of India's total foreign trade.
- Exports to Japan are half of imports from Japan.
With this information in mind, the impact on the Indian economy prima facie looks negligible.

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


Equitymaster requests your view! Post a comment on "Effects of Japan tsunami on Indian stock markets". Click here!

  

More Views on News

My View on ITC (Fast Profits Daily)

Oct 23, 2020

What do the charts say about ITC?

Value Vs Growth Investing: And the Winner Is... podcast (Views On News)

Oct 23, 2020

It's time to rethink value versus growth debate and the way to play markets in 2020.

Axis Banking ETF - Mirroring Growth Potential of Top Banking Stocks (Outside View)

Oct 23, 2020

Axis Banking ETF is the latest offering from Axis Mutual Fund. In its Daily Wealth Letter, PersonalFN analyses the funds features and explains the potential this fund has to offer to its investors.

One Cycle that Defines Everything in Markets (Profit Hunter)

Oct 23, 2020

Know this cycle to boost your profits in the market.

Better Days Ahead for the Markets (Fast Profits Daily)

Oct 22, 2020

Commodity prices are signalling an economic recovery.

More Views on News

Most Popular

Commodities Trading: From Pits to Screen

Trading in commodities is perhaps as old as the human civilization. Find out how it will unfold in the future

My View on ITC (Fast Profits Daily)

Oct 23, 2020

What do the charts say about ITC?

The 'Seedhi Baat, No Bakwaas' View on ITC (Profit Hunter)

Oct 12, 2020

Is ITC an investment or a speculation at current levels?

One of the Best Investment Opportunities in the Market Right Now (Fast Profits Daily)

Oct 16, 2020

The one sector that you should be looking at to make good profits.

Why India's Drone Revolution is a 4x Profit Opportunity (Profit Hunter)

Oct 16, 2020

My research on India's leading defence companies brought me to one major player in drone manufacturing.

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Oct 23, 2020 (Close)

MARKET STATS