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The recent slowdown in China created a ripple effect and disturbed many global economies. India was no exception. The news inspired a steep sell-off on Indian bourses.
China has been one of the running candidates for a crash in Indian markets. This is because India is exposed to Chinese economy. Take the case of merchandise trade. As per an article in Business Today, China accounts for approximately one-tenth of India's merchandise trade. Majority of this trade comes from imports of goods to India.
Going by data, Chinese imports accounted for 13.5% of India's total merchandise import bill of US$ 448 billion in 2014-15. In comparison, the value of goods exported from India to China was just 3.9% of India's total merchandise exports earnings that financial year.
The above exposure can weigh on Indian economy. The devaluation of Yuan can affect Indian imports. The lower currency will ultimately lead to cheaper imports. This, in turn, will make the domestic products more expensive.
Furthermore, concerns also remain for Indian exports. Demand in China has been slowing down. That has led to a fall in its raw material requirement. And with low raw material requirement, India's exports to China may decrease.
On the contrarian side, there are many things that can work in favour for India as well. China's slowdown can prove beneficial for infrastructure development in India. With many domestic infrastructure companies laden with debt, investments from China can boost the development in this space.
Moreover, the co-operation from China in development of various sectors such as renewable energy, rail network, manufacturing sector etc. can also work out well in the case of a Chinese slowdown.
Only time will tell how the above things will pan out.
Coming to the investment sphere, many participants are worried that China and its slowing economy will bring more concerns for Indian markets. However, we believe that a crash can be an ideal time for Indian investors to make investments in solid Indian companies that are well-shielded from any adverse developments in China.
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