Financial Services firm Motilal Oswal believes Indian steel manufacturers are unlikely to be seriously affected by the crisis at Evergrande, which is China’s second-largest real estate company. It owns more than 1,300 projects across 280 Chinese cities and towns, and singularly controls 2% of the country’s real estate market.
However, shares of Indian steelmakers – Tata Steel, Steel Authority of India (SAIL), Jindal Steel and Power, and JSW have recorded a downward trend in recent sessions as Evergrande warned again that it could default. According to CNBC, stocks tumbled last Monday before recuperating some of the declines, and on Friday the shares fell more than 2%.
Hemang Jani, head of equity strategy for broking and distribution, Motilal Oswal, told CNBC’s Street Signs Asia said recent sell-off in those stocks were more related to a “cooling off” in certain metal prices. “Demand outlook overall remains quite steady and we think that the pricing is something that we will have to watch out, given the Evergrande developments and how serious or how much deeper corrections we can see,” Jain said. “We continue to be quite positive, we do not view this development as something which will have serious implications for the metal companies in India.” He highlighted that falling prices of Indian steel stocks is a buying opportunity into names like SAIL, Jindal Steel and Power, as well as non-ferrous metals firm like Hindalco.
Global analysts have brushed off fears of a global crisis. Kyle Rodda, analyst at brokerage IG Markets in Melbourne, believes the markets have priced in that on the balance of probabilities. “The shock and awe is over. Markets are really just expecting from here on in, a company that is doomed to failure but one which won’t be allowed to result in major risks within the Chinese financial system, or that contagion won’t pervade global markets.”
Evergrande, as per Reuters, with liabilities of around $305 billion has run short of cash and rapidly become Bejing’s biggest corporate headache. Investors are worried a collapse could pose systemic risks to China’s financial system. Evergrande is scrambling to raise funds to pay its many lenders and suppliers. Last week, the company missed a payment deadline on a dollar bond and its silence on the matter has left global investors troubled.