China’s property crisis threatens global trade but could prove a boon in disguise for India, especially steel producers, experts say. The crisis that began with the collapse of real estate giant Evergrande has deepened for China, with several real estate giants showing signs of potential defaults.
“It could be a silver lining for the Indian steel industry,” said Arun Malhotra, founding partner and portfolio manager at CapGrow Capital advisors. China is the largest steel producer in the world and accounts for 57% of total steel production. According to Malhotra, around 30% of the country’s steel mills could be on the verge of bankruptcy as they rely heavily on the real estate sector.
This could provide an opportunity for Indian companies to step up and replace Chinese companies. India is the world’s second largest steel producer after China. It produced 113.6 million tonnes (MT) of crude steel in FY22, 18.1% higher than FY21 output, according to data from the Ministry of Steel.
“The collapse of the Chinese property market will also cool commodity prices, which should benefit India as a whole,” Malhotra added. Commodity prices, especially oil, have remained high since the start of the war in Ukraine.
Due to work from home and rising incomes, India’s real estate sector has shown robust growth and remained insulated from geopolitical shocks.
“Indian real estate is mainly dependent on domestic demand which is strong enough after the pandemic lull and on the option of working from home,” said Sharad Chandra Shukla, Director of Mehta Equities Ltd.
“Huge government concentration and the construction of highways and other infrastructure are all driving urbanization and increased consumer spending, creating demand for housing and commercial real estate,” Malhotra added.
The Indian equity market also remained in the green.
“Apart from rising interest and construction costs which have been well absorbed by the Indian market, we have not seen any weakness. First quarter FY23 sales continue to be strong. Murtuza Arsiwalla, Director, Kotak Institutional Equities, said.
Nifty Realty has jumped 8.54% over the past year, while NSE’s benchmark, Nifty50, has gained 7.14%, according to data from the NSE website. Shares of several industry players, including Oberoi Realty, Lodha Group and Prestige Estates, have jumped more than 20% since August 8, 2021. Brigade Enterprises and Phoenix Mills Limited have gained 54 and 47% respectively.
Source: Trade Standard