Japan’s Earthquake & Indian Markets

The earthquake in Japan has already rattled global bourses. The negative sentiments caused by the earthquake were quickly absorbed by both Japan and Indian market. Japan’s Nikkei average closed down 1.7% at 10,254.43 points and Sensex fell down at 0.84% at 18,174, after the earthquake struck. Friday’s trading data showed that foreign funds pulled out nearly Rs 250 crore.

The earthquake has caused widespread damages to refineries, facilities that manufacture auto components and chips and several other auxiliary components for electronic industry. Several of the facilities are completely shut down and this might have a domino effect for Indian market. The repercussions can be widespread and diversified to several sectors but that will be short lived and controlled for Indian markets.

The impact in the Indian equity market will be seen for IT and Auto industry which imports, cars, bikes, auto components and integrated chips from Japan.  The companies that have felt the heat of the earthquakes are Toshiba, SanDisk, Sony, TCS, Infosys etc. Indian export industry both in the manufacturing and service forefront may see a high export to Japan and perhaps may accelerate the economic growth.

Prominently, the jitters were seen when the crude prices fell down. NYMEX crude prices fell 1.4% in the intra-day trade before recovering to US$ 102 per barrel falling 0.7%. Brent Crude prices dipped 1.2% to US$ 114.09 at 1435 hrs IST. And it’s quite expected that commodities prices will fall down due to fall in prices of Oil. Though, the prices of Gold and Silver remained fundamentally strong as it always been considered a safe heaven for investment.

The deadly earthquake in Japan could likely push steel companies from Japan to speed up plans to build manufacturing facilities in safer and low-cost countries such as India. Moreover some auto component and chip manufacturing companies too may plan to establish its presence in India.

To call a spade a spade, the entire impact of this tsunami is short lived for India for the simple reason that the total export to Japan is just 2% of India’s total exports.

This is a Guest Post by Mr. Mitesh Agarwal, MBA (Finance) from IBS – Hyderabad.

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