JAPANESE TREMORS: IMPACT ON INDIA

JAPANESE TREMORS: IMPACT ON INDIA:

A powerful tsunami spawned by the largest earthquake in Japan's recorded history slammed the eastern coast on Friday, sweeping away boats, cars, homes and people as widespread fires burned out of control. More than 1,000 people were feared dead, over 3,000 homes were destroyed or swept away and tens of thousands of people spent the night in emergency shelters.
The massive earthquake and devastating tsunami hit commodities prices, but equity investors threw off their initial fears as they reassessed damage to the world's third-largest economy. MSCI's all-country world index of global stocks fell to a five-week low but then rose 0.2 percent in late trade.
Sensex declined 0.84 percent, or 153.89 points, to 18,174.09 points, with about four-fifth of its components losing ground. It briefly turned positive earlier. The index dropped 1.7 percent this week.

IMPACT ON MARKETS:

Risk aversion to Asian equities may go up in the short term. But the impact would be short-lived as focus would quickly shift to Libya.
Analysts said tsunami warnings for other Asian countries could hold back investors from buying stocks in the continent, which has already seen a flight of foreign money in 2011. "It may add to the risk aversion already affecting many emerging markets, including India," said V Anantha Nageswaran, head-investment research for Asia-Pacific of Bank Julius Baer.
Benchmark indices of Asian stocks fell on Friday, with Japan's stock gauges dropping 1-2% on fears the earthquake would further strain the finances of the world's third-largest economy. The Sensex fell 153.89 points, or 0.84%, to 18,174. Unless the US and other countries in Asia are hit by tsunami, the Japan quake is unlikely to have a lasting effect on Indian stocks. But there may be other impacts.

IMPACT ON CURRENCY:

It’s expected to be muted as the yen rebounded after the quake. Bank of Japan also stepped in to assure people that it will provide ample liquidity.
Currency dealers in India as well as abroad will closely track the market in the next few days. The rupee slipped six paise on Friday to close at 45.24/25 against the US dollar on sustained dollar demand from importers and sluggish equities. But the Japanese yen's sharp rebound against the dollar to end with gains despite the calamity surprised many in the market.
With the US dollar taking over from yen as the popular currency for this trade since March 2009, foreign exchange market participants said investors are less worried about sharp movement in the Japanese currency.
Volatility in currencies, due to uncertainty about the extent of the earthquake?s impact on the region, would force investors to abandon carry trades in the short term. "Carry trades would be put on hold, as investors would be cautious about trades that are aimed at benefitting from forex gains," said Anantha Nageswaran.

IMPACT ON COMPANIES:

IT, Auto & Auto component firms and consumer durables companies will not take a big hit except for some small hiccups on the supply-chain front.
But, the deadly earthquake in Japan could likely push steel companies from that country to speed up plans to build manufacturing presences in safer and low-cost countries such as India, said industry executives who have collaborated with Japanese steelmakers for joint ventures. Indian steel companies, however said it is early to assess the opportunity to supply products to Japan to assist in reconstruction of regions affected by the earthquake.
Bank of Japan, is expected to infuse funds to minimise the fallout of the quake, which damaged refineries, shut nuclear power plants, and forced Toyota to suspend operations in some units.

IMPACT ON ECONOMY:

The recovery of the Japanese economy may take longer, but it’ll hardly impact India since Japan accounts for as little as 2% of India’s total exports.
Few other brokerages felt incremental inflow from Japanese investors may come down in the short run. "Oil and US job growth will remain the big worries, but there will be movements in specific stocks having business relations with Japan," said a trader.
"Japan has substantial infrastructure funding commitment in India. One needs to watch out whether that will slow down," said Anand Tandon, CEO of JRG Securities.
A research note by Macquarie pointed out two basic economics-related concerns. The first is the fragile economic cycle is not in a position to withstand significant disruptions, and the second is additional strain on public finances will push up bond yields in Japan.
Any disruption in Japan's exports will ripple through an economy that has stagnated over the last two decades. It's also a big blow to infrastructure.

BAD NEWS FOR INSURERS:

Indian insurance market will feel the jitters of the Japan earthquake with reinsurace rates expected to harden in the international market.
The quake and tsunami struck Japan at a time when most Indian insurers are renewing their treaties with global reinsurance players who take over a large part of the risk from the books of underwritters. The extent of damage is yet to be ascertained but industry officials fear large claims from Japan.
Indian insurers - New India Assurance Company Ltd and General Insurance Corporation of India (GIC Re) - are taking stock of their risk exposure in Japan following Friday's tsunami that hit the country severely.

Source: www.economictimes.indiatimes.com

Regards,

Maulik Doshi

DENIP Consultants Pvt Ltd.