Stock Market Live Updates: Indian equities await interim Budget moves amidst global uncertainty
Key takeaways by Elara Securities
A prolonged conflict in the Red Sea is likely to impact India’s overall exports, as well as become a catalyst in resurfacing of input cost pressures. We see overall exports falling by 10.3% in a High risk scenario in FY24E vs ~6% under the Base case. On the inflation front, wholesale price inflation can move towards 4-4.25% YoY in FY25E vs our base case estimate of 3.5%. Soaring transport cost, sluggish business conditions in the EU, and China’s overproduction led dumping are emerging as key risks to Indian exports in the near term. We expect the impact of the same to be pronounced on textiles, electronics, auto components, chemicals, steel, machinery, mechanical appliances, and refining products.
India: watch for inflation & trade risks with the EU
For India, the key risk stemming from an elongated conflict in the Red Sea is likely to be its exports to the EU (23% of overall) as well as on crude oil prices. However, since demand remains sluggish, the impact is likely to be transient. We cannot rule out a rise toward 4.00-4.25% YoY in WPI based on a lead-lag model with our ECSCI vs our existing FY25E projection of 3.5% YoY. On the trade front, 80% of exports to the EU pass through the Red Sea; in a High-Risk scenario, we estimate overall exports to the EU to drop by ~5.1% YoY in FY24 vs 1.8% YoY under our Base Case scenario.
Potential hit to sectors and exposure to Europe
Among sectors, we see the impact playing out, primarily in textiles (chiefly apparels), chemicals, including agrochemicals, refining, especially diesel exports, auto components, electronics, precious metals, machinery & mechanical appliances, and steel. Sectors, such as steel, may be hurt further by over-production in China and revival in imports post the Lunar New Year.
