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Chinese realty crisis likely to hit Indian market

Evergrande crisis, which is compared to the bankruptcy of Lehman Brothers in the US, causing a factor of worry among different stakeholders in Indian stock market

Rachit Chawla, CEO & Founder, Finway FSC

Rachit Chawla, CEO & Founder, Finway FSC 

Mumbai: The Indian markets are likely to suffer the consequences of the downfall if the situation is not taken under control by the Chinese authorities. In order to keep afloat, a few investors having exposure to the Chinese market might lessen their engagement with India for the time being. Indian exports companies in particular might suffer a bit in case the value of Yuan goes down, giving rise to a situation of extremely high competition. Yet, the future of India looks bright as most of the companies are considering it to be an alternative already.

Evergrande Group of China is renowned for being the 2nd largest real estate considering its market share and the number of employees, which count over 200,000 approximately. The prime funding for all its infrastructural development originates from humongous amounts of debt from banks, investors, short term loans by suppliers and property buyers. Therefore, fall of such a giant due to a $300 billion debt inevitably has sent out shock waves across the nation hurting the investors and home buyers.

Evergrande Crisis causing a factor of worry among different stock market stakeholders. Evergrande is compared as the Lehman's moment of China & how it will be affecting the Chinese and world economy. China is being governed by a Communist regime, which already has ample control over all the sectors including real estate. It would not be surprising if they take hold of situation in order to salvage the Chinese economy from toppling over. Furthermore, the Chinese policies are thoroughly filled with financial tools that are competent enough to face the brunt of the collapse as per many experts including the Asian Development Bank President Masatsugu Asakawa. For instance, the Chinese authorities are driving in short term liquidity into the market in order to redeem cash flow into the market.

As predicted, the Central Bank of China has pumped in $123 billion to increase liquidity. Also, in a recent development Evergrande has sold 20 per cent stake in Shengjing Bank Co to the local Shenyang government for a whopping $1.55 million. The proceeds will straight away be used to settle the debt.

"India being an emerging economy is also hailed for being an alternative destination for global investors and enterprises in general. Taking into account the glaring uncertainty of the Chinese

market, it is inevitable for the investors to search for another lucrative land, which clearly is India. With its technologically advanced and start up ripe market, India provides the perfect playing field. Moreover, Indian government's plans such as the Start up India, Make in India and Digital India have made the start up culture robust.

"With 66 unicorns belonging to India out of which 28 were added solely in the pandemic hit year of 2021, certainly future of India looks promising even if the current Evergrande crisis escalates in China. Further, if you see the last few months there has been a lot of interest in the real estate players by equity giants so that trend is already there in the pipeline," Rachit Chawla, CEO & Founder, Finway FSC told Bizz Buzz.

The downfall in the prices of real estate had already taken place due to the crisis of Covid 19 which led to low liquidity in market. The impact of Covid 19 was mostly felt by the office sector as most of the offices remained shut and had switched to online working model or a hybrid model. Essentially, the Evergrande crisis cannot be said to have any more of a plummeting effect on the real estate sector as a dip has already been witnessed during pandemic. Nonetheless, in case the Chinese government decides to bail out, the real estate pricing might take a leap. Either way, the real estate sector will witness a rise amidst all the panic and chaos and will definitely not dip any more. Approximately 2 per cent of the Chinese GDP was being contributed by the debt-ridden real estate company Evergrande. Now, that it has hit rock bottom, there is no further going down except for redemption by help of the Chinese government. Post the Covid pandemic the Indian government has provided immense relief package for the real estate investors and home buyers. This is the reason why the Indian real estate sector has remained afloat even during the worst crisis that the world has seen in 21st century. Measures such as lowering of interest rates, pumping in of Rs 15, 000 crores in NHB in order to uplift the long-term funding needs of NBFCs and HFCs, imposition of moratorium on all term loans for a span of six months are certain significant steps undertaken by the incumbent government. Furthermore, reduction in stamp duties in Indian states such as Karnataka, Maharashtra also provided the very needed boost to the housing sector.

The Indian real estate sector has anyway witnessed an increase last month, proving that the Evergrande crisis has as of now not had a negative effect on it. In fact, there has been certain orders which has really gone in favour of DLF and Godrej properties which resulted in the shooting up of the stock prices. Negative news will be discounted and any positive bail out Evergrande will help real estate stocks to even grow higher, he said.

Kumud Das
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