Minimal Impact On L&T, Negative For Transformers: Will Easing China Curbs Weigh On Stocks? Analyst Decodes

The Ministry of Finance is considering plans to do away with five-year old restrictions on Chinese firms bidding for government contracts, reported news agency Reuters. India's plans of opening doors for China to bid for the tenders may have an impact on some sectors and stocks in particular, especially after infra giant L&T witnessed a sudden stock price drop.

With regards to the impact of easing China curbs on Dalal Street, Priyankar Biswas, Industrials and Logistics, Research Analyst at JM Financials Institutional Securities, said in an exclusive interaction with NDTV Profit on Jan.9, 2025 that the development could be a 'negative' for transformers.

According to Biswas, while the development could be 'negative' for the transformers space, the impact is 'minimal' for blue-chips like Larsen & Toubro and KEC International Ltd. ''I expect minimal impact on companies like L&T. But, there is a supply chain shortage resulting from transformer space. India has lack of availability of transformers and prices are high.''

''So, maybe this is an attempt to bring the pricing discipline in place as far as transformer space is concerned. If this plays out it could be a 'negative' for companies with transformer-based exposure,'' explained Biswas. He reiterates that the impact on large-space infra firms will be minimal.

''Pre-Galwan standoff as well, the amount of orders that China used to win was never to the tune of more than $2 billion. We don't expect an L&T to get hurt. In fact, if the supply check bottlenecks along the way are sorted out then these companies will be opportunities,'' said Biswas. He adds that the impact may also boil down with companies having some bit of transformer-motor exposure, such as CG Power and Industrials Ltd.

Hence, according to Biswas, the least impact if the policy, if it plays out, will be on companies such as L&T and KEC and companies with transformer and motor-transformer based exposure will be affected negatively.

The D-Street analyst believes that the sudden stock price drop in L&T during yesterday's trading session was a 'knee-jerk' reaction. ''Companies like Siemens will see a limited impact because most of its orders are driven by smart infra space, which is a free pricing space,'' concluded Biswas.

The plan is in offing and the discussions come amid India's efforts towards reviving commercial relations with Beijing after border and diplomatic tensions have eased recently. Restrictions on China had been in place since 2020 following the deadly border clash between the nations' troops.

Chinese firms were barred from competing for Indian contracts with an estimated value range of $700 billion-$750 billion over the curbs, until they registered with a government committee and obtained political, security clearances.

These measures had weighed on government departments and ministries and delayed development of projects, specifically in the power sector. Curbs imposed on Chinese imports for the power sector have disrupted the government's plans to expand its thermal power capacity to about 307 GW over the next decade.