The Ministry of Finance is reportedly considering plans to remove five-year-old restrictions on Chinese firms bidding for government contracts, according to news agency Reuters. This potential policy shift has sparked discussions about its impact on various sectors and stocks, particularly after infrastructure major Larsen & Toubro witnessed a sudden stock price decline.
Analyst Assessment: Sector-Specific Impact Expected
Priyankar Biswas, Industrials and Logistics Research Analyst at JM Financial Institutional Securities, provided insights on the potential market implications during an exclusive interaction with NDTV Profit on January 9, 2025. According to Biswas, while the development could be negative for the transformers space, the impact would be minimal for blue-chip companies.
| Company Category |
Expected Impact |
Rationale |
| Large Infrastructure (L&T, KEC) |
Minimal |
Limited historical Chinese order wins |
| Transformer Companies |
Negative |
Supply shortage and pricing concerns |
| Smart Infrastructure (Siemens) |
Limited |
Free pricing in smart infra space |
Transformer Sector Faces Challenges
Biswas highlighted significant supply chain issues in the transformer sector, noting that India faces a lack of transformer availability coupled with high prices. "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," he explained.
Companies that may face negative impact include those with transformer-motor exposure, such as CG Power and Industrial Ltd. The analyst emphasized that even before the Galwan standoff, Chinese firms never won orders exceeding $2 billion, suggesting limited historical market penetration.
Infrastructure Giants Expected to Weather Changes
Regarding major infrastructure companies, Biswas expressed confidence in their resilience. "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," he stated. The analyst characterized the recent stock price drop in L&T as a "knee-jerk" reaction rather than a fundamental concern.
Background: Five Years of Restrictions
The restrictions on Chinese firms were implemented in 2020 following deadly border clashes between Indian and Chinese troops. Under these measures, Chinese companies were barred from competing for Indian government contracts with an estimated value range of $700-750 billion. To participate, they required registration with a government committee and political security clearances.
| Restriction Details |
Impact |
| Implementation Year |
2020 |
| Contract Value Affected |
$700-750 billion |
| Clearance Requirements |
Government committee registration, political security clearances |
| Sector Most Affected |
Power sector development |
These curbs have reportedly weighed on government departments and ministries, causing delays in project development, particularly in the power sector. The restrictions disrupted government plans to expand thermal power capacity to approximately 307 GW over the next decade.
Policy Considerations and Market Outlook
The potential policy change comes amid India's efforts to revive commercial relations with Beijing as border and diplomatic tensions have eased recently. The move appears aimed at addressing practical challenges in project execution while maintaining strategic considerations.
Biswas concluded that companies like Siemens would see limited impact because most of their orders are driven by the smart infrastructure space, which operates in a free pricing environment. The overall assessment suggests a nuanced impact across different sectors rather than broad market disruption.
Source: https://www.ndtvprofit.com/markets/minimal-impact-on-lt-negative-for-transformers-will-easing-china-curbs-weigh-on-stocks-analyst-decodes
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