As Bangladesh grapples with widespread protests and demands for reform, the ripples of this crisis are being felt far beyond its borders. With a shared 4,096 km boundary, India is one of the first countries to experience the economic and business repercussions of the unrest. Taking hints from several reports published, the blog delves deep into understanding the situation closely, to study how this turmoil is affecting various sectors of the Indian economy and what it means for investors.
Textile Industry: Stocks in spotlight - KPR Mill, Arvind Ltd, and more
The textile industry is perhaps the most immediately impacted by the crisis in Bangladesh. Known as a global powerhouse in apparel manufacturing, Bangladesh's unrest threatens to disrupt garment production, creating a vacuum that Indian textile companies are eager to fill.
There has been a significant surge in the shares of Indian textile firms, such as Gokaldas Exports, KPR Mill, Arvind Ltd, SP Apparels, Century Enka, Kitex Garments, and Nahar Spinning, all poised to benefit from this opportunity. Industry experts suggest that redirecting just 10-11% of Bangladesh's exports to Indian centers could result in an additional $3-4 billion annually for India.
What's fascinating is that about 25% of manufacturing units in Bangladesh are owned by Indian companies, including Shahi Exports and TCNS, which are now considering relocating their operations to India. This potential shift could reshape the textile landscape, providing a significant boost to Indian manufacturing.
FMCG Companies: Stocks to look – Dabur, Emami, Godrej, Britannia
In the FMCG sector, the impact of the Bangladesh crisis has been mixed. Companies like Marico, with substantial operations in Bangladesh, have seen notable drops in their stock prices. Marico's subsidiary in Bangladesh contributes 44% of its overseas revenue and 12% of its total revenue, leading to a nearly 6% fall in its stock price.
Other FMCG giants like Emami, Dabur, Godrej Consumer Products, Britannia, and Jubilant Foods have operations in Bangladesh as well. Since the exposure of these companies to markets in Bangladesh is less, and so does the historical data suggests, significantly impact on these companies' stock prices are relatively lesser. While Marico faces challenges, most FMCG stocks have remained relatively stable, demonstrating resilience in the face of uncertainty.
Joint Ventures and Partnerships: Adani, Hero MotoCorp, TVS Motors, Bharati Airtel
For companies with joint ventures and partnerships in Bangladesh, the situation is fraught with uncertainty. Adani Power, which supplies 1,495 MW of electricity from its Godda, Jharkhand plant to Bangladesh, remains unaffected for now, thanks to agreements with Bangladeshi authorities.
However, the prolonged instability poses risks for companies like Hero MotoCorp and TVS Motor, which have assembly plants in Bangladesh in collaboration with local firms. Any disruption could impact their operations and bottom line. Bharti Airtel, holding a 28% stake in Robi Axiata, is also keeping a close watch on developments, while small companies and traders are already feeling the pinch, with nearly ₹3,000 crore worth of goods and payments stuck in Bangladesh due to the unrest.
India's Exports to Bangladesh: Downtrend expected
India's exports to Bangladesh have been on a downward trajectory, dropping from $16.2 billion in 2021-2022 to $11.1 billion in 2023-24—a decline of approximately 31.5%. Major exports, including agricultural products, textiles, and engineering goods, are at risk if the border remains closed for an extended period.
There is potential for further decreases in exports if the crisis continues. The interconnected nature of global markets means that any prolonged disruption in Bangladesh will likely have a domino effect on Indian exports and the economy.
The Bottom Line
The crisis in Bangladesh serves as a stark reminder of the interconnected nature of global economies. Companies with significant exposure to international markets, like those operating in Bangladesh, are particularly vulnerable to geopolitical and economic disruptions. Even domestic investors must remain vigilant, considering the potential ripple effects on their portfolios.
The unfolding situation in Bangladesh presents both challenges and opportunities for Indian businesses. It is crucial for investors and businesses to stay informed and proactive, understanding that the ramifications of this crisis may be far-reaching and complex. The coming weeks will be crucial in determining the long-term impact on India's economy and its key sectors. To keep yourself updated on news related to the stock markets, follow Motilal Oswal and open your demat account.
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