Cheaper Chinese yuan gives imports an edge

The government’s measures to stem the flow of imports, especially in steel and non-ferrous metals, may have made domestic companies more confident


A few more rounds of yuan devaluation or shocks to Chinese economic growth may disturb the peace. Photo: Reuters
A few more rounds of yuan devaluation or shocks to Chinese economic growth may disturb the peace. Photo: Reuters

A six-year low for the Chinese yuan raises the alarming possibility that Chinese goods will become more competitive, a worry for domestic producers.

But the warning bugles are not sounding as loudly as they did in January, when a similar situation arose. What may have changed?

The government’s measures to stem the flow of imports, especially in steel and non-ferrous metals, may have made domestic companies more confident.

Rising domestic consumption is another tailwind as is a global uptrend in metal prices.

Lastly, the Chinese economy itself appears to be in a better shape, with a stimulus package expected to keep growth ticking.

All these factors appear to have led to caution but not panic at the sight of a devaluation of the Chinese currency.

Of course, a few more rounds of devaluation or shocks to Chinese economic growth may disturb the peace.

Improvements seen in Sep quarter earnings season

After a decent start for fiscal year 2017 with the June quarter, the listed universe’s revenue growth is expected to continue in the September quarter.

CRISIL Research expects key sectors’ revenue growth at 7% over a year ago, which compares well with 2% clocked in the year-ago period.

Growth will be driven by the automobile and pharmaceutical sectors, where business is better than a year back.

Within the auto sector, growth rates in two-wheelers and passenger vehicles are higher and enough to offset contraction in commercial vehicles.

Information technology (IT) will continue to post double-digit growth, contributing to overall higher revenue growth.

An increase in the volume of business and the benefits of rupee depreciation will aid IT companies, though growth maybe a tad lower than a year back.

Also, telecom, power and steel are forecast to churn out better revenue when compared to a year back.

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