6 Stocks That Could Be Impacted if Chinese Firms Are Allowed to Bid for PSU Projects

Synopsis: Earlier news about India lifting the 5-year-old curb from Chinese entities to compete for govt tenders had put a lot of stocks under the radar. However, the news is not confirmed yet, but if this is confirmed, it may pose serious threats to some companies while benefiting others.

News that China might jump back into bidding for India’s PSU projects has investors on edge. The government says there’s no policy change right now, but the idea has people asking tough questions. If the rules actually shift, you’ll see a real shake-up in infrastructure and capital goods stocks.

About the News

Earlier, there were reports that Chinese companies might be allowed to submit bids for Indian government projects, which led to concerns and speculations across different sectors. These reports suggested that the government might be considering a relaxation of the measures that were put in place in 2020, which led to Chinese firms being banned from contracts worth about $700-750 billion, due to security considerations.

Also, one of the leading Chinese firms, CRRC (China Railway Rolling Stock Corporation), which is the world’s largest manufacturer of railway transit equipment, was disqualified from bidding for a $216 million train-manufacturing contract earlier. After India’s restriction, the value of new projects awarded to Chinese entities fell by 27 percent from a year earlier to $1.67 billion in 2021. 

These restrictions also delayed India’s plans to raise its thermal power capacity to about 307 GW over the next decade, as curbs were put on imports from China in the power sector. However, there is no official confirmation from the government regarding this report, and more details are awaited.

Nevertheless, this debate has brought to some of the challenges that Indian projects face, such as delays and cost overruns that result from having a limited choice of suppliers, particularly in sectors like power and infrastructure. 

Of course, a relaxation of the restrictions could be quite helpful in facilitating faster implementation of the projects and bringing down the cost; however, it is also likely to lead to increased competition in the market between Indian and foreign companies, which will lead to a pressure on pricing and margins. 

Analysts point out that for the players in the capital goods and infrastructure sectors, their upcoming quarterly earnings and their execution standing will continue to be more significant factors than policy speculation while assessing their medium- to long-term outlook.

Stocks that might be impacted

If Chinese companies get the green light to bid again, big players in infrastructure and capital goods are the ones that might be severely impacted.  Jefferies added that companies like Larsen & Toubro, Bharat Heavy Electricals Limited, and Afcons could be negatively impacted the most, since they’re deeply tied to government projects in infrastructure, power, and industry, exactly the places where Chinese rivals might jump back in with competitive pricing.

Then there’s ABB India, Siemens India and CG Power, which could also face tougher competition if the rules change, especially in power equipment and industrial projects. But analysts point out that capital goods stocks are already under pressure, and it’s not just about the risk of Chinese imports; slow earnings are weighing them down too.

According to reports, the sector that possibly seems safe is the defence and power sector. Since these sectors are too sensitive for the government to open up easily. In the end, nobody really knows what’ll happen until the rules become clear. For now, investors are hanging on to quarterly results and how well these companies can actually deliver. Some of the stocks are Hitachi Energy and Siemens Energy.

However, on the other hand, state-owned asset owners like Power Grid Corporation of India and NTPC actually stand to gain here. When more bidders jump in, project costs tend to drop, and things move faster, especially with competitive bids. Some brokerages think the government won’t throw the doors wide open without putting up some safeguards, but even a small step back from strict rules will shake up the sector. There’ll be obvious winners and losers.

Conclusion

In conclusion, nothing formal has been changed so far, but the talk has brought a handful of stocks into the spotlight. If Chinese companies are permitted to come back, there could be more competition, and some infrastructure and capital goods players might see their margins getting squeezed. 

On the other hand, project owners would be the winners as they would be able to enjoy lower costs and quicker execution. It will be company profits and good performance that will matter more than speculation until the government makes the policy clear. So until and unless everything is clear, it is better to wait and watch to get more clarification on it.

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