The winners and losers from reports of govt looking to ease restrictions on Chinese firms

Reports suggesting that the government may ease restrictions on Chinese companies bidding for public sector contracts have put several industrial stocks in focus, with brokerages flagging a mixed impact across the sector.

According to Jefferies, recent media reports indicate that India could relax curbs imposed in 2020 that restrict Chinese firms from participating in government tenders. The brokerage believes the impact will vary sharply by segment.

Jefferies said defence-related companies are likely to see the least impact from any relaxation. Cummins is also expected to face relatively limited pressure.

In contrast, engineering and construction heavy players such as Larsen & Toubro, Afcons Infrastructure and Bharat Heavy Electricals could see the highest impact if Chinese bidders are allowed back into large infrastructure projects.

ABB and CG Power are also expected to be affected, though to a lesser extent.

In the power transmission space, Jefferies expects limited impact on companies such as Siemens Energy and Hitachi Energy, citing national security priorities around the transmission grid.

Bernstein echoed similar views, citing that it would be surprised if the government were to completely remove Rule 144 without safeguards. However, its industry checks suggest that some form of relaxation is likely.

Bernstein said this could be implemented on a segment specific basis or accompanied by additional compliance requirements for Chinese firms before they are allowed to participate.

The brokerage added that the push for easing restrictions may not be coming only from the Ministry of Power, but also from other ministries such as steel.

Bernstein believes that if the proposed changes materialise, equipment manufacturers, particularly multinational players, are likely to be more impacted than construction heavy companies.

In the case of L&T, the brokerage said the impact would be negative but only marginal.

On the other hand, Bernstein pointed to clear beneficiaries from any easing of restrictions. State-owned asset owners such as Power Grid and NTPC could emerge as winners, as increased competition may help expedite project execution and reduce costs. This could be especially beneficial for competitively bid projects.