Stock markets around the world including India fell on Monday. An important reason for this was Evergrande, China’s second largest and most indebted real estate company. There is a possibility of regulatory action on this company soon. It may go bankrupt any time in the coming days. This company is so big and so much debt is on it that it can stir up the markets around the world. Uday Kotak, the country’s well-known banker and MD and CEO of Kotak Mahindra Bank, has said that Evergrande can prove to be China’s Lehman Brothers. Significantly, Lehman Brothers was a US-based global finance company, which went bankrupt in 2008. It was also related to the real estate crisis of America. With the bankruptcy of this company, the whole world was engulfed in a huge financial crisis.
What is Evergrande’s crisis?
Evergrande was started in 1996 in the bottled water business. After this it started pig farming and real estate business. For a long time, this company has remained the poster boy of China’s real estate business. For a long time, this company was riding on the rising prices of real estate in China. The company expanded rapidly and started selling its dream home to middle class people in about 250 cities.
This company, which is included in the Fortune 500 company, has a debt of $ 300 billion and has to pay its debt this week. If Evergrande fails to pay its debt, it could cause huge upheaval in markets around the world, including China. Either the Chinese government may have to bailout it or its assets can be sold. The failure of the company will not only affect China’s real estate business. The company is also present in auto, online media platforms, health food and healthcare projects. Therefore the company fails, a large number of people will be unemployed. At a time when China’s economy is trying to get out of the impact of COVID, it will prove to be a big setback for it.
What is the impact of Evergrande’s bankruptcy on the global economy?
According to the ‘Indian Express’, the boom in the Chinese property market began in the mid-1990s. It is being said that three quarters of China’s household wealth is locked in the housing sector. If the country’s second largest real estate company goes bankrupt, it will not only have a fatal effect on the entire economy of China, it can affect the economic pace of the world and it will cause a huge blow to global commodities and financials.
What will happen in the stock markets of India?
Metal stocks were performing very well in India’s stock markets since the beginning of this year. But on Monday, these shares fell significantly. Analysts believe that this is a short-term correction, but if the Evergrande crisis is not resolved, then its permanent effect can be seen in the Indian markets. A lot of iron ore is exported from India to China. If the Evergrande Crisis is not resolved, then the effect of China’s real estate slow down is bound to fall here. However, some analysts have a different opinion. VK Vijay Kumar, Chief Investment Strategist, Geojit Financial Services, told Kshitij Bhargava of Financial Express Online that if regulatory action is taken in China’s real estate sector and the Evergrande crisis is not resolved, then a new opportunity can open for India. Even before there, global investors are turning to the Indian market due to the regulatory strictness on technology companies. This crisis of China’s real estate sector can turn more investors towards India.
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Global markets fall on fears of Evergrande default
The fear of defaulting of Evergrande group has triggered a sell-off in stock markets around the world including India. In the US, the Do-Jones fell 1.78 percent on Monday, while the S&P 500 also fell 1.7 percent. China’s market is closed today but the Heng Seng has fallen 3.5 percent for the last one week. There is also a decline in the Japanese stock market. List Evergrande in Hong Kong has fallen 16.4 percent this week. The stock has fallen 84.5 per cent since the beginning of the year. India stock market has fallen one percent on Monday due to its effect on Monday. On Tuesday, Indian markets closed higher but initially they were trading under heavy pressure. At present, the eyes of the world are on the Evergrande crisis. Uday Kotak has neither even said that it can prove to be Lehman Brothers of China. He also said that it has reminded him of the IL&FS crisis in his country.
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