The trail of devastation left by the recent floods in Kerala included 12 lakh people rendered homeless and more than 300 dead. According to initial estimates, property worth more than Rs 20,000 crore has been lost and insurance companies have already received claims worth Rs 1,000 crore.
While the floods wreaked havoc on the finances of people living in the state, they could also have an impact on the portfolios of thousands of others elsewhere as stocks of companies with links to Kerala are bound to be affected. For instance, insurance claims are expected to shoot up and could affect the health of insurance companies. However, the impact will be limited because most of these policies are already reinsured with international players.
Kerala is a major rubber hub and production has been hit. So, will this impact tyre companies, the main users of natural rubber? “The impact on tyre companies will be limited because this is a short-term dip and most companies have enough rubber stocks to tide over it,” assures Shailendra Kumar, CIO, Narnolia Financial Advisors. These companies can also tide over any short-term shortage by importing rubber.
With the focus shifting to rebuilding, there could be a fall in demand for immediate consumption and Onam sales are likely to be a total washout. Jewellers are expected to take the biggest hit here.
However, this may not impact stock investors because most big Kerala-based jewellers like Kalyan Jewellers and Malabar Gold, among others, are unlisted. Durable goods manufacturers are also likely to take a hit. “In addition to regular consumption, people may even postpone purchase of vehicles or white goods,” says Prateek Agrawal, Business Head & CIO, ASK Investment Managers.
Impact, though will be limited because of continued sales in other regions. However, the impact on several Kerala-based financiers will be severe. For example, banks based out of the state will be negatively impacted because the flood has reduced the repaying capacity. The statewide one-year moratorium on repayment may be another issue they will have to face now. “Moratoriums like these are moral hazards and even people capable of repaying the money will hold back. Since these are only postponements, they may find it difficult to pay higher instalments later,” says Harsha Upadhyaya, CIO, Equity, Kotak Mahindra Mutual Fund. As there is no interest waiver during the moratorium period and the interest will keep on compounding, the instalment will be higher later.
“With 30% of its loan book located in Kerala, there might be some slippage for Federal Bank in the next two or three quarters,” says Kumar of Narnolia Financial Advisors. Since the repaying capacity is down in all the big three loan segments —retail, agri and SMEs— in Kerala, this negative impact will be applicable for other Kerala-based banks like South Indian Bank, and Dhanlaxmi Bank as well. Should investors be concerned about the short-term negative impact? No, say experts. “After a crisis like this, the rebound is also usually sharp. One should take a long-term view and use any price dip due to shortterm events as a buying opportunity,” says Kumar.