Expert Analysis of the Global Macro Events & News affecting the Indian Markets

WEEKLY MARKET SYNOPSIS 

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The War for Chips 

The matter of chips has caused a cold war between the US and China. I am not talking about Pringles; I am talking about Semiconductor Chips. This week, we’ll discuss how the matter of a chip has caused a trade war between global technology giants, with everyone trying to get the upper hand. We’ll discuss when it all started, how the countries are trying to win, and how India is getting impacted. Let’s see!

Source: Newscam

From Obama to Biden

This technology trade war is not something new. It started towards the end of Obama’s presidency, was escalated by Trump, and is getting more heated with Biden’s Congress. But who is this war between? The key players initially were only China and the US, but as semiconductor technology has gained relevance, Europe and other countries have entered this war to get majority control. Now, it’s China vs. the US, Europe, and allies.

This may not seem like a major issue because it’s just some tech, right? It is significant for both political and economic reasons. To understand why, let’s get into what this technology exactly is.

What are these chips?

Now, if you remember tenth grade physics, semiconductors are materials that act as conductors for the transmission of current. That is their function. They’re used to manufacture three major components. First, transistors, which are used in lights, watches, radios, and more; second, diodes, which are used in LEDs and solar panels; and third, chips. I’m not getting into the physics here; but we’ll discuss the use and supply chain of these chips. 

These small pieces of tech are used in a number of products like phones, computers, cars, medical equipment, and almost every modern tech product that’s there to be seen. Everyone has the resources for the basic chips, but it is the technology that is used to develop advanced chips that everyone is trying to guard.

Source: Asiatimes

Why the War?

Global Dominance. These chips that we are talking about are essential for developing AI, Quantum computing, Electric Vehicles, Solar equipment, and more upcoming advanced technologies. And as we know, these are sectors for the future, and nations are fighting to dominate the global markets. This is a fight to gain the technical knowledge and manufacturing capacity necessary to become technology giants. To ensure this, countries have been imposing trade curbs, particularly China and the US. Let’s get into what these have been.

A Game of Chess – America’s Move

The US made the first move. It has been imposing curbs ever since 2015, but the first major move against China was made in 2020. It restricted technology exports to SMIC, China’s biggest semiconductor manufacturer, citing the concern that these exports could benefit China’s military. China, in turn, did nothing. 

Then, in August 2022, the US blocked the sales of high-end AI chips from Nvidia and AMD, two of the world’s leading semiconductor manufacturers, to China. This crippled China, as it didn’t have the technology for domestic production. And yet, China did nothing.

This is not all. Taiwan, the world’s largest semiconductor producer, the Netherlands, and Japan are on the US’s side too. Earlier this year, ASML, a leading player in the global supply chain based in the Netherlands, imposed curbs on exports to China. And yet, China did nothing.

Source: 1stnews.com

China’s Move – Check?

For three whole years, China did not retaliate at all. And given the COVID crisis and its stance on the Russia-Ukraine war, China was in no position to But this year, it started hitting back.

First, it banned imports of chips from Micron USA. Why? National security concerns as the chips being imported were said to be risky. It hit Micron badly, as the company got 10% of its business from China itself. And last week, China made a huge move. It curbed the exports of two rare minerals: germanium and gallium. This will not impact just the US but the whole world, as China manufactures about 60% of the world’s germanium and 80% of its gallium. Both of these metals are absolutely necessary for the production of advanced chips. This ban is being taken as a warning by China to the US, signalling that China still has the upper hand when it comes to manufacturing certain essential raw materials at a reasonable price and has the strength to retaliate if needed.

Source: Aheadoftheherd.com

Rare Earth Curbs – Effects

The restriction on exports of germanium and gallium by China is gonna impact the global production of semiconductors but how is it gonna impact China? Is India getting affected? How will the global tech industry be impacted?

Well, India will not be directly affected, mainly because of the US-India partnership iCET which acts as a protection, but the global advanced tech market is surely going to be affected.

In the short run, it means price hikes of these raw materials. The West will have difficulties producing electronic devices and this can make the devices expensive for the consumer. But if the curbs stay for a long time, businesses will find a way around and companies might take up the opportunity to manufacture and supply these materials instead. This may be a good move by China in the short run, but if it stays, it will lead to supply chain diversification decreasing China’s share in the market. 

Source: Reuters

Conclusion

This is a long term game, the fight for chips. Companies across the world are gonna need the technology and currently everyone wants to be the first one to excel it and emerge as the largest producer. In the end, there will only be one or two key players, let’s see if it’ll be the US, China or someone else altogether.

Stock Specifics: Marksans Pharma Ltd.

Every week, we talk about the health of a stock, but this week we are talking about a healthcare company. In this week’s episode of stock stories, we will be covering Marksans Pharma Limited. 

Let’s understand the company. Marksans Pharma is a global pharmaceutical company with its headquarters in Mumbai. It primarily manufactures OTC and prescription drugs for fields like Oncology, Gastroenterology, Antidiabetic, Antibiotics, Cardiovascular, Pain Management, Gynaecology. 

• Marksans manufactures drugs for store brands and own labels. Under own labels, it provides products to pharmacy chains, wholesalers, supermarkets like Walmart and Tesco and more. 
• It supplies across the globe in over 50 countries and gets more than 95% of its revenue from abroad.
• It has more than 300 products from its four R&D centres and four manufacturing units. 
• With their low cost manufacturing, they are currently focusing on OTC Store Brand Strategy with their robust R&D.

Let’s have a look at their financials:

• The company recently got approvals for some drugs in the UK and US which have a wide market.
• It generated 
• Last year, Marksans acquired Israeli drug maker Teva’s plant in Goa to increase its production capacity.
• It has two segments – Rx and OTC. Here’s a segment wise revenue breakup:

In the last quarter of 2023, the company saw positive growth in its margins. It recorded a 16% Y-o-Y growth on revenue from operations and 64% growth in net margins. Looking at the company’s expansion of late and last years’ financials, the future outlook for the company seems positive if it continues to grow.

CURRENT ECONOMIC EVENTS

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Green Portfolio is a SEBI Registered (SEBI Registration No. INH100008513) Research Analyst Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use.