A Relief Rally Picks Up Some Steam as Some FIIs Return
A modest relief rally continued in the markets with most traders saying this is a reversal of an oversold market rather than a specific trend
On Episode 495 of The Core Report, financial journalist Govindraj Ethiraj takes you through the main business news for today. We also have an excerpt, as part of our energy special series for India Energy Week 2025, from an interview featuring Ranjit Rath, Chairman and Managing Director at Oil India Limited.
(00:00) The Take: India Must Equip Its Small Businesses To Fight In A Deglobalising World
(05:09) A relief rally picks up some steam as some FIIs return.
(07:12) Oil is stable as traders price in US tariffs on oil suppliers Canada & Mexico
(09:01) An exciting new oil discovery on the other side of a river.
(15:47) Global air traffic officially overtakes pre-pandemic levels
(18:51) India could see above average temperatures in February, affecting crops.
NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on [email protected].
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Good morning, it's Friday, the 31st of January and this is Govindraj Ethiraj, headquartered and broadcasting and streaming like always from Mumbai, India’s financial capital.
THE TAKE: India Must Equip Its Small Businesses To Fight In A De-globalising World
Sometime during peak monsoon time last year I happened to drive past Bajaj Auto’s massive two-wheeler plant in Chakan near Pune. Drive may not be the right word since it was more of a long and slow crawl accompanied by frequent jolts up the spinal cord.
We also passed the Mahindra SUV plant close by. It struck me, once again, that these were world class factories producing world class goods, exporting to the world and yet, getting product out of the gate and on its way within India or overseas would be a much greater challenge for them than their counterparts in other parts of the world.
I was visiting a plastics original equipment manufacturer (OEM) that supplies various parts to Tata Motors, among others, not too far away either. They were supplying around Chakan as well. When I asked the founder how they managed with such terrible roads he shrugged as if to say ‘what can we do, we have to live with it’.
The founder of this plastics moulding company lives with it because he can still produce and sell with a reasonable margin.
But what if Trump’s tariffs were to change that?
India Isn’t Easy For SMEs
Doing business in India, particularly for smaller companies, can be tough and goes beyond navigating bad roads. Smaller OEMs face continuous challenges of cash flow and margins.
Some of it cannot be helped in a competitive market.
But a lot of it is because of the physical environment they work in, including dealing with constant regulatory encounters. It is not like big companies don’t face regulatory scrutiny but they better manage them with dedicated teams.
It is of critical importance to ensure that smaller enterprises are better cared for. This could mean easy access to finance or just a light touch regulatory environment and an honour system that does not punish recklessly.
This is important because India’s smaller enterprises, in this context automotive and engineering, have shown remarkable resilience and adaptability, like in the case of the move to electric and hybrid.
Whenever I have met or interviewed CEOs of large automotive companies or even component makers, they have always highlighted the challenges of the firms that supply them, even if their balance sheets were fine.
Protecting resilient, mostly faceless enterprises and encouraging them should be a key area of focus in the government’s industrial policymaking whether within a Union Budget to be presented tomorrow or outside of it.
Here is one reason.
India’s automotive exports continue to surprise. Latest figures show that Maruti Suzuki’s share of exports jumped again from around 23% in 2021, they were up to 41% in 2022 and have now, as of the last quarter, touched 49%, the figure that until recently represented its share of the domestic car market.
Export volumes were up 38% in the last quarter in contrast to the 8.7% growth in the domestic market, according to The Economic Times. And export revenue is now running at an annualised figure of Rs 26,000 crore or 17% of the company’s revenue.
Brokerages are now raising their export volume estimates for the coming years even as they point to the continued weakness in the domestic market. Maruti is of course not the only big exporter.
Bajaj Auto’s domestic sales whose plant I passed incidentally declined 9% year on year in the last quarter. But its exports were up 22% year on year Thanks to Africa, Asia and Latin American markets.
Protection Against Tariffs
A growing export base is of course most welcome and creates a cushion for car makers, who represent more than 7% of India’s GDP, to keep the factories running. But it is not just the Bajaj Autos or Maruti Suzukis who have to do well.
Others do too.
The automobile industry is a good example that has created a reasonably strong ecosystem and thus a moat to produce at scale for the domestic and export markets. The ecosystem is the reason why India can produce quite competitively and global companies like Hyundai and Suzuki are able to export in large numbers from India.
Nourishing this ecosystem, whether in automotive or other industries, is equally critical.
Because even a small round of tariffs can change the game. Presently, it is the US we are worried about but remember we never expected it.
There is a sense that we take success or growth for granted and assume that we can ignore the potholed roads of Chakan or the cumbersome goods and service tax processes because the bottom line numbers are, actually make that were, looking good.
This is the time to roll up the sleeves further and start unclogging the pipes so that businesses small and large can become more competitive and productive and fight in a deglobalising world.
A potholed road that backs up trucks can make a bigger difference than we think.
TOP STORIES
A relief rally picks up some steam, as some FIIs return.
Oil is stable as traders price in US tariffs on oil suppliers Canada & Mexico.
An exciting new oil discovery on the other side of a river.
Global air traffic officially overtakes pre-pandemic levels
India could see above average temperatures in February, affecting crops.
Markets Hold
A modest relief rally continued in the markets with most traders saying this is a reversal of an oversold market rather than a specific trend though foreign portfolio investors are buying futures.
The BSE Sensex and NSE Nifty extended their winning streak for the third day and session, thanks to gains in oil & gas and financial stocks while IT and auto stocks pulled back.
The US Federal Reserve did not change rates so the focus is now back to the Union Budget and whether it will shower any goodies on Saturday.
The Sensex was up 227 points at 76,760, and the Nifty was up 86 points or 0.4 percent at 23,250.
The indices are still down about 11 percent each from their record highs on September 27, 2024.
The BSE Midcap and smallcap indices were flat.
Home appliances maker Whirlpool of India said on Thursday its parent Whirlpool Corp intends to reduce its stake in the company to about 20 per cent this year via market sale.
Whirlpool Corp in its fourth-quarter earnings results said it expects net cash proceeds of $550 million to $600 million from the above-anticipated India transaction and sees the deal closing by mid to late 2025, Reuters reported adding that Whirlpool Corp has dues worth around $1.8 billion..
The parent company currently has a 51 per cent stake in its India unit and last year it sold a 24 per cent stake in the Indian unit for about $468 million in a bid to reduce debt amid a major rejig of its global assets, including folding its European business into a new firm and selling its Middle Eastern and African businesses.
Other MNCs have also pared their stakes in recent years thanks to the high stock prices here for both strategic and financial reasons or a combination of both.
Oil Prices On Stand By
The good thing is that markets price ahead, in this case oil prices
They were mostly stable on Thursday as markets braced for the tariffs that U.S. President Donald Trump has threatened Mexico and Canada, the two largest suppliers of crude oil to the United States.
Brent crude futures were down 7 cents at $76.51 a barrel.
The tariffs will kick in on Saturday, if they do.
The US has said Canada and Mexico can avoid the tariffs if they act swiftly to close their borders to fentanyl.
Analysts told Reuters they do not expect a big impact on the oil markets from Trump's tariffs promise as traders have already priced in the possible move:
Meanwhile, crude oil exports from Russia's western ports in February are set to fall by 8% from the January plan according to Reuters as Moscow boosts refining and thus consumes more of its own crude and US sanctions are dampening crude exports.
Investors are looking out for a ministerial meeting by the Organization of the Petroleum Exporting Countries and its allies, together called OPEC+, scheduled for Feb. 3.
Trump has publicly called on OPEC and its leading member, Saudi Arabia, to lower oil prices, saying doing so would end the conflict in Ukraine.
He has also set up an agenda of maximizing the U.S. oil and gas production, already the world's largest.
However, analysts Reuters spoke to believe a price war between the U.S. and OPEC+ is unlikely as it may hurt both.
They predict Brent crude oil prices may go down below $50 as OPEC+ can deploy over 5 million barrels of oil per day in its spare capacity, prompting a fall in the U.S. shale oil production along the prices.
An Exciting New Discovery
OIL India Limited is the country’s oldest oil venture, having discovered oil in 1889 in Assam.
While there are some interesting oil discoveries now and then, the larger challenge is that India is not as endowed with natural oil resources as some countries are.
So that means its harder work and occasionally some exciting finds as well as I found when I spoke with Dr Ranjit Rath, Chairman of Oil India Ltd and asked him to walk us through some history, how OIL is using technology to explore more smartly and also one of OIL India’s latest finds.
INTERVIEW TRANSCRIPT
Ranjit Rath: Govind, first of all, thank you very much for having me today. It has been always a pleasure speaking with you and I remember the brief interactions we had in the prior to last IEW. It was always encouraging to talk to you.
Very right question to start, in fact. From an Oil India perspective, I will tell two things. One, we have recently established through a very, very persistent effort of sustained exploration approach, we have established hydrocarbon in the north bank of Brahmaputra.
From a significance point of view, it is immense. All the Assam self-discovery so far has happened in the southern bank of Brahmaputra where Oil India operates its field. And it has been always a consistently effort to do seismic to drilling and only recently we have established hydrocarbon in the north bank of Brahmaputra which gives us two signals.
One, there are more prospects to explore in the northern bank where Oil India holds significant amount of open-accuracy licencing policy driven accuracies for exploration. And as a supplement, having established hydrocarbon, I am not saying it is a discovery till we measure it and get it ratified by the government. But establishing hydrocarbon means we are supplementing it with an immediate 3D seismic campaign to establish the structure.
This also opens up another area of interest. If you have hydrocarbons in the south bank of Brahmaputra in Assam self and you have now in north bank, very likely as the exploration institute within me tells me that below the river of Brahmaputra we would have hydrocarbons. Here we are doing two things as far as the technology is concerned.
We are adopting something called a multilateral well where at one plinth simultaneously we will be able to operate five wells. That is one. Second, we are also planning to adopt something called extended reach drilling under which about 3000 to 3500 metre below the river bed with an S bend or a J bend, we will be able to target the hydrocarbon without drilling vertically.
So these two things would actually open up more opportunities in terms of exploration and possible discoveries.
Govindraj Ethiraj: So I will come back to the south bank in a moment. But for those who perhaps will not know or may not know, there is a history to Oil India Limited and Assam and the first discovery of oil which goes back obviously more than a century. So tell us about what you have found now in the context of the history of Oil India and the oil that you…
Ranjit Rath: This is a very, very interesting question. It is only, it is in 1889 oil was discovered through a chance discovery in a place called Igboi, we all know, while the Britishers then were laying a railway line in the southern, in the north east part of north east India in Assam to carry timber and coal from the north eastern coal fields to Dibrugarh to shell it through the Brahmaputra river. So while doing so, near Igboi, the elephants which were putting the sleepers in the railway track, they got something interesting in their toenails which was a black liquid. So the Britishers then decided to dig that location and that's how the name Dig-Boy-Dig, so that's how Igboi came.
And just to give you a context, then the first discovery happened sometime in October 1989, 135 years ago. So we can claim the legacy of Oil India being the one of the oldest E&P company in this part of the globe. Of course, it first was Assam Railway Trading Corporation, then it was Boma Oil, then it was a JV between Boma Oil and Government of India, and in 1980s it became a National Oil Company.
From a contextual point of view, the then discovery happened at a depth of about 186-180 feet, so that's about 50 metres or so. And today, the discovery that we are doing in South Bank, 5700 metres and the North Bank discovery is 4600 metres. That's what is the pursuit of hydrocarbon and I must tell you and I must tell you to the audiences whom I am connecting through this audio-visual sequence of yours, there are huge possibilities and opportunities lying there.
The only thing is we need to dive more deeper and we will continue to do so.
Govindraj Ethiraj: What made you go back to the South Bank of Brahmaputra or go there in the first place?
Ranjit Rath: The idea was when Government of India brought in a reform under HELP, Hydrocarbon Exploration Licencing Policy, which was a change from NELP, New Exploration Licencing Policy. NELP was primarily a production sharing contract. HELP was something called a revenue sharing contract where the operator or the explorer were having the option to choose large areas and then offer the bid.
So having explored extensively in the South Bank, it was very but natural that we must explore the North Bank. So we acquired large areas under the OLP campaign. That's why I keep telling that the flexible form of the current dispension in terms of OLP has opened up and possibly this will be one such find in the North Bank.
Global Air Traffic
2024 has officially overtaken 2019 in air traffic and thus above pre-pandemic levels.
The International Air Transport Association (IATA) released 2024 full-year and December 2024 passenger market performance showing record high demand.
Total full-year traffic in 2024 (measured in revenue passenger kilometers or RPKs) rose 10.4% compared to 2023.
This was 3.8% above pre-pandemic (2019) levels.
Total capacity, measured in available seat kilometers (ASK), was up 8.7% in 2024. The overall load factor reached 83.5%, a record for full-year traffic.
Interestingly, international full-year traffic in 2024 increased 13.6% compared to 2023, and capacity rose 12.8%.
December 2024 was a strong finish to the year with overall demand rising 8.6% year-on-year, and capacity grew by 5.6%. International demand rose by 10.6% and domestic demand by 5.5%. The December load factor reached 84%, a record for the month.
Whether this trend will continue in 2025 given the general upheaval and trade wars and slowing of some economies including India of course remains to be seen.
India Gets Set for Its Own AI Model
Union IT Minister Ashwini Vaishnaw on Thursday announced that DeepSeek, the popular Chinese open-source AI model, will soon be hosted on Indian servers.
The decision, he said, aims to address data privacy concerns and enhance India's AI capabilities, Moneycontrol reported.
He said hosting open-source models within the country would help ensure better data security and compliance with Indian regulations.
Vaishnaw's remarks come as several Western nations, including the US, have raised national security concerns over DeepSeek and its Chinese origin.
The Union minister also highlighted the role of the India AI Compute Facility, which has secured 18,000 GPUs to support the development of a Large Language Model (LLM) tailored to India’s needs.
The initiative, he said, will focus on keeping AI models open and application-driven while ensuring efficient resource utilisation.
Vaishnaw also spoke about the affordability of the AI compute facility, stating that it would be one of the most cost-effective globally. He noted that the cost would be significantly less than one dollar per unit, with the government bearing the expenses.
The government plans to provide subsidies for four years to make AI infrastructure accessible and sustainable. He further stressed that the real value of AI models would depend on algorithmic efficiency and the quality of datasets used for training.
He also said India’s large language model (LLM) is expected to be ready within the next 10 months.
Vaishnaw emphasised India’s AI capabilities by comparing the country’s infrastructure to global benchmarks. “DeepSeek AI was trained on 2,000 GPUs, ChatGPT was trained on 25,000 GPUs, and we now have 15,000 high-end GPUs available. India now has a robust computer facility that will support our AI ambitions,” CNBC-TV18 quoted him as saying.
Germany Slips
The German economy shrank by 0.2% quarter-on-quarter in the three months ending in December, according to preliminary data released by Germany’s statistics office Destatis on Thursday.
Analysts polled by Reuters had been expecting the gross domestic product (GDP) to decline by 0.1%.
Household and government consumption expenditures increased, but exports were “significantly lower” than in the previous quarter, Destatis said.
“After a year marked by economic and structural challenges, the German economy thus ended 2024 in negative territory,” it added.
Thursday’s figures compare to a 0.1% rise of the country’s GDP in the third quarter of last year.
Germany’s economic performance has long been sluggish, with quarterly GDP readings mostly hovering around the flatline in the past two years. The economy has however managed to avoid a technical recession.
2025 could be better though, with the German government on Wednesday revealing its forecast of 0.3% growth for the year — still a notably downward revision from its previous estimate of 1.1% growth.
Above Average Temperatures
India is set to see above-average temperatures in February, with key wheat- and rapeseed-growing states likely to see maximum temperatures up to 5 degrees Celsius above average on some days in a risk to crops, two weather bureau sources said.
As the world's second biggest wheat producer, India is counting on a bumper harvest in 2025 to avoid costly imports, following three straight years of poor crop yields since 2022.
After a sharp, sudden rise in temperatures in February and March shrivelled the crop, India, also the world's second-biggest wheat consumer, was forced to ban exports of the staple in 2022.
Higher temperatures during the grain formation stage could reduce yields for the fourth straight year, trimming overall production and forcing authorities to lower or remove the 40% import tax to facilitate imports to tide over shortages.
