Are The Markets Circling The Bottom Even As They Fight Back?
The Nifty Smallcap100 index ended higher by 2.36% and the Nifty Midcap100 index settled with gains of 1.56%
On Episode 513 of The Core Report, financial journalist Govindraj Ethiraj talks to Gaurang Shah, Head Investment Strategist of Geojit Securities as well as B.V. Krishna Rao, president of the Rice Exporters' Association (REA).
00:00) The Take
(04:31) Are the markets circling the bottom even as they fight back?
(17:07) S&P says limited impact of US tariffs on India as it is a domestic economy
(19:26) China makes life difficult for Tesla cars in tit for tat
(20:25) Rice stocks are at record highs and exporters want more curbs to be lifted
(26:44) Salaries are still projected to rise in India even as attrition continues to fall
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 Thursday, the 20th of February and this is Govindraj Ethiraj, Headquartered in Broadcasting as well as Streaming, as always from Mumbai, India's financial capital increasingly getting warmer.
The Take
There is always irony within irony.
Just as President Donald Trump was expressing his displeasure over confidant Elon Musk's move to set up a manufacturing base in India in a television interview, tech giant Google said it was opening its largest and fourth campus in India on the edge of East Bangalore with a seating capacity of 5,000 employees. Spread over 1.6 million square feet, the Google office, also one of the largest in the world, has been named Ananta, which translates into Limitless in Sanskrit. Back to Trump, he argued in that interview that high tariffs create significant barriers for American businesses looking to enter the Indian market, forcing them to manufacture domestically rather than export from the US.
If he, referring to Musk, built the factory in India, that's okay, but that's unfair to us. It's very unfair, he said. Tesla will set up a manufacturing base in India not out of choice, it appears, but because domestic policy, which has already been considerably twisted to favour the company, forces it to do so.
Exactly like all the other companies who have come to India, beginning with perhaps Japanese Suzuki in 1981, with some help, and Korea's Hyundai in 1996, without much help. Trump's tariff tirades are of course focused on manufactured goods, which are more tangible and also have a direct correlation to jobs or the perception of them. Though the cost economics are not all that clear, even if manufacturing were to be dragged back into the United States.
A drug manufacturer told me that the cost of conversion of active pharmaceutical ingredients or APIs into tablets for an Indian company is a fraction of the cost for an American producer. He said he could not imagine manufacturing moving to the US, at least in this area, unless at substantially higher cost to consumers over there. But even as Trump continues to rant and rave at the world pulling out new tariff plans and threats from thin air, American corporations continue to lean on Indian brainpower and talents to build and grow their global and American businesses.
Google, which has over 10,000 employees in India now across five cities, says Ananta is one of its most ambitious ground-up developments. Increasingly, we have been building from India for the world, said Google. Now Google is of course not alone, there are about 1,700 global capability centres in India employing over 1.5 million directly and many more are being set up literally by the day. Large and small, and many of course are American. Powering all of this is India's shared workforce that represents 28% of the world's STEM or Science Technology Engineering and Mathematics workforce and 23% of the global software engineering talent and all of this has obviously led to the setting up of more GCCs. Now GCC is a general and specific term.
For instance, Hyderabad is increasingly seeing GCCs in the life sciences space, given its own pharmaceutical manufacturing and research and development ecosystem. Many of these GCCs in India house global roles, once again not in pure technology, for example in healthcare companies like AstraZeneca and Novartis. These are not to repeat traditional technology roles, but technology combined with other business roles including in research intensive areas like, as we were talking about, healthcare.
Now the rise of GCCs did not happen overnight and is not exactly breaking news, but a continuing testament to the limitations of the Trump view of economic control and domination. So while Tesla will try to export cars to India, Google or Nvidia or Amazon or hundreds of other American companies have been embracing India and its talent and potential quite literally for decades even without being asked. Google says the grounds at its campus feature extensive landscaping and walking and jogging paths ideal for casual meetings and peaceful breaks.
Perhaps the President should visit and spend some time in sync with the opportunity that India has to offer rather and see for himself how globalisation has really delivered for America's biggest and best and continues to. The name of the campus, Ananta or Limitless, can apply to space as much as thought.
And that brings us to the top themes and stories for the day.
Are the markets circling the bottom even as they fight back?
Standard & Poor's says limited impact of US tariffs on India as it is a domestic economy.
China makes life difficult for Tesla cars in tit for tat moves.
Rice stocks are at record highs and exporters want more curbs to be lifted.
And salaries are still projected to rise in India even as attrition continues to fall.
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Are The Markets Circling The Bottom?
I said yesterday that this was like an IPL match referring to trading activity of the previous 3 or 4 days but on second thoughts, it's now looking like a bit of a test match with the batsmen holding the crease at 22,800 and more on that number coming up. Of course, we've got used to seeing 4s and 6s in the last few years and some big wickets falling but it was all fast paced and promised to end in a day.
A test match is slow and measured and runs over several days. The markets and the batsmen appear to be holding or fighting to hold on to their wickets and going for singles or not scoring rather than attempting big hits. They are of course losing ground but not all that much.
So the question of course is what is that base and where is this market holding at? Before we come to that, on Wednesday, the Sensex was down 28 points at 75,939 after the usual swings which are increasingly difficult to predict except that the downward pressure is quite evident. The Nifty 50 was down just 12 points to close at 22,932 and thus this is a flat market or continues to be one or to return to our cricketing analogy not many runs being scored at the end of day's play.
On the other hand, things look a little different if you were to be measuring the team's performance via the small cap and mid cap indices. The Nifty small cap index was higher by almost 2.5% on Wednesday and the Nifty mid cap 100 was up about 1.5%. Bank stocks did well while pharma stocks did not thanks to that fresh round of tariffs threats from President Donald Trump which included pharmaceuticals distinct from all the other threats he has delivered in recent days. The pharma index fell to its lowest level in 7 months on Wednesday after Trump's threat of tariffs of about 25% or higher on pharma imports according to Reuters which also said that India's pharma exports to the US stood at about $8.7 billion in the last financial year which was up 16% from the previous year which also accounts for 31% of India's overall exports in pharmaceuticals according to government data. Many top pharma companies that Indian pharma companies rely heavily on the US for their revenue. Trump did say he wants to provide for some time for drug and chip makers that's silicon chips to set up US factories so that they could avoid tariffs.
Meanwhile, Wall Street quite inexplicably given all this uncertainty continues to hit new records or Wall Street has better learned to ignore Trump's tariff threats till they actually materialise in the form of impact on stocks or financials of companies listed there. Stock futures were weaker overnight but the S&P 500 on Tuesday hit an all-time high despite all those concerns of sticky inflation and trade uncertainty. The benchmark hit an intraday record of 6129 and closed around the same level.
Back home, the Business Standard pointed out that the recent market correction in India has seen shares of listed stockbrokers on the National Stock Exchange tumble up to 70% on the bourses. So the larger question to me is where is the underlying or baseline of the market in terms of real numbers as well as sentiment? Is the market able to reflect positive developments in specific sectors or areas apart from the overpowering negative sentiment?
How strong is FII's selling pressure on the overall sentiment of the markets apart from some of those other macro negatives weighing on market sentiment? I spoke to Gaurang Shah, Head Investment Strategist of Jiojit Securities and I began by asking him how he was seeing the market and its ability to hold out and distinguish between the good and bad knocks.
INTERVIEW TRANSCRIPT
Gaurang Shah: This year, 1st Jan 25 failed the day before yesterday. FII's have sold somewhere close to about 1 lakh crore. So after this humongous selling of 2,60,000 crore, markets have, I'm talking about indices, Sensex and FTSE, corrected close to about 12 or 14 odd percent.
This is a positive thing that I would possibly predict. Speaking about stock specific and sector specific, yeah, there have been a little bit more downside moves depending upon which sector you want to consider. In terms of earnings visibility, now that there are curtains down on the 3rd quarter, one thing I can say is that the 3rd quarter was colour and shade better than what we saw in the 2nd quarter.
Post-earning press conference and commentary about the business outlook, one can possibly assume that the 4th quarter could be even better going forward from here. In terms of other news flows globally, the problem is that I don't think there is any such big huge negative in terms of local news flow or the local situation. The problem is imported, that is FII selling, commentary from President Trump in terms of tariffs and of course a little bit of negative sentiment on the rupee-dollar equation.
After touching an all-time life law of 88, we have managed to stabilize a little bit on the rupee front as far as the dollar is concerned. There is definitely pain in the market, but we are able to protect ourselves. I'm not saying that is a sacrosanct level, but we were able to protect 22,800 last 4 weeks ago if you actually go to see.
We broke 22,800 4 times and each and every day that we broke 22,800, went below that, by the time we closed the trade, we managed to recoup that level of 22,800. Possibility of some kind of sideways move cannot be ruled out. Pain is there in large cap because FIs have yet not stopped selling and their holding largely is in that particular part of the market.
Small cap, micro cap, we have discussed this earlier, there is still pain and possibly there is still more downside, largely in the small cap and micro cap universe. Mid cap could see some more selling pressure, but there are some stock and sector specific ideas that you can look at in the mid cap universe. Flows in terms of mutual funds, I don't think we have seen any kind of downtick over there.
In fact, I was reading a report that in the month of Jan, small cap and mid cap funds saw large flows coming in. That means risk is still there with the retail investor. They are not getting scared or they are not running away from the market.
It is a matter of time. We were used to higher double digit returns, 2022, 2023, early nine months or so in 24 till September 30th, 24 and then the FIs started. I don't think there is any kind of fear or any kind of care in the market.
It's only to see a little bit of more clarity in terms of policy decisions from the US and of course, the flows from the foreign financials.
Govindraj Ethiraj: So therefore, you're saying that while there seems to be a natural resistance in the market right now, going by the number that you used of 22,800 for the Nifty, does that also mean that if there are, let's say, specific positive news, I'm not on the negative right now, but the positive news in a certain sector or a set of stocks, the markets will reflect that? I mean, are they able to overcome that sense of, let's say, are they able to overcome the pressure?
Gaurang Shah: One sector that happened to be in the spotlight today, defence. There was some news flow about higher spending and more focus from the government side on the policy for the defence sector. Some of the stocks rallied almost about 5 to 10%.
So the market is willing to take both negative and positive. When it is negative, the sector or the stock gets hammered. And when there is positivity, there is equal amount of focus in terms of buying activity.
And not to forget defence rallied fantastic over the last year, year and a half too. And these defence related stocks have corrected from the peak by almost about 40, 50% or more. Yes, I will agree with your view that the market is willing to give attention to news-based positivities or positive news flows for a particular sector or a company.
Govindraj Ethiraj: And if you were to look back in history, as in previous cycles, do you think that this reflects a mature market, a market, you know, a mature market which is going through transition, a mature market which is under pressure, a mature market that is perhaps still on the way down? Are you able to relate that to any point in the past?
Gaurang Shah: I would say a mature market which is willing to fight out. I would put it that way. This I say with a lot of responsibility.
Our company, JioJit Financial Services, we are actively involved in conducting investor awareness programmes across India. I lead it from the front. I just got back Sunday from a five-day trip to the state of Tamil Nadu.
I visited Coimbatore, Karur, Trichy and Shivakashi. And even before that, Govind, whatever interaction I had at ground level. In the last five years, where has the market matured from?
Market matures from the maturity of the participants. And this large base of retail participants, they've got, especially in the last three years, post-COVID, the retail investor has matured to a great extent. They are not running away from their SIPs.
They are not running away from committing additional capital in case they have investable capital to invest in. They're not running away from that. So, the maturity of a retail investor would translate into the maturity of a market.
Govindraj Ethiraj: You feel that people have this sense of maturity. One is, of course, because of age and having seen some cycles. But you feel that this is because they've understood or they believe so much in the potential of the market or they have no choice?
Gaurang Shah: They have a choice. But the choice is limited, right? You have a limitation.
Like a common Indian investor would have five choices, according to me. Equity market, bank FDs, EPF, gold and real estate. These are the five common.
I don't want to go into Bitcoin because I hate that particular asset class. It's here and presents danger to me. And it's not recognised in India.
Correct me if I'm wrong, Govind. So, out of these five asset classes, other than equity, gold, again, you get return in three years, five years. Real estate, you need a big ticket to invest.
EPF and bank FD, you get a return, but it is not enough after you deduct inflation and tax. So, the only asset class left out is the equity market. So, people are willing to take that risk now, Govind.
And like I said, my interaction tells me that this retail investor is going to stay here for a long time. And we are going to have an increasing base in terms of retail participation coming.
Govindraj Ethiraj: I know you travel a lot and all over the country talking to investors like this. From this trip, the one that you referred to, any anecdote or story or something that stood out for you?
Gaurang Shah: A lot of them were confused in terms of whether to choose direct equity investment as a choice or whether to opt for a very disciplined and a very matured way of investing that is via mutual fund SIPs. So, I could only answer them in a single sentence. And that was that, look, if you have time and capability and understanding about the equity market, you can do your homework, select your investment ideas after due diligence, then you are most welcome.
And if you don't have the time, if you don't have the capability, if you don't have that kind of knowledge, then please opt for mutual fund SIPs. But one thing was very, very clear, Govind, that despite of this correction, even in certain business news channels that I appear and I do the scholar shows, Govind, the question is, should I sell the stock? The question is, if the stock is fundamentally sound, should I add an average?
And that's the kind of question. So, that's the big difference that I'm talking about. And the anecdote is that people were wondering whether gold as an asset class, even at these levels of 86,000, is it viable to invest?
So, I also said that one thing, look, before notes and coins were there, historically, gold was the only medium of exchange. Gold was, gold is, and gold will always remain a precious metal. And a lot of uncertainty in the current situation around the world will drive gold prices to another level.
So, a very simple asset, a simple product is available, Govind. You choose gold mutual funds or you can choose gold ETFs, exchange traded funds. So, my advice to them was that at least out of 100 rupees, please make it a point that you invest 15 to 20% of that investable amount into gold asset classes so that they have matured enough to realise that, yeah, even at this price, gold is not expensive.
Govindraj Ethiraj: Gaurang, thank you so much for joining me and sharing your thoughts.
Gaurang Shah: Always a pleasure, Govind. Take care. Bye-bye.
Standard & Poor's Says Impact Limited
The impact of the US reciprocal tariffs will be limited on India as the economy is domestically orientated with less reliance on exports. It also said in a statement reported by Business Standard that India will clock between 6.7 to 6.8% gross domestic product or GDP growth over the next two years. An official said the fiscal 2025-26 budget will boost growth for the next few years thanks to domestic demand through tax cuts for households as and GDP growth is now normalising to a more sustainable level.
He also said that they anticipate that consumer spending and public investments will maintain real GDP at around 6.7 to 6.8%. While these rates are slower than before, they still place India above sovereign peers at similar income levels and they believe that this will continue to support fiscal revenue growth despite the income tax cuts. S&P also said that India's dependence on exports for growth is not that great. So, while the impact of US tariffs will be more or less limited, sectors which could be exposed to higher tariffs are jewellery, pharmaceuticals, textiles and chemicals.
However, they said that the US may not impose very high tariffs on pharmaceuticals just as Indian domestic producers have been telling the Core report which are basically genetic drugs as it would drive up healthcare costs in their own country. However, textiles and to some extent chemicals are most at risk of higher tariffs.
Trump's Tariff Tirade Continues
President Trump on Tuesday said he was considering tariffs of 25% or more on automobiles, semiconductors and pharmaceutical products. Tariffs will be in the neighbourhood of 25% on those industries and may increase over time, he told reporters on Tuesday, and that they would go very substantially higher over the course of the year according to the Wall Street Journal reporting that. He also said that companies in the US may be given a phased-in period on items they import, giving them time to move production to the US, which would allow a little bit of a chance to reshore production, though he did not provide any further details according to the Wall Street Journal.
Last week he had said that he would impose 25% tariffs on imported steel and aluminium, and before that, of course, he increased tariffs on Chinese goods by 10%. And all of this comes on top of the reciprocal tariff action that the Trump administration has already talked about.
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Meanwhile, among other geopolitical twists that increasingly make you wonder what these guys are thinking or smoking, Tesla is now facing potential delays in securing approval for its autonomous driving technology in China as the ongoing US-China trade war complicates its regulatory path according to a Financial Times report quoted in the Business Standard.
Tesla has apparently been informed that there is no clear timeline for obtaining a licence to advance its full self-driving technology in the country. There is a lot of stock market price action also linked to this that is off the Tesla stock. Anyway, Tesla had initially anticipated receiving approval in the second quarter of 2025 in what is a crucial step towards introducing its semi-autonomous features in China.
The FSD system, just to give you a background, can accelerate, steer, brake, and change lanes, though it still requires drivers to remain alert with hands on the wheel. All of this would have given Tesla subscription revenue and also helped it regain momentum in the Chinese EV market, in which it is present through a very large manufacturing plant.
India's stock of rice is piling up in the granaries
Exports of all types of rice have now been allowed after being blocked earlier except for one category that's broken rice, used for purposes as varied as food to animal feed and ethanol production, which of course continues to be banned from export. The Rice Explorers Association in India wants this ban to be lifted to help manage stocks in the country as well as help buyers like poorer African countries, among other users. India's reserves of rice, including unmilled paddy, totalled about 67.6 or close to 68 million tonnes as of February 1st compared to the government's target of 7.6 million tonnes, almost 10 times according to data compiled by the Food Corporation of India and reported by Reuters. I reached out to B.V. Krishna Rao, President of the Rice Exporters Association and I began by asking him how they were viewing this or why they were asking for this export curve to be lifted and how that linked to India's overall rice production and levels.
INTERVIEW TRANSCRIPT
B. V. Krishna Rao: So, as you know the background, what's all transpired in the last two years and subsequently we were able to get the white rice exports opened up, the duty removed and all. So, India is back into the international market. As you know, we occupy a lion's share.
So, disruption happened when we withdrew and now when we are back into the system, the same reversal is happening. The prices have moved down sharply. So, I think the situation now is Vietnam has dropped the prices, Thailand, Pakistan, every price has moved down.
So, India is also trying to find its place. The exchange is also helping us in a smaller way. So, I think the lost market share to get it back, as you might be aware, takes a little bit of time.
But we will be back on track, but with lower numbers. I think we need to compete with other origins. So, we are taking up this issue seriously.
Govindraj Ethiraj: Right. So, somewhere between September 22 and later on 23, all exports of rice were banned. Compared to then and now, how much are we exporting?
B. V. Krishna Rao: Yeah, if you have the previous data, before the ban, we were doing close to 18 million tonnes of parboiled rice. All rice is put together. Then initially a broken ban was implemented, then white rice and parboiled duty was in place.
So, we are drastically from 18 million, we have dropped all the way to 8 to 9 million tonnes. And now with this removal of the restriction on these two major commodities, I think we will be reaching the old benchmark figure, but it will happen over a period of time. Now we have started exporting close to 2 million tonnes per month.
So, that 18 million tonnes target should not be far off. So, we are requesting the government to open up broken rice also, which is an integral part of the milling process, which will help because when we mill, the miller has this broken in his hand, and the buyer also requires this broken to service his lower end customers. So, I think broken rice is an integral part of the same ecosystem.
So, we have requested the government once again to open up broken exports because ethanol people cannot afford broken rice, which is at around 28-29 rupees. I think it is an edible grade. It's better to be exported because we are losing a lot.
A billion dollars we can get by export of broken rice also. So, how much is broken rice in proportion to overall rice production in India? When you compare, India's broken rice production will be around 10 percent, the overall Indian production.
And for export is also 10 percent. So, we export a million tonnes of broken goods. We used to export to one and a half.
Probably we will be exporting something between a million and a million and a half, one and a half million. So, that will help us to liquidate because Miller also is getting stuck with the broken. So, the liquidity issue will be there for the miller.
So, we requested them. Ethanol has other sources of tables available for them. I think they should let go of this broken rice.
Govindraj Ethiraj: Right. And in terms of overall rice stocks currently, the figure that I have is about 67 million tonnes of rice stock with the government as of February 1st versus a target of about 7.6 million tonnes. So, it's almost 10 times the target.
Is that correct? And what is the significance of this?
B. V. Krishna Rao: I think the buffer stocks are way, way above the requirement. And the Rabi crop is also ensured shortly in April. And the previous cargo procured in November, December of last year, it's still with the mills because they do not have space.
The crop preceding this 2023-24, some of the crop is still with the millers. So, I think the warehouse space, the delivery mechanism, you are able to buy, but you don't have the liquidity where you can sell, dispose of so much cargo. I think the government is rightly done opening up the export in September.
I think how broken is also one thing which has to be seriously considered. Before it is too late again, this adds up to the government stockpile.
Govindraj Ethiraj: Right. And last question. So, if we are sitting on such high stockpiles, what should we be doing to reduce them?
Because I'm assuming stockpiles cannot sustain for beyond a certain period of time.
B. V. Krishna Rao: Yeah. I think the delivery mechanism for the government is limited to the public distribution system. So, more than that, I think the only way is to reduce the procurement.
There's no way of increasing the distribution network because all of the people are having enough staples in the market. Maybe OMSS also started releasing it. I think if they continue that release suitably, it may increase some availability in the market also and the government may also be able to liquidate some of its stocks.
Govindraj Ethiraj: Right. Just let me sort of add to that last question. So, at this point of time, India is exporting without any constraint or restraint all the rice that it wants to or can export.
Is that correct?
B. V. Krishna Rao: Yeah, that's true. That's true. There's no restriction whatsoever.
Govindraj Ethiraj: Right. Mr. Krishna Rao, thank you so much for joining me.
B. V. Krishna Rao: Thank you, sir. Thank you.
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Salaries To Rise
Salary increments in India are expected to stabilise in 2025 and set to rise by about 9.2% despite global uncertainty and softening growth. According to the annual Salary Increase and Turnover Survey 2425, India by Aon PLC, a global professional services firm and quoted in the business standard. So, that rise is a slight decline from the increase of 9.3% in the previous year. Importantly, the study says overall attrition levels have declined to now about 17.7% in 24 from about 18.7% in 23 and 21.4% in 22. The study also indicates a trend of declining salary increments since 22 when companies had provided over 10% and close to 11% salary increases thanks to the great resignation. Salary increments are of course projected to vary across industries with engineering design services and auto vehicle manufacturing budgeted for the highest increases followed by non-bank financial companies, retail, global capability centres and life sciences.
Officials at Aon said that despite external uncertainties, India's economic prospects remain stable with rural demand improving and private consumption maintaining momentum. They also said that the moderation in salaries is an expected outcome given the margin pressures on companies and the sector-wise increment trends for 2025 reflect prudence and adaptability as companies balance market challenges and the need to attract and retain talent across sectors. The study is now in its 30th year and one of the largest and most comprehensive reward studies in India and it looked at data from 1,400 companies across 45 industries according to that report in Business Standard.
That was The Core Report with me, Govindraj Ethiraj. Do stay connected with more of our coverage at The Core. You can check out our website or sign up to our newsletter for our exclusive stories, one in-depth feature a day on www.thecore.in. Do also track us on LinkedIn where we usually post synopsis or extracts of our top stories and interviews. We would love your feedback on how we can make business more interesting and relevant including of course India's vibrant manufacturing sector. So write to us for feedback at thecore.in and thank you once again for listening.
