Conflicting Signals From The Stock Markets
World markets are on a high right now and it's not just India which is holding steady at close to peaks.
On Episode 297 of The Core Report, financial journalist Govindraj Ethiraj talks to Dr Alok Aggarwal, CEO and chief data scientist at Scry AI and author of “The Fourth Industrial Revolution and 100 Years of AI (1950-2050)”.
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SHOW NOTES
(00:00) Stories Of The Day
(01:10) Conflicting signals from the stock markets, what should you believe?
(03:04) Some 14 major world markets are at all time highs, not just India. Why does that matter?
(05:13) Inclusion in Bond Index not enough for foreign flows into debt, Moody’s.
(07:20) Indian banks are having the best time in history.
(08:59) Exclusive: The real numbers on how India could see more AI jobs being created rather than lost
(24:14) Elon Musk is in Asia but skips India again, lands in Bali to launch Starlink.
NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.
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The Age of Conflicting Signals
The markets have been steady, including thanks to a special trading session on Saturday, May 18th to test disaster recovery systems.
The BSE Sensex was up 90 points to 74,005 while the NSE Nifty 50 rose 36 points to 22,502.
One stock did make some news, Nestle India was up over 2% after shareholders rejected a proposal to increase royalty payments to its Swiss parent Nestle.
The big news is gold again, which has surged to fresh records, betting once again on the premise that the Federal Reserve will start easing monetary policy this year.
Geopolitical tensions in the middle east continue to hold sway. Market men did not see any impact of the sudden demise of Iranian President Ebrahim Raisi in a helicopter crash on commodity prices including oil.
Bullion jumped as much as 1.4% to hit $2,450.07 an ounce in Asia on Monday, surpassing a previous intraday high reached in April, Bloomberg reported.
Gold in general is seen as a good bet for capital appreciation once interest rates drop.
A subdued dollar makes dollar-priced gold more attractive to buyers using other currencies, CNBC reported.
A fresh reminder. World markets are on a high right now and it's not just India which is holding steady at close to peaks and of course is now seeing some unprecedented level of talking up by senior politicians in the Government including the Prime Minister.
More on that, which is world markets in a moment.
Looking back, the Dow Jones Industrial Average closed above the key 40,000 level for the first time on Friday last week, after hitting 40,000 on Thursday though it did not close above that.
World Markets On A High
From New York to London to Tokyo and of course Mumbai, world equity markets are close to or crossing record highs.
Of the world’s 20 largest stock markets, 14 have hit all-time highs recently, Bloomberg is reporting.
The MSCI ACWI Index, which tracks developed and emerging markets, has been on a record-breaking run, setting another new high on Friday.
In the US, the S&P 500 and Nasdaq 100 indexes hit records this week, while the Dow Jones Industrial Average crossed 40,000 for the first time ever.
Among other stock markets at or near their record highs are in Europe, Canada, Brazil, Japan and Australia.
This obviously suggests that the forces of supply and demand are strong. There is a lot of capital in equity secondary markets, moving from other asset classes or from savers, like in countries like India.
It is also a useful reminder that when markets move in tandem like this, any reverse trigger can also affect everyone else.
Analysts in India rightly point to the very strong domestic fund flows we have seen, including via mutual funds and systematic investment plans but to assume that there will be no sudden exit is being maybe a little naive.
Meanwhile, foreign investors have pulled out some Rs 28,200 crore from Indian equities so far this month, thanks both to the general jitteriness which goes with election periods - obviously made worse by the long, multi-phase casting of ballots and then the attractive valuations of Chinese markets.
It would appear that FIIs have pulled out most of the funds they brought into India in February and March between April and now.
I must mention here that the markets had priced in a BJP victory though there could be a relief rally thanks to the jitteriness in the interim period. And then of course the valuations are high, everywhere.
Any astute institutional investor investing on behalf of other investors is paid to take some money off the table as they say at times like this and perhaps they are.
China and Hong Kong have of course bounced back this year. The Hong Kong Hang Seng index is up around 19% in the last month and is considered better priced right now.
Will An Inclusion in A Bond Index Help Ratings?
India’s inclusion in the JP Morgan global bond index will not be enough for Moody’s Ratings to upgrade the country from the lowest investment grade as it needs structural reforms to improve its fiscal metrics, according to a credit officer at the ratings firm, Bloomberg reported.
“I don’t necessarily think that the bond market inclusion is going to be a material addition to the strengths that we already ascribed to the government’s ability to fund itself,” Christian de Guzman, senior vice president at Moody’s Ratings said on Monday.
He pointed instead to the fundamentals
“A strong growth and implementation of structural reforms that would result in the pickup in private sector investment will be key to improving fiscal metrics.”
JPMorgan Chase & Co. will include India in its emerging markets bond index in June, with the company estimating it may draw as much as $25 billion of inflows into the country’s debt market.
Bloomberg Index Services Ltd. will also start including India to its emerging markets index from January. FTSE Russell has also put India on its watchlist for inclusion in its emerging market bond index.
“Our assessment of India’s government liquidity risk is actually already very strong as the nation’s large banking and insurance sectors are a reliable source of financing and actually a key credit strength.”
But access to bond indexes will not lower India’s borrowing cost significantly as the inflows are relatively small compared to the general government debt of around $3 trillion, he said.
Domestic macroeconomic factors — including policy rates and the country’s track record on inflation management — will impact yields, he said.
Moody’s has rated India at its lowest investment grade ‘Baa3’ with a stable outlook.
Banks And Their Profits
It might sound almost strange going by recent history but banks and thus financial services as a whole have not had it so good in a long time in India.
The last year has seen India’s banks cumulatively posted a net profit of more than Rs 3 lakh crore, first time ever.
Within that, privately owned and run banks have reported higher net profit growth in fiscal year 2024 compared with the bottomline growth reported by public sector banks, according to a Moneycontrol analysis.
On a year-on-year basis, 26 private banks’ profit jumped by 41 percent while 12 public sector banks’ net profit rose 35 percent, data showed. There were more public sector banks incidentally even a few years ago but many have merged now.
Among private sector banks, HDFC Bank reported the highest profit of Rs 60,812 crore in FY24. And among PSBs, the country’s largest bank, the State Bank of India (SBI), reported a net profit of Rs 61,076 crore.
These are substantial numbers by any stretch.
Moneycontrol quoted industry experts saying the jump in profit is largely due to the banks maintaining high credit growth, resulting in an increase in net interest income.
The lenders also kept their asset quality under control, reporting a healthy bad loan book in FY24.
AI Goes For Big
Will artificial intelligence kill jobs? Yes, it could but the sheer quantum of jobs it could create could totally offset what could be lost.
The new numbers, specifics of which have been worked out by technology entrepreneur and author Dr Alok Aggarwal are staggering. More on him in a moment.
Aggarwal argues that few pundits have discussed new jobs that are likely to be created because of AI.
And he focuses on one such emerging job category of “data annotators,” which has largely emerged due to AI and that has seen a meteoric rise during the last decade.
There are more than 1,000 use cases of AI that have been already operationalized. Almost all of them require Supervised Machine Learning and hence they require gigantic amounts of data to be annotated (or labelled).
Hence, during the last decade, Annotation as a Service is on a meteoric rise. Already, there are more than 400,000 annotators worldwide and by 2050, this field is likely to have around 15 million. Currently, its market size is roughly 11.5 billion US Dollars and is expected to be around 975 billion US Dollars by 2050
(assuming a global annual inflation of 3%).
India has a big opportunity here, says Aggarwal.
More than 55% of the labour involved in creating an AI system requires cleansing and annotation of data. Hence, this task needs to be done inexpensively but accurately.
Furthermore, these annotators need to work very closely with AI experts, Data Scientists, and Data Engineers.
Since, India currently has more than 5.4 million software professionals
and many of them are AI experts, Data Scientists, and Data Engineers, the proximity of annotators in India obviously helps.
There are several fairly logical reasons why AI annotation will do well in India, including of course English language proficiency, internet connectivity and affordable wages.
For about 75% of all use cases related to AI, the annotators only need to have a high school education and most such annotators can be trained to become good annotators within three months.
Currently there are 400,000 annotators worldwide (with an annual revenue of approximately 12 billion US Dollars) out of which 200,000 are based in India (with an annual revenue of 4.8 billion US Dollars).
By 2030, around 1,000,000 annotators are likely to be working globally (with an annual revenue of 36 billion US Dollars) out of which 550,000 will be in India (with an annual revenue of 15.8 billion US
Dollars).
I spoke with Dr Alok Aggarwal who is based in the Bay Area right now on the prospects for AI jobs.
Dr Aggarwal received his PhD in Electrical Engineering and Computer Science from Johns Hopkins University and worked at IBM Watson Research Center during 1984 and 2000. He also founded IBM India and co-founded Evalueserve (www.evalueserve.com) in 2000
and was its chairman until 2013.
He now runs Scry AI (www.scryai.com), a AI research
and a development company.
I began by asking him to explain how he was seeing the growth of AI jobs.
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Musk Skips India Again, Now Lands In Bali
Elon Musk has launched SpaceX’s Starlink satellite internet services in Indonesia as the Southeast Asian nation seeks to boost internet connectivity in remote areas, CNBC is reporting.
This also means that Musk is back in the region, including wearing beach shirts and not in India where he has also pitched the Starlink service which in turn is awaiting regulatory nods.
In April, Musk was all set to visit India and to meet with Prime Minister Narendra Modi. He then cancelled saying he had "very heavy Tesla obligations.
He landed in China a week later.
In Indonesia on Sunday, Musk inaugurated the service at a community health centre in Bali and told local local media he was “very excited” to bring internet services to areas with limited or no connectivity and that internet connectivity can be “a life-saver to remote medical clinics.”
Starlink is already available in Southeast Asia in Malaysia and the Philippines.
Indonesia, the world’s largest archipelago with more than 17,000 islands, faces an urban-rural connectivity divide where millions of people living in rural areas have limited or no access to internet services.
