FIIs Have Sold Close to $8 Billion in January
Indian shares fell on Friday, losing for the third straight week as slowing corporate earnings and a weak rupee continued to put pressure on stocks
On Episode 491 of The Core Report, financial journalist Govindraj Ethiraj talks to Shankkar Aiyar, veteran economic journalist and author.
(00:00) Stories of the Day
(01:00) FIIs have sold close to $8 billion in January
(02:27) JP Morgan warns of sudden stop of foreign investment to emerging markets on account of better alternatives
(06:26) India keeps options on crude oil open after sanctions on Russia as there are many choices, says the Oil Minister
(09:13) The Trump Tariff Tracker: Another step back on China
(10:45) Does India’s middle class have a voice when it comes to taxes?
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 Monday, the 27th of January and this is Govindraj Ethiraj, headquartered and broadcasting and streaming like always from Mumbai, India’s financial capital.
Our top stories and themes for the day
FIIS have sold close to $8 billion in January
JP Morgan warns of sudden stop of foreign investment to emerging markets on account of better alternatives.
India keeps options on crude oil open after sanctions on Russia as there are many choices, says the oil minister.
The Trump Tariff Tracker: Another step back on China
Does India’s middle class have a voice when it comes to taxes?
Markets
Indian shares fell on Friday, losing for the third straight week as slowing corporate earnings and a weak rupee continued to put pressure on stocks.
Like many other days, once again the indices swung wildly on Friday.
Global markets were looking stronger, because US President Donald Trump took another step back on tariffs on China. More in our Trump Tariff Tracker segment coming up.
There seems to be general consensus now that the third quarter is not going to spring any miracles or surprises, at least from the markets point of view..
The energy index shed 4.1% this week, dragged by high-weightage Reliance Industries and weaker earnings from oil marketing companies including reported Reuters, while the IT index rose 3.6% to be the top sectoral gainer, thanks to strong earnings and optimism over increasing AI spending in the U.S, as we reported last week as well.
On Friday, the 30-share Sensex shed as much as 329.92 points to settle at 76,190.46.
The NSE Nifty50 also ended lower by 113.15 points at 23,092.20.
The broader market was under greater pressure. The Nifty Smallcap100 ending lower by 2.35 per cent while the Nifty Midcap100 index ended lower by 1.55 per cent.
FPIs continue to sell aggressively, inching towards $8 billion of net sales in the month of January.
The larger concern is the attractiveness of the home market. With higher bond yields, funds will stay back in the United States and not travel to emerging markets.
This has happened before of course but things are strictly poised right now.
Emerging markets could be seeing a dreaded "sudden stop" of capital flows as President Donald Trump's 'America First' policies pump up the U.S. economy and suck money away from poorer countries, investment bank JPMorgan warned on Thursday in a Reuters report.
Analysts fear sudden stops in capital flows because they starve economies of the money they need to grow or even just keep going.
JPMorgan's in-house indications show there were $19 billion worth of "net capital outflows" from developing economies not including China in the last quarter, with another $10 billion expected to flee in Q1.
With this in mind, "this is not a situation where specific EM countries are under pressure and are facing balance of payments or currency pressures as was the case in 1998-2002, 2013, 2015," JPMorgan added.
Nor was it a case of the weak U.S. economy driving a "risk-off" worldwide sell-off. "Rather, it is one of a strong US economy and policy risks pulling flows out of EM," analysts wrote.
How the situation plays out from here will depend on what Trump does and whether key U.S. data on jobs, inflation and retail sales prove strong enough to affect the Fed's interest rate moves, JPMorgan said, adding Even if a sudden stop does take hold in EM, most economies should be able to absorb that shock and those most at risk were Romania, Malaysia, South Africa and Hungary.
Gold Prices Up
Gold prices climbed over 1% on Friday, once again in kissing distance of its all-time-high hit in October, thanks to a weakening dollar in turn driven by President Trump's push for lower rates.
This is the fourth week gold prices have risen now.
Spot gold was up 0.7% at $2,772.79 per ounce over the weekend and has risen 2.7% so far this week and is just $17.3 away from the record high of $2,790.15 hit on Oct. 31, Reuters said.
"(Trump) is at risk of elevating prices and I think the gold market perceives perhaps a higher inflation and possibly a central bank that's more accommodative."
Of course in this general environment of uncertainty, Trump induced or otherwise, gold is a strong hedge, low interest rates of course help.
At the World Economic Forum on Thursday, Trump called for an immediate reduction in interest rates. The dollar hit an over one-month low, making bullion less expensive for foreign buyers.
Traders expect the Fed to leave rates unchanged at next week's meeting.
Spot silver was up 0.8% at $30.67 per ounce.
ICICI Results
India's second-largest private lender by assets, reported higher quarterly profit on Saturday, thanks to strong loan growth and net interest income, while its lending margins were down.
The bank's standalone net profit rose 14.8% to a record Rs 11,792 crore in the October-December quarter, above the average analyst forecast of Rs 11,494 billion rupees, according to data compiled by LSEG.
ICICI Bank's total loans rose 13.9% from the same period a year earlier, while deposits grew by 14.1%.
Net interest income, the difference between interest earned on loans and paid on deposits, increased by 9.1% to 203.71 billion rupees.
While loan growth has been strong, banks have to work harder to raise low cost retail deposits to meet the demand.
ICICI Bank's net interest margin, a key gauge of profitability, fell to 4.25% from 4.43% a year earlier and from 4.27% in the previous quarter.
Other Indian banks, including Kotak Mahindra Bank , HDFC Bank
and RBL Bank, all raised provisions in the third financial quarter due to stress in unsecured, agriculture and microfinance loans, Reuters reported.
Clarity On Russian Oil
Oil prices settled were higher on Friday but down for the week, after rising for four straight weeks.
President Donald Trump’s plans to boost domestic production while demanding that OPEC move to lower crude prices has been seen as good for crude oil prices but not much has happened.
Possibly because the market believes in the market to see how demand supply forces actually shape out including all this will lead to promised new supply.
Brent crude futures settled up 21 cents, or 0.27%, to $78.50 a barrel. Brent has lost 2.8% this week while WTI was down 4.1%.
Meanwhile Trump asked the Organization of the Petroleum Exporting Countries which includes Saudi Arabia to cut oil prices to hurt oil-rich Russia's finances and help bring an end to the war in Ukraine.
"One way to stop it quickly is for OPEC to stop making so much money and drop the price of oil ... that war will stop right away," Trump said as he landed in North Carolina to view storm damage.
OPEC’s founding members include Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela and it was expanded in subsequent years to include countries like Qatar, Libya, UAE, Nigeria, Angola and Congo.
Meanwhile, the United States has clarified to India that tankers loaded with Russian oil have to be discharged by Feb. 27 under the latest sanctions targeting Moscow's oil revenue, Reuters quoted India's oil secretary saying .
The US had earlier imposed sweeping sanctions targeting Russian producers and tankers, disrupting supply from the world's No. 2 producer and tightening ship availability.
The secretary said the deadline for completing financial transactions was March 12.
India became the top buyer of Russian sea-borne oil sold at a discount after Western nations imposed sanctions following Russia's invasion of Ukraine.
The oil secretary said India would continue to buy Russian oil if it was priced below the $60 per barrel cap set by the Western nations and was sold without the involvement of sanctioned Russian entities and ships.
Oil minister Hardeep Singh Puri said Russian oil now accounts for over a third of Indian oil imports.
India’s oil minister has said there was no shortage of oil in the market as countries such as Guyana, Brazil, Canada and Suriname were increasing output despite cutbacks by some major producers.
"If Russian oil is available at good discounts we will buy, if it is available elsewhere we will buy from them," he added.
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Trump Tariff Tracker
And here’s the latest in our Trump Tariff Tracker.
And well, it's an about turn, or U turn, perhaps again.
President Donald Trump has now said he’d prefer not to have to impose tariffs on China even as he continues to threaten sweeping action.
“We have one very big power over China, and that’s tariffs, and they don’t want them,” the US leader told Fox News in an interview that aired Thursday in the US. “And I’d rather not have to use it. But it’s a tremendous power over China.”
The US leader threatened on his second day in office to put 10% tariffs on China as soon as Feb. 1 for allowing fentanyl to “pour” into America.
Bloomberg reports that markets have taken it as a positive sign that Trump stopped short of imposing tariffs on China in his first days in office, and his recent threats were softer than those issued last year.
On the campaign trail, Trump had floated additional levies on China around the 60% mark, which economists have said could decimate US trade with a Chinese economy heavily reliant on exports.
Chinese stocks and the currency rose on Friday.
Meanwhile this is not tariffs but a u turn nevertheless at least for now.
WHO
President Donald Trump said on Saturday he may consider rejoining the World Health Organization, days after ordering a U.S. exit from the global health agency over what he described as a mishandling of the COVID-19 pandemic and other international health crises.
"Maybe we would consider doing it again, I don't know. Maybe we would. They would have to clean it up," Trump said at a rally in Las Vegas reported by Reuters.
The Middle Class Bill
India’s middle class is hurting from rising inflation and rising prices, with taxes contributing to a good part of it.
Taxes are reducing consumption power on both sides. First, on income and second on goods and services.
The expectation is obviously that there will be some sops in the upcoming Union Budget 2025 to be presented on February 1.
Columnist Shankkar Aiyar points out that the persistent food price inflation—hovering at around 8 percent for over a year—has shrunk the purchasing power of middle class households.
The slowdown, which was visible by mid-year and signalled by this column in October last year, has been validated by data.
The steep decline in second-quarter real GDP growth to 5.4 percent, with echoes in the first advance estimates of GDP growth for the year at 6.4 percent, reflected a slide in consumption and in both public and private investment.
Moreover, state governments are spending over Rs 4.7 lakh crore on subsidies—including Rs 2+ lakh crore just on cash transfers to women.
The expectation is simple. The taxpaying middle class believes it deserves a share of the taxes collected; call it a rebate on the taxes that fund the schemes that propel parties to power.
What are the chances though, of taxes coming down ?
I reached out to Shankkar Aiyar and asked him what was the political set up going into the Union Budget this year ?
INTERVIEW TRANSCRIPT
Shankkar Aiyar: There are two answers to this question.
So, essentially, the urban middle class or the middle class doesn't form a large enough constituency for political parties to get concerned about. Although, theoretically, over 150 or so seats are in urban India, but they are not consolidated. The second part is that the middle class is not organised.
There is only rage, outrage and everything. So, for the government, all the anger of the middle class, the counter to that is, okay, where will you go? Who will you vote?
And there is also a brigade of faithful. So, a large part of the middle class believes in Hindutva. And so, they will continue voting with BJP.
So, it's not like BJP will be alienated in its vote back or alienated from its vote back. But after Lok Sabha 2024, and now that we are facing an interesting election in Delhi, there could be some sort of passing showers on the middle class in the budget. By that, I mean, now that we have three slabs, we might have four slabs.
So, 10, 20, 30 might become 10, 20, 25, 30 or 10, 15, 20, 30. So, let's get the math right. All said and done, if everything goes according to plan, if the economy grows by 6.5%, if the revenues grow as much as they grew this year, and if the economy sort of chugs along, then based on that mathematics, the government has roughly about 90,000 to 1 lakh crore to play around. Now, who is a more important constituency? Forget about growth and all that, okay? Is it the rural class, the bottom of the pyramid, the voting class?
Or is it the middle class? If they have money to spare, they would address the schemes to the voting class. I mean, there's an economic reason also.
If the middle class says the inflation has hurt them, surely that problem visits the rural and poor people also and probably hurts them more. Same with unemployment. I mean, the magnitude is much more for them.
So, the government will have some schemes for them. What the middle class hopes for may not come true. I mean, there's a very interesting conversation I had with a youngster last week, a conference where he said, will there be a cut in income tax?
And I said, what would satisfy you? He said, 18%. I said, that's a very precise number.
How did you arrive at that? So, he said, they're charging me 18% GST on everything. I want an 18% rebate, which was all very logical and everything.
I'm not sure the government is in a position to do that, not unless they let the fiscal deficit slide a bit or reduce the target instead of 4.5. They say, oh, we'll touch 4.7 or whatever the math. So, A, the government has a constraint of money. B, it has to choose between three outcomes.
One, stimulate growth through infrastructure, you know, construction projects and stuff. B, it pays or stimulates the rural economy through some schemes and the farmers and stuff. And C, okay, gives the middle class some kind of lollipop.
So, this is never going to be happy. I mean, you know, whatever it comes, it will come between 30 and 50,000 per year. That would translate to not much money.
So, whatever the tax cut comes, it's not as if the middle class is going to run and buy the next house or the next car or anything. So, the stimulation of consumption, I mean, there's plenty of literature on how tax cuts do not necessarily result in consumption, right from George Bush's tax cuts to Trump's tax cuts.
Govindraj Ethiraj: There's a lot of literature there. So, that's the cuts part. Let's look at some of the more fundamental issues, which is obviously income.
And there's also inflation. Not that the budget can come up with any magic recipe for this, but how are you seeing this?
Shankkar Aiyar: There is positive data on this. But let's look at the white-collar, middle-class job landscape. So, over the last two years, how does this play out?
Parents borrow about 20, 30 lakhs and send their children to either an engineering college or a management institute to get an MPN. But as we both know, placements in both these categories have been poor over the last two years. So, there is a family which has educated somebody and that person is waiting for a placement or a job or whatever.
So, the first four, five months, the family says, okay, we're getting there, we'll do something or the other. But at some point, the family is also servicing that education loan. So, they start to cut down on other expenditures.
So, that's one play that is happening. The other play is the peer effect, I call it. So, if somebody in the neighbourhood has lost a job or somebody is not getting a job, all of that starts playing into your mind.
So, what's happening with the middle-class households is urban wages have not risen. In fact, in some cases, they're in negative over the last four years. The second part is that the food price inflation has hit them hard and that food price inflation has visited several of their cost factors, like education costs, medical costs, transport costs.
So, these are the major expenses for the middle class. So, middle class is squeezed. I mean, politically speaking, there are the rent-reapers and the rent-seekers.
The top of the pyramid is the rent-reapers, which is the rich and famous. And the bottom of the pyramid is the rent-seekers because they are wooed by political parties with various schemes and stuff like that. Stuck in the middle is the middle class.
Govindraj Ethiraj: So, if you were to now look at the blueprint, I mean, as things stand, of what the budget might hold. So, you're saying that if there is anything, it will be more indicative or perfunctory for the middle class. We will continue to see more giveaways for the more disadvantaged sections of society, like we've seen in the case of the freebies, as the numbers that I mentioned, which you had computed.
And the well-to-do, I guess, will be left alone because they're already taxed at a level where really it's tough to go beyond this.
Shankkar Aiyar: Yeah. So, one other factor that will play into this is that the government may not be able to grow its taxes the way it grew last year. A, because of the stock market, the capital gains, the IPOs and stuff has got a lot.
A lot of this personal income tax being higher than corporate tax, and some of that will start slowing down. And what do you reap out of capital gains if the market is going down? So, that's one side of the story.
To me, I think the best the middle class can hope for, and hope is like the clouds, some bring rain and the others just pass by. So, the best the middle class can hope for is a little adjustment in some of the rates and some of the... It's like easing of the belt, a notch here and there.
And just hope that the budget brings in growth. Practically, this is what the government has been telling the middle class over the last five, six years, that we are giving you growth, we are giving you metros, we are giving you airports, we are giving you highways. So, be happy.
All those selfies that we see outside the Atal Setu and the Vande Bharat trains, and this excitement about this Vande Bharat, the sleepers and without sleepers, all of this is the political parties know that the middle class is happy with all of this. They're not too concerned. I mean, their calculus is that the larger vote bank is the poor and oppressed class, the bottom of the pyramid.
So, the politics is a playbook of C.K. Prahlad, what C.K. Prahlad said, there's gold at the bottom of the pyramid. Politicians have discovered the gold, so you have all the freebie schemes and everything, and everybody is sort of focused on that. And you look at the manifestos in the last three elections, Maharashtra elections, Jharkhand elections, Haryana elections, nobody gave a lot of tuppence for what the middle class was thinking about.
It's only now that this growth has slowed down and the rupee has slid and all those issues. So, suddenly there is a feeling, okay, maybe this child is crying a lot, so let's sort of address this part. And the irony is that Arvind Kejriwal, who started as like the middle class anti-corruption messiah or whatever, and that story has gone elsewhere.
He has presented this and he's known to be voted in by the bottom of the pyramid of Delhi. So, he has put out this middle class budget and that has kind of shaken up the system a bit and there is a lot of conversation about this. But the best case scenario for the middle class is probably a little few adjustments and grand stories about Vixit Bharat and probably hope for growth.
Govindraj Ethiraj: Shankkar, thank you so much for joining me.
Shankkar Aiyar: Always a pleasure.
DLF Luxury Project
And this is of course middle class India does not exist and its problems distant.
Real estate major DLF on Friday said it got record bookings in its $4 billion "super luxury" home project near New Delhi.
DLF sold 173 units in "The Dahlias" in Gurugram for about $1.4 billion or over Rs 10,000 crore over nine weeks, it said in a statement.
This was also the first time that sales value achieved in a single project has crossed 100 billion rupees ($1.16 billion) in one quarter, data from analytics firm CRE Matrix showed, Reuters reported.
The builder is selling 420 units priced at an average of $8 million per unit in the sprawling 17-acre project that boasts duplex penthouses and outdoor decks.
That means over Rs 65 crore per house.
In 2023, DLF sold a $1 billion upmarket residential project in Gurugram in 72 hours.
Affluent Indians are buying up luxury items like never before.
Luxury homes accounted for 26% of total residential sales last year, more than three times the level of 2020, according to Mumbai-based Anarock Property Consultants.
Analysts expect this trend to continue in 2025 too, with the rich not skimping on spending even as millions of others cut spending in the face of inflation.
Indian sales of Mercedes-Benz cars hit a record high last year, while Lamborghini sold 10% more cars in 2024, said Reuters.
A Three Gigawatt Reliance Data Center
Mukesh Ambani’s Reliance Group is building what may become the world’s biggest data center by capacity in India, the latest in a blitz of global investments to capitalize on booming demand for artificial intelligence services.
The data center in the town of Jamnagar that’s expected to have a total capacity of three gigawatts, according to people familiar with the matter, who asked not to be identified because the details aren’t public. That would make it far bigger than any data center now operating.
It’s not clear how Ambani would pay for the project, which could cost $20 billion to $30 billion based on expenses in the region for such facilities. Reliance Industries Ltd., the group’s primary listed entity, has the equivalent of about $26 billion on its balance sheet.
The Jamnagar facility would substantially boost India’s data center capacity, now estimated at less than 1 gigawatt. Tripling that size would give the world’s most populous country the potential to greatly accelerate its development of artificial intelligence.
A Reliance spokesman declined comment, directing Bloomberg News to a recent speech from Reliance Jio Infocomm Ltd. CEO Akash Ambani, Mukesh’s son. The executive said at the time the conglomerate was building a datacenter to be completed within two years. “We want to complete it in the true Jamnagar style in record time — as we have always done in Jamnagar — in 24 months.”
Ambani’s project, if it goes ahead as envisioned, stands out for its sheer size. The largest data centers operating now are less than 1 gigawatt, according to data provided by market intelligence firm DC Byte, which would make this several times larger than what’s on the market.
Data center capacity is often measured in the megawatts (millions of watts) of electricity that the site can feed into servers, cooling systems and other equipment. The larger the figure, the higher the volume of computing operations it can support. And AI models are notoriously compute-intensive.
Read More: AI Data Center Energy Needs Are Straining Global Power Systems
Mukesh Ambani’s Reliance Group is building what may become the world’s biggest data center by capacity in India, the latest in a blitz of global investments to capitalize on booming demand for artificial intelligence services.
