Global Cues Weak Going Into Thursday Trade
On Wall Street and elsewhere, investors appear to be questioning whether the tech darlings led by Nvidia are worth the sky high valuations they are sitting at
On Episode 341 of The Core Report, financial journalist Govindraj Ethiraj talks to Paul Hickin, editor in chief of London based journal Petroleum Economist as well as Vivek Rathi, director, research at Knight Frank India.
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SHOW NOTES
(00:00) The Take
(03:13) Stories Of The Day
(03:53) Global cues weak going into Thursday trade
(05:24) Oil prices are down but stronger US demand is countering weaker uptake in China
(13:23) Gold hits fresh record high
(15:18) Mega deals are driving private equity investments into India’s real estate, led by warehousing
(22:21) Monkeys in the circus and venture funding in electric vehicles
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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Good morning, it's Thursday, the 18th of July and this is Govindraj Ethiraj broadcasting and streaming from and headquartered in Mumbai.
The Take
If you have been a regular reader of The Core or a listener of The Core Report, you would have known that this was a when question and not an if question.
The National Company Law Tribunal has started insolvency proceedings against edtech firm Byju after India’s cricket board, the Board of Control for Cricket in India (BCCI) complained that it failed to recover around $19 million dues.
Reuters reports that the tribunal appointed an interim resolution professional, Pankaj Srivastava, who will now oversee the management of Byju's. The powers of the board of directors will be suspended for now and rest with Srivastava.
The Core has also argued that given all the federal tax and economic offences cases including by the Enforcement Directorate filed against Byju, the company’s value was effectively zero and not some in the billion or billions of dollars range as many were fantasising about.
The irony is of course there for all to see.
The organisation that dragged Byju to bankruptcy court was the one which made its players proudly sport the Byju brand on their T-Shirts.
The branding of course helped hawk expensive supplemental education courses to unfortunate young students pressurised in turn by insecure parents.
And there is no better business model in India than perhaps preying on insecure parents with nonsensical online courses. And I do wish we did more to address this problem.
Which of course reminds me that this will not be the only brand of Indian cricketers T Shirts to meet this end. And if a few more have not yet reached the graveyard as they should, it's because venture capitalists are still pumping away capital as they are wont to, till the very end.
Visualise someone huffing and puffing on a bicycle pump without a tire or a bicycle connected to it.
Byju’s demise was of course a long foregone conclusion. But a free market must allow all firms to try and perish if they fail. But there should be exceptions, like businesses which target parents and lock them into EMIs they can’t pay.
Even if you take away the fact that companies like Byju and many more have messed around with children’s lives, the flood of capital creates severe distortions up and down the economy, including the perception of jobs which barely exist beyond a few years.
This perception of jobs creates a cycle of artificial demand and thus inflated supply which works back into the education system. For several years, the hottest jobs at campus placements were edtech companies.
This is a problem that of course extends across the economy.
A robust free market is essential to correct imbalances and overreach but allowing casino grade capital to enter areas like education, or for that matter, quite literally casinos is something that policy must step into control.
India has already taken steps in that direction. We must not slow down now.
Global Cues Are Turning Weaker
Indian markets are being driven by excess supply of funds, mostly through the mutual fund route and little of fundamentals, at least for many stocks and at the stratospheric valuations they are quoting.
On Wall Street and elsewhere, investors appear to be questioning once again whether the tech darlings led by Nvidia are worth the sky high valuations they are sitting at.
Stock futures slid on Wednesday as the rotation out of high-flying technology shares continued. Dow Jones Industrial Average futures shed 129 points, or 0.3%. S&P 500 and Nasdaq-100 futures lost 1% and 1.5%, respectively, CNBC reported.
Apple and Tesla - yes Tesla is a tech stock - dropped around 2% before the bell.
Semiconductor stocks fell after Bloomberg News reported that the Biden administration is considering tougher trade restrictions if companies continue granting China access to U.S.-made technology.
U.S.-listed shares of Taiwan Semiconductor or TSMC, lost around 4% and 2%, respectively, in the premarket.
Back home, the BSE Sensex touched a record high of 80,898 intraday on Tuesday, before ending at 80,717, up 52 points while the NSE Nifty50 hit a new high of 24,661, before closing the session at 24,613, up 26 points or 0.11 per cent.
In the broader markets, the BSE MidCap slipped 0.29 per cent, but the BSE SmallCap added 0.32 per cent.
Its US vs China When It Comes To Crude Prices
Oil steadied after a three-day drop as there appeared to be a fresh fall in US crude stockpiles, making up for weakening demand outlook in China, Bloomberg reported.
Brent traded below $84 a barrel and US crude stockpiles shrank by 4.4 million barrels last week, the American Petroleum Institute reported, according to people familiar with the figures.
China reported its slowest growth in five quarters in the three months to June, and the International Energy Agency has projected weaker oil demand growth there.
To get a sense on which way oil prices are headed and whether or not countries like India can continue to benefit from cheaper Russian crude I reached out to Paul Hickin, Editor in chief of London based journal Petroleum Economist.
I began by asking him about overall crude price trends right now.
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Gold Jumps To Fresh Record
Gold hit a record high as hopes for Federal Reserve rate cuts rose again and of course the markets are stepping up their bets on Donald Trump returning as president.
Spot bullion rose as high as $2,469.66 an ounce, moving past the previous all-time peak set in May.
Lower interest rates make gold less attractive as gold depends on capital appreciation.
Gold has risen nearly 20% this year, supported by large purchases from central banks including India and China and strong consumer appetite in China.
The big trend this year of course has been the geopolitical shifts, causing demand for gold to rise.
China has now slowed down its purchases after months of incessant buying, possibly because of the high prices, according to some reports.
Ewa Manthey, a commodities strategist at ING Bank NV told Bloomberg that Gold was poised to keep its positive momentum going amid the current global geopolitical and macroeconomic landscape, while central bank demand is expected to grow.
Gold’s latest rally isn’t necessarily unexpected, says Bloomberg, adding that in June, consultancy Metals Focus predicted a fresh record this year, while earlier this month Citigroup Inc. said its base case for gold in 2025 was $2,700-$3,000 an ounce.
Mega Private Equity Deals In Real Estate Mark First Half Of Current Year
Some $3 billion of private equity have flowed into real estate in the first half of this year, of which half has gone into one mega warehousing deal
The single deal of $1.5 billion was between Reliance Retail, Abu Dhabi Investment Authority (ADIA), and Kohlberg Kravis Roberts & Co. (KKR).
Residential space grew at 29 percent while office grew at 20 per cent..
Foreign investors represent close to 80% of private equity investment in real estate and both office and residential have also seen considerable growth in this period.
Most PE investments are flowing into Mumbai and its surroundings.
I reached out to Vivek Rathi, Director, Research at Knight Frank and also author of this report and began by asking him what was driving the big deals.
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Monkeys And Venture Funds
Uncertainty on the policy front makes predicting profitability for electric vehicles tough, Bajaj Auto managing director Rajiv Bajaj said Tuesday.
He said this in response to a question from a shareholder at the company’s annual general meeting on Tuesday and reported by Business Standard.
Bajaj makes Chetak electric scooter and is India’s third largest electric two-wheeler firm by volume. It also entered the electric three-wheeler segment last year.
The original Chetak scooter was launched in 1972 and was named after a legendary horse of a great Indian warrior and king Maharana Pratap who ruled in northern India around 500 years ago.
The newer and electric version of Chetak was launched in 2020.
The outspoken head of Bajaj Auto said there was a lot of uncertainty as far as government policy is concerned — not in the bad sense, but in the sense that the same scheme as subsidies for electric vehicles also changes from time to time.
He also says his company was not unduly worried about the subsidy issue. Being a company that makes a 20% Ebitda margin with a cash reserve of Rs16,000-20,000 crore puts it in a better position compared with its rivals.
“There is a side to me that wishes that this segment should not be profitable for a long time. Because we can be the last scooter standing at the end of the day. Let it continue like this. Let the circus continue. One by one all the monkeys will leave the circus and, in the end, hopefully we will still be standing there,” Bajaj said.
Presumably when he referred to monkeys, he was speaking of companies that had aggressive, to put it mildly, venture funding backing it and thus unit economics at this time were not really a consideration.
He also said that EV profitability is difficult to predict also because of other factors. “It is a very difficult question to answer. Because it depends on many factors. It also depends on price, which is not really in the company’s hands. It’s determined by the market,” Bajaj said.
“We have a competitor that believes in dropping prices by Rs 10,000 every month,” he said.
While India has seen high growth in electric two wheelers, the overall electric vehicle market is now slowly flattening all over the world as demand is slowing down and manufacturers are cutting back both production and plans from the more ambitious goals set a couple of years ago.
In four wheelers, hybrids now outsell electrics despite having to pay much higher taxes.
“Our emphasis will be more on growth, perhaps more than it has been before. We are not wedded to 20% Ebitda. It’s more of an outcome of what we do — of our sales, of our price, of the money we invest etc.,” Bajaj said.
