Global Markets Are In Turmoil As Interest Rates Head Higher
The rapid rise in rates in the past few weeks is increasingly spilling over into other financial markets and denting the allure of riskier assets like stocks. The S&P 500 closed Tuesday at its lowest level since early June, after falling 1.4%
Our Top Reports For Today
- [00:00] Stories Of The Day
- [00:50] Global markets are in turmoil as interest rates head higher, oil prices begin to fall.
- [04:31] Why are more directors quitting or rather fleeing from boards of startups?
- [12:20] Low income real estate buyers drop off the market as interest rates and inflation bites.
- [21:29] The most spirited stock on Indian markets. Explanation coming up.
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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Markets In Turmoil
Remember we said yesterday how rising treasury yields at a 16 year high in the United States were hitting prices of all commodities, currencies and stocks, ranging from gold and silver, at 7-month lows, to currencies, at record lows to stocks, at lows.
The Sensex ended at 65,226, down 286 points while the Nifty50 closed at 19,436, falling 93 points. Like many other days, there were sharp swings during the trading day.
Now what’s happening elsewhere.
The yield on the 30-year U.S. Treasury note briefly breached 5%, while the 10-year equivalent hovered around 4.8%—its highest level since August 2007. Germany's 10-year Bund yield briefly touched 3%, for the first time in 12 years, the WSJ reported.
The rapid rise in rates in the past few weeks is increasingly spilling over into other financial markets and denting the allure of riskier assets like stocks. The S&P 500 closed Tuesday at its lowest level since early June, after falling 1.4%.
The good news is that oil prices have retreated from their $100 a barrel run.
West Texas Intermediate crude fell near $87 a barrel to the lowest since Sept. 11. Deteriorating sentiment across markets over the last few days, spurred by a higher-for-longer outlook for global interest rates, has stopped a stellar oil price rally in its tracks, reported Bloomberg.
Oil prices continued to fall Wednesday even as OPEC+ leaders Saudi Arabia and Russia committed once again to continue additional curbs until December.
Oil has risen since mid-June as Saudi Arabia and Russia’s supply cuts squeezed the market.
In India, Minister of Petroleum and Natural Gas Hardeep Singh Puri said rising crude oil prices could create “organised chaos” and “devastation” in several parts of the world.
He told Bloomberg TV yesterday that increasing crude prices have resulted in about 100 million people around the world being taken into abject poverty in the last 18 months.
According to him, crude oil prices of around $80 per barrel or slightly less than that would be a convenient price range for countries.
“It is in the interest of all the countries, including oil producing and consuming, to have a healthy discussion on what constitutes a reasonable price band,” he added.
So will oil prices, now that they are on a downward trajectory or pause, go to the $80 range. I don’t of course know, but since we buy a lot of oil from Russia and they in turn are responsible, albeit partly for the high prices right now, then we are surely in a good position to ask them.
From oil to gas
The Government has increased the cooking gas subsidy from Rs 200 to Rs 300 per cylinder, paid to poor women who got cooking gas connections under the Pradhan Mantri Ujjwala Yojana.
This is the second time it has increased the subsidy in a month in a move that appears to be keeping rising inflation in mind and of course over the slightly more medium term elections.
"The beneficiaries of the Pradhan Mantri Ujjwala Yojana will get a subsidy of Rs 300 per cylinder," a cabinet minister of the Government said.
The Ujjwala beneficiaries currently pay Rs 703 per 14.2-kg cylinder as against the market price of Rs 903. After the decision of the Union Cabinet, they will now pay Rs 603.
The Government had announced a limited subsidy in March as well. There are some 310 million LPG consumers in India
Fleeing Directors
You may have heard of a company called Dunzo, possibly of late because of the fact that it is in trouble and Reliance Industries owns a 26% stake in it, or in the opposite order.
Dunzo is in what is known as quick commerce.
Some 5 board members have resigned and left the company, the Economic Times is reporting.
The names of the individuals are not relevant here but they include the group chief of business operations at Reliance Retail, finance head at Reliance Retail, left the Dunzo board.
In August, one director, representing an investor called Lightrock and owning 8.6% of the company left, the ET quoted another organisation called Tracxn. And then two co-founders including one co-founder who is also the chief technology officer left the board. Only one of them, the CTO continues to be with the company but has left the board.
Their exits would have been more newsworthy were it not for the fact that they come on the heels of three similar and spectacular exits by three investor-directors on the board of Byju who resigned the board in June in what appeared to be utter frustration and also thus kissed some $5 billion of their - or rather their investors’ money- goodbye.
The three directors were representing Peak XV, earlier called Sequoia Capital India, whose meltdown is a separate story, Chan Zuckerberg Initiative and Prosus. And not to be left behind, the auditor Deloitte, Haskins and Sells also resigned.
So what gives. Why would directors walk away from a situation where they are there to precisely fix or rescue or save whatever is left of it ? Isn’t that why they became directors in the first place, to protect their investments and to grow them ?
Obviously, there are other delicate matters at stake. Like the possibility of going to jail.
In the case of Byju, there is at least one enforcement directorate investigation on, which also saw raids on the company’s offices in April, involving alleged diversion of funds overseas.
The ED charged that Byju's received foreign direct investment (FDI) worth ₹28,000 crore between 2011 and 2023. It then said that the company remitted approximately ₹9,754 crore to various foreign jurisdictions during the period in the name of overseas direct investment. Am sure you get the subtext of this allegation.
But returning to fleeing directors.
The likely situation is that all the directors of all these companies are fearing the possibility of criminal breach of some sort, under Indian laws, if not elsewhere.
The least that can happen is that you will get sent back from the airport if you were planning on a little trip outside, for business or pleasure or back home as in some cases.
The question of course is what does it help? Would you be absolved of all blame merely by submitting a resignation letter, despite of course and with some benefit of doubt, you not having known what was really going on in the company. Which must surely be the case in Byju. How someone could not know is a question for another day.
I reached out to Shriram Subramanian, founder of InGovern Research services, an institutional investor advisory based out of Bangalore who tracks board governance issues closely.
I began by asking him why this was happening and why directors were fleeing en masse as it were.
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India’s Lower Income Segment Fall out Of Housing Market
Rising interest rates and of course inflation are forcing people out of the lower end housing segments.
Worse, buyers in this segment are unable to put down the base contribution to the total cost, which could be 20% or Rs 10 lakh of a Rs 50 lakh house.
The headline of course is a little different.
Real estate consulting firm Knight Frank India has said that quarterly sales for residential units are at a 6-year high, going by total numbers in the leading eight residential markets in India.
During Q3 2023 (July – September 2023), these markets saw a surge in demand with sales of 82,612 residential units recording a growth of 12% YoY. This in volume terms was a six-year high in quarterly sales volumes.
Now, here is where things diverge out a little bit.
The mid and the high – end category of residential properties saw a further rise in sales momentum in Q3 2023.
Properties costing over Rs 1 crore saw a YoY rise of 39%, the mid segment at Rs 50 lakh to Rs 1 crore saw a rise of 14% YoY in Q3 2023.
But the affordable segment, or homes less than Rs 50 lakh continued to decline and at this point is reporting a YoY decline of 10% in the number of units sold.
In contrast to the year 2018, the numbers stand out even more. Total sales achieved in the first nine months of the year stands at 239,252 units which represents a rise of 28% over 2018, the under Rs 50 lakh category saw decline of 26% in absolute terms over that achieved in 2018.
With 74,069 units sold in this category between January – September 2023, it made up 31% of the total sales achieved.
However, in the Rs 1 crore plus category, there was a rise of 157% over 2018, selling over 75,000 residential units in the first nine months of 2023.
And thus, to reiterate for the first time sales in the high-end segment have overtaken sales in the affordable segment.
Hyderabad is seeing the most action in the real estate space. As an occasional visitor, including last month, I can testify that the quality of roads and base infrastructure is better than most other cities, including Mumbai for sure. If you find something to do there of course which I may not.
To understand a little more on the latest numbers, I spoke with Vivek Rathi, Director Research at Knight Frank India and began by asking him what was standing out in the numbers apart from the 6-month sales high.
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AUDI
While one segment of India finds it difficult to create assets, others are splurging, so to speak.
German luxury carmaker Audi India reported an 88 per cent growth in retail sales during the first nine months of this calendar year, with sales reaching 5,530 units, largely due to its SUV line-up. This figure has already surpassed the entire 2022 sales by 1,343 units.
The third quarter (July-September) was particularly strong for the company, contributing 37 per cent of the total sales for the year.
Balbir Singh Dhillon, Head of Audi India, in a report in Business Standard said he anticipated sustained demand in the upcoming festive season, especially for our best-sellers like the A and the Q series and he said he was also optimistic on the festive season demand for our electric range, which includes EV cars like the Audi e-tron GT and Audi RS e-tron GT.”
Spirits Are High
Elsewhere, in one of those somewhat rarer linkages between stock markets and product success, and more so in the case of a whiskey brand, shares of the distilleries company Piccadily Agro Industries hit the upper circuit on October 4 again, with the stock surging by another 20 percent.
This was after single malt Indri Diwali Collector’s Edition 2023, an Indian Whiskey made by the company, recently won the ‘Best in Show, Double Gold’ title at the 2023 Whiskies of the World Awards, Bloomberg reported.
The stock is now up 292% so far in 2023 with the push from the result of the annual US-based competition. India is the world’s largest whisky market at about $18 billion a year, according to data from Statista quoted by Bloomberg.
“It is an exciting time for India, and Indian whiskies are not far behind as we are playing our part in the India story,” Siddharth Sharma, founder of Piccadily Distilleries, said in a statement.
The Whiskies of the World Award is one of the largest whiskey-tasting competitions in the world. Over 100 varieties of whiskey from all over the world are judged in the event, which is held annually.
The Indri brand was launched in 2021 from the Piccadilly Distilleries in Haryana.
Piccadily Agro Industries was incorporated in 1994. The company’s main business is in the sugar and distillery segments. It also has a sugar mill at Karnal (Haryana) which houses the sugar production unit, distillery unit, and a malt plant.
