India's Stocks Are Down But There Is Good News On Bonds
JPMorgan said it will include Indian government bonds in its widely tracked emerging market debt index. This inclusion could prompt billions of dollars of inflows into the roughly $1 trillion bond market in India.
Our Top Reports For Today
- [00:00] Stories Of The Day
- [00:46] India’s stocks are down but there is good news on bonds
- [05:39] The World Trade Organisation lumps India with an unusual trading bloc
- [13:01] Murdoch steps down from NewsCorp and the media assets he sold to Disney are on sale.
- [16:45] Factories are leaving China but which ones?
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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Stocks Down Last Week
How will stocks go this week ? Well, there is no big upward trigger is all I can say from what I can see.
Let's recap what happened last week. The 30-stock Sensex declined for the fourth successive day on Friday last week after its worst weekly fall in 15 months. It lost 1,829 points or 2.7% in the week and on Friday, it ended 221 points down at 66,009.
The Nifty Fifty was down 68 points to close at 19,674, also down 2.6% for the week. So both indices have fallen similarly though their composition is obviously different. The biggest losers were HDFC Bank, UltraTech Cement and Wipro.
Foreign investors at this point are selling. Some $1.1 billion has gone out September to date after close to $16 billion of inflows this year.
On Wednesday, the Fed kept its benchmark rates unchanged but hinted that it may raise again which in itself sent the market into a tizzy.
India’s forex reserves are now at $593 billion, after losing around $867 million in the week ended Sep 15, 2023. The rupee was at a record low of 83.27 last week.
Stocks are down, currency is weak, oil of course is now circling around $95 a barrel but there is some good news for bonds.
JPMorgan said it will include Indian government bonds in its widely tracked emerging market debt index. This inclusion could prompt billions of dollars of inflows into the roughly $1 trillion bond market in India.
India's local bonds will be included in the Government Bond Index-Emerging Markets (GBI-EM) index and the index suite, benchmarked by about $236 billion in global funds, JPMorgan said.
The index provider will add the securities starting June 28, 2024. India will have a maximum weight of 10% on the index, according to a statement.
Which means upto $24 billion or so could potentially flow into India through 2025.
JPMorgan said 23 Indian Government Bonds (IGBs) with a combined notional value of $330 billion are eligible. All fall under the category of "fully accessible" for non-residents.
India is set to borrow a record $186 billion this fiscal year and needs funds to finance its current account deficit.
The move follows the Indian government’s introduction of bonds that can be fully owned by foreigners in 2020, as well as steps to aid foreign portfolio investments, the team led by the firm’s global head of index research, Gloria Kim, said in a statement, quoted by Bloomberg. Almost three-quarters of benchmark investors surveyed were in favour of India’s addition to the index, they said.
Foreign investors have bought $3.5 billion worth of Indian debt this year, according to data compiled by Bloomberg.
“Foreign investors will have access to a large, idiosyncratic factors driven market, while domestic investors will welcome investors with varying risk-return preferences,” said Nagaraj Kulkarni, co-head of Asia rates ex-China at Standard Chartered Plc in Singapore told Bloomberg adding he expected the decision to drive inflows of as much as $25 billion by March 2025.
JP Morgan’s move brought in cheers and reactions from all quarters, including those in Government or close to it.
India’s inclusion reflects the “confidence that financial markets have on the long-term prospects of the Indian economy and our financial and macro policies,” said Chief Economic Adviser V. Anantha Nageswaran.
“India’s inclusion in the bond index is a step in the right direction. With the exclusion of Russia and troubles in China, the options for global debt investors have narrowed down. This inclusion will deepen the bond market in India," said Nilesh Shah, Part Time advisor to the Prime Minister’s Economic Advisory Council and head of Kotak Mahindra AMC tweeted after the announcement.
Meanwhile, among other economic news, the Asian Development Bank (ADB) has reduced its GDP forecast for India for the fiscal year 2023-2024 by one percentage point, bringing it down from 6.4 percent to 6.3 percent.
This downward revision is attributed to a slowdown in exports and potential disruptions in agricultural output due to unpredictable rainfall patterns.
The GDP forecast for the fiscal year 2024-2025 remains unchanged at 6.7 percent, as it is anticipated that growth will be fueled by increased private investment and industrial production..
Speaking of growth and then trade..
The World Trade Organisation presented the World Trade Report 2023 in which the WTR has presented a world of two trading blocs based on voting patterns in the United Nations.
The hypothesis lumps India with China along with Russia, most of North Africa and Southeast Asia, and places Europe, Canada, Australia, Japan and South Korea in the western bloc. Latin America and sub-Saharan Africa fall somewhere in between, closer to the US.
Journalist and columnist on trade issues Shankkar Aiyar has criticised this hypothesis in his weekly column in The new Indian Express. According to him, The quest for resilience has triggered a migration from just-in-time economics to just-in-case geopolitics. The tectonic shift in economic relationships is manifest in data and in headlines – for example, Mexico has ousted China and emerged as the largest trading partner of the United States.
The United States is one of the top trading partners of India with exports touching $128.55 billion in 2022-23 and includes sourcing by Walmart and Apple. Last month Harley Davidson launched its cheapest bike made in India.
The bulk of India’s $320-billion-plus services exports is to the US, Europe and UK. The US is the third largest contributor of FDI into India.
I reached out to Shankkar and began by asking him what the significance of this lumping together was and what it would mean for India ?
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Murdoch Steps Down
Rupert Murdoch stepped down as chairman of Fox Corp. and News Corp. leaving his son, Lachlan Murdoch with the task of steering the family’s cable TV and newspaper companies.
Murdoch’s media empire has been built over 70 years and has had considerable if not disproportionate influence on the politics of several countries, notably the USA, with Fox News and UK with Sky News, The Times and The Sun.
However, Murdoch sold most of his film and TV business to Walt Disney Co. for $71.3 billion in 2019 and left with news and sports across cable TV and print.
Speaking of Disney, the update from last week comes in the context of Disney considering multiple options for its India business, which include a joint venture (JV) with a strategic partner or an outright sale of Star India's TV channels and Disney+ Hotstar streaming platform.
The update is that Disney is believed to have held talks with Reliance Industries (RIL), which also owns a majority stake in Viacom18 and owns the Jio brand.
Talks are at an advanced stage according to multiple sources and are happening between India and LA and the contours of a deal are imminent.
Were this deal to go through, it would of course give Reliance’s Jio considerable entertainment and media assets to hold on to, including of course news which it acquired earlier when it bought TV18.
Star India holds a market share of close to 30% of the broadcast entertainment market.
RIL-owned Viacom18, owns digital rights of properties like IPL apart India bi-lateral cricket, Indian Super League (ISL) and Cricket South Africa.
Viacom18's expansion in sports has come at the expense of Star India, which earlier owned the TV and digital rights to all the important cricket properties.
Jio has also acquired premium Hollywood content from HBO and NBCUniversal. HBO content was earlier streamed on Disney+ Hotstar.
There of course seems to be a surprising lack of discussion on the likelihood that we are heading for a near monopoly in some parts of the media. Zee and Sony are the other big combine post a merger which has some final regulatory hoops to go through. In television, they have a roughly 19% market share.
Toyota’s EV Triple Push in 2025
Switching gears quite literally. For a while, it appeared that Toyota and Suzuki, almost controversially, were not committing themselves to higher electric vehicle production.
That seems to be changing going by a report from Nikkei news quoted by outlets around the world.
Toyota is now aiming to produce 600,000 electric cars in 2025, tripling the expected 2024 output of 190,000 units.
The target is obviously in response to the ramp up speed of other automakers, notably fully electric Chinese companies like BYD and of course Tesla who are both the world's largest electric auto makers, including in China.
The target is now to sell 1.5 million EVs by 2026 with ten new all-electric models, including SUVs, crossovers, small cars, luxury, and commercial. By 2030, the automaker plans to sell 3.5 million EVs or about one-third of its global volume.
The report notes Toyota has already notified several of its major suppliers of its planned EV production ramp over the next few years.
Last year, Toyota and Lexus sold a total of 24,466 fully electric cars, representing just 0.26% of overall sales.
The China Syndrome
And before I go, I thought I would point you towards a weekend interview I did which has been getting a lot of feedback.
I had the opportunity to speak with Louis-Vincent Gave, French-origin, Hong Kong-based fund manager who has fought in the French army, written seven books who among other things asks us to pay more attention to financial prices then we perhaps are.
Gave has a very strong view on western media bias on China and the likelihood that many of us are influenced by it.
For example,he asks, if Chinese banks are in the doldrums, why are they outperforming US banks in the markets ! China is losing factories for sure but what is staying on, what is the data really telling us ?
It's a lens that you may not have seen capital flows through in recent times and I would urge you to listen or watch the whole interview on www.thecore.in , it appeared over the weekend by the way.
Here is an extract.
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That’s it from me for now. Have a great week ahead and do stay connected with us and let me know
