Indian Markets Track Global Recovery
Indian markets have finally begun tracking the recovery in the world markets after the big sell off over the weekend and into Monday this week
On Episode 358 of The Core Report, financial journalist Govindraj Ethiraj talks to Gaurang Shah, Head of Investment Strategist at Geojit Financial Services as well as Uday Ved, partner – tax services at KNAV.
Our Top Reports For Today
SHOW NOTES
(00:00) Stories Of The Day
(01:00) Indian markets track global recovery, poised to gain further
(02:23) The rupee falls again, closes in on Rs 84 and the RBI steps in
(03:52) Where are the Indian stock markets right now and how investors are still pouring in
(13:33) The Government relents on taxes on sale of property, other fine print that matters
(21:10) Sales of hybrids/EVs overtake all vehicle sales in China for the first time
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 regards any feedback, you can drop us a message on [email protected].
---
Good morning, it's the 8th of August and this is Govindraj Ethiraj, headquartered and broadcasting and streaming from Mumbai, India’s financial capital.
—
Markets & More
Indian markets have finally begun tracking the recovery in the world markets after the big sell off over the weekend and into Monday this week.
Wall Street was holding firm overnight and that could set the precedent for the Asian open as well as India today.
The larger question is where are the Indian markets headed or before that where do they stand today ?
While the Indian markets swung low and back up again, not fully though, the fact remains that nothing has really changed fundamentally, which is corporate earnings or macroeconomic parameters.
But stock prices and value are not necessarily only a function of fundamentals. Sentiment matters. More on that shortly.
The benchmark indices closed strong.
The BSE Sensex jumped 874.94 points to 79,468, while the NSE Nifty50 climbed 304.95 points to 24,297.
Business Standard says as many as 44 of 50 stocks of the Nifty50 ended higher, with ONGC, Coal India, Adani Enterprises, and Adani Ports gaining up to 7.45 per cent.
On the BSE, 25 out of 30 constituent stocks of the Sensex ended in the green, with gains led by Adani Ports, Power Grid, and JSW Steel of up to 3.42 per cent.
All the mid cap and small cap indices were also up sharply today, as the bounce back continued.
Rupee Hits Fresh Low
The rupee fell to yet another all-time low on Wednesday, thanks to continued unwinding of carry trades and on dollar demand from local importers, Reuters said.
The rupee fell to its record low of 83.9725 to the dollar before closing at 83.9550, its weakest closing level ever.
The rupee has now hit record lows for four straight sessions which in turn triggered intervention by the Reserve Bank of India which apparently also asked some large banks to avoid excessive speculation against the rupee.
If the rupee touches 84 to a dollar, then that could create some concern in the market, is the general feeling.
Reuters also reports that the Reserve Bank of India has asked some large banks to not add to their existing positions against the rupee in a bid to support the currency which has fallen to all-time lows for three straight days.
Officials from the RBI's financial markets regulation and operations department rang big banks on Tuesday, when the currency was at risk of breaching the 84/$ level in the spot market.
The Indian rupee turned into the worst-performing Asian currency over the last month, pressured by the unwinding of trades that used the Chinese yuan to fund long bets on the local currency.
Let's return to the stock markets now.
A big question to me at least is where do Indian stock markets stand ? What are the forces that are at play and where are the pressure points the highest ?
For instance, while earnings are steady as are other macroeconomic factors, there is no real propelling factor to keep pushing the indices up. Not at the pace we have seen before.
On the other hand, investor funds are still flowing into the markets, Gaurang Shah, Head Investment Strategist at Geojit tells me.
There could be good reasons for that including the fact that savers are quite desperately looking to beat inflation and build aspirational savings.
I asked Shah however the more fundamental question, where are we right now ?
INTERVIEW TRANCSRIPT
Gaurang Shah: So where are we in terms of the markets? I think we are possibly positioning ourselves for a consolidation period with respect to the events that unfolded the beginning of the week on Monday, and the kind of imported issues that we had with respect to, you know, suddenly, in a matter of 24 hours, there were talks in the market about us going into a recession. Out of the blues. Central Bank of Japan went and increased the interest rates by 0.25 basis point. And always behind the backdrop is the situation, geopolitical situation in the Middle East. So if I have to put all the things in perspective, well, we knew it in the beginning of the year that US is going to change its stance, and there is going to be change in interest rates. Bank of Japan was a surprise, with the pleasant or unpleasant, depending upon which side of carry trade you are. And with respect to geopolitical situation Govind, I think we'll have to face the situation as and when it unfolds, and we have to react. So of the three, I think one thing that worries me is the geopolitical situation, because we don't know when, in what form and in which manner is the situation going to unfold. So our markets, I feel there has been overreaction that we saw and that led to the kind of sharp correction we had, and then we are trying to stabilize Monday, sharp fall. Yesterday, we started off with a positive note, but ended up in a negative bias. Today, I think we closed at the high point of the day, so there is a brief period of consolidation Govind. But I think the buying is visible at lower levels, whether it was Monday, whether it was Tuesday, or whether it was today, Wednesday. So this buying is going to come in. US Fed will do what it has to do. Bank of Japan will do what it has to do tomorrow. More importantly for me, will be what the RBI government has to say on the recommendations of MPC, that is Monetary Policy Committee. So overall, my sense is that if you are not really worried about the short to medium term. This is a buyers market rather than a seller's market. Only thing is you need to have a longest time horizon and possibly cherry pick your investment items.
Govindraj Ethiraj: So in terms of direction, until maybe a few days ago, it was clear that we are directionally heading upwards, but maybe in a slower way, the factors that drive it, which could be, let's say, corporate earnings or macro economic factors, haven't really changed.So do you feel that that's going to remain the case, that you know nothing may change much. I mean, things will continue to do well, as in, companies will continue to do well. Macro economic stability might be there, but we are now going to be more hit by what's happening internationally.
Gaurang Shah: Exactly, and unfortunately, we had one more event, which I didn't mention, that is the coup in Bangladesh. We already had two notorious countries to deal with, that's Pakistan and China. Now we have one more depending upon who's going to hit the government over there. Geopolitical situation is going to be in the spotlight, possibly for some time. What one thing that I would highlight is positive is the monsoons Govind. I think it's been far better than what it was last year, though, some places there is excess monsoon and there is flood like situation, but overall, I think we should end up on a positive note. That's what the Met department is predicting for the month of August and September, whatever remains of the monsoon season, and earnings front, what I can say Govind is that there are no large dark spots, or no red flags, one or two cases here and there. Company specific, I don't rule out, but if I have to sum up the earnings season, because I think next week is going to be the last week for the first quarter earnings, then we'll have purchase down, and they'll be possibly looking for for second, third, fourth quarter. So to sum it up, I think the earnings has not been bad. That's possibly something the positive note. That's the reason why I said that you need to cherry pick your investment ideas in terms of long term investments.
Govindraj Ethiraj: And last question, as we look ahead, you know, one of the strengths of the local market, obviously, has been the continuous and consistent flow of funds, including through mutual funds and investors participating through that drought. Now that does not seem to be counterbalancing what we are seeing outside, which is the triggers that are coming in from outside. Just to go back to what you said earlier as well. So you talked about all the international factors, including geopolitics. I mean, most of it is geopolitics, but Middle East, South Asia itself and so on. So why is that? What has changed?
Gaurang Shah: So I'll tell you one thing Govind, on Monday, I was on some channels. I did almost about four shows, scholar shows that were and in all the four shows, Govind, out of 10 questions that came to me, eight callers, investors. I'm talking about wanted to know where to invest. They had the money to invest. It is not like earlier times, where in the retail investor, would, you know, fear and worry about the market, fall and stop the sips, or stop the direct investment into equity markets? I think the retail investor has matured to a great extent over the last four to five years. That's what I have witnessed personally at ground level. Because we interact with lot of retail investors. We conduct investor awareness programs. Every night we travel the length and breadth of the country, and just about last month, I had the honor to conduct almost about three or four IPs. And all those IPs, including college, shows that I do people are now wanting to know where to invest, so they are not worried about the market fall markets. You know, all markets are vulnerable to both sides of moves that is up and down depending upon what kind of a backdrop of a requirements you are going through. But I think the retail investor is matured. So whether it is going to come in via sip, whether it is going to come in via lump sum investment, it to any mutual fund, or whether it is going to come in directly via equity, I think this number, as we go forward is going to grow. Monday itself, I think fi sold somewhere close to about an excess of 10,000 crores, and the domestic institutions bought about excess of 9000 crores yesterday. I think the figure was also more or less similar. I don't know what happened today. So I think we are going to have that liquidity strength from the Domestic Institutional Investors. As far as any kind of selling pressure from the FIIs concerned. What remains to be seen is, you know, what happens in our neighborhood with the kind of situation that has developed over the last two or three days. I think that is something that may possibly, you know, bother us a little bit. I'm not saying it will be a deep concern, but they'll bother us a bit.
Govindraj Ethiraj: Right, Gaurang, thank you so much for joining me.
Gaurang Shah: Thank you, Govind, always a pleasure. All the best.
Steel Prices Plunge
Earlier this week, Tata Steel complained that low cost imports from China and Vietnam, which apparently was a conduit for materials flowing from China, were impacting steel prices here and could hurt investment plans of steel makers.
Tata Steel’s point is that Chinese steel companies were not making money anyway at these prices and were most likely keeping their plants running.
Meanwhile, data from commodities consultancy BigMint suggests that steel prices in India have fallen to the lowest level in more than three years thanks to higher imports and subdued exports.
Local prices of hot rolled coils used in the manufacturing sector averaged 52,267 rupees ($622.62) per tonne in July, it said.
India is the world's second-biggest crude steel producer around $130 million tonnes and turned net importer in the fiscal year ended March 31, 2024, something we talked of in The Core Report earlier.
A CRISIL report in June noted that India became a net importer of steel in FY24 with an overall steel trade deficit of 1.1 mt, marking a shift in its status as a net exporter since FY17.
Reliance Consolidates Its Balance Sheet
Reliance Industries Limited (RIL) has consolidated its balance sheet and is ready for the next level of growth, the conglomerate’s chairman and managing director Mukesh Ambani told shareholders in its annual report for the financial year ending March 2024 on Wednesday.
“Reliance has consolidated its balance sheet after the previous round of capex and is ready for the next level of growth,” Ambani said.
Meanwhile, Reliance Jio reported a subscriber base jump by 42.4 million to 481.8 million in the financial year 2023-24 (FY24), the company’s annual report said.
The report added that of the total user base, over 108 million subscribers have migrated to the 5G network, branded as Jio’s True5G.
Jio commands 60 per cent of India’s data traffic, the report added.
There are some interesting insights in the Reliance balance sheet which I will return to tomorrow.
The Last Tax Moves
The Government of India took a step back after mostly middle class ire against a proposal to impose higher long term capital gains taxes on sale of property two weeks ago in the Union Budget..
The Government, in the Union budget delivered on July 23, said the long-term capital gains tax on real estate sales would be reduced to 12.5% from 20%.
But that meant the removal of a benefit that allowed individuals to adjust property prices for inflation when calculating capital gains for tax purposes.
That effectively raised the profit on each sale and hence, the tax bill, summed up Reuters.
The government will now offer taxpayers the option to choose between the new 12.5% tax rate without the inflation adjustment or the old 20% rate with inflation adjustment, the Finance Minister of India said, seeking lawmakers' approval for the amendment .
Real estate assets are classified as long-term if held for at least 24 months.
Properties purchased after July 23, 2024, will attract the new capital gains tax rate of 12.5%.
I reached out to Uday Ved, Partner TaX Services, at KNAV to take us through the changes but also to talk about the other fine print in the Union Budget exercise that was worth delving into.
INTERVIEW TRANSCRIPT
Uday Ved: So first of all, this is a welcome move in government is adaptive to taking suggestions, which is a good sense. What happened was on july 23 when the final union budget was announced, what it was stated as that if you were holding a property, be it residential or commercial, more residential, and if the property was sold after July 23 then the indexation benefit was proposed to be withdrawn, which is, I think, an important element when you are holding the property for a longer period. As a consequent of that, what it says that the rate of 20% will be reduced to 12 and a half percent. So I think the objective of government was to simplify the capital gains tax scheme, to say, you remove indexation benefit, but reduce the consequent tax rate from 20% to 12 and a half percent. And that created a lot of kind of furore, the discussions, whereas on capital gains taxation or other assets was okay, but you know that these properties impacted a lot by inflation and more, the older the property, the inflation indexation benefit gives you a realistic picture of the cost of acquisition for the purpose of computing the capital gains. So the government took that suggestion and said, Now interestingly, that for past properties, if you're holding it before July 23 then index it. You have a choice to be gone under the old law or the new law. What it means is, when you transfer the property today or sell a property post July 23rd 2024 you can either offer 20% with indexation benefit or 12.5% percent without indexation benefit. So which is good that you know either of that whatever is beneficial to you can be taken into consideration. That's a good, welcome move. Just one point I would like to make it. There is always a devil in the details, right, that when you finally read the fine print, it says that the tax shall not exceed with indexation benefit or without indexation benefit, theoretically, assuming there was no gain, but with indexation, it resulted into a loss. So take a situation which could be the scenario in real life situation today, you're holding a property for a long time you do indexation, that's your index cost of acquisition, and the sale price is lower than the index cost of acquisition, so it result into a capital loss. That capital loss is not allowed to be carried forward, as I read the fine print, it's only that the tax will not exceed and which is possibly a fair proposal, I would say the failure was put on the increase. But you could have a real situation, considering the following prices, that it could result into a loss. So any property bought or acquired before July 23 and stored after July 23 the capital loss if it was incurred not to be allowed. If you had bought a property and sold before July 23 you will still get the indexation benefit and the capital loss also. So that kind of scenario happens, but now, if you sell the property and you have a loss, that loss cannot be carried forward, because otherwise it's an eight year carry forward for long term capital loss. I mean.
Govindraj Ethiraj: But does this apply to other assets as well, or this is only in the case of real estate?
Uday Ved: No, this indexation part is only in the case of land and buildings. So technically, it includes not only residential house, I would believe, also the commercial properties, as far as the shares are concerned. So you could have a lot of private equity deals which are happening, right? That tax is still capped without indexation, only relief which has been given is if those prior to July 23 then the rate is 10% and the rate is now 12 and a half percent. One more point I will make this change for the property is, I don't know why, but is put it only for a resident and HUF, so assuming you are a non resident, and you got an inherited property and you are selling it, I don't think you get the indexation benefit, as I read the fine print, that's one second if you're holding the property in the name of a company or partnership firm. I mean, the indexation is not possible. So I don't know why that change has been weighed, but you know that has been kept for people like us to keep on interpreting it. It looks like but I didn't see the logic behind me.
Govindraj Ethiraj: Great among other fine print today that you've picked up, including on benefits for manufacturing.
Uday Ved: This one change for the new manufacturing unit there was, there is a tax concessional rate of 15% compared to a normal 22 or 25% for a company, and that ended, actually, as per the previous year budget, to say that the manufacturing unit should have commenced production on or before 31st March 2024 that change came when the interim budget was announced in February of 2024 and lot of people felt that that part was not extended, but there was an expectation that what is an interim budget, and that this is a substantive change which will come in the final budget. So on july 23 also, when it came there was a silence on that, as I understand, there was no discussion also, which happened in the final print. Also, we don't see that change. So as it the law stands. Today, only for new manufacturing unit has started production on or before 31st march, 2024 then that consistent rate is given, not otherwise. Generally, the roads are expected need to get extended by a year or two, but that's how the new manufacturing
Govindraj Ethiraj: This was also supposed to be like an incentive for manufacturing to expand capacity, or new manufacturing to come in.
Uday Ved: Absolutely like you have a PLI on the that performance link scheme, but something so near the which has been there since 2019 and they kept on, extended the date, but in whatever wisdom, that date has been kept as credit smart, 2024.
Govindraj Ethiraj: Right. Anything else on the administrative side that you're seeing as we sort of close the book on the union budget, 24.
Uday Ved: No, I think otherwise, all the changes which came, we discussed that when the final budget was announced couple of weeks back, and in that lots of changes on the assessment, reassessment, real rationalization of TDS rates, the vivo series, what scheme, all that continues. So there is no final change on that. So I think that way it is a good stability path. And the positive side is our government is willing to listen to the changes of suggestions made by the people at large.
Govindraj Ethiraj: And always a good note to end on. Thank you so much for joining me.
Uday Ved: Always welcome.
China EV Market
This is an interesting statistic for the automotive industry in specific and the overall move towards sustainability in general.
Electric vehicles and plug-in hybrids likely surpassed 50% of all vehicle sales in China for the first time in July, though the overall number of cars sold fell, Bloomberg reported.
Sales of electric vehicles and plug-in hybrids, which are counted under the category of new energy vehicles in China, rose to 879,000 units, making up 50.8% of total sales.
New vehicle sales dropped 2% to 1.73 million in July, according to preliminary figures released Wednesday by the China Passenger Car Association.
Bloomberg says the milestone shows that the EV industry continues to enjoy strong momentum in China even as demand slows in the rest of the world.
