Markets Are At Record Highs But The Foundation Is Likely To Stay Weak
The markets, for all the strength they have been displaying off late, are on a somewhat fragile footing right now
On Episode 318 of The Core Report, financial journalist Govindraj Ethiraj takes you through the latest in business news.
Our Top Reports For Today
SHOW NOTES
(00:00) Stories Of The Day
(02:17) Markets are at record highs but the foundation is likely to stay weak.
(04:16) India may lower personal tax rates in categories to boost consumption
(06:45) Monsoons are now showing a 20% deficiency, a worrying sign
(08:16) Hyundai parent stock hits record high on news of listing of Indian arm
(09:40) Logjam at ports are set to worsen, driving up container rates and delays
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 Tuesday the 18th of June and this is Govindraj Ethiraj broadcasting and streaming from and headquartered in Mumbai, India’s financial capital.
The markets are holding now at their record highs but have also entered a period of limited good news as I see it.
What are the triggers that could either drive up or upset the market, or for that matter the economy.
Well, the first trigger is already here, a loud warning bell that the monsoons, for all the projections of surplus rainfall, have begun on a low note. More on that shortly.
Taxes are the other. There are reports and rumours that taxes could be reduced but I suspect there are also some increases coming.
Increase in taxes could hurt market sentiment while reductions will improve them.
Speaking of taxes, it is nearly criminal to treat air conditioners as luxury items and charge them a goods and services or GST rate of 28%.
Air conditioners are no longer a luxury but a necessity at a time of increasing heat waves.
Not everyone can afford them obviously but we have brought down taxes to make it accessible for more citizens, including and most importantly for those working in trying conditions like the millions of small and medium enterprises that form the backbone of the economy.
Power rates need to be brought down to, I don’t know of how many countries where commercial electricity rates are higher than residential and thus disincentive.
On to today.
Our top stories and themes for the day:
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Markets At Record Closing Highs But..
Like we discussed earlier, the markets for all the strength they have been displaying off late are on a somewhat fragile footing right now.
And the big positive moves, if any, will only come with the Union Budget next month which in turn are more likely to be tax linked than anything else.
For the very simple reason that there are very few rabbits left in the hat to pull out.
Anyway, to recap, the indices ended at fresh closing high on Friday with stocks like HDFC Bank Ltd. and Reliance Industries rising strongly.
The NSE Nifty 50 closed 66 points, or 0.29%, higher at 23,465.60, and the S&P BSE Sensex ended at 181.88 points, or 0.24%, up at 76,992.77.
The markets were closed on Monday, June 17 for the festival of ID and will resume today.
Oil prices are rising
Oil prices as we discussed yesterday are now rising, now showing its biggest weekly advance since early April, Bloomberg reported
Brent traded above $83 a barrel after climbing 3.8% last week, the first weekly gain in four.
Crude futures were ruling higher last week, reversing a sharp drop after OPEC+ signalled the return of some output to the market later this year.
Oil had trended lower since early April on signs of robust supply and concerns over demand, particularly from China.
OPEC recently shook up the market with a plan to return more output later this year, forcing key members to clarify that the group can pause or reverse production changes if necessary.
Which of course makes the original proposition redundant.
So let's see how much oil really flows this year.
China’s oil refining — known as crude throughput — is expected to be flat or fall this year for the first time in two decades, apart from a Covid-19 slump, according to most market watchers surveyed by Bloomberg.
Will the Government Lower Taxes?
There is a consumption slowdown for sure and that also shows up the pretty sharp gap between overall GDP numbers and private consumption number growth.
Just to back up a little, consumption is not driving growth in India at this point.
In 2023-24, private final consumption expenditure grew at only around 4 per cent against the 8.2 per cent GDP growth.
This is unusual.
However, gross fixed capital formation or investment grew by almost 9 per cent which is reflecting the large public investment push in infrastructure and beyond.
So read the news in this context.
Reuters is reporting that the government is considering lowering personal tax rates for certain categories of individuals, which could help boost consumption.
The plan could be announced in July, when the Government presents the Union Budget.
A cut in personal tax could boost consumption in the economy and increase savings for the middle class, sources told Reuters.
Now the category of individuals that may see some tax relief are those earning over Rs 15 lakh a year ($17,960.42) annually.
So in 2020, the tax slab was changed in a way that annual income up to Rs 15 lakh is taxed at 5%-20% while earnings over 1.5 million rupees is taxed at 30%.
The idea is to see if there are some new slabs possible since there is a 6-fold jump in taxes when incomes hit Rs15 lakh per annum.
Meanwhile, BusinessLine is reporting that over the past 2-3 months, monthly household shopping bills have risen with price hikes in the range of 2 to 17 per on some brands and categories of foods and personal care products.
Prices have been raised in the range 2-9 per cent on soaps and body washes, 8-11 per cent on hair oils and 3-17 per cent on select food items by companies, according to trade data and analysts.
The hike in prices comes after close to a year of declining price trends with moderating commodity prices.
Management commentaries from most companies during their earnings calls have pointed to pricing growth in FY25 with inflationary trend seen in some commodities. “….overall pricing growth needle will likely point between neutral to low-single-digits for FY25,” ICICI Securities said last week in a note on the sector, according to BL newspaper.
Monsoons Are 20% Deficient
India's monsoon has delivered a fifth less rain than normal so far this season, Reuters quoted the Indian Meteorological Department saying.
This is obviously a worrying sign for the economy in general and the agricultural sector in specific.
It will take a day or two to work out the impact at this time.
It is of course not necessary that the impact will be high because rains will most likely make up in the coming weeks.
But summer rains as they are called and start around June 1 and spread across the country by July 8 are important and help farmers in planting rice, cotton, soybeans, and sugarcane.
India has received 20% less rainfall than normal since June 1, according to data compiled by the state-run India Meteorological Department (IMD), with almost all regions except for a few southern states seeing shortfalls and some northwestern states experiencing heat waves.
The rain shortfall in soybean, cotton, sugarcane, and pulses-growing central India has risen to 29%, while the paddy-growing southern region received 17% more rainfall than normal due to the early onset of the monsoon, according to the data.
The northeast has received 20% less rainfall than normal so far, and the northwest some 68% less.
"The monsoon's progress is stalled. It has weakened. But when it revives and becomes active, it can erase the rain deficit in a short burst," an IMD official told Reuters.
Hyundai Parent Stock Hits Record High
More news as expectations and interest rise on Hyundai’s IPO, possibly the first and surely major one from a multinational listing in India after many years.
Meanwhile, the news of what may be one of India’s largest-ever initial public offerings has already boosted Hyundai Motor Co.’s stock to a record high, Bloomberg is reporting.
The Korean automaker is selling a 17.5% stake in Hyundai Motor India Ltd., according to its draft red herring prospectus. Shares of Hyundai — which will collect all of the proceeds from the IPO of its local unit — rose 3.9% Monday in Seoul.
The maker of the Genesis sedan is seeking to raise about $2.5 billion in the IPO, with a potential listing planned by the end of the year, Bloomberg News reported last week, citing people familiar with the matter. That would rival the 2022 listing of Life Insurance Corp. of India for the nation’s largest IPO on record.
The IPO sends “a clear message that Hyundai Motor’s India investment will increase,” said Shin Yoonchul, an analyst at Kiwoom Securities Co. “While investors had expected higher investments in North America and Europe, they had not expected a big output increase in India. Investors are searching for the companies that have entered India and will see high growth in orders.”
Hyundai’s suppliers and subsidiaries climbed on expectations they’ll benefit from expansion by the automaker in the South Asian nation. SL Corp. jumped 5.5% while HL Mando Co. gained 5.3% and Kia Corp. rose 5.2%.
Container Shipping Rates
Inflation looks to be easing across the developed world, except for the cost of moving cargo by sea.
Spot rates for full-size shipping containers to the US and Europe from Asia rose again in the most recent data, with three key routes all topping $6,000 for a 40-foot equivalent unit, according to the Drewry World Container Index, released on Thursday.
They’ve all tripled since the end of 2023, though the pace of increases is moderating, according to a report in the Economic Times .
Singapore’s maritime gateway, among the world’s most vital crossroads for seaborne freight, is facing a sustained period of congestion, as we reported yesterday.
The waiting time for berth space there is nearing five days, according to industry estimates, and it’s ranging from one to four days in the Chinese ports of Ningbo, Shanghai and Qingdao.
According to Drewry, the cost of a 40-foot container to move merchandise to Los Angeles from Shanghai last week rose 0.8% to $6,025. That was the sixth straight week of gains.
Drewry said it “expects that freight rates from China will continue to rise next week due to congestion issues at Asian ports.”
