Markets Are Flat As Flat Goes
There was nothing really to fire up the stockmarkets or send them down, in keeping with the theme of vanishing cues that we pointed out on Monday
On Episode 455 of The Core Report, financial journalist Govindraj Ethiraj talks to Ashok K Bhattacharya, Editorial Director and columnist at Business Standard as well as Santosh Katariya, President of the Clothing Manufacturers Association Of India (CMAI).
(00:00) Stories Of The Day
(01:09) Markets are flat as flat goes
(04:59) Rupee hits fresh low on expectation of interest rate cuts
(07:05) What does the new RBI Governor bring to the table and what has he left behind?
(18:19) IATA projects record $1 trillion revenues for aviation industry with over 5 billion passengers and 40 million flights
(21:47) Why are clothing manufacturers protesting a hike?
(28:29) And Amazon dives into 15 minute delivery too
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 regarding any feedback, you can drop us a message on [email protected].
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Good morning, it's Wednesday, the 11th of December and this is Govindraj Ethiraj, headquartered and broadcasting and streaming from Mumbai, India’s financial capital.
We don’t have a Take for today as we have lots of reports and conversations.
Markets are flat as flat goes.
Rupee hits fresh low on expectation of interest rate cuts.
What does the new RBI Governor bring to the table and what has he left behind ?
Why are clothing manufacturers protesting a hike ?
IATA projects record $1 trillion revenues for the aviation industry with over 5 billion passengers and 40 million flights.
And Amazon dives into 15 minute delivery too.
Markets Flat as Flat Goes
There was nothing really to fire up the stockmarkets or send them down, in keeping with the theme of vanishing cues that we pointed out on Monday.
The main indices the BSE Sensex and NSE Nifty50 ended Tuesday's swinging session flat.
The 30-share Sensex settled at 81,510.05, up marginally by 1.59 points. I repeat less than 2 points.
Similarly, on the NSE, Nifty50 settled at 24,610.05, down 8.95 points from its previous close on Tuesday.
The broader markets were stronger, with the Nifty Midcap100 and Nifty Smallcap100 indices ending higher by 0.23 per cent and 0.28 per cent, respectively.
There is other news on flows which will impact markets, though it is too early to say which way right now since the trends might shift again.
Equity mutual funds saw inflows of Rs 35,943 crore in November which is not a small number but that was a 14 per cent drop on a month-on-month basis.
At this level, it was still the 45th consecutive month of net inflows into equity-oriented funds, reflecting the growing popularity of mutual funds among investors, according to data from the Association of Mutual Funds in India (AMFI) released on Tuesday and reported by Business Standard.
The overall volatility, including of course the US elections and their results, could have led to investors holding back their lump sum investments for a while, according to some analysts.
Overall, the mutual fund industry witnessed an inflow of Rs 60,295 crore in the month under review as compared to Rs 2.4 trillion in October.
Despite the decline, the industry's net assets under management rose to Rs 68.08 trillion last month from Rs 67.25 trillion in October.
The Markets Get More Efficient
Meanwhile, Indian markets took another step towards greater efficiency and settlements.
The Securities and Exchange Board of India (Sebi) on Tuesday announced that the top 500 stocks will be eligible for the same-day settlement cycle (T+0) in a phased manner.
This move is seen as a fresh push to ready the market ecosystem to speed up the settlement cycle, which currently stands at T+1.
The wider eligibility will become effective on January 31, 2025. The same-day settlement cycle will continue to be optional, the Business Standard reported, adding that only 25 stocks are available for the T+0 settlement right now.
The beta version of the settlement cycle was launched in March this year; however, the response has been just okay, with no significant volumes.
“The scrips shall be made available for trading and settlement starting with scrips at the bottom 100 companies and gradually include the next bottom 100 companies every month until the top 500 companies are available for trading in the optional T+0 settlement cycle,” said Sebi.
Further, stock brokers will be permitted to charge a differential brokerage for the facility.
Qualified stock brokers, or those classified as large brokers given their client size and volume managed, have been directed to put in place processes and systems for smooth implementation.
The same will be made effective for institutional clients, with custodians directed to put in place systems accordingly.
Additionally, Sebi announced a block deal window from 8:45 am to 9:00 am for the T+0 settlement cycle, in addition to the existing block deal windows for the T+1 settlement.
The Securities and Exchange Board of India (Sebi) has proposed simplification of the process for non-resident Indians (NRIs) to trade in exchange-traded derivatives contracts.
Currently, NRIs are required to obtain a custodial participant (CP) code from the clearing corporation (CC) through a clearing member (CM).
Under the proposed changes, NRIs can use their PAN to monitor position limits, and can deal with multiple CMs.
This is expected to bring ease of investment for NRIs and simplify the procedure for monitoring NRI position limits.
And of course bring in more dollars, something India is always looking for.
Rupee Falls
Speaking of dollars, the rupee slipped to a record low and government bond yields fell on Tuesday, after the appointment of sanjay malhotra, revenue secretary of the government of india as the next governor of the Reserve Bank of India (RBI) prompted traders to ramp up bets on rate cuts, Reuters reported.
The rupee hit a low of 84.8575 against the U.S. dollar before closing at 84.8525, down 0.1% on the day.
Government bond yields dipped, while the 5-year overnight index swap, a gauge of interest rate expectations, declined to a 3-month low of 5.97% before paring losses, while the 10-year bond yield IN067934G=CC fell 2 basis points to 6.6954% during the day, according to Reuters.
S&P Forecasts Resilient Growth
S&P Global Ratings on Tuesday said the Indian economy is set for "resilient growth" in 2025 and projected inflation pressure to recede which will lead to "modest" easing of the monetary policy by the RBI.
In its India outlook for 2025, S&P also retained India's growth forecast for the current fiscal at 6.8 per cent, followed by 6.9 per cent growth in 2025-26.
"The Indian economy is set for resilient growth in 2025 on the back of strong urban consumption, steady service sector growth and ongoing investment in infrastructure," Vishrut Rana, Economist at S&P Global Ratings, said in a report in Business Standard.
We expect the central bank to ease monetary policy modestly during 2025 as inflationary pressures recede, Rana said.
India's economy grew 8.2 per cent in 2023-24.
There are various challenges for the economy, including post-pandemic weakness in the public sector and household balance sheets, a highly competitive global manufacturing environment and weak agriculture sector growth.
Creating enough jobs for India's higher labour force participation, further infrastructure and technology improvement, and stronger public and household balance sheets can support economic growth, Rana said.
New Governor, What Does He Bring?
Will the new governor, Sanjay Malhotra who begins his three-year innings at the Mint Street on December 11, cut rates sooner-than-expected ?
That is the key expectation going in now, though the expectation seems a little higher than expected and would suggest that the previous governor Shaktikanta Das was resisting a cut.
Meanwhile, a new RBI Deputy Governor (Dr. Michael Patra’s term ends on January 15, 2025) is also expected to come in.
Brokerages quoted by the Business Standard say that a high real policy rate and softening growth could create room for the RBI to lower the repo rate by 75 basis points (bps) starting in February 2025.
Brokerages also pointed out the divide between the government and the RBI on the need for countercyclical monetary policy, with both, the Finance Minister and Commerce Minister criticizing the RBI for keeping policy tight on account of high inflation in a few food items, including in the latest meeting on December 6.
Sanjay Malhotra of course comes in at an interesting time for the Reserve Bank of India and somewhat suddenly since the appointment was last moment.
He also leaves a void which will not be easy to fill and once again highlights the perils of delays in key appointments.
I reached out to Ashok K Bhattacharya, Business Standard Editorial Director and columnist in New Delhi and began by asking him what the new RBI Governor who takes charge today was looking at and what were the tasks before him ?
INTERVIEW TRANSCRIPT
Ashok K Bhattacharya: Remember that he is probably the first Revenue Secretary who is joining the RBI as the Governor. Of course, he has had a stint, very short stint, with the Financial Services Department, which meant he dealt with public sector banks and the financial sector to some extent. So, he is no stranger to issues that are relevant for the financial sector.
But he's obviously new. But his first task, in my opinion, would be to decide on the composition of the Monetary Policy Committee. The key appointment of the Deputy Governor who looks after the monetary policy, that appointment is due now.
Now, he as a Governor will have to decide whether he wants to get an economist who can succeed Dr. Michael Parthra, who provided the support and the kind of, that was almost like the backbone of Shaktikant Das's economic monetary policy formulation. So, he will have to get hold of a person who can be part of the Monetary Policy Committee as the Deputy Governor. So, I think that will be his first big task.
And of course, you know, he is joining the RBI at a time when there are not just the pressures of inflation management. Remember, RBI is an inflation targeting bank. And of course, he has to take care of growth.
And then there are subsidiary issues of currency management. There are issues about how, what he does with the cyber security issues. There are questions about banks lending to the system at a time when economic growth needs to be revived.
So, a host of issues will stare at him. So, he is going to have his plates full.
Govindraj Ethiraj: What would you say is, let's say, the one key unfinished agenda of his predecessor, that's Shaktikanta Das from in your opinion or an understanding?
Ashok K Bhattacharya: Well, one unfinished task was Shaktikanta Das's initiative on the unified lending interface. He had just started it because in terms of financial inclusion, the UPI, you know, unified payment interface was creating sort of democratisation in terms of the payment architecture. And Shaktikanta Das wanted to introduce a similar architecture on the lending space.
So, I think that project is yet to be launched in its entirety. Work has begun. That to my mind is an unfinished agenda.
And number two would be, how does he combine the Reserve Bank of India's objectives of inflation control without dampening growth stimulus?
Govindraj Ethiraj: So, do you see this Reserve Bank of India Governor being friendlier to the government than previous Reserve Bank of India Governors in any way? Or are all Reserve Bank of India Governors who come from the government, mostly Ministry of Finance, equally friendly and therefore tend to do what the government wants?
Ashok K Bhattacharya: I think once you become the RBI Governor, the RBI system also influences you a lot. So, you may come as an IAS officer, you may come from the Finance Ministry, but once you are at Mint Road, my experience tells me that whoever is the RBI Governor, he starts looking at the system, the monetary system, the fiscal system even from monetary point of view, from a financial sector stability point of view. So, I do not look at an RBI Governor through the prism of whether he's friendly to the government or not.
Yes, the points of friction may be less. And whatever points of friction may arise, they will not be played out as a public spectacle, but they will be sorted out within a room in meetings. So, that is what you can definitely assure if you have an IAS officer as the Governor.
There are very rare instances of a civil servant Governor of the RBI fighting a battle with the government out in the open. There are a few, but there are very few.
Govindraj Ethiraj: Got it. And I mean, just a small sort of almost digression of a question. Do you think that, you know, we did see Raghuram Rajan who came in from the outside, so to speak.
Do you think the Reserve Bank of India needs or different interventions like that in the form of people who come from outside and from a slightly different world? Although, of course, they would be conversant with macroeconomic policy and monetary economics and so on.
Ashok K Bhattacharya: You know, I think any government needs a bench trick of technocrats, economists, whether they become the RBI Governors or the Chief Economic Advisors or even the Economic Advisors to the Prime Minister. So, I would say that the Reserve Bank of India also needs a fair share of that such people who understand economic policymaking to the core. It is not always necessary to have an RBI Governor who is an economist, but it is always necessary to have at least a few top-notch economic policymakers, economists with the economist mind space to be part of that team, particularly when you have Monetary Policy Committee, where the RBI representation has to be at least three, which is Governor and two more persons.
So, those Deputy Governors and maybe the Executive Director will have to bring onto the table strong economic thinking. So, even if you have an RBI Governor who is not trained in economics as such, but he can then play the role that is expected of the RBI Governor.
Govindraj Ethiraj: Let's talk about the Ministry of Finance for a bit. So, the Revenue Secretary and now Reserve Bank of India Governor has obviously left a bit of a hole there now in that team. So, what is the implication of that?
Ashok K Bhattacharya: Well, the immediate implication is that the Finance Ministry has to find the Revenue Secretary because in the core budget team, Revenue Secretary plays a key role in tax formation and given the fact that Mr. Sanjay Malhotra did play a major role even in the last budget, particularly on the capital gains taxation reforms and etc., etc. So, I would say that the first task for the government, the Finance Ministry would be to fill that gap. Budget is on us, less than a month and a half to go.
So, that is something that has to be addressed with immediate effect.
Govindraj Ethiraj: You've argued in the past that this team that the Finance Minister Nirmala Sitharaman has had with her in the last couple of years is a good one and supported her well.
Ashok K Bhattacharya: I would say till about early this year, when Dr. T.V. Somanathan joined the Finance Ministry, under him with the support of the Finance Minister, you saw a very strong team of bureaucrats providing support, direction and a right trajectory to fiscal policy making and budget making. But what I see now is that after Dr. Somanathan's exit from the Finance Ministry, you have a new team in the making. Dr. Govil is there as the Expenditure Secretary. You have Tuhin Kantha Pandya who is in disinvestment. He's in the Public Sector Department, but he's the Finance Secretary. And you have Ajay Seth and now Sanjay Malhotra is leaving.
So, I think there's a transition stage. A new team is in the making. As long as Dr. Somanathan was there, he kept the team intact and very, very focused. But I see some sort of a flux in the last few months. And I guess this is a matter of time, because given the fact that Nirmala Sitharaman functions in a very collegial spirit with her top secretarial team, I would say that it's only a matter of time when you see a new team having emerged in the next couple of weeks.
Govindraj Ethiraj: I'm also concluding or trying to read between the lines that there is a cost then of a good team dissipating, which of course happens in government. But at this point of time, at least from the budgetary process and the time it will take for a new team to break in and get going.
Ashok K Bhattacharya: Govind, there is no doubt that this decision should have been taken at least three months ago. There is no reason to take a decision on who will be your next governor at RBI just a day before his extended term ends. So, clearly the government was thinking in more than one direction and that is a cost that I would say the government in the system will incur to some extent.
That when you take a decision with only one day to spare, you take these decisions where you have to pluck out the revenue secretary because you think that he is the best choice. But then it creates a hole, a very, very big hole at a time when budget is to be made. So, if only the government has taken a decision three months ago that we don't want to give an extension to Mr. Shaktikanta Das, so the search and the selection process would have begun in good time and you won't have seen the budget team being disturbed. What I worry from this appointment, not that an IAS officer has gone as RBI governor, but what I do worry is that because of these appointments at this point in time, your budget team is slightly being disturbed.
Govindraj Ethiraj: Right. AKB, it was a pleasure speaking with you. Thank you so much for joining me.
Ashok K Bhattacharya: Thank you for having me.
Air Travel Is Rocking, Revenues To Cross $1 Trillion
The International Air Transport Association (IATA) has said there is a strengthening of profitability amid ongoing cost and supply chain challenges in 2025.
Importantly, total industry revenues are expected to be $1.007 trillion. That is an increase of 4.4% from 2024 and will be the first time that industry revenues top the $1 trillion mark, which is almost 1% of the global economy.
And passenger numbers are expected to reach 5.2 billion in 2025, a 6.7% rise compared to 2024 and the first time that the number of passengers has exceeded the five billion mark. This will happen over 40 million flights.
“We’re expecting airlines to deliver a global profit of $36.6 billion in 2025. This will be hard-earned as airlines take advantage of lower oil prices while keeping load factors above 83%,” said Willie Walsh, IATA’s Director General.
According to him, a trillion dollars is a lot—almost 1% of the global economy. That makes airlines a strategically important industry. But remember that airlines carry $940 billion in costs, not to mention interest and taxes.
They retain a net profit margin of just 3.6%. Put another way, the buffer between profit and loss, even in the good year that we are expecting of 2025, is just $7 per passenger. With margins that thin, airlines must continue to watch every cost and insist on similar efficiency across the supply chain—especially from our monopoly infrastructure suppliers who all too often let us down on performance and efficiency,” said Walsh.
IATA highlighted the broad benefits of growing connectivity. The most recent estimates show that airline employment is expected to grow to 3.3 million in 2025.
Airlines are the core of a global aviation value chain that employs 86.5 million people and generates $4.1 trillion in economic impact, accounting for 3.9% of global GDP (2023 figures).
Connectivity is an economic catalyst for growth in nearly all industries.
Passenger Revenues are expected to reach $705 billion (70% of total revenue) with an additional $145 billion (14.4% of total revenues) from ancillary services in 2025.
Travel continues to become more affordable as the passenger yield is expected to fall by 3.4% (ticket and ancillaries). Unit revenues are expected to fall by a more moderate 2.5%.
Seen a different way, the average airfare in 2025, including ancillaries, is expected to be $380, which is 1.8% lower than 2024. In real terms (adjusted for inflation) that represents a 44% drop compared to 2014, indicating that significant value is being passed to consumers in the industry’s continued effort to improve efficiency.
IATA’s public opinion polling confirms an optimistic outlook for passenger demand. Looking at the next 12 months compared to the last 12 months:
• 41% of surveyed travelers said they expect to travel more, 53% expected to travel at the same frequency, and 5% expect to travel less.
• 47% of surveyed travelers said they expect to spend more on travel, 46% expected travel expenditure to remain the same, and 8% expected to spend less.
Meanwhile, CNBC reports that the global travel industry is set to fully recover from the Covid-19 pandemic this month, according to U.N. Tourism.
During the first nine months of 2024, international arrivals worldwide reached 98% of pre-pandemic levels, compared to the same period in 2019, it said.
The remaining 2% gap will close this month, according to the organization, marking a momentous shift in the industry into a new era of growth.
Most regions around the world have already crossed that threshold, most notably in the Middle East, where international arrivals were up 29% during the first nine months of 2024 from the same period in 2019, according to U.N. Tourism.
Growth in the region during that timeframe was led by an increase of visitors to Qatar (+141%) and Saudi Arabia (+61%), it said.
Africa and Europe have also fully recovered, with arrivals up 6% and 1%, respectively, it said.
Clothing Manufacturers and GST
The Clothing Manufacturers Association of India has protested a potential increase in goods and service tax on apparel sold in the country and has said the impact could be significant and cause some 100,000 jobs to be lost.
The CMAI said high taxes would hurt legitimate retailers and potentially benefit unscrupulous sellers and illegal merchants.
The Group of Ministers recommended a GST rate rationalisation which would increase GST on garments priced between Rs 1,500 and up to Rs 10,000 to 18%.
The group also recommended increasing GST on garments priced above Rs 10,000 to 28% while garments priced up to Rs 1,500 would still be taxed at 5%.
I reached out to Santosh Katariya, President of CMAI who is based in Pune and began by asking him why the impact of the proposed GST rate would be so high on his industry.
INTERVIEW TRANSCRIPT
Santosh Katariya: Proposal which has been laid by the Deputy Chief Minister Mr. Samrat Chaudhary. So he has proposed that GST for 5% till 1500 and above the 1500 straight away it is to 18%. So basically just to let you know means the government worth rupees 1499 will attract a duty of 5% and just 100 rupees above or government worth rupees 1599 will attract a duty of 18%.
See the difference between just a 100 rupees and a difference of 18% and 5% which is not a justification, justifiable. And another thing, basically they are thinking that it is a luxury but now a day above 1500 till 10,000, yes definitely above 10,000 definitely you can say a luxury. But above 1500 it is not a luxury.
So and basically the ager industry is running between this price segment from 1500 to say about 5000 rupees. This is the mid-size, mid-segment area where the maximum business is happening. So definitely formal business, okay, this will be definitely going to win the entire business and another illegal things will may get start again.
Govindraj Ethiraj: If you can tell me what is the composition of the industry like for example when you say the let's say most of the industry is producing at this, in value terms, I mean what is the like breakup today between how much roughly of the industry is let's say in the lower segment in value terms versus let's say more than 10,000 rupees?
Santosh Katariya: See if you are talking about say about a wedding, okay, so lower spenders is 17%, lower middle is around 29% somewhere around and middle is around 51%, okay, and high spender than elite class is around 2%.
Govindraj Ethiraj: When you say that you know there many jobs could be lost, why is that? I mean you're saying that because the industry will not be able to absorb the higher cost or the consumer will not be able to absorb it?
Santosh Katariya: Because see our garment industry is completely coming under the legal metrology, okay. So MRP is compulsory. If you look at any other some industry like suppose you go to a hotel industry, so price band is fixed and whatever you are charging above the price, but in garment, MRP is included for GST. So definitely right now the entire industry, this midsize wearers industry is working up net that margin if you are talking about very thin margin around 1 to 3% is a pad, okay, if you look at the financials, okay. So if any producer or any manufacturer will definitely feel very unhappy with increasing his MRP because he will be definitely worried for whether my garment will sell it or not at this price.
So definitely this price height and another the major thing is that the entire industry working around a credit period of 3 to 4 months and GST component you have to pay to the government very much in the 1st to 5th in the next month. So definitely there will be a very very huge shortage of working capital. Right now already industry is facing too much of working capital.
2 million weavers is definitely a vital part of India's heritage, okay. And this high cost of production, most of this product will fall in around 18% GST bracket and large portion in fact in that 28% slab, the artisans may further face up 25% income loss besides already struggling to keep their age-old craft alive due to limited market access and traditional business model. The proposed rate would tax these heritage products that are considered very seen at a rate till now.
Govindraj Ethiraj: Right. This is a general question, Santhosh. What is your sense of demand right now?
I mean, how are you in the last few months or at least let's say the last 6 months, how has demand been overall in fort loathing for textiles, for garments and so on from the consumer side?
Santosh Katariya: Basically, demand is not increased at a very high this thing, okay. So demand is constant, but people are definitely looking at very much price sensitive. So before you can say that before COVID, most of the garments are going to be sold in fresh season, okay.
But after COVID, the USS period still has gone up. It means people are looking at a discount, discount, discount because they are not going to afford the fresh prices. So definitely, every brand is worried about whether their fresh sales will go down and again discount, discounts go up.
Definitely, it will affect drastically in their margins.
Govindraj Ethiraj: Santhosh, thank you so much for joining me.
Santosh Katariya: Yeah.
Traffic Nightmare increases
Meanwhile, expect more traffic chaos as Amazon too joins the 15-minute delivery race, to satiate the appetites of the millions of time poor Indians who are unable to plan their lives even a day ahead and thus will remember what they want only 15 minutes before they want it.
Thankfully this will be only in Bangalore to start with.
