Markets Are Flat Even As Mutual Funds See Record Inflows
The overall attraction of India for foreign institutional investors in the shorter term is still mixed, thanks to comparative valuations
On Episode 432 of The Core Report, financial journalist Govindraj Ethiraj talks to Ajay Awtaney, Founder and Editor of Live From A Lounge.
(00:00) The Take: Location is becoming history
(05:09) Markets are flat even as mutual funds see record inflows
(06:19) Will India Depreciate The Rupee?
(08:06) SIP’s cross Rs 25,000 crore a month as long term investors stay plugged in
(10:47) A full service monopoly takes over India’s airways. Vistara signs off and becomes Air India
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 Tuesday, the 12th of November and this is Govindraj Ethiraj, usually headquartered and broadcasting and streaming from Mumbai, India’s financial capital but now in transit.
The Take: Location is becoming history
Time was when success in business meant making a great product, and then selling it at a price that obviously helped recover all the costs that went into making that product, including the advertising, marketing and distribution.
And there were still profits on the table.
In the last few decades, profitability has been not so much about where or how you sell a product but where you produce it.
Older Indian manufacturing companies are used to this by the way, having moved production between and to locations across states hunting for with tax incentives.
Locations like Silvassa, in the union territory of Dadra and Nagar Haveli adjoining Gujarat, Pantnagar in Himachal Pradesh and even Haridwar in Uttarakhand.
In the early 2000s, new industrial units set up in these areas could be entitled to a 100% corporate tax exemption for 5 years and roughly 30% taxes for the next 5.
In addition, they got a 100% excise duty exemption for a period of 10 years from the date of commencement of commercial production. The excise duty part is now subsumed into the Goods & Service Tax as of 2017 and the tax holidays are over in any case.
Nevertheless, all these places still enjoy the benefits of industrialisation and job creation even if they are not the logistically best positioned in national or global supply chains, particularly Pant Nagar and Haridwar.
But if location shopping was earlier confined to within India, it’s also gone global.
India’s garments industry for almost 20 years has been moving production to Bangladesh with most major exporters hosting factories there, making garments from cotton and yarn often imported from India.
One report in Outlook Business says 25% of manufacturing units in Bangladesh are owned by Indian companies like Shahi Exports, House of Pearl Fashions and Gokaldas Images.
Indian companies have of course been importing directly from China and in many cases, badging products here. White goods like air conditioners or even toasters and electric irons are a classic example, where products are made in China but sold in India under a local brand.
The election of Donald Trump as president of the United States and the real possibility of high tariffs - ranging from 20% to 60% - on imports into the US will put manufacturers world over in a quandary.
Firms making in China are bracing for the worst.
Show brand Steve Madden has said it will reduce goods manufactured in China by 40% within the next year, up from its prior target of a 10% reduction.
“As of yesterday morning, we are putting that plan into motion,” Chief Executive Officer Edward Rosenfeld told analysts on an earnings call Thursday reported by Bloomberg.
Whirlpool Corp., which makes Maytag and Amana household appliances, says Americans will see higher prices on microwaves if tariffs are increased.
“The biggest thing we get out of China is microwaves,” a top official told Bloomberg just before the election but added that they would be more insulated from the risk than other manufacturers because it produces most of its goods sold in the US domestically.
Steve Madden says just under half of its current business would be potentially subject to tariffs on Chinese imports.
If the company’s plan to mitigate its exposure is successful, that would drop to around 25% within the next year.
And that is because, like many others, the company has been shifting its supply chain more toward Cambodia, Vietnam, Mexico and other countries.
Some years ago, Steve Madden imported some 95% from China.
Indian manufacturers are possibly better off staying at home and trying to produce more efficiently and hoping India will face a lower band of tariffs if it does.
Or hope that bilateral negotiations lead to some compromise.
But for manufacturers and producers, the larger lesson is that location as a strategy to manage costs is now receding into history.
Even if the US relents on tariffs, the uncertainty on tariffs and linked to geopolitics will stay and most likely increase.
Companies will have no choice but to produce closer to their consuming market. It is not that they do not or have not realised this already.
What they do realise is that producing in relatively higher cost countries like India will push prices higher, whether it is for the intermediate or final product.
And that is a problem that we have to solve at some point.
And that brings us to the top stories and themes of the day:
Markets are flat even as mutual funds see record inflows
Will India Depreciate The Rupee ?
SIP’s cross Rs 25,000 crore a month as long term investors stay plugged in
A full service monopoly takes over India’s airways. Vistara signs off and becomes Air India.
Markets Are Flat, Record Inflows
The Sensex moved between 79,000 and 80,000 and finally ended flat.
The Sensex closed at 79,496.15, up 9.83 points from its previous close while the NSE Nifty50, on the other hand, settled at 24,141.30, down just 6.90 points or 0.03 per cent from its previous close.
The broader markets were in the red, with Nifty Smallcap100 and Nifty Midcap100 falling 1.20 per cent and 0.88 per cent, respectively.
The overall attraction of India for foreign institutional investors in the shorter term is still mixed, thanks to comparative valuations.
The MSCI India index, which covers approximately 85% of India's equity assets, trades at an average 12-month forward price-to-earnings (PE) ratio of 22.8, well above the PE ratio of 12.08 for MSCI's emerging market stocks, Reuters pointed out also quoting analysts who said they were cautious on Indian equities but is bullish on the country's sovereign bonds and finds the rupee to be an appealing carry trade currency.
And the reason for that is the Reserve Bank’s FX policy of stabilisation making the rupee one of the best risk adjusted carry trades.
More on that shortly.
Will India Depreciate The Rupee?
Rupee fell to an all-time low again on Monday, as most currencies in the region stayed under pressure.
The Reserve Bank’s interventions resulted in more losses, Reuters quoted traders saying.
The currency ended at 84.3925, eclipsing its previous record low of 84.3875 hit last week. The currency was down 0.02% on the day.
Meanwhile, Bloomberg reports in a dramatic source based story that India’s central bank is ready to let the rupee weaken in tandem with the Chinese yuan after Donald Trump’s election win spurred fears of higher US tariffs.
A depreciating yuan will lower the cost of Chinese goods, potentially leading to more imports and further widening India’s biggest trade deficit with any country.
The Reserve Bank of India is poised to cushion the blow by allowing a weaker rupee, even while using its ample reserves to keep the fall in check, according to the people, who asked not to be identified due to the sensitivity of the matter, Bloomberg reported.
Analysts have already started revising their rupee forecasts. The currency will breach 85 to a dollar within 12 months, according to HDFC Bank Ltd., while IDFC First Bank Ltd. sees it hitting 84.50 much before its earlier projection of March.
The rupee was trading steady on Monday after posting its biggest loss since May last week. Yet, it’s one of the least volatile currencies in the world, with the RBI using its substantial foreign-exchange reserves — now the fourth-largest in the world at more than $680 billion — to limit the rupee’s sharp swings. India’s foreign exchange pile decreased for a fifth straight week, data released Friday showed.
Mutual Fund Bonanza
The markets may be taking a breather but equity mutual funds are seeing record inflows and possibly that is a good sign since it suggests longer term investors are still plugged in.
Funds coming in through the Systematic Investment Plan route stood at Rs 25,322.74 crore in October, an all-time high against Rs 24,509 crore in September.
The number of SIP accounts stood at its highest ever at around 101 million in October 2024 as compared to 98 million in September.
Overall, equity mutual funds witnessed a record inflow of Rs 41,887 crore in October, marking a surge of over 21 per cent on a month-on-month (MoM) basis, data from the Association of Mutual Funds of India showed in a Business Standard report.
This also marks the 44th consecutive month of net inflow in the equity-oriented funds, highlighting the ever-increasing appeal of mutual funds among investors.
Corporate News
Asian Paints' shares fell the most in over four years on Monday, as price cuts across its products and floods in some parts of India dented second-quarter sales volumes and dragged profit below analysts' estimates, Reuters reported.
The stock fell as much as 9.3% on the day to the bottom of the benchmark Nifty 50 index , and was set for its worst day since March 2020.
Asian Paints is the country’s largest paintmaker by market share and has previously flagged weak demand for its premium products as inflation-hit shoppers choose cheaper alternatives.
The paints industry’s latest big player is Grasim Industries of the Birla Group with Opus.
Volume slowdown, market share loss and faster-than-expected scale-up for new entrants are key risks for Asian Paints, Morgan Stanley analysts said in a note.
Asian Paints on Saturday said profit nearly halved to 6.95 billion rupees in the three months ended Sept. 30, missing analysts' estimate of 10.19 billion rupees, data compiled by LSEG showed.
Elsewhere, Tata Steel’s top brass told Business Standard that weak market conditions were making it tough for them to say when they would be out of the woods and could not at this point project when they could start investing.
The low point was about $450 per tonne in August internationally and now it’s around $500 per tonne. Hopefully, if the Chinese stimulus works a bit, then the exports will drop, which can help the prices.
He also said that this is the worst phase they are currently facing
Air India Vistara
Yesterday, November 11, was the last day of Vistara Airlines which has as of today merged into Air India and becomes the only fullservice carrier in India.
Vistara launched a decade ago by Tata and Singapore Airlines managed to position itself as a premium product, particularly for business and frequent fliers, also replacing the now liquidated Jet Airways.
The merger became inevitable in 2022 after the Tata group acquired Air India from the government.
Singapore Airlines, which held a 49 per cent stake in Vistara, will own 25.1 per cent of Air India following the merger.
Following strong passenger feedback, the Tatas are showing the distinction between the Vistara aircraft and the Air India aircraft.
Passengers can identify Vistara flights by using the 4 digit numbers for flights beginning with 2. Vistara’s UK 944 will become AI 2944.
This arrangement is expected to continue till June next year at which point the aircraft upgrade efforts in Air India should lead to largely similar aircraft.
Air India has embarked on a $400 million retrofit programme for its legacy narrow body fleet.
I spoke with airline Ajay Awtaney, editor of livefromalounge and asked him about whether he saw any hitches ahead and also whether the full service monopoly had any advance lessons.
More significantly, I caught up with him just before he was going to board Vistara’s last domestic flight, UK986 from Mumbai to Delhi at 10: 50 pm last night.
INTERVIEW TRANSCRIPT
Ajay Awtaney: You know, one of the major changes that we'll see as this is playing out is that there will be no Vistara existing anymore. Entire operations, all the planes, all the employees, everything that was touched by Vistara ever will be subsumed into Air India. The flights, while they will still be operating by aircraft which are branded Vistara, they will carry, for example, sticker which says operated by Air India.
I don't know if they'll be able to do this overnight or not, but in a few days you'll start seeing stickers saying operated by Air India. The flight numbers change to AI flight numbers from Vistara flight numbers. And yeah, the customer care, the helpline, the loyalty programme, everything changes and transitions to Air India.
Those are some of the customer-facing things that will change in terms of the migration of Vistara and it being subsumed into Air India. Right.
Govindraj Ethiraj: And you have a lot of memories, Ajay, from the first flight since you're also boarding the last flight. So tell us about some of them.
Ajay Awtaney: So yeah, you know, I've just been never thought that I get so deeply involved with the airline, but I've always considered myself to be a full-service airline person and Jet Airways was my favourite airline. And incredibly lucky to have seen a new full-service carrier born in front of my eyes. So, you know, I got on the first flight in 2015 without any hopes at all.
But, you know, here we are nine years and whatever, seven months later, getting ready to board the last strike of the same airline. So it's been an interesting journey along the way. I think I've seen quite a few of the very interesting, memorable milestones.
For example, this has been an airline which has been very focused on passenger experience. So I got the opportunity to fly over to Airbus, I think back in 2017, to step out the first A320 New York aircraft before it was delivered to the airline. And then they've been very focused on doing things that are experiential for the customers and, you know, connect them to legacy of the JRD Tata.
So they organised, I'm sure you would have seen them all as well. They got one aircraft painted as, you know, Tata C-I-A-9. It still is a unique aircraft, which kind of can be seen across the country, flying around all over the place.
So back in the day, they used to do experiential flights where they used to do things with, you know, like so JRD Tata's most preferred food and so on on the plane. So those have been some of the things I've happened to see. And now here we are on our own initiative again, trying to make it back to Delhi on the last flight of the airline.
Govindraj Ethiraj: Ajay, you talked about full service, and now this will become the only full service airline at this point, until maybe Indigo ramps up its business class, which it's also launched. But what are the concerns? You know, this is effectively a monopoly now.
So which also brings with it some concerns, some cautions. What would you say to that?
Ajay Awtaney: I think business models, as we knew it, maybe 5-10 years back, business models for airlines continue to evolve. So for example, Vittara was a full service airline, but it had 10 aircraft, which were only flying in a single cabin configuration. Air India had about 20 aircraft, has 20 aircraft, which are flying in a single cabin configuration as well.
So I think there's no right or wrong definition of full service. I think the differentiation has been that, you know, does it have, let's say, a business class cabin? Does it serve a meal?
And those are some of the does it have a loyalty programme? And those kind of things kind of, you know, differentiate a full service carrier from a low cost, no-cost carrier, as I like to call them. So I think Indigo is kind of very much on its way into that segment.
They launched a loyalty programme, and about just later this week, they will be launching their Indigo Stretch product, which they insist is not a business class product, but it's a direct take on, you know, trying to provide low cost business class product. But yeah, I think, yes, Air India will be a monopoly, but Indigo is kind of, you know, deploying, at least from the domestic route right now, to challenge that monopoly, right as the merger process.
Govindraj Ethiraj: And I guess that's a good sign, because I mean, we need competition of some sort in the marketplace. Finally, Ajay, as you look ahead, and as you look back, I mean, we saw what happened to Jet Airways. I mean, the airline was liquidated just last week by the Supreme Court.
Any one lesson you think airlines should always keep in mind, even as they try and keep customers happy, and also have an aggressive presence in the market?
Ajay Awtaney: I think making money is the most important lesson they need to keep in mind, you know. Jet, Kingfisher, SpiceJet keep coming back from the cold and death, I don't know how. But all of these airlines, like about five years back, were really selling, let's say, Bombardier ticket at 3,500 or 4,000 rupees as wise, which is not the fair price of the product, you know.
It was maybe not even covering the cost of the fuel that was burnt on a per passenger basis. So I think now, airfare is sort of in the zone where it's perhaps a fair price. I don't know if it's for the good price or the bad price, but it's a fair price to cover the costs.
And airlines really need to implement, you know, pricing discipline. They can't be selling, let's say, a Bombardier flight again at 3,500 rupees anytime in the next decade, because now people have kind of gotten used to air travel, even people down, you know, not the top strata of the society, but the middle class and so on. And look at it as a time saver compared to a train.
And those are the things that really spin air travel into growth mode. So I hope they're not going to make some of the foolish things that happened over the last decade. And we've seen so many airlines die in the last decade.
And now with the Guapoli, prices will be high, the customers will be, you know, biting the lip every time they pay for it. But hey, they will still fly.
Govindraj Ethiraj: Ajay, thank you so much for joining me and have a safe flight.
Ajay Awtaney: Thank you.
