Stock Markets Hit Record Highs On BJP's Election Wins
The markets are betting on continuity in the 2024 general elections. The belief is that competitive populism will now slow down which in turn means good news for the economy.
Our Top Reports For Today
- (00:00) Stories Of The Day
- (01:19) Stock markets hit record highs on BJP’s election wins, anticipation of lower Govt spending on populist schemes
- (06:27) And The Core Report’s new energy segment in partnership with the IndiaEnergyWeek kicks off today
- (07:37) Extreme weather and rains force halt in iPhone manufacturing plants in Chennai.
- (10:16) Amazon delivers more parcels than delivery giants Fedex or UPS.
- (11:06) More Indians are moving to financial assets, bond markets expected to triple in size in next 6 years.
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Markets & More
Markets hit all time highs on Monday as a win by Bharatiya Janata Party in three Hindi heartland states assured investors of political continuity in the upcoming general elections in 2024
The S&P BSE Sensex zoomed over 1,400 points intraday to hit a new record high of 68,918.
It, eventually, ended at 68,865, up 1,384 points or 2 per cent.
The Nifty50, on the other hand, hit a fresh lifetime high of 20,703 before closing at 20,687, up 419 points or 2 per cent.
The BSE MidCap index hit a new peak of 35,124 intraday, while the BSE SmallCap index registered a new record high of 41,222.
Like we pointed out yesterday morning, the markets are obviously betting on continuity in the 2024 general elections.
But the bean counters so to speak are looking beyond the sentiment and onto the numbers.
The belief is that competitive populism will now slow down which in turn means good news for the economy.
For instance, the Prime Minister had already announced the extension of a free food grain programme by 5 years starting the first of January and touching 813 million poor people, thus effectively stating that some 58% of India’s population is poor.
The Pradhan Mantri Garib Kalyan Anna Yojana (PMGKY) as the program is called will cost Rs 11.80 lakh crore over a 5 year period or a little over Rs 200,000 crore or around $24 billion a year or $100 billion in 5 years.
The announcement of this programme and other local ones aimed at women in states like Madhya Pradesh surely helped win people’s hearts and votes.
The fear amongst the economists was there would be more.
“Post the state election results, the risks of competitive populism have eased considerably,” said Radhika Rao, senior economist, DBS, told The Economic Times adding that the government will announce a few more incremental support measures as the country heads towards general elections.
“The likelihood of further aggressive welfare spending, with sizable fiscal costs, is unlikely ahead of the general polls, lowering risks to overall budget consolidation plans,” Rao added.
The government, in August, cut the price of an LPG cylinder by Rs 200.
“Some investors were worried that a poor showing by BJP in the state elections would increase the risk of more fiscal populism; the actual results should calm such fears. However, we believe that competitive populism will remain a theme for the 2024 general elections,” Nomura economists Sonal Varma and Aurodeep Nandi said in a note Monday, according to the ET.
To be fair, all parties have promised further cuts in prices of cooking cylinders, basic income transfers to women and an increase in transfers to farmers in the run-up to the polls.
S&P, in its outlook last month, also noted that the government will stick close to its fiscal deficit target and consolidation path till FY26.
Elsewhere, FIIs have now come back to buying Indian equities in force, with investments worth Rs 2073 crore in Indian equities on Monday alone and stepping up the buying in general in November.
Between August and October, FIIs or FPIs had sold consistently, as they had been in other emerging markets including China.
So that’s the key sentiment and analytical takeaway from the election results over the weekend which should keep the markets happy for some time with focus shifting to more industry or company specific stories.
Gold Prices All Time High
Meanwhile, gold has hit an all time high, passing the previous high set during the pandemic.
Gold price rose to the highest on record at more than Rs 64,000 per 10 gm on Monday, a level which will affect demand into this year’s wedding season.
Bullion has surged around 15% from a low in early October. It first benefited from investors seeking safe haven following the tensions in the middle east and then got jacked up further by growing expectations for US rate cuts.
The Rupee Struggles
The Indian rupee ended 8 paise lower against the US dollar on Monday at 83.37 a dollar as compared to Friday’s close of 83.29.
While the rupee opened higher at 83.26, the gain faded as local corporates rushed to pick up dollars, a foreign exchange trader at a foreign bank told Reuters.
The positive political news and lower crude oil prices, among other positive factors, is not helping the Rupee for now.
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Oil fell — after failing to hold an early gain — amid sustained scepticism that the latest supply cuts by OPEC will turn the market’s tide.
Global benchmark Brent sank toward $78 a barrel after a six-week losing run, while West Texas Intermediate was below $74. The drop came despite speculation that the US Federal Reserve is done raising interest rates.
As we spoke earlier, prices continue to fall or stay soft despite the prospect of supply cuts by the OPEC countries. Brent crude was quoting a shade under $79 a barrel overnight.
This segment was supported by the India Energy Week 2024, an initiative of India's Ministry of Petroleum & Natural Gas that will run from 6 – 9 February 2024 in Goa. Visit www.indiaenergyweek.com for more details.
Extreme Weather Hits Operations
Taiwan’s Foxconn and Pegatron have halted production of Apple (AAPL.O) iPhones at their factories near Chennai in southern India because of heavy rains, sources told Reuters on Monday.
Chennai, the capital of Tamil Nadu and a major electronics and manufacturing hub was lashed by heavy and sustained rain which saw major flooding across the city including at the city’s only airport paralysing operations and leading to flights being suspended.
Heavy rains were reported in north coastal Tamil Nadu and five people were killed in the state, the Indian Express said.
The city is bracing for Cyclone Michaung, expected to hit this Tuesday afternoon.
Several parts of Chennai were submerged in knee deep water and residents faced power cuts. Elsewhere, the heavy rains swept away cars.
Global economic losses could reach $5 trillion under a "plausible increase" in extreme weather events linked to climate change that cause crop failures and food and water shortages, insurance marketplace Lloyd's of London said in October this year.
Time magazine quoted a 2021 report from Impax Asset Management Group saying that two-thirds of large companies globally have at least one asset highly exposed to the physical risk of climate change; with that likelihood having grown now.
Extreme weather events like rains, which pound the information technology and also manufacturing and electronics assembly hubs of Bangalore and Chennai prevent people from reaching their place of work, affecting global supply chains.
iPhone TDK
Speaking of Apple phones, iPhone vendor TDK will set up its lithium-ion battery plant in Haryana, India’s Minister of State for Electronics and IT said on Monday.
The Japanese electronics major is expected to invest Rs 6,000-7,000 crore in a phased manner for making lithium-ion cells and employ around 7,000-8,000 people once it is operational at full scale, the Business Standard reported earlier.
"TDK, a leading supplier of cells to Apple, is setting up a 180-acre facility in Manesar, Haryana to build cells for batteries. Several thousand new jobs will be created and an increase in domestic value addition," the minister tweeted.
TDK incidentally began life in the 1930s in Japan as a manufacturer of ferrite, which reduced interference in radio broadcasts. Those who remember music before the digital age would or will remember TDK for its cassette tapes, introduced in the late 1960s.
Supply Chains
Speaking of supply chains, Amazon.com has become the biggest delivery business in the U.S., overtaking both UPS and FedEx in parcel volumes, the WSJ has reported.
UPS and Fedex are obviously dedicated delivery companies.
The Seattle e-commerce giant delivered more packages to U.S. homes in 2022 than UPS, after eclipsing FedEx in 2020, and it is on track to widen the gap this year, according to internal Amazon data and people familiar with the matter.
The U.S. Postal Service is still the biggest parcel service by volume; it handles hundreds of millions of packages for all three companies.
A decade ago Amazon was a major customer for UPS and FedEx.
Financialisation Increases In India
Rating agency Crisil has said India’s bond market will almost triple in size from ~Rs 43 lakh crore as of last fiscal to Rs 100-120 lakh crore by fiscal 2030.
This means that companies will increasingly and likely borrow from lenders or investors who could be individual savers or corporations or mutual funds, among others.
Crisil feels this will happen because demand for funds will increase.
Equally, there is a major financialisation of the economy happening which means that more people are putting money into financial assets. These financial assets will in turn, obviously perhaps, go to subscribing to bonds and other instruments.
Financialisation, or moving away, increasingly being invested in capital market products, Crisil said, adding that among financial assets, managed investments have clocked a ~16% CAGR, compared with ~10% CAGR for bank deposits over the past five years.
Managed investments are expected to continue to grow faster than bank deposits.
I spoke with Somasekhar Vemuri, Senior Director, CRISIL Ratings and began by asking him why they were projecting this growth and what were the forces of demand and supply that were working here.
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Spotify Cuts Staff
Among other international business news, music streaming giant Spotify the service on which you might be listening to this podcast said on Monday that it will lay off around 1,500 employees, or 17% of its workforce, to bring down costs, after letting 600 of its staff go in January, and 200 more in June, Reuters has reported.
Many tech companies, Amazon and LinkedIn being the most recent examples, are once again trimming their workforces after major cuts at the start of 2023.
