Markets Cross 79,000
Today the Indian government bonds will enter the JP Morgan Government Bond Index – Emerging Market
On Episode 327 of The Core Report, financial journalist Govindraj Ethiraj talks to Krishan Mishra, CEO of the Financial Planning Standards Board.
Our Top Reports For Today
SHOW NOTES
(00:00) The Take
(02:12) Stories Of The Day
(05:00) Markets cross 79,000, hold at higher levels
(07:07) India’s savings levels are falling
(09:13) Water shortages could hit India’s sovereign ratings, says Moodys. And heatwave impact analysis.
(12:12) Investors are questioning the transparency of fintech broking intermediaries
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 Friday, the 28th of June and this is Govindraj Ethiraj broadcasting and streaming from and headquartered in Mumbai, India’s financial capital but presently in transit.
Today is a short edition as I am in transit so here goes:
The Take: Are Indian companies stepping up overseas bets?
Aditya Birla Group is investing $50 million to build a new chemical plant in the heart of the US oil-refining region as his Aditya Birla Group expands its North American footprint.
The project will involve a “state-of-the-art advanced materials site” on 35 acres in Beaumont, Texas, an area that’s home to some of the country’s biggest refineries and petrochemical complexes, according to a statement released Tuesday, reported by Bloomberg.
The Aditya Birla Group by the way claims more than $15 billion of assets in the United States, via large acquisitions like Novelis, Arelis and Birla Carbon in aluminium among other metals.
Essar Group said it would invest around $4 billion in Saudi Arabia for a steel plant to build a low carbon steel plant to produce 4 million tonnes per year.
Final approvals are yet to come but this is an interesting comeback for Essar which had to sell or surrender to bankruptcy court its oil refining and steel businesses in 2017 and 2019.
Esssar also has a oil refinery refinery in the UK in which it has said it will spend $2.4 billion in decarbonising even as it invests $1.2 billion for a green ammonia plant in India.
Tatas are investing over $5 billion Gigafactory or battery plant in the UK for40 GW.
Before I come to the point for today.
The early to mid 2000s were a heady period which saw multi billion dollar acquisitions, the biggest ones were acquisition of marquee brands by the Tata Group like Jaguar and Land Rover from Ford in June 2008 or the Tetley Group like in Tetley Tea around 2000.
The Birla’s acquired alumunium major Novelis was acquired in 2007.
So you guessed it right, many of the big cross border acquisitions around that time mid 2000s, as Indian industry looked for growth and growth outside, the rupee was stronger and the mood was optimistic.
At one level, nothing much has changed, Indian companies continue to explore opportunities outside as they come and are in the fray…do note I am sticking mostly to manufacturing examples and not some totally inexplicable and of course misguided overseas thrusts by just off the block venture funded companies.
There are some shifts though. One of course is that there seems to be a slight pickup in intensity or scale in the last year or two in terms of investments overseas by Indian companies as evident from the examples I quoted.
This also suggests that while there are many opportunities in India, there are newer ones opening overseas which is making business leaders turn their gaze westward with fresh rigour. It's mostly west right now.
The more significant one is this. Indian companies are investing both in India and overseas, just as lets say many Asian multinationals are, like the Korean Samsung or LG.
European and American multinationals are also continuing to invest, like auto companies from Europe and lets say technology majors in the US.
The interesting thing is that despite the increased protection and slowdown in globalisation, India Inc is part of a global club of companies which are investing globally and continue to.
The pull back in globalisation in itself might have led to raised tariffs and greater protection or shutting out of some industries for some, but it has not affected Indian companies appetite for growth.
I obviously quoted the big examples but there are smaller ones as well, for example Forbes Marshall, a process industry equipment supplier, which set up a steam factory in Singapore in 2021.
There are many more. The experiments of the 2000s didn not all turn out well, many Indian companies have struggled with their overseas investments, including because of tough times and union issues.
The larger point is that globalisation as a theory or concept is still alive and strong, at least using this lens. This is good news for Indian businesses.
And now on to our top themes and stories for the day
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Markets Hit Fresh Highs, New Stock Highs All Around
Well, fresh records were hit again on Thursday.
The BSE Sensex crossed the 79,000 mark for the first time on Thursday touching an all time high of 79,396.
The NSE Nifty50, on the other hand, crossed the 24,000 level, hitting a new record high of 24,087.
This was the second fastest 1000-point rally in the NSE benchmark which it completed in just 23 sessions.
The final count.
The Sensex closed at 79,243, up 569 points while the Nifty closed at 24,045, up 176 points.
Reliance Jio has announced an upto 25% hike in tariffs for mobile plans, in prepaid and postpaid.
This will obviously mean other telecom companies will also raise prices in keeping with inflation of course and their own investments in high speed networks like 5G.
Meanwhile on the debt markets,
Today is the day Indian government bonds will enter the JP Morgan Government Bond Index – Emerging Market, marking a significant milestone that is expected to draw substantial global investment into India's debt market.
The index tracks the performance of emerging market bonds and the inclusion, which received approval in September 2023, will see India get an initial one percent weightage that will be gradually increased to 10 percent by March 31, 2025.
“Initial investments are projected between $25-30 billion, with expectations for sustained growth in the years ahead. Investments will initially focus on government bonds and later expand to include AAA to lower credit ratings,” an analyst told MoneyControl.
Meanwhile, the The Securities and Exchange Board of India (Sebi) on Thursday approved norms to regulate misinformation through financial influencers or influencers by restricting association of its regulated entities with any unregistered person.
In its board meeting reported by Business Standard, the market regulator said, “The persons regulated by the Board and the agents of such persons shall not have any association, like, any transaction involving money or money's worth, referral of a client, interaction of information technology systems or any other association of similar nature or character, directly or indirectly with any person who directly or indirectly provides advice or recommendation.”
This ensures that mutual funds, stock brokers, research analysts, or registered investment advisors do not associate with finfluencers.
More on the broader theme of investing and some recent developments later in the show.
Banks Are In Better Shape But...
Household debt levels need close monitoring while financial liabilities have risen in the post-Covid period, the overall household savings too have dipped from average levels seen in the decade before, the Reserve Bank of India said in a report on Thursday, reported by the ET
Overall household savings have declined to 18.4 per cent of GDP in FY23, down from the average of 20 percent of GDP seen between 2013-22.
Among this, the share of net financial savings declined to 28.5 per cent in FY23 from an average of 39.8 per cent in 2013-22.
Elsewhere, banks are in good shape.
Indian scheduled commercial banks' gross NPA ratio was down to a multi-year low of 2.8 percent while the net NPA ratio fell to 0.6 per cent at end of March 2024, the Reserve Bank of India said in its 29th Financial Stability Report.
But despite some of the metrics looking sound, the Reserve Bank of India is evidently worried or cautious.
While the Indian economy is exhibiting strength and resilience amid global headwinds, the Reserve Bank of India (RBI) is watchful of emerging risks, central bank governor Shaktikanta Das said.
More specifically, he cautioned against disruptions in the financial system from new technologies.
And this is something we will touch on later in the show.
Das said the matrix of financial stability is perhaps at its best, but the real challenge is to maintain it and improve upon it further.
“New technologies offer gains in efficiency and customer experience, but they can also bring with them sudden and widespread disruptions to the financial system,” Das said in the foreword of the June edition of the Financial Stability Report.
“This requires that all stakeholders not only invest adequately to take full advantage of technological advancements, but also take steps to safeguard the security and soundness of their systems,” he said.
Water Shortages Could Hurt India’s Sovereign Credit Strength
Severe water shortages in India could hurt the country’s sovereign credit strength, according to Moody’s Ratings, warning that the water crisis could lead to social unrest if the agriculture and industrial sectors are disrupted.
India relies substantially on monsoon rain for its water supply, but is also prone to severe and extreme weather conditions
Water-dependent sectors like coal power generators and steel-makers would be the worst hit, Moody’s highlighted, explaining operational disruptions will hinder revenue growth and curtail credit strength.
The credit rating agency has a stable outlook on India’s Baa3 rating.
Meanwhile, the heatwaves that have been lashing India may be receding now with the arrival of the monsoons.
But it has left its mark and some data for us to ponder on, to prepare for the next year if nothing else.
BOB Research says the heat waves led to a sharp pickup in electricity demand at 11.4% between Apr-Jun '24, compared with an increase of 1.1% in the same period last year.
Region wise, electricity demand from the northern region rose steeply by 22.3% compared with a decline of 6.2% last year. Power demand in other regions also witnessed a significant uptick.
Many parts of northern and central India were the worst hit.
Moreover, both the maximum and minimum temperature recorded in several parts of northern India remained 5-8˚C and 4-7˚C above normal temperature even in June '24.
This as you know also affects productivity of those who are working outdoors and health. It could be construction workers or gig workers and those who sell wares in the open.
BOB Research says while there was an early onset of monsoon over the southern part of the country, the progress and spatial distribution of rains has not been even.
For the country, the South-West monsoon is 19% below LPA.
However, region wise, while the southern peninsula has received rainfall which is 13% above LPA, the monsoon in other regions has been lower.
In fact, rainfall in north-western part of India which has been under a relentless heatwave is 51% below LPA.
Production of items such as ice cream, air conditioners and refrigerators saw a pickup in Apr '24 due to the intense heatwave.
And vegetable prices of course have been spiralling out of control, including the TOP items which are tomato, onion, potato (TOP) have exhibited significant volatility, and the steepening of its trajectory intensified during Apr-Jun period, says BOB.
Mutual Funds
An investor recently went public against a fintech platform saying the fintech money deducted his funds but did not invest in a mutual fund scheme he was supposed to.
And when he or his family decided to redeem the fund, she was unable to do so. The mutual fund house in question when contacted said the amount was never invested, which prompted her to check with the fintech platform.
The platform said the money was never debited and it was a mistake to start with.
It is possible that the investor in question did not lose money but there was an error for sure in the system.
Errors of course happen but my own conversations with investors who use fintech apps suggest that they are often suspicious of whether their funds are where their app tells them they are.
Since the app is only an intermediary, then what if something similar has happened, as outlined above.
In overheated markets like the one right now, everyone wants to trade quickly and see the outcome of it equally fast and of course be able to check portfolios and so on.
But if you want to be sure, then you have to make a little more effort, in my understanding and also be careful about who you invest through and if you are comfortable with intermediaries whose key offering is speed and efficiency at this point, or at least a feeling of it.
I reached out to Krishan Mishra, of the Financial Planning Standards Board, a global organisation which sets financial planning standards and certifies financial planners and began by asking him what could have happened in the case we just outlined.
