Markets Have Fallen 1200 Points In Two Days

On today’s episode, financial journalist Govindraj Ethiraj talks to Pankaj Mohindroo, Chairman of the Indian Cellular and Electronics Association as well as Vinod Kaul, Executive Driector of Indian Rice Exporters Association.

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Our Top Reports For Today

• <01:09> Markets Have Fallen 1,200 points in two days but worry not, a spate of bullish India reports from global institutions could alleviate the pain if not turn things around.
• <02:24> Government places restrictions on imports of laptops, tablets and personal computers. What does it mean?
• <09:45> A ban on rice exports are now hurting countries everywhere. And it seems to be hurting India too.
• <19:21> A 3-week drought of bullish reports ends, another solidly bullish India report from a global investment bank, Morgan Stanley and S&P Global forecasts good times.
• <23:33> Construction could employ 100 million Indians in 7 years.
• <24:28> Arvind Panagariya, former NITI Ayog Vice Chairman Comes Out Strongly Against Those Questioning Role of Exports As A Growth Driver for India

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TRANSCRIPT

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.

Let's get the bad news out of the way.

After some 4 months of solid rallying, a downgrade of US debt by Fitch has triggered, well, how should i put it, markets everywhere taking some deep breaths.

The BSE Sensex has now plunged over 1,200 points in 2 days thanks to the surprise downgrade by Fitch of US debt from AAA to AA+ day before.

Yesterday, both major Indian indices fell sharply during the day and then recovered. The BSE Sensex ended 542 points lower finally to close at 65,241, while the Nifty50 ended 145 points below the 19,400-mark at 19,382.

Meanwhile among results, Adani Enterprises, the flagship company of the Adani Group and at the centre of the Hindenburg Research controversy for alleged corporate governance lapses, reported a 44% year-on-year (YoY) growth in its consolidated net profit to Rs 674 crore for the quarter ended June 2023.

Revenue from operations during the first quarter, however, fell 38% to Rs 25,438 crore, compared with Rs 40,844 crore in the year-ago quarter. The revenue fall is attributed to the correction in coal prices.

Government Restricts Imports of Laptops

India yesterday announced restrictions on imports of personal computers, laptops, palmtops, automatic data processing machines, microcomputers/processors and large/mainframe computers with immediate effect.

In a notification issued Thursday (August 3), the Directorate General of Foreign Trade said imports of computers and other items under certain categories have been restricted.

Before you begin to sweat, this restriction does not apply to baggage rules so you can bring in or take out laptops like before. That is one laptop, bringing in anything more than that and you are liable to duty, as you were even earlier.

The objective of this is to promote domestic manufacturing of these products and curtail the majority share of imports of these items from China.

There are some allowances, including permitting those with a valid licence and also if you buy online and ship to India, though of course like before you would pay duty when the courier company delivers to you.

Similarly, if they are part of capital goods as in you import computers because you are for example setting up a new factory then again you don’t need a specific licence.

The move is in sync with the Government’s production linked incentive scheme for IT hardware and to push companies to manufacture locally in India.

Needless to add, laptops, servers and personal computers among others come from China even if the brands are from elsewhere, including the USA.

India has seen an increase in imports of electronic goods and laptops/computers in the last few years.

To understand the impact of this move and what it signifies, I reached out to Pankaj Mohindroo, Chairman of the Indian Cellular and Electronics Association, a leading body representing electronics and mobile manufacturers, technology providers and brand owners, among others.

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Tesla

Speaking of imports, Tesla has now taken an office on lease we are told in Viman Nagar Pune. The office space is in a coworking centre and is spread over close to 6,000 square feet.

This is obviously news if not big news to the where and when will Tesla come to India watchers club.

The larger question of course is where will the plant come up if and when it does ? The promise is, just to remind you, of a smaller car worth maybe around Rs 30 lakh, as opposed to its current offering in the US which could be twice as much.

Pune makes a lot of sense because it has a huge auto and auto component manufacturing ecosystem.

But if you combine electronics, then Karnataka and Tamil Nadu make more sense. Because they have both.

Watch this space. Either way, Tesla incorporated in India much earlier.

Is India’s ban on non-basmati rice exports helping anyone, including India?

India’s ban on rice exports is hurting the rest of the world. Asian and African countries could face the biggest brunt.

But could it be hurting India too since prices seem to be rising ?

To step back first, India, the world’s largest rice exporter, banned the exports of non-basmati white rice on Jul. 20, in an effort to rein in domestic food inflation, particularly of cereals which had crossed 10%. India accounts for more than 40% of the global rice trade.

“Malaysia appears to be the most vulnerable according to our analysis,” Barclays said in a recent report, highlighting the country’s sizable reliance on Indian rice. Singapore could be hit too.

Though there are possible exemptions for country to country deals on imports from India which are being worked upon, it is believed.

India’s inflation rose to 4.8% last month on the back of rising food prices, including pulses and cereals like rice.

CNBC reports that this is not the first time India has imposed an export ban on non-basmati rice, but the impact this time could be more far-reaching than before.

In October 2007, India imposed a ban on non-basmati exports, only to temporarily lift the ban and impose it again in April 2008, sending prices almost 30% higher.

To understand where we stand 12 days into the ban, I spoke with Vinod Kaul, Executive Director of Indian Rice Exporters Association and began by asking him where we stood at this point and whether the ban had really helped prices in India

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Morgan Stanley Goes Overweight on India

If you want to know what Morgan Stanley is saying about India in two lines, from a 62 page report.

India's future looks to a significant extent like China's past.

India is arguably at the start of a long wave boom at the same time as China may be ending one.

The report is titled Asia Emerging Market Equity Strategy and dated August 2.

It sums up by saying move India to overweight, Downgrade Australia to UW and Taiwan and China to Equal WEight.

While GDP per capita is US$2.5k per capita (vs. US$12.7k for China)India’s demographic trends are positive.

So finally it’s about growth and prospective growth not so much about where we are today. And taking some bets of course.

Morgan Stanley says its economics team thinks trend GDP growth in China is likely to be around 3.9% to the end of the decade vs. 6.5% for India.

They also say that India’s situation is in stark contrast to that in China, as borne out by its recent visit in June to the MS annual investment summit in Mumbai, MS says.

According to the bank, multipolar world trends are supporting FDI and portfolio flows, with India adding a reform and macro-stability agenda that underpins a strong capex and profit outlook.

We see a secular trend toward sustained superior USD EPS growth versus EM over the cycle, with a young demographic profile supporting equity inflows, says MS.

Among other many positives, Morgan Stanley also points out that

Household debt/GDP in India is just 19% vs. 48% for China and that only 2% of Indian households have life insurance.

Manufacturing and services PMIs have rallied consistently since the end of Covid restrictions in contrast to the rapid fade seen in China.

Real estate transaction volumes and construction have broken out to the upside. And I will come to real estate shortly.

Moreover, India's ability to leverage multipolar world dynamics is a significant advantage. It is a member of the Quad political framework with the US, Australia and Japan.

Key downside risks include an upside surprise in inflation and monetary policies, especially if productivity improvement does not catch up.

Another concern is more structural, as AI may be disruptive for India's services export and the labour force generally, although we will monitor the impact closely.

An interesting risk Morgan Stanley says is the market’s view on the 2024 general election outcome.

If the Indian electorate chooses a less-favourable political formation in 2024, the equity markets could experience a significant drawdown.

Meanwhile a more muted report by S&P Global titled Look Forward: India's Moment says India will grow at 6.7 percent per year on an average for eight years starting 2023-24 retaining the tag of being the fastest-growing economy in the world.

It sees per capita GDP rising to about $4,500.

Significantly it highlights the role of women or the lack of it right now in the labour market.

S&P also says the path to achieve high, stable, and inclusive growth will require visionary decision-making by India in key sectors such as labour and manufacturing.

Importantly, unlike many other reports, it stresses on the importance of women in the labour force to achieve higher growth.

While India's short-term economic growth will be powered by its 678 million strong labour force, the inclusion of more women in the workforce will be crucial for India's future growth as only 24 percent of women are participating as of 2022, S&P said.

The Indian government and the Reserve Bank of India have forecast a GDP growth rate of 6.5 percent for 2023-24.

Jobs

Speaking of jobs and workforce, a new report by real estate consulting firm Knight Frank says India’s construction industry could create close to 100 million jobs in 7 years or by 2030 from around 71 million now.

The report titled "Skilled Employment in Construction Sector" released by property consultancy Knight Frank and the Royal Institution of Chartered Surveyors (RICS) India, also says the share of skilled workforce in the sector will rise to a little over 10 per cent by the end of this decade from 9.7 percent currently.

It also says that real estate output is likely to touch $1 trillion by 2030, which if India is a $5 trillion economy or more would represent at least 20% or more.

Moreover, the construction sector has grown at a rate of 11 per cent annually since 2012. Currently, it accounts for 18 percent of the Indian economy's total output. Moreover, it is the second-largest employer after agriculture.

Weekend Edition Promo

And finally, Arvind Panagariya, former Niti Ayog Vice Chairman and Columbia University’s Jagdish Bhagwati Professor of Indian Political economy was at his fiery best when i put to him the proposition if India could achieve high growth without a high dependence on exports, as some have argued.

This is what he said.

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Hear the full episode on The Core Report Weekend Edition on Saturday where he speaks on the linkages between trade, India’s tariffs, export oriented industries and jobs.

That’s it from me for now. Have a great weekend ahead.