Markets Fall Sharply As Correction Sets In
The markets seemed to be looking more stable going into this week but that was not to be
On Episode 400 of The Core Report, financial journalist Govindraj Ethiraj talks to BV Krishna Rao, president of The Rice Exporters Association.
SHOW NOTES
(00:00) The Take: The China Syndrome
(05:57) Markets fall sharply as correction sets in
(08:32) Oil prices unstirred by middle east tensions so far
(10:30) Lifting of ban on India’s rice exports bring down global rice prices, cheer to NRIs
(17:26) 140 Years of Coal Power in UK To End
(18:30) Mumbai logs fastest 100,000 property registration mark
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 regards any feedback, you can drop us a message on [email protected].
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Good morning, it's Tuesday, the 1st of October and this is Govindraj Ethiraj, headquartered and broadcasting and streaming from Mumbai, India’s financial capital.
Well, it's the 1st of October, time does fly does it not…a colleague told me yesterday he can already see 2024 ending now.
Of course, before that we have to think of Mumbai’s second summer which is starting now.
India's monsoon rainfall this year was its highest since 2020, with above-average precipitation for three consecutive months, helping the country recover from last year's drought, the state-run weather department said on Monday.
Rainfall over the country from June through September was 107.6% of its long period average, the highest since 2020, according to the India Meteorological Department (IMD).
The Take: The China Syndrome
In July, India’s trade minister in a virtual interaction with Indian diaspora in the United States said that a China+1 and an anywhere-but-China (ABC) thinking in the developed world is encouraging people to look at India apart from our own efforts to attract manufacturers to the country, said the ET.
Last week he told the TOI that India's manufacturing prowess is driven by its own competitive advantages, and not by reliance on any China Plus One strategy.
He was speaking in the context of a decade of India’s own Make In India efforts.
"At that time, there was no China plus one, or no anti-China mood. We've been successful in all of this, despite two wars, despite two years lost in Covid, we've achieved all of the above," the minister said.
Well, there is a shift in stance quite evidently, at least to me.
The minister however was only reflecting what industry has been saying for some time now.
India’s China + 1 strategy of attracting global companies to move supply chains to India has not really worked, at least to the extent we thought it would or hoped.
To be fair, this is not for lack of trying.
But the pendulum has only swung further away.
A report by the Delhi-based Global Trade Research Institute a few months ago pointed out that imports from China have been consistently rising, from $70 billion in 2018-19 or five years ago to around $101 billion last year.
India’s total imports last year were around $677 billion of which around $101 billion came from China, or almost 15%.
India’s own exports to China, in case you were interested, were holding around $16 billion for the last five years.
But the numbers get much starker as you dive in.
In some sectors like electronics, telecom and electrical products, some 38% of India’s imports came from China. In machinery, 40% of products came from China.
In chemicals and pharmaceutical imports, some 29% came from China.
Despite India’s myriad efforts to boost manufacturing, including production linked incentives and other subsidies, China’s stake in the country’s product economy is obviously increasing.
On the other hand, for the last few years, China’s economy has been under pressure, including slowing demand.
And there have been significant geopolitical shifts, thanks also to countries like the United States stepping up tariffs against China and encouraging multinationals to develop alternative sourcing strategies.
This gave hope to other countries including India that this could lead to manufacturing moving out of China.
As the trade minister’s July statement suggested.
But now it looks like China might be back in the game.
On Monday, Chinese stocks swept to their biggest single-day gains in 16 years.
The CSI300 blue-chip index is now up nearly 30% from its February bottom, which by some market definitions suggests it is in a bull market.
The blistering rally in Chinese stocks has come on the back of last week's most aggressive stimulus measures announced by Beijing since the pandemic - ranging from outsized rate cuts to fiscal support - in an attempt to shore up its ailing economy, Reuters said.
Moreover, the People's Bank of China's (PBOC) also introduced two fresh tools to shore up the stock markets, pushing up stocks which had been stagnant for several years.
"It's really a big turnaround, the policies are so intensive, we have never seen such clear instruction to stop housing prices declining and support the stock market," Dickie Wong, executive director of research at Kingston Securities, told Reuters.
There is obviously some understanding already in India that while manufacturing will grow in India for various reasons, the China factor seems to be receding.
Lighting up India’s manufacturing sector is not an easy task, regardless of which Government claims what.
The problems plaguing manufacturing investment and expansion have been around for a long time and range from high costs including land, labour and capital to weak infrastructure and of course cumbersome laws.
There are several manufacturing successes in India, domestic and export oriented but it is not clearly enough, including to absorb more surplus labour.
The one factor where India could focus on is to make it cheaper and more competitive to build locally rather than by erecting tariff walls as we have done in the last decade.
Ten years ago, average tariffs were 13%, today they are 18%, amongst the highest in the world and double of countries like China and Vietnam.
Reducing tariffs - since exports also contain imported raw material - is not the only approach to overall manufacturing growth but one that we need to revisit with some urgency.
And that brings us to the top stories and themes for the day.
Markets fall sharply as correction sets in.
Oil prices unstirred by middle east tensions so far
Lifting of ban on India’s rice exports bring down global rice prices, cheer to NRIs
Mumbai logs fastest 100,000 property registration mark.
140 Years of Coal Power in UK To End
Markets & More
The markets seemed to be looking more stable going into this week but that was not to be.
The international cues were fine but the China factor which we just spoke of is now causing global investors to re-examine their allocations and priorities.
The 30-share Sensex fell 1272 points to close at 84,299.78 while the broader Nifty 50 was down 368.10 points at 25,810.85 on Monday.
The Business Standard said 41 out of the 50 constituent stocks of the Nifty50 ended in the red, dragged down by Hero MotoCorp, RIL, Axis Bank, and Bharat Electronics, which fell up to 4.03 per cent.
Interestingly, the metal stocks JSW Steel, Hindalco Industries, and Tata Steel did well.
In China, the CSI 300 Index jumped as much as 9.1%, the most since 2008.
Foreign investors are afraid of missing out, analysts told Reuters. Hong Kong's Hang Seng Index, which rose 2.4% on Monday, is now up roughly 24% for the year, pushing aside Taiwan to become Asia's best performing stock market.
Stocks of property companies also jumped in China with mainland-listed property stocks advancing 8.2%, said Reuters, adding that the Hang Seng Index had its best month since November 2022 with a 17% rise, after delivering its biggest weekly rise since 1998 last week, and fifth largest in the last half-century.
Meanwhile, China’s mainland financial markets will be closed Oct. 1-7 for National Day holidays.
AI Fever Is Receding
China is gaining and AI fever is receding.
Gone is the first half of 2024, when investors’ passion for artificial intelligence drove the market skyward, the WSJ is reporting, adding that the third quarter brought a new order to markets.
Investors were also recognising that they had got too reliant on a few big tech stocks.
And now broad swaths of the market, from utilities to industrials to financials, trounced the powerful technology sector.
Value stocks beat growth stocks. Small-capitalization stocks emerged from their torpor to leave their large-cap peers in the dust, said the WSJ.
Lessons for India, not so much. Indian markets have been rising more steadily across industries and if anything have been driven by small cap and mid cap stocks, so the size of the stock rather than its sector location.
Oil Prices Hold Out Against Tensions
Oil prices have not reacted as such to Hezbollah confirming its leader was killed on Friday in an Israeli airstrike in the Lebanese capital of Beirut.
The incident follows several months of conflict and had raised concerns of a wider conflict involving Iran.
But oil markets did not see a significant surge. Global benchmark Brent added 1.56% to $73.10 a barrel, while U.S. West Texas Intermediate futures traded 1.09% higher at $68.19 per barrel, CNBC reported adding that while hostilities throughout the Middle East have ramped up, there has not been any oil supply disruption.
“The oil market does not expect an all-out war between Iran and Israel that would impact supply,” one analyst told CNBC.
On the other hand, the oil market is also reckoning with increased production from the U.S. Canada and Guyana, on top of stalling Chinese demand.
Experts also told CNBC that a rapid escalation in conflict, including a closure of the Straits of Hormuz, where around 20% of total global oil production flows daily, could lead to crude oil prices hitting $100 per barrel.
Lifting of Ban on India’s Rice Exports To Bring Down Prices
India has removed most of the export curbs it imposed on rice shipments in 2023 with immediate effect, thanks to above-average monsoon rains which in turn has led to a bumper crop.
This will lead to prices coming down sharply and of course bringing cheer to NRIs who were paying much more
India represented more than 40% of the world's rice exports in 2022, a record 22.2 million metric tons out of a total of 55.4 million.
India's exports were bigger than the combined shipments of the world's next four biggest exporters: Thailand, Vietnam, Pakistan and the United States, Reuters said.
The lower exports caused disruptions in the global market even as buyers found new sellers like Thailand, Vietnam and Pakistan.
And NRIs were perhaps the most upset, as they are rice that comes from India and not just any rice.
India exports three types of rice.
In a good year of some 18 million tonnes, parboiled rice is around 8-9 million tonnes, white rice is another 7-8 million tonnes while broken rice is around a million tonnes.
Basmati rice whose exports were also curtailed is around 4 million tonnes, distinct from the 18 million.
I reached out to B V Krishna Rao, president of the Rice Exporters Association based in Kakinada in Andhra Pradesh and began by asking him how the curbs had affected Indian exports.
INTERVIEW TRANSCRIPT
BV Krishna Rao: As you were aware, the government has lifted both curbs which they have put it close to 12 to 14 months earlier. In terms of white rice, they have totally prohibited the export. Whereas on papaya oil, they have raised highest ceiling of 20% as export duty, both of which were detrimental in exports.
And that point of time, that this probably they are contributing to inflation in a large number. So having seen for one year, the impact of this particular varieties on inflation has been calculated and crop that is coming in, in the next two, three months, keeping the farmer's interest, I think the government has decided that both of these should go, maybe not in total entity entirely, but partially, at least it is a midway. So they have reduced the duty from 20% to 10%.
Still internationally, we are the cheapest origin for parboiled rice and therefore we strongly welcome the move on the government. And we are there in the business despite last year's hiccup of this 20% at one go. So this 10% reduction will always be helpful for the trade and we'll be able to pass on this additional 10% to the Indian farmers also, as their producers will be coming to the market in the next 15, 20 days.
This is helpful for the farmers. And as far as white rice is concerned, they have put a MEP instead of duty so that they're still cautious that at a higher MEP, only few variants will go out of India. So we respect their cautiousness.
Probably we'll keep asking the government to reduce the MEP in times to come. But for a start, we are happy that the entire representation of some of the people who have come to a standstill, they have revived their businesses in the next couple of weeks.
Govindraj Ethiraj: Right. And how has the crop been this year or how is the crop looking this year? Because from all indications, it's looking like a very strong crop, isn't it?
BV Krishna Rao: Thanks to the monsoon, I think pretty much high, especially in the south. Monsoon more than the normal, filling up all the reservoirs for the next Rabi crop. So the farmers are buoyant that they will have a next.
Generally, farmer makes more money in the Rabi crop because the duration of the crop is less. The yields for a farmer is more. So as far as Karith is concerned, he'll be able to make minimal margin only.
Rabi, he'll make maximum. So he's more buoyant about the Rabi crop also. In the meantime, these two restrictions have been removed and the space for the warehouses of FCA are also limited.
So I think farmers should get slightly over the MSP and take the advantage of the international market.
Govindraj Ethiraj: Right. Now, in the last year or so, obviously countries who have benefited are Thailand, Vietnam, Pakistan, Myanmar. So do you foresee that buyers coming back to the market for Indian rice?
That's one. And secondly, the last time I spoke to you, I think we were also talking about how NRIs were affected because they like rice from India. So do you see that changing?
Yeah, yeah.
BV Krishna Rao: As you mentioned NRIs, I think this news of opening up really dropped their prices internationally because all the Sona Masuri, all the Indian preferred varieties, which were despite the demand, some way they were reaching US and on. We are not sure how it's reaching. So last night, yes, Saturday night to now, there's almost a drop of close to $150, $200 in their prices.
I think all the NRIs are very happy about the drop in prices because India has opened up. That's point number one. As far as the competing countries are concerned, Pakistan, Vietnam, and Thailand, they have had a premium for the last 12 months.
And they're all disappointed because this news of opening up happened at a time when their crops are still at the farm gate level. So the farmer, they thought if at all the news comes after a month's time, the produce would reach the Pakistani millers and the Vietnamese millers. But it has come at a time when the produce is still at the farm gates.
So Pakistani farmers and all these countries, the farmer will be losing the premium, which he was anticipating when he was planting the crop.
Govindraj Ethiraj: Right. And last question. So we are now in October, how is the rest of the year looking like?
BV Krishna Rao: Well, last year we did close to what we were supposed to do. That was around 8 to 9 million tons, white rice 6 to 7 million tons, which we have lost to competing countries. There's high possibility that the entire volume will come back to India by the end of this year.
I think we are fine and we should be able to touch our previous records, which stand at 18 million tons of non-Basmati rice. So I think with slightly MEP is a disadvantage at this moment, probably, but Pakistani and all the prices are way above Indian prices. Demand should come back to India soon.
Govindraj Ethiraj: Right. Mr. Rao, thank you so much for joining me. Yes.
BV Krishna Rao: Thank you very much.
140 Years of Coal Power in UK To End
Britain will become the first G7 country to end coal-fired power production on Monday with the closure of its last plant, Uniper Ratcliffe-on-Soar in England’s Midlands.
It will end over 140 years of coal power in Britain, Reuters reported, adding that this follows Britain's 2015 plans to close coal plants within the next decade as part of wider measures to reach its climate targets.
At that time almost 30% of the country’s electricity came from coal but this had fallen to just over 1% last year.
The drop in coal power has helped cut Britain's greenhouse gas emissions, which have more than halved since 1990.
Britain, which has a target to reach net zero emissions by 2050, also plans to decarbonise the electricity sector by 2030, a move which will require a rapid ramp-up in renewable power such as wind and solar.
Mumbai Sees Fastest 100,000 Property Registrations
Mumbai city (area under BMC jurisdiction), recorded over 105,664 property registrations in the first nine months of 2024, real estate consulting firm Knight Frank has said.
Property registrations observed a 12% year-on-year (YoY) growth while revenue grew by 6% YoY during the same period.
The 100,000 property registration mark was achieved in 2023 but in October, a month later.
In September 2024, residential units constituted 80% of total registrations, underscoring strong housing demand in the city.
On the other hand, September 2024, Mumbai recorded 9,167 property registrations, reflecting a 14% YoY decline but Knight Frank says the decline in home registrations in September 2024 can
be primarily attributed to the inauspicious days of ‘Shraadh’, which constituted 12 days of month in 2024, when traditionally individuals refrain from making significant purchases or engaging in high-
value transactions.
In 2023, Shraadh was observed from 29 September to 14 October so we will know in a month whether much of the dip in sales is linked to seasonal reasons or otherwise.
Stay tuned
