Markets Fall Sharply As Sellers Take Charge
Both the BSE Sensex and NSE Nifty50, ended the week's first trading session lower, down by over 1 per cent each
On Episode 474 of The Core Report, financial journalist Govindraj Ethiraj talks to Anindya Banerjee, Head Of Research for FX and Interest Rates at Kotak Securities as well as Dr Ishwar Gilada, infectious diseases expert and Secretary General at the People's Health Organisation-India.
(00:00) Stories Of The Day
(00:50) Markets fall sharply as sellers take charge
(03:28) Rupee hits another low, decoding India’s foreign exchange strategy
(11:18) Indian meal prices are up but unusually more for non vegetarians
(15:03) The HMPV virus spooked the stockmarkets yesterday, an infectious disease expert view on what it really means
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 7th of January and this is Govindraj Ethiraj, headquartered and broadcasting and streaming like always from Mumbai, India’s financial capital.
The top stories & themes
Markets fall sharply as sellers take charge.
Rupee hits another low, decoding India’s foreign exchange strategy.
Indian meal prices are up but unusually more for non vegetarians.
The HMPV virus spooked the stockmarkets yesterday, an infectious disease expert view on what it really means.
The Market Take A Dive
It does appear, in retrospect and prospect, that the sellers were on a new year break and returned on Monday morning, to hit the sell button.
Both the BSE Sensex and NSE Nifty50, ended the week's first trading session lower, down by over 1 per cent each, more details shortly.
HDFC Bank, the stock with the highest weightage on the Nifty 50, fell more than 2% after posting a sequential dip in its current and savings account deposits for the three months ended December.
State-run banks also dropped 4%, led by a 7.5% fall in Union Bank of India after the lender's total business and deposits dropped sequentially, Reuters reported, quoting a fund manager saying that early earnings updates, especially on the banking front, have been uninspiring.
The bigger fear, which is now setting in, is that weak earnings may continue for longer.
Foreign portfolio investors are continuing to sell and have sold $1.1 billion of local stocks and bonds over January on a net basis so far, according to stock depository data quoted by Reuters.
Earnings season now kicks off and that is set to provide the direction for the markets which of course is looking weak at this point though arguably better valued.
The season could start with IT services major, Tata Consultancy Services, reporting on Jan. 9.
Reuters also reported Dabur India fell 3.8% after its third-quarter update signalled a likely earnings miss. It was the top percentage loser on the consumer index , which fell about 2%.
Now, the overall 30-share Sensex fell 1,258.12 points to close at 77,964.99. The NSE Nifty50 also ended lower by 388.70 points at 23,616.05.
Among the broader markets, the Nifty Smallcap100 and Nifty Midcap100 indices ended down by 2.70 per cent, and 3.20 per cent, respectively.
If you were looking for a bright spot here it is, quite literally.
Jeweller and watchmaker Titan Company said on Monday it was estimating a 24% rise in third-quarter revenue, thanks to strong festive demand for jewellery, Reuters reported.
Titan gets about 87% of its total revenue from the business and had reported a 22% rise in third-quarter revenue last year.
For Titan, sales of plain gold grew 24% and gold coin sales grew 48% which obviously gives you an indicator of investment sentiment as far as gold goes.
Rupee Lifetime Low
The Indian rupee fell to a fresh lifetime low on Monday, thanks to an additional set of factors including a consistently strong dollar and slowing capital flows.
The rupee weakened to 85.84 against the U.S. dollar, inching past its previous record low of 85.8075 hit in the last week of December and ended at 85.8275, Reuters reported.
Traders however told the news agency that it could have been worse were it not for the Reserve Bank’s dollar selling intervention.
The dollar index was down 0.3% at 108.5 on Monday, retreating from an over two-year high.
Incoming president Donald Trump’s inauguration on 20 January appears to be a turning point for several reasons and we will come to that shortly.
So why is the rupee consistently hitting new lows right now ?
I reached out to Anindyo Banerjee, head of research for FX and interest rates at Kotak Securities and also asked him what India’s overall strategy should be in terms of managing the rupee at this point?
INTERVIEW TRANSCRIPT
Anindya Banerjee: Currently, rupee is facing a twin problem of outflows from the FBIs and also the global market uncertainty as the Trump administration is going to take office from end of Jan. So, there is a threat of tariffs on China, which is negative for emerging markets. There is a lot of fund flow, which is happening from various EM countries into the US financial markets.
Plus, at the same time, you have the US Fed, who seem to have hold feet as far as cutting interest rates further. So, all of this has combined to push the rupee towards the 86 mark, almost there. But, the pace has been slower than compared to other currencies because RBA has been in the market quite aggressively.
Govindraj Ethiraj: Right. And when you say pace has been slower compared to other currencies, is this a specific period that you're referring to, like in the last month or so, or is it the whole year, for example, 2024?
Anindya Banerjee: It's the whole year, because one, two months, you can have a bit of catching up, aberration, all those things. But when we take a 12-month period, then we see on both accounts, one, if we take the overall volatility, there is a high-low gyrations, and compare it with how the other currencies have done, Indian rupee is one of the least volatile pairs. I'm talking about the US, China.
And if you also consider the depreciation of the Indian rupee compared to the dollar and how other currencies have fared, we are a little better than the average. So, on both accounts, Indian rupee has been a slow mover in spite of the uncertainties which have happened in the global markets.
Govindraj Ethiraj: Right. Anindya, in some of our conversations, including I think the most recent one a few months ago, you had actually predicted and projected that the rupee was going to depreciate, and roughly to the levels that we are seeing today. So, now let me ask you a more macro and strategic question.
What should be the Reserve Bank's approach to the rupee at this point of time? Or rather, what should India's approach be, given the overall competitiveness, export competitiveness, and all the other factors that go into where the currency should be?
Anindya Banerjee: Right. If you observe how RBI has changed its stance on the currency management, it becomes clear that what it used to do, let's say, before COVID was basically take a directional bet, which means that they would most likely come into the market when there is some big moves. Right.
But right now, RBI has been curbing the volatility almost on a daily basis. Now, they ensure that they basically buy and sell almost every day in the market. And we are seeing that when we look at the RBI data, which comes out on the intervention front, which comes out with a two-month lag.
So, RBI is clearly saying that they are targeting volatility and not the rupee level, which makes sense. Because, see, in a complex economic system, you will have both importers, exporters, consumers. And each one of them will be either a beneficiary of a strong currency or weak currency.
So, it's very hard to say that on a net basis, whether India will benefit from a weak rupee or will benefit from a strong rupee. So, that's the reason why the central bank has decided rather than trying to decide a particular level for the Indian rupee, they are trying to target volatility. Because when volatility increases, it starts to impact everybody in the economy, right from the person who is trying to project his cost of capital, which he is borrowing abroad, or the cost of hedging, or any kind of business decision gets impacted.
So, when the volatility of the currency is very high, and plus the foreign investors, they start to demand a higher risk premium on their investments. So, I think as far as the strategy is concerned, we will continue to expect RBI to curb volatility. But considering the global environment is looking quite challenging in 2025 with Trump and China, the volatility overall globally can be quite high, which means RBI has to be much more hands-on in the market.
Govindraj Ethiraj: Right, and you're obviously a bank, and as a bank you're talking to a lot of companies and clients who are seeking your advice, and on both sides, as you pointed out, they could be importers or they could be exporters. So, what are you telling them right now?
Anindya Banerjee: What we generally tend to see in the market is that whenever the rupee comes out of very low volatility, which it has been for 2023 and 2024, two consecutive years, so then the hedging demand tends to come down. And also, if you look at the forward premium, because of the very low interest rate differential between the two countries, it's almost at a record low. So, on one hand, a low forward premium is not an incentive enough for the exporter to come and hedge on the forwards or futures.
At the same time, the low volatility is not frightening enough for the importer to come and hedge. So, what is happening is the overall hedging has come down, and that's what we are seeing. But it is an idle time for the importers and exporters to take and hedge because the cost of hedging is low.
But as of now, the hedging demand is low in the market, and it tends to pick up when volatility picks up.
Govindraj Ethiraj: Any other outlook for, I mean, I think all of 2025 is maybe asking for too much, but for the next few months, and do you feel things could change dramatically after Trump is sworn in on the 20th of January? Also, in a way, why is that such a turning point? Because a lot of what he is likely to do, at least as we know today, has already been revealed.
Anindya Banerjee: You're absolutely right. As far as the first few months of 2025 is concerned, so let's say the last quarter of our financial year, January-March, that looks to be more of a quieter period because as the market is more or less aware that Trump is going to act on tariffs, probably act on Iran initially. So, America first is going to be the overall policy.
But what there is lack of, or where there is lack of clarity is to the extent to which he is willing to go. Because if you use term one as a reference point, then it looks like almost everything is priced in. But I don't think the term two is going to be like term one because term one, the overall global economy, overall, the US political backdrop was very different.
And even Fed has become quite cautious at this time. We have seen from the commentary. So, the first till March, the overall volatility can be low, but we have to see how.
To what extent he is willing to go, basically pursue his policy of America first. Is he going to go for very high tariffs across the board, which can unsettle the entire global trade? We have to see.
Govindraj Ethiraj: Right. Thank you so much for joining me.
Anindya Banerjee: Thank you so much for having me.
Thali Prices Jump
The cost of a full meal in India has risen, though unusually more for non vegetarian meals for the month of December compared to November.
Year on year, or compared to the previous year, prices are up sharply.
Usually, it is vegetarian meals or thali prices that rise thanks to components like tomatoes, onions and potatoes, among other vegetables.
Meanwhile, increases in non-vegetarian thali cost was driven by an estimated 20% on-year rise in the price of broiler, which accounts for ~50% of a non-vegetarian
thali cost.
And compared to November, the cost of non-vegetarian thali grew at a faster pace due to an estimated 11% on-month increase in broiler prices on a dip in production triggered by a cold
wave in the north, Crisil Market Intelligence has said in its monthly roti rice rate tracker.
This, coupled with a rise in festive- and wedding-season
demand, along with an elevated feed cost, exacerbated the woes.
The rise in vegetarian thali cost was driven by an increase in tomato and potato prices, which collectively
account for ~24% of the cost of a thali
Tomato price rose 24% to Rs 47/kg in Dec’24 from Rs 38/kg in Dec’23.
This is obviously a good time to update ourselves on what prices were or are for these important vegetables which can drive inflation levels up sharply.
Potato price surged 50% on a low base last year to Rs 36/kg in Dec’24 from Rs 24/kg in Dec’23 due to an
estimated 6% on-year decline in production.
And don’t forget, there was a 16% on- year jump in vegetable oil prices due to import-duty hike, coupled with
higher demand during the festive and wedding seasons
Meanwhile, the good news is that on-month, or compared to November, the cost of a vegetarian thali declined 3% in Dec’24, while the cost of a non-vegetarian thali is estimated to have increased at a similar pace:
The only price which has fallen is a 11% on-year drop in LPG fuel cost (to Rs 803 per 14.2 kg LPG cylinder in Delhi from Rs 903 last year) provided a partial offset.
Wheat Prices Jump
Speaking of rising prices, wheat prices jumped to a record high on Monday due to dwindling supplies amid robust demand from flour mills that are struggling to secure the grain to operate at full capacity, industry officials told Reuters.
The record prices are likely to lift retail inflation, which eased in November after surging to a 14-month high in October.
"Wheat supplies are limited in the market. Even after paying record prices, flour mills are unable to secure enough to operate at full capacity," a flour miller told Reuters.
Prices stood around around 33,000 rupees ($384.66) per metric ton in New Delhi, up from 24,500 rupees in April and far above the government fixed minimum support price of 22,750 rupees for last season's crop.
HMPV
Five years after the first case of COVID-19 was reported, another respiratory illness has wreaked havoc in China, according to some reports which also suggest this virus is not in the same league as Covid was.
The markets were apparently spooked by the virus nevertheless as memories of Covid19 and the shutdown that followed in 2020 came back to traders who obviously were active in that period nearly five years ago
Meanwhile India too has reported a handful of cases of Human metapneumovirus Virus (HMPV) on Monday.
HMPV is a virus that usually causes symptoms similar to a cold. This virus is extremely common and it affects most people before they turn 5.
The virus was first discovered in 2001 and it belongs to the Pneumoviridae family along with respiratory syncytial virus (RSV).
India’s Indian Council of Medical Research or ICMR – on Monday alerted that the virus is already in “circulation” globally, including India.
Serological studies have shown that it has existed in humans for more than 60 years and is distributed all over the world.
Health officials have reiterated that there is no need to panic as this is not a new pathogen.
I reached out to Dr Ishwar Gilada, infectious diseases expert and Secretary General People's Health Organisation-India and Governing Council member, International AIDS Society, Geneva and began by asking him the significance of this virus and the likely impact and what precautions we should take to stay safe?
INTERVIEW TRANSCRIPT
Dr. Ishwar Gilada: Basically, this HMPV is not a new virus. This is quite an old virus, maybe there in existence for 50 to 60 years, but first time detected in Netherlands in 2001. The significance is that currently it is widespread in China, and as soon as something happens in a very highly populous country, and secondly, from where the COVID came to the world, people get panic.
So that panic is uncalled for. This HMPV virus is called Human Meta-Pneumovirus. Human means human being, and it was earlier called A, A means avian.
So A and AMPV, Avian Meta-Pneumovirus. It came from either birds or pigs to human being, and it stayed here. So if you look at the chronology of events in last 40 years, in all new infections, most of the infections are viral infections, and among them, almost two-third of them are zoonotic infections.
Zoonotic means they arise in animals or birds and then come to human being. So the simple logic is that, like we have a way of survival, and we would like to survive and do everything for our survival. Even they have a right to survive.
We try to intrude their environment. We try to intrude in plants and animals and birds and everywhere, and we try to eat a lot of things for our survival. Then these are the ways we are going to be suffering.
So if a mosquito comes and bites you, you kill the mosquito. So same way, if you go and try to intrude their atmosphere and in their environment, and you try to kill them, they are going to take a revenge with you. And that's the reason that whatever infection you say, starting from HIV, Ebola, Zika, Nipah, SARS, Mad Cow Disease, COVID, all these are zoonotic infections.
Govindraj Ethiraj: Right. The general feeling is that this virus can be tackled with existing cures, or is it not as serious to even, let's say, respond to?
Dr. Ishwar Gilada: See, this virus has no cure, and this virus has no vaccine. So even our few vaccines, they do not prevent this virus. But this virus is quite a mild virus.
So whenever, currently, if we are not doing the test, because the tests are very expensive. There's something called Metaplex PCR. Metaplex PCR is, you do multiplex PCR.
That means you do multiple virus tests in one go, but that test is around 17 to 20,000. So whenever a patient comes in a hospital, and we suspect that there's a viral infection, we try to do influenza test, because that is cheaper. But if you do multiplex PCR, maybe we can see RSV and this Metaplex virus, Metanemonia virus in many people.
So if generally you do a survey, amongst 100 people infected, you'll find at least five to 10 people having this virus. But because currently there's a panic mode, and then we are having a surveillance of this virus, we are doing the specific test for this virus, and then we are finding two cases in Karnataka, one case in Gujarat, and you do everywhere, you'll find these cases. They are no link to China.
They are no link to travel. They are no link to anything.
Govindraj Ethiraj: This seems to be affecting younger children more than others, or adults particularly?
Dr. Ishwar Gilada: This virus is known to affect mainly children below one year of age, or sometimes below two years of age. And older people, which are more than 65, or those people who have a compromised immunity, that can be because of steroid treatment, that can be because of some kidney transplant or organ transplant, uncontrolled diabetes, people with asthma, people with tuberculosis, they are likely to get this infection more commonly. And if they get, they suffer more than other people who can get rid of it in just four or five days.
Govindraj Ethiraj: How would one know that one has, or one has contracted this HPV? Assuming it's not dormant already, in which case nothing has happened, but if it's not dormant, what would be the symptoms, and how should one respond?
Dr. Ishwar Gilada: You see, by and large, this is part of a very, very common viral infections. And most common are influenza A, influenza B, RSV, despite the sensitive virus, and mycoplasma pneumoniae, and this one. So these are the chronology of that percentage-wise, and COVID.
So most of the people would have influenza B, which is very mild influenza. And by and large, in three to four days, they get away from it. They don't suffer at all.
Similarly, they will not suffer from this virus for longer than four days. By the time your doctor comes to any conclusion that should we do this test, the patient is okay. Secondly, test being very expensive, and not in common use, we are not doing it.
But if government decides, if some lab decides that they can bring a special test for that, which is only a single test, rather than multiply PCR, and the test is cheaper, like 1000, 2000 rupees, then we can do this test more often. But we do not do the test because number one, there's no treatment. For influenza A, we have a treatment.
We have an antiviral infection, antiviral treatment for that. Number two, we have a vaccine for that. For here, neither there's a vaccine nor treatment.
What are you going to achieve by just diagnosing or labouring somebody that this person has three days fewer, and he has got HIV virus? We don't achieve anything. That's the reason we have not been doing this test.
Govindraj Ethiraj: Right, so you're saying at this point, from what we know, there is no unknown beyond what you're saying, which is that we are not able to cure it. But even though we are not able to cure it, its impact is very limited.
Dr. Ishwar Gilada: Yeah, very limited impact. And it's a re-emerging infection.
Govindraj Ethiraj: It's not a new infection, new virus at all. And there's no unknown in this, as in something that we don't know that could happen and so on.
Dr. Ishwar Gilada: No, no. Only unknown is that we don't know the vaccine, and we don't know the treatment. And therefore, our research should focus on those two things.
Govindraj Ethiraj: But yeah, either way, you're saying that the impact is limited. So even if there was to be a vaccine or a cure, it would only reduce that three-day fever impact, as you were saying. Right, and last question, any precautions that in general, one should take either at this time in general, or because of this particular virus in specific?
Dr. Ishwar Gilada: You see, precautions are very simple. And they are in our tradition. In Indian tradition, we say namaste.
We don't hug. We don't shake hands. We wash hands after every activity.
We come out, eat or drink. We wash hands. We change clothes when we come home, and we have a different clothes.
We don't have the same clothes. So those precautions and sanitization, and if at all this infection spreads, you must ask for yourself, ask for your loved one, your friends, your office mates, your classmates. You must.
These are the only three precautions. There's no fourth precaution. And these are being hardly learned with a lot of hard training.
We have educated people. Let us follow the same thing. There is no other precaution required.
And the most important is, as soon as some new disease comes, we think that our immunity should be good. Why don't you do that 24 by 7? Or why don't you do around the year?
We don't do that. And COVID has not taught us any lesson in that sense. No people have stopped their smoking because smokers will have a higher risk.
They are not stopped. So I think we learn something. We give up something.
But we, by and large, would like to say, no, no, our immunity is good. Nothing happens. That is the attitude.
Govindraj Ethiraj: Dr. Gilada, thank you so much for speaking with me.
Dr. Ishwar Gilada: Thank you.
