Markets Fall The Most In A Month As Investors Turn Nervous
Indian markets had their worst day in more than a month on Monday, thanks to rising jitteriness attributed to the US presidential election
Title: Markets Fall The Most In A Month As Investors Turn Nervous
Description: On Episode 426 of The Core Report, financial journalist Govindraj Ethiraj talks to Peter McGuire, CEO of XM Australia as well as Dr Ajay Sahai, President of the Federation of Indian Export Organisations.
(00:00) The Take
(04:50) Markets fall the most in a month as investors turn nervous
(13:33) Production cutbacks push oil prices up, America is world’s largest oil producer
(14:50) Meet the world’s largest oil producer, the United States of America
(16:24) America is heading for America First whoever comes to power and what that means for India’s exporters
(25:07) Thailand extends visa free travel for Indians
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 5th of November and this is Govindraj Ethiraj, headquartered and broadcasting and streaming from Mumbai, India’s financial capital.
Well, US elections are today and both former president Donald Trump and vice president Kamala Harris are neck and neck in the polls.
Who will win, we don’t know at this point but we will most probably tomorrow morning unless the outcome is disputed in courts.
But the larger issue is that India has many economic issues to address in coming months and the energy to focus on them. Which brings us to the Take
The Take
Stock Markets in Asia rose on Monday in anticipation of the US presidential elections that will take place today. They included Korea, Hong Kong, Australia and Taiwan.
The US markets, already sitting on record highs, were also ticking up on Monday ahead of elections.
The Indian stock markets on the other hand were down sharply, in keeping with the sell-off trend that started in October and has extended into November, apparently.
Whatever the reason may be, the jitteriness in the run up to and the speculation on the outcome of the US elections clearly has little to do with the Indian market’s recent movements.
Even if that is what is being offered as a reason.
Indian markets are now diverging from both Asia and US and to some extent Europe.
This is worrying and reflects a disconnect that could be larger than just the movement of indices.
For one, a slowdown is clearly upon us.
According to a Bloomberg report, last week Jefferies Financial Group said over 60% of the 98 firms they track have had their earnings per share estimates downgraded following the recent quarterly results.
This is the highest proportion since early 2020, when the Covid-19 pandemic upended economic activity for months.
Jefferies now forecasts that the earnings of Nifty companies will grow at just 10% in the year ending March 2025.
Analysts often remind us that the stock markets are a slave to earnings.
Indeed if that were the case, then the slaves so to speak have tougher times ahead.
Moreover, India’s economy is now moving quite literally in the opposite direction to the United States which is powering ahead with a pace of economic growth not seen in a long time.
The reasons for slower growth in India range from a fizzling out of the post-pandemic surge to a curtailing of consumption thanks to the triple whammy of heat waves, heavy monsoons and of course elections.
This could be partly the reason but it cannot be the entire reason and it is also should be pointed out to those saying so that hope cannot be a strategy.
Despite the Government amping up its expenditure in public spending, visible in areas like roads and railways, the private sector has not picked up the slack. This is not just in the last few months but several years.
Data shows that both private spending on capital expenditure and private consumption are weak and staying so.
Companies continue to do well though because they are going all out to preserve their margins and profitability, including by downsizing as the IT companies did in the last year.
The question as I have posed before as well, did we see it coming ?
And if so what could we have done differently ?
Did the companies who are now speaking of taking a hit because of urban consumption slowing down not see this happening or the likelihood of it, 6 to 9 months ago ?
Did they not get a feeling that the consumption spike was more of a post-Covid phenomenon ? Remember, developed markets were clearly accounting for post Covid spending and thus could we be really different ?
And the financing of all of this. The Reserve Bank for more than a year has been sounding the gong on rising risks in micro, personal and credit card loans and borrowings.
Early signs of defaults were already there and the fact that higher than normal borrowing was funding this consumption of products, services and then speculation in the stock markets was quite evident.
There is a signal and noise problem in the Indian economy. The amplification of various data points at very high levels creates a distortion effect.
This is not to blame those putting out the numbers but to caution those who look at them and worse, wrongly interpret them.
The question one can now pose is whether what we are seeing is cyclical or more secular slowdown.
It is tough to answer this without more data, including on what really happened in the last four years so we can focus on what to correct for.
Meanwhile, while we eagerly await the outcome of the US elections, we have to focus more on what and how to correct our own Indian economy.
And that brings us to the top stories and themes of the day.
The top stories and themes
Markets fall the most in a month as investors turn nervous.
Production cutbacks push oil prices up, America is world’s largest oil producer
Meet the world’s largest oil producer, the United States of America.
America is heading for America First whoever comes to power and what that means for India’s exporters.
Thailand extends visa free travel for Indians.
Markets & Less
Indian markets had their worst day in more than a month on Monday, thanks to rising jitteriness attributed to the US presidential election.
Both the BSE Sensex and NSE Nifty 50 were down over 1 per cent each.
The Sensex fell 941.88 points to close at 78,782.24 while the NSE Nifty50 ended lower by 309 points to close at 23,995.35.
The Business Standard reported that 42 out of 50 constituent stocks of Nifty50 ended in red, dragged by Hero MotoCorp, Grasim Industries, Bajaj Auto, Adani Ports, and BPCL with losses extending up to 4.25 per cent.
Stocks like Mahindra and Mahindra, Tech Mahindra, Cipla, State Bank of India, and Dr Reddy's Labs were among the 8 stocks that managed to end in green with gains extending up to 2.14 per cent.
The fear index, India (VIX), which measures the volatility in the markets, ended higher by 5.01 per cent at 16.70 points.
The broader indices like the Nifty Midcap 100 and the SmallCap 100 fell more than the benchmarks.
The key indices have fallen around 6% each in October on record monthly foreign outflows and dull earnings.
But had also gained 15% in the previous four months and hit record highs.
However, they are still overvalued compared to historical averages, analysts told Reuters.
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All eyes are of course on US elections but what are the other signals to look for across Asia and India particularly as viewed from an outside India perspective.
I put this question to Peter McGuire of Sydney based XM.com and began by asking him what other cues he was watching for apart from the US elections.
INTERVIEW TRANSCRIPT
Peter McGuire: You know, there are so many different moving parts to this that really need to be deciphered and really, you know, pulled apart. And if we start with a quick snapshot as far as US, I was very disappointed Friday at 12,000 jobs on the NFP. You know, we were expecting 100,000 or more, maybe even there was talk of 130,000.
And you had an average, you know, the forecast was greater than 100,000. Now the private sector lost 28,000 jobs, government employed 40,000, and we had the NFP run at 12,000 jobs, which is very, very soft. So we also revised down, and this is what's got to be thought of, August and September were revised down by a combined 112,000 jobs over that, and the retail sector only lost 6,400.
But I'd have the last 11 jobs reports have now been revised lower. And you've taken 1 million jobs out of the market in the last two years. So that worries me from a US perspective.
Now we run, you know, there are red hot equity markets. If I look at across Asia, Japan's down 2.7% today for the set for the Nikkei. Some of these markets have performed incredibly strong over the last 12 months.
It's been extraordinary. India is up 32% for some of their indexes, the BSE 200, the BSE 500, both in excess of 32%. So you can't say it's just a raging bull market, and they do have wipe offs.
Yeah, you strip out 5%, but hey, you're still up 32% for the year if you've been a long term holding event.
Govindraj Ethiraj: Speaking about India and Asia in specific, I mean, how is the region looking to you at this point?
Peter McGuire: Well, I think Asia is looking, well, it depends on whereabouts in Asia. And if I look at China, massive overhang as far as property, they're trying to stimulate the economy. They've got major concerns as far as exporting their way out.
They've got deflation. They've got huge debt. They've got a debt to GDP at around about 3.66%. So every unit of GDP manufactured or created, it carries 3.6% of debt. So that's not a good sign at all. I think 2025 is going to be a very tough year for China. If I look at Japan, well, the market's been extraordinary.
If I'm looking at the Japanese market, that Nikkei 225 is up 20% for the year. Some of their markets are up the best part of that, and that's a strong market considering for a market like the Japanese, that's quite extraordinary. I think any market to carry 20% for a year.
So there's the story there, nearly at all time highs for the Nikkei, only about 4,000 off or 3,000 off. So yeah, it's relatively okay.
Govindraj Ethiraj: And to pick up on that China point, I mean, we've seen a lot of capital flow into China, including from India, and we've seen a lot of foreign investors selling in the month of October, almost $11 billion. Do you see any changes or shifts in that or reversals or reverses in that trend? And if so, what could drive that?
Peter McGuire: Well, you've got to ask the question, will stimulus solve China's debt crisis? And that's the issue that you've got to face, that how are they going to do all their way out of this? And if there was to be some form of, well, a change in policy, should President Trump be reelected, then govind, he's talking about tariffs and go to really load those up and load them up dramatically against the likes of China and bring manufacturing home.
He's got a drill baby drill, that's his favorite word as far as energy. And there's talk of massive income tax transformations. So this is going to be extraordinary and to really shrink government.
So yeah, I look at that part and it's going to be fascinating how it plays out and to the likes of China. So it's very difficult to imagine what the impact would be further to China. And since 2008, their GFC, the ratio was doubled to their debt to GDP level.
So it's China is certainly in a debt bubble.
Govindraj Ethiraj: As you look at other asset classes, Peter, for example, gold, where we've seen prices go up almost 32% in this year, and silver has gone up as well. How is the asset class environment looking to you, particularly, again, as you see it across Asia?
Peter McGuire: Well, I got to look, first off, gold is just extraordinary. Pardon me, it was at $1,810 or so was the low of October last year. We've just gone into November this year.
So 13 month window, you're up nearly, well, $950 on $1,800. So I don't think anyone really hand on heart could have imagined that. But then you've got to look at the other side of all the dollars ever printed by the Fed.
You've got 40% were printed in a year. That was last year. So over the last year.
So you've got massive uplift as far as precious metals. You've got an attraction from central banks globally, and of course, retail traders and the likes of India. So I truly think that there's more upside for gold and silver in the short to medium term.
And I wouldn't be surprised for $3,000 to be taken out by, you know, you're less than two months away, but the velocity has been unheralded. It's truly, it's mind-blowing, I think.
Govindraj Ethiraj: Looking at India, how are you seeing equities, particularly in the context of the fall that you've seen in the last month?
Peter McGuire: Well, look, any market that rises as aggressively as what you've seen, some of these are, you know, 31, as I said, 32%, you know, 35% if you add the loss over the last month. It's not unusual to see washouts, you know, with a five and 10% over and quickly and aggressively. And that's probably what we're seeing at the moment.
Now, is it oversold at the moment? I mean, the long-term projections as far as how I gauge India, that's the country to be, everything, or everything just aligns from population, location, infrastructure, spend. I think an aggressive political stance on growth and entrepreneurship and innovation.
So I truly think that it's, I keep on saying it's India's decade, but it's probably more like India's century. I won't be around at the end of the century, but unfortunately I don't think you and I, we won't both make it, but I'm fascinated to see how the transformation looks to India over the next 20 to 30 years. I think it'll be breathtaking.
So I don't worry about these little hiccups. I think the long-term is just quite extraordinary and it's probably a time to buy on the dips and get it probably a little bit cheaper today than when it was a month ago.
Govindraj Ethiraj: Peter, thank you so much for joining me.
Peter McGuire: You're welcome, Govind.
Oil Prices Production Cuts
The OPEC+ will push back its December production increase by one month, the second delay to its plans to revive supply, thanks to weaker demand, Bloomberg reported.
OPEC , which is led by Saudi Arabia and Russia, had intended to begin a series of monthly production increases by adding 180,000 barrels a day from December, but they will now keep supply restrained through that month, according to a statement posted on OPEC’s website on Sunday.
The oil market is grappling with slowing demand from China and increasing supply from the United States and more on that shortly.
Brent crude prices have fallen 17% in the past four months to trade near $73 a barrel, too low for the Saudis and many others in OPEC to cover government spending.
Bloomberg says the current prices are a financial threat for Saudi Arabia, which needs price levels closer to $100 a barrel to cover the ambitious economic plans of Crown Prince Mohammed bin Salman, according to the International Monetary Fund.
The kingdom’s oil-market partner, Russian President Vladimir Putin, also needs funds for his war against Ukraine.
The 23-nation alliance is set to gather on Dec. 1 to review policy for 2025.
Meet the World’s Largest Oil Producer
Whoever wins the 2024 U.S. election should work to preserve America’s energy dominance rather than risk losing it, TotalEnergies CEO Patrick Pouyanne told the news channel CNBC on Monday.
If you were wondering why he said it, here is the reason.
The U.S. is the world’s largest oil producer, accounting for 22% of the global total, according to the Energy Information Administration, with Saudi Arabia next, producing 11%.
The vast majority of U.S. crude is of course consumed within America, which is also the world’s largest oil consumer.
So if you thought a Republican victory will lead to increased energy production in the United States, well it's already happening.
When you look at what has happened since the last two, three years, production of oil has never been so high ... [the] revolution of U.S. shale is really taking place,” Pouyanne told CNBC.
Roughly 64% of total U.S. crude oil production is shale and the French international energy firm CEO said the U.S. will also soon be No. 1 in liquified natural gas (LNG) production.
Looking ahead to the election, former President Donald Trump and the Republican party have long been proponents of U.S. shale production, pushing for deregulation of the industry and an expansion of drilling projects — drawing the ire of climate activists and many on the left.
Donald Trump Tariffs
Donald Trump has warned of increased tariffs if he comes to power.
Reports said there could be 10% broad based tariffs and upto 60% on products from China.
Any tariffs on imports into the USA could fundamentally alter the terms of global trade.
What does this mean for India and who could be affected because this is a matter calling for some detailing.
Moreover, as it is quite evident that the US will become more protectionist regardless of who comes to power, particularly in manufacturing as we will discuss shortly.
Interestingly, the US is now India’s biggest trading partner, passing China in the last six months.
What does that mean to the roughly $109 billion trade figure right now and how achievable is the $500 billion target by 2030.
I reached out to Dr Ajay Sahai, President of the Federation of Indian Export Organisations and began by asking him to first give us a short background on the overall trade situation with the United States of America.
INTERVIEW TRANSCRIPT
Dr Ajay Sahai: In fact, we have seen very robust growth in India's bilateral trade with the US. Not only our exports have zoomed, but even imports have seen an increasing trend. In fact, in 2023, our bilateral trade was close to $190 billion, out of which roughly export were $120 billion, import from US were around $70 billion.
In the first six months of this calendar year, we have seen US emerging as the largest trading partner of India bypassing China. And our export growth, despite the declining trend in overall export, has shown around 9% growth in export to US. Imports have also increased, but imports are on slightly lower side.
They have grown by around 3%. Both countries are looking towards a target of $500 billion of trade by 2030. Looking into the trend and looking into the opportunity and the potential which we have, we are sure that we will be meeting that target by 2030.
One good thing is that the trade with the US has been the little value-added product exports to US. We are exporting a lot of pharmaceuticals in textile sector. The focus has been on apparel.
We have exporting machinery also to the US. And with India emerging as the base for apple manufacturing, we are seeing much exports of mobile phone also happening. On the US side also, we are seeing a lot of value-added exports from US to India dominated by machinery segment.
US is also one of the emerging partners on the energy sector. In fact, today, the crude and petroleum process, petroleum products, they contribute to around 33% of the total US exports. So we are seeing good partnership.
We have quite with the US both on the east side and west side. And we firstly feel that the strategic relationship is probably going to drive the economic growth and trade partnership as well.
Govindraj Ethiraj: Okay, before I come to a potential tariff impact, you said that we've now overtaken China as the biggest trading partner with the US. So can you split that between imports and exports?
Dr Ajay Sahai: In fact, if you are looking into the first six months, in the first six months, our exports to US is close to $70 billion. And our imports from the US is around $38 to $39 billion. So in all, it makes $109 billion.
With China, it is much less, though, of course, China, we are running a huge trade deficit as well.
Govindraj Ethiraj: Right. If there were to be a tariff put on imports from India, which potential Trump administration is talking about, and that number could be 10%, at least just going by reports, how are you seeing that?
Dr Ajay Sahai: In fact, we are of the view that whether Mr. Trump or Mr. Harris comes into the power, there will be increasing focus on America first. And they will definitely be putting much more emphasis on manufacturing within the US. So that is definitely a challenge to the rest of the trading partners, including India.
So far as tariffs are concerned, we feel that while Mr. Harris may be a little soft on the tariff front, because Mr. Trump has already made it clear and he has used it also in his previous regime also, probably he may have a different tariff on all the trading partners and a specific tariff, which may be probably a higher tariff on China. I don't foresee that he will be putting tariffs across the board, but there will be certain sectors on which he will be using as tariff to promote manufacturing. And therefore, probably what he is not going to protect in the manufacturing may not be subject to that kind of higher tariff.
But wherever he is looking into establishing the manufacturing into the country, a higher tariff may come. Secondly, probably to encourage the US companies to bring the production from outside, he may also offer some tax concession. But despite that happening, I think the continued focus will be on China plus one, and that will provide much opportunities to countries like India.
We have seen that with the increasing tariff war in China plus one policy, we have seen increase in India's trade as well as investment, not only flowing from the US, but from many partners over either looking into the expansion on new facility in China. So probably that trend will continue irrespective of who comes into the power.
Govindraj Ethiraj: So if there were to be a tariff increase, and as you said, it might happen in areas that are more connected to US local manufacturing base or the potential of expanding it. How are you seeing the impact of that on Indian exporters and their competitiveness?
Dr Ajay Sahai: In some of the segments, there may be challenges for even Indian manufacturing, assuming we decide to provide much more protection to automobile sector, which is likely because that's a huge job creator. There may be challenges, but at the same time, it may open more opportunities for auto component manufacturing from India, because we are emerging as one of the leaders for that. So probably losses in some of the segments may result in gain in some of the segments.
So we have yet to see what are the sectors which will be covered, and in those sectors, how that's going to span in next few years. Because if we increase the US duty on China, it will be advantageous to other trading partners, including India. So probably matching will be made only when we know what are the product metrics of that.
And that may help us in many segments as well.
Govindraj Ethiraj: Again, going by the past and your experience, what are the prospects of negotiating this situation out? I mean, if we are importing and we were to also, let's say, levy correspondingly high tariffs or higher tariffs, then clearly it becomes a face-off.
Dr Ajay Sahai: We have seen that in the past also, because if any country is increasing the tariff, the other country will be taking some kind of reciprocal action that may not be including the tariff. It means some other initiative also. With Mr. Trump coming in too, we have to be a little careful on the trade deficit front, because he was a little apprehensive when he was running a trade deficit of only around $25 billion with India. Now the deficit has increased to more than $15 billion. That will concern for us. Probably he will be pushing more for market access for US products in India, particularly the dairy product, the medical diagnostic equipment, and maybe the distilled product.
So these are the areas of concern which may... And Harley-Davidson. Absolutely.
Harley-Davidson, we have already reduced the tariff substantion. So I don't think that may be an issue. But point is that I think both the president, whosoever becomes the president, they will be keeping focus on the US interest.
And if the past is any indication, the past indication is that we will see much more volatility in geopolitics if Mr. Trump comes to power. How it is span out in the trade terms is one has to wait and see.
Govindraj Ethiraj: Dr. Sahai, thank you so much. And I will surely come back to you once we know the results and how trade policy is likely to evolve. Thank you so much.
Dr Ajay Sahai: Thank you.
Thailand Here We Come
Thailand has indefinitely extended its visa-free entry policy for Indian nationals.
This policy was supposed to end next week but has been extended.
The policy now allows Indian visitors to stay in Thailand for up to 60 days without needing a visa, with an option to extend their stay by an additional 30 days at a local immigration office.
The Tourism Authority of Thailand (TAT) announced the extension, with Business Standard confirming from the Royal Thai Embassy in New Delhi that officials have received instructions to continue the visa-free policy.
“Visa-free entry extension instructions have been given to us,” an embassy official told Business Standard, adding, “We have not been told when this facility will end for Indians.”
The visa-free entry policy, introduced in November 2023 has worked well for Thailand, as it has for other countries given Indians consider getting a visa a major hassle in a travel programme.
Malaysia too introduced a visa waiver for Indian tourists in December 2023.
Thailand meanwhile has received 9.4 million foreign tourists in the first quarter of the year and is targeting 40 million tourists in all, reaching close to its pre-pandemic high in 2019.
Some 1.64 million Indian tourists went to Thailand till October, the Business Standard reported, making India the third-largest source of international visitors after Malaysia and China.
