Markets Gain on US Interest Rate Outlook and Positive Fund Flow Cues
The supply signals are stronger than they were a few days ago
On Episode 483 of The Core Report, financial journalist Govindraj Ethiraj talks to Vinod Giri, Director General of the Brewers Association of India as well as Vivek Kumar, economist at QuantEco Research.
(00:00) Stories Of The Day
(01:00) Markets gain on US interest rate outlook and positive fund flow cues
(03:16) Infosys results and guidance suggest US banks will increase spending on the back of strong performance.
(05:27) Refiners are scampering to buy crude as sanctions on Russian oil take hold
(11:28) Hyderabad is running out of beer as United Breweries battles with the State Government for past dues.
(21:34) India’s trade deficit conundrum. Decoding the numbers
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 Friday, the 17th of January and this is Govindraj Ethiraj, headquartered and broadcasting and streaming like always from Mumbai, India’s financial capital.
The top stories and themes
Markets gain on US interest rate outlook and positive fund flow cues.
Infosys results and guidance suggest US banks will increase spending on the back of strong performance.
Refiners are scampering to buy crude as sanctions on Russian oil take hold
Hyderabad is running out of beer as United Breweries battles with the State Government for past dues.
India’s trade deficit conundrum. Decoding the numbers.
Indian Shares Hold Gains Again
The supply signals are stronger than they were a few days ago. The key one being US interest rates which are likely to be cut now given that inflation appears to be under control there after softening in December.
Wall Street zoomed on Wednesday on that count and the market overall is well poised there.
Here, stocks rose on Thursday, led by financials and tracking other global markets
If there are more Federal Reserve rate cuts as is being expected now, that is good for capital flows and they could head towards emerging markets like India.
Traders are now pricing in two Fed rate cuts in 2025, compared to one after strong labour market figures last week, as per the CME FedWatch Tool, Reuters reported.
Back home, signals are between weak and mixed right now with Q3 earnings likely to remain subdued with some exceptions of course and we will come to that.
It must also be noted that even if companies do well, that could be because of many other reasons including cost management and not any specific uptick in demand which would give the economy more comfort.
Riding on Wall Street, Dalal Street ended positive for the third consecutive session on Thursday.
The 30-share Sensex added 318.74 points to settle at 77,042.82 while the NSE Nifty50 settled in the green at 23,311.80, with gains of 98.60 points.
The broader markets did better than the benchmarks, with the Nifty Midcap100, and Nifty Smallcap100 indices ending higher by over 1 per cent each.
On Wall Street, Stock futures were little changed Thursday after Wall Street notched its best day since November, on the back of a tame inflation report and blowout bank results.
S&P 500 futures traded near the flatline. Nasdaq 100 futures added 0.1%. Meanwhile, Dow Jones Industrial Average futures slipped 153 points, or about 0.3%.
The financials are ruling the roost on Wall Street right now.
Bank of America shares inched higher after the company reported an earnings and revenue beat in the prior quarter. Shares of Morgan Stanley climbed 1.3% after also posting a top- and bottom-line beat in the fourth quarter on strong investment banking activity and fixed income trading revenue.
The results come a day after other financial peers such as JPMorgan Chase and Goldman Sachs also beat fourth-quarter estimates.
On Wednesday, the 30-stock Dow surged more than 700 points, or 1.65%, while the S&P 500 rallied 1.83%. The Nasdaq Composite outperformed, advancing 2.45%.
Back home again, Infosys, the countries’ second largest software exporter by revenue, reported an 11.4 per cent year-on-year (Y-o-Y) increase in net profit to Rs 6,806 crore for the third quarter of 2024-25 (FY25), beating consensus Bloomberg estimates of around Rs 6,773 crore. Sequentially, net profits were up 4.6 per cent.
Revenue for the quarter stood at Rs 41,764 crore, up 7.6 per cent Y-o-Y, exceeding consensus Bloomberg estimates of Rs 41,353 crore. Sequentially, revenue was up 1.9 per cent.
More significantly, Infosys raised its revenue guidance for the financial year 2024-25 (FY25) to 4.5–5 per cent in constant currency.
This is an upward revision from the 3.75–4.5 per cent guidance provided in the second quarter (July–September) of FY25.
This is the second time the company has revised its guidance. In Q1, the company had set its growth guidance at 3–4 per cent. Notably, this revision reflects an increase on both the lower and upper ends, indicating growth momentum has started.
With Infosys revising its revenue guidance upwards, it signals better spends from clients.
And if you now go back to the solid results from the big banks in the US, the link seems quite logical.
Sour Crude
And here is our energy segment supported by India Energy Week.
All the action surrounds Russian crude and the challenges of that crude reaching the biggest consumers China and India and of course the uncertainty of supplies.
Right now, there is a scramble for new crude sources thanks to which, also, crude prices are up, having hit $82 a barrel or so and back to around $81.46 a barrel.
Reuters is reporting that Indian Oil Corp (IOC) is seeking high-sulphur oil from the spot market in its first sour crude import tender since March 2022, expecting the latest U.S. sanctions to hit supplies from Moscow.
IOC and other Indian refiners boosted purchase of discounted Russian oil after western entities imposed sanctions and shunned purchases from Moscow over its invasion of Ukraine in 2022.
Besides looking for sour crude, IOC has issued a separate tender to buy sweet crude for loading between Feb. 16 and March 15, the sources said.
The tenders close on Thursday.
Spot premiums for Middle East crude have risen to their highest in more than two years on Thursday on strong demand from China and India while tanker rates have soared, Reuters reported.
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This segment was supported by India Energy Week 2025 scheduled from February 11-14, 2025, in New Delhi and you can register for the same using the link in the show notes.
How a DJ brought down a Adani’s Nemesis
Hindenburg Research, the nemesis in many ways of organisations like Adani and individuals like Securities & Exchange Board of India (Sebi) chairman Madabi Puri Buch is shutting down.
In a long goodbye note, Hindenburg Research founder Nate Anderson has said that a British DJ called Lee Burridge who plays in Bali had a big impact on him at a "pivotal time".
He quoted several personal reasons and some professionals including broadly the fact that their job was over and the pipeline exhausted.
"If you are chasing something you think you want or need, or are doubting whether you are enough, take a minute and give this a listen. It had a big impact on me at a pivotal time," he wrote as a postscript to his lengthy goodbye note on the Hindenburg Research website with a link to Burridge's video on YouTube.
“There is not one specific thing — no particular threat, no health issue and no big personal issue,” Anderson wrote in a letter posted on the firm’s website Wednesday. “The intensity and focus has come at the cost of missing a lot of the rest of the world and the people I care about. I now view Hindenburg as a chapter in my life, not a central thing that defines me.”
Anderson by the way is just 40 and caused a stir in January 2023 when Hindenburg published a report accusing Adani of “pulling the largest con in corporate history.”
Hindenburg has gone after other companies as well, most of whom have seen sharp reductions in their net worth and value, including Adani.
India’s Palm Oil Imports
India's palm oil imports could fall to a near five-year low in January thanks to negative refining margins as buyers move to more competitively priced soyoil, government and industry officials told Reuters.
"About 110,000 metric tons of palm oil was cleared in the first half of January, which is a pretty small amount compared to the usual monthly imports," said a government official, who sought anonymity as he was not allowed to speak to the media.
The larger problem is of course import duties which have been increased to protect domestic farmers because of which edible oil prices in India have shot up contributing to higher food inflation as opposed to earlier when it was keeping it down.
India imported an average of more than 750,000 tons of palm oil every month in the marketing year that ended in Oct. 2024, says trade body the Solvent Extractors' Association of India, which is set to publish its January import data by mid-February.
Refiners are incurring losses of more than $30 a ton in palm oil refining for January shipments, and the oil is available at even lower prices for February and March shipments, said Rajesh Patel, managing partner at GGN Research, an edible oil trader.
Crude palm oil (CPO) is now being offered in India at about $1,155 a ton, including cost, insurance and freight (CIF) for January delivery, while February and March shipments were offered at $1,140 and $1,100, dealers said.
Soyoil, which traditionally commands a premium over palm oil, is now offered at a discount to palm, said Sandeep Bajoria, CEO of Sunvin Group, a vegetable oil brokerage.
"Buyers are moving to soyoil from palm oil," Bajoria added. "This trend is likely to continue unless palm oil corrects and becomes available at a discount."
India buys palm oil mainly from Indonesia, Malaysia and Thailand, while it imports soyoil and sunflower oil from Argentina, Brazil, Russia and Ukraine.
The Mystery of the Disappearing Indian Students
Indian students formed a significant portion of the nearly 50,000 international students reported as “no-shows” at Canadian colleges and universities in March and April 2024, according to Immigration, Refugees and Citizenship Canada (IRCC).
Of these, almost 20,000 were from India, representing 5.4 per cent of the total Indian students tracked by the agency.
The figures were collected under the International Student Compliance Regime, which requires educational institutions to report on enrolment twice a year to ensure adherence to study permits.
Reports indicated that students from 144 countries were tracked, with non-compliance rates varying widely.
Henry Lotin, a former federal economist and immigration expert, told The Globe and Mail that most non-compliant Indian students likely remained in Canada, working while aiming for permanent residency.
The issue has drawn attention to potential gaps in the system. Lotin suggested requiring international students to pay fees upfront to prevent abuse. Immigration Minister Marc Miller recently introduced stricter rules, including penalties for institutions that fail to report on enrolment.
A related concern highlighted discrepancies between Statistics Canada’s estimates of over one million valid student visa holders in April 2024 and IRCC’s smaller figures based on enrolment data. This gap has raised questions about the actual number of unaccounted-for students.
Hyderabad is Running Out of Beer
The state Government of Telangana in India, likely the largest beer consuming state, has not paid United Breweries which is controlled by Heineken for the beer it has bought from the latter.
Thanks to which United Breweries has suspended sales of beer, including its most popular brand Kingfisher to that state.
This also reveals the interesting economics of alcohol manufacture and distribution and the role of state governments in it.
Alcohol is bought by the state government and then supplied to shops in Telangana, where officials are now, according to rationing supplies to deter hoarding and tackle shortages, retailers told Reuters.
"Today we got a notification from our depot that there is no Kingfisher beer stock anymore," one liquor store owner in Hyderabad city, told Reuters on Monday.
According to Reuters, this is the latest sign of stress in India's $45 billion alcohol market, with companies including Diageo , Pernod Ricard, AB InBev and Carlsberg together demanding some $466 million in unpaid dues.
Telangana state said last week that United Breweries had suspended supplies as a "tactic" to press for price increases and a panel was deciding on such requests.
Meanwhile, depots are running out of beer and the situation for those who imbibe it, must be dire.
One liquor store owner in Hyderabad told Reuters some outlets had 10 days of Kingfisher beer stock remaining, while others only had enough for two days.
United Breweries, the country's biggest beer company, accounts for 70% of the state's beer market, where 60 million 12-bottle cases are sold each year.
The Brewers Association of India said that the beer prices companies charge in Telangana are around 300 rupees per case, whereas in Maharashtra they get around 500 rupees a case.
I reached out to Vinod Giri, Director General of the Brewers Association of India which represents close to 90% of the beer makers in India and the big giants like AB-InBev, Carlsberg and United Breweries and began by asking him why the matter had reached this stage in Telangana and also a crash course in beeronomics.
INTERVIEW TRANSCRIPT
Vinod Giri: Well, to start with the matter of suspending supplies or continuing or restarting supplies, strictly a commercial issue between a supplier company and the Telangana Estates beverage corporation. So what I speak, I will speak for the industry on the whole. I'm not specific to a company.
Let me clarify that first. What I can tell you is that I agree with the assessment that the prices being allowed or offered to the companies in Telangana are actually below the cost of production and that is because of the simple fact that these prices are based on the cost of production which the companies had submitted in 2018-19. At five years is a long time, the costs have gone up significantly in this period and because the prices have not changed and so it's become a fairly commercially punishing to supply in the state.
Sure, a company like United Breweries would have given it a due thought before they took such a major decision. It's entirely their decision. All I can say is that yes, it's true that the cost of prices are below the cost of production.
Govindraj Ethiraj: Right, and this I would imagine affects brands like Kingfisher which everyone would know. Now, my larger question or slightly larger question here is how is the Indian market structured in terms of distribution? So, Telangana is obviously a case of a state buying the alcohol from the producer and then selling it to those people who live in that state.
Is this common across India?
Vinod Giri: So, let's say there are four types of distribution networks in India. First is the open markets like any FMCG product and that's where you have states like Maharashtra and these states are of that kind. Then you have markets which are auction markets where basically the government auctions all the outlets and ensures that the revenues come right in the beginning of the year and thereafter the retailers or the wholesalers are allowed to do what they want and typically you have three states in the north, Haryana, Punjab and Chandigarh which follow this kind of model.
A vast majority of states in India and nearly 65 to 70 percent of the volume goes to them follow a government wholesale and then retail model. So, here the government works as either as only the wholesalers and then the retailers are private parties or in some cases extreme cases and they are Tamil Nadu and Kerala typically where the government also acts as a retailer. So, the government has a full control but in a majority of states such as Telangana, Andhra Pradesh, Orissa, MP, West Bengal, Rajasthan and all these states the government acts as the wholesaler.
So, basically the company is supplied to the government wholesale and they will have many depots and where the companies would supply. The retailers would come, pay the depot in a cash and carry mode and take the product. So, effectively the day a retailer picks up the stock from a government owned wholesale depot, the government has the money.
The credit terms really kicks in from that day. So, there is no reason that's why many state governments actually pay you within two to seven days and vast majority of corporations like Kerala, Karnataka, they're very prompt Tamil Nadu because there's no reason the money has been connected by the government already.
Govindraj Ethiraj: Right. Your association has said that the differential in price between Telangana where there is a dispute and let's say states like Maharashtra is fairly high. You've said that beer prices or other beer prices charged by companies in Telangana is about 300 rupees which is obviously the limited price whereas in Maharashtra they're getting 500 rupees a case.
So, this seems like a substantial gap.
Vinod Giri: Even in most of the states like if you take AP which is a neighbouring state would be around close to say 440, 450 even though they also did not have any issue but still the prices are much higher. Tamil Nadu would be the same price about say 450 range. Kerala the other state in that southern region is similar price.
So, the difference is say about 130 to 150 rupees is the minimum difference the nearby states have is anything more in other states.
Govindraj Ethiraj: I would imagine that this kind of differential obviously causes leakages.
Vinod Giri: So, this is the differential to the company supply prices I'm talking about. It may not necessarily translate into the same kind of MRPs. The leakage happens on the basis of MRP. Yes, but Telangana MRP is also a low.
Govindraj Ethiraj: Right. And a slightly broader question. Now, we're talking about beer here.
What's the proportion of beer sales versus in the context of overall alcohol? So, if overall alcohol is let's say $45 billion for India, what would it be for beer?
Vinod Giri: So, beer in India is relatively smaller format. The contrast is evident that globally nearly 68% of all alcoholic beverages sold are beer whereas this number in India would be dramatically less. So, even in terms of entire volume it will be about 35% of the liquid sold will be the beer.
The beer is underdeveloped. It's a known device. And liquor, IMFL and country liquor is the predominant form.
They basically are bound for nearly 70% of the beverages sold in the country.
Govindraj Ethiraj: When you say 70% you mean value terms?
Vinod Giri: The volume term, the value term would not be very different because the liquor tends to be on a per unit basis same or more expensive than beer.
Govindraj Ethiraj: Right. And last question, how are you seeing seasonally? How are things for the industry?
I mean, a lot of people obviously invest in stocks of alcohol companies or at least some of them. So, I'm sure they would also like to know how are things looking like right now? Did what we discussed so far have any impact on how the company's profitability might be affected and so on?
Vinod Giri: Fundamentally, on the demand side, which is more sustainable part of the business, there's nothing to hold beer back and beer has been growing actually in the last one year about say 9% to 10% up. So, that's a fairly healthy growth for a category which is so old. So, on a demand side, there's no issue.
Wherever we have concern, that's more because of the supply side. Like in Telangana is basically a supply side matter. Tomorrow if and we hope and we are optimistic given the reputation of Telangana generally as very industry friendly state, that this matter is resolved very quickly and the growth comes back.
So, except for these aberrations here and there, I think the beer industry is pretty much on track for a good growth. Now, some of these issues when they come up, they affect the industry in the short term hopefully. We expect that the government now and the industry and the companies which are being affected part of it, they sit together and resolve this issue quickly.
Concern is because in a state like Telangana which is a very big state, the largest for the beer industry. So, industry cannot stay out of it. For the government also, there's no way if such a big supplier company goes out of the market, it's not easy to ramp up supply by other suppliers and make up for that.
It's not going to be easy. Beer is a very high entry barrier industry.
Govindraj Ethiraj: And there's brand affinity as well. So, people will obviously insist on certain brands.
Vinod Giri: And even in a purely product terms also, understand that the breweries take about 4-500 crores to invest. So, it's not like a distillery which is a small budget operation. So, there are a few players here.
Capacities take time to build. This kind of investment, no one does for that one rainy day, I might need that supply. This is a big investment.
So, that also, the state will suffer, the industry will suffer. So, that's why we are very optimistic and hope that this matter is resolved very soon. And so, the bylaws industry remains on the growth track.
It is right.
Govindraj Ethiraj: Vinod, thank you so much for joining me.
Vinod Giri: Thank you very much.
Decoding India’s Trade Numbers
There is a problem with India’s trade numbers.
The numbers for November were wildly off the mark because gold imports were overcounted creating a cascading effect on errors on all trade data.
The latest trade data shows that the deficit narrowed sharply to USD 21.9
bn in Dec-24 from its record high level of USD 32.8 bn in Nov-24.
The narrowing was led by sequentially lower deficits on account of gems and jewellery, petroleum products, as well core items.
The highlight was a sharp revision to the last few months of import data for gems and jewellery.
The statistical reconciliation has pruned the cumulative merchandise trade deficit by approximately USD 9 bn between Apr-Nov FY25.
Interestingly, despite the reconciliation and correction, gold imports are still at a record.
Economics research firm Quant Eco says two developments that could potentially impinge upon India’s trade deficit in 2025 would be the impact of fresh sanctions by the US on Russian crude and the anticipated imposition of tariffs by the Trump administration on key trade partners.
I reached out to Vivek Kumar, economist at Quant Eco and began by asking him how he was looking at the new set of trade data, to explain it for us and what we could take away from it as an aggregate.
INTERVIEW TRANSCRIPT
Vivek Kumar: As far as the surprise element is concerned, it was actually not a surprise if you think about it, because the media reports with respect to the data revision after the outsized number which was reported for November had been around for some time. Last week, the Ministry of Commerce came out with a presidency stating that they are revising their numbers lower. So now the official presidency, when it was supplanted with the data for December, is kind of corroborating that.
And the sense is that the overall trade gap is now lower by almost $12 to $13 billion. And a large part of this is on account of correction in gold data, which is of the order of $8 to $9 billion. In some sense, the downward revision is being led by precious metals.
Now, the statistics part of it, now looking at the overall question that you posed, while it is comforting that the fact that trade deficit is not as wide as what we were fearing initially or a month back, the point to note here is that gold imports are still elevated. The data for the month of November, which is for precious metals imports, still continues to be at an all-time high. So this is despite the sizable downward revision, you still have the numbers which are extremely elevated.
Govindraj Ethiraj: $11.6 billion is the total import figure for November. That is at an all-time high. So what is that figure, Vivek?
Vivek Kumar: It's $11.6 billion for the entire gems and jewellery space. And that's an all-time monthly high. Okay, so that's a useful takeaway.
Govindraj Ethiraj: So why is it? So there are a couple of reasons why what appears to us at a broad level is that there's a humongous degree of price impact. So why is this happening?
Vivek Kumar: So what appears is that there is a significant degree of price impact. So if you average the price of, let's say, within the precious metal basket, if you look at gold and silver as two major commodities, these two commodities have risen by almost 26% to 27% between April to November of this financial year compared to April of November of the last financial year. So this 27% increase in precious metal prices is getting reflected in your import data.
So the sense is that predominantly, it's a price impact rather than a contribution.
Govindraj Ethiraj: How are you seeing exports? So in your report, you've said that you're somewhat surprised by the contraction in crude oil exports. Correct.
Vivek Kumar: So we are surprised on account of both crude oil as well as gems and jewellery exports. So crude oil exports are down almost 21% on financial year-to-date basis. That's a huge drop considering the fact that your crude oil imports are not showing that kind of correction.
In fact, in contrast, they are down by only about 6%. So there's a mismatch between how crude oil imports are performing and how crude oil exports are performing. If you do a cross-country analysis in major culprits in terms of where our crude oil exports are going, you've seen deceleration in terms of momentum.
The countries within the top five baskets are Singapore, Australia, these are the three major countries where our crude oil exports have shown a marked deceleration or in fact, negative growth this particular financial year. Similar is the story on account of gems and jewellery. Our gems and jewellery exports have contracted by 12%.
Whereas our gems and jewellery imports, despite the downward trend, they have expanded by 7%. So there is a dichotomy here vis-a-vis both crude oil as well as exports and imports performance.
Govindraj Ethiraj: It's interesting that we are exporting crude oil because otherwise we are a net importer or we import 80% plus of our requirements of crude oil, isn't it?
Vivek Kumar: Yes. So the number is fairly small, you could say, but still it ranges anywhere between 10 to 20% of our total export basket compared to the import. So 10 to 20% share in the export basket is not small per se, but vis-a-vis the share that crude oil has in the import basket, it is lower.
Govindraj Ethiraj: So as we look at all these figures, so where are we in an overall sense of merchandise imports and exports? I mean, how is India's trade doing right now, if I were to ask you a more 30,000 feet question?
Vivek Kumar: So in terms of overall sense so far, the run rate is still higher. So if you see how the deficit has performed between April and December, last year we clocked $190 billion in terms of deficit. This year, April to December, we have clocked $211 billion.
So you could see that there is a delta of $20 billion that has accrued over a span of three quarters. Now, if you extrapolate to the remaining quarter, which is one more quarter, you could possibly see another $10 billion or so adding up to the trade deficit. So our sense is that we could end the year somewhere close to $270 odd billion on trade deficit.
Govindraj Ethiraj: And when you say end the year, you mean March 31st?
Vivek Kumar: March 31st, financial year, correct.
Govindraj Ethiraj: Right, Vivek. Thank you so much for joining me.
Vivek Kumar: Thank you so much, Govind.
