Markets Halt Their Rally but Hold In Positive
On Dalal Street, the indices opened strong and fought to stay above the line through the day
On Episode 540 of The Core Report, financial journalist Govindraj Ethiraj talks to Manish Gupta, Senior Director and Deputy Chief Ratings Officer, Crisil Ratings Limited. We also feature an excerpt from our recently released Business Books Edition featuring author and entrepreneur K Ganesh.
SHOW NOTES
(00:00) Stories of the Day
(01:00) Markets halt their rally but hold in positive despite fresh tariff threats and Asian weakness
(02:54) Tariffs are back on the table and gold is strengthening again
(03:33) Oil prices start inching up on threat of US tariff on Venezuelan crude. Shell unveils major gas targets
(05:36) In unusual phenomenon, India’s cement industry is seeing acquisitions at a per tonne cost lower than greenfield projects
(15:30) A story of disruption, from the days of the personal computer, with K Ganesh
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 Wednesday, the 26th of March, and this is Govind Rajyathiraj headquartered in Broadcasting and Streaming from Mumbai, India's financial capital.
The top stories and themes.
The stock markets halt their rally, but hold in the positive zone, despite fresh tariff threats and weakness across Asian markets.
Tariffs are back on the table and gold is strengthening once again.
Oil prices start inching up on threat of U.S. tariffs on Venezuelan crude and Shell unveils major gas targets.
In an unusual phenomenon, India's cement industry is seeing acquisitions at a per tonne cost lower than Greenfield projects.
And a story of disruption from the days of the personal computer with Kay Ganesh.
Tariff Fear Set In Again
The Donald Trump tariff shadow loomed large over world markets, including Asia, on Monday amidst a threat of a fresh set of tariffs, even as India appears to be heading towards a compromise on items largely expected. The latest trigger was U.S. President Trump's 25% tariff on countries importing oil and gas from Venezuela. Oil is Venezuela's main export, and China is its main buyer, and more on that shortly.
Asia-Pacific markets were mixed on Tuesday with Hong Kong's Hang Seng ending the day about 2.3% lower, while the Hang Seng tech index was down almost 4%. Back on the realty, the indices opened strong and fought to stay above the line through the day falling sharply to finally close still in the positive, making it the seventh consecutive session of gains. The 30-stock SENZX was up 32 points and closed at 78,017.
The NSE Nifty 50 closed up 10 points at 23,668. The Nifty Mid Cap 100 and the Small Cap 100, however, were down, breaking their five-day winning streak, so closed on about 1% each. An interesting and cautionary tale is emerging from an Asian neighbour seen as a traditionally steady, if not strong, economy.
The Indonesian rupiah hit its weakest level since the Asian financial crisis, or since June 1998. The currency has fallen more than 3% this year, making it one of the worst performers in emerging markets. Now, Indonesia was one of the region's favourite markets just a year ago, but has quickly lost its appeal with global investors as concerns grow over the sustainability of its economic policies, according to Bloomberg, adding that the pressure has been mounting on the rupiah since Jan, after the government surprised markets with a rate cut as it shifted its focus to bolstering growth.
The rupiah selloff followed a rout in the nation's stocks this year, which fell into a bear market in February. While the benchmark Jakarta Composite Index was higher on Tuesday, it still remains one of the world's worst-performing gauges, according to Bloomberg.
Gold Prices Are Edging Up
With tariff fears spooking the markets, gold prices are, not surprisingly, edging up. Prices were up on Tuesday, thanks to persistent uncertainty over impending reciprocal U.S. tariffs and their impact on the global economy, according to Reuters, which added that spot gold rose slightly to about $3,021 per ounce, and spot gold had hit a record high of $3,057 on March 20. The flip-flop on tariffs, of course, continues.
U.S. President Trump has said that not all his threatened levies would be imposed on April 2, and some countries may get breaks, according to that Reuters report.
Oil Prices Are Rising, Too
Oil prices rose on Tuesday for the fifth day on concerns that global supply could tighten after the U.S. announced tariffs on countries that buy Venezuelan crude, according to Reuters. Brent crude futures were up to $73.27, so essentially over $70 now. President Trump had announced 25% tariffs on countries importing oil and gas from Venezuela.
Oil is Venezuela's main export, and China is its largest buyer. This move could mean a fairly sizable tightening in the global oil balance, according to ING analysts, who wrote in a note on Tuesday, reported by Reuters. The analysts also said that oil, along with broader risk assets, also benefited from suggestions that the Trump administration may take a more targeted approach with reciprocal tariffs that is set to go in force on the 2nd of April.
Meanwhile, the Organisation of Petroleum Exporting Countries Plus, or OPEC Plus, which includes Russia, will stick to its plan, or most likely stick to its plan to increase oil output for the second consecutive month in May, said Reuters, amid steady oil prices and plans to force some members to reduce pumping to compensate for past overproduction. Meanwhile, British oil major Shell said it will double down on its liquefied natural gas push. The oil major said it will lower its spending and will trim its structural cost reduction targets, according to CNBC.
It also said it will grow output across its combined upstream and integrated gas businesses by 1% per year through to 2030, as well as increase LNG sales by 4-5% every year through that period. It will also keep its oil production steady at 1.4 million barrels per day until the end of the decade. India has set a target to boost the share of gas to 15% of the country's energy mix by 2030 from the current 6.2%. A new International Energy Agency report says India's natural gas demand is forecast to increase by nearly 60% by 2030, which would mark a significant shift in the country's energy landscape and put India's projected gas demand on par with some of the world's largest consumers.
Consolidation Is Underway In India's Cement Industry
India's cement industry, which has around 630 million tonnes of capacity and 450 million tonnes of consumption, has seen about 65 million tonnes of consolidation in recent times. Companies that have sold out include Kesaram Cement and Penar Cement, which have been in the business for many years. While capacities change hands often in the cement industry, the current phase with about 11% of installed capacity changing hands is the highest ever in a block of two years, says rating agency Crisil in a new report.
The report also highlights the ongoing consolidation in the Indian cement industry and says it will accrue three significant benefits to acquirers over the medium term, wider geographical reach, access to crucial limestone reserves, and of course, economies of scale. The latest wave began in fiscal 24 with about 51 million tonnes of capacity acquired and an additional 14 million tonnes of buyouts announced, all of which are likely to be completed by the first half of fiscal 26, which is shortly. I reached out to Manish Gupta, Senior Director and Deputy Chief Ratings Officer at Crisil Ratings, and I began by asking him to walk us through the top level numbers of the industry and also spend some time talking about how the cost of acquisition for brownfield or existing projects was now similar or lower than actually setting up a greenfield project.
INTERVIEW TRANSCRIPT
Manish Gupta: Let me start with the demand side. And as you know, cement is a regional play. It's not a pan-India play.
So demand also trends, changes from region to region. But if I look at on a pan-India basis, India had a demand of somewhere close to around 450 odd million tonnes at the end of fiscal, for fiscal 24. And this demand has been growing pretty well at around 11% CAGR for the last three years to fiscal 24.
Fiscal 25 was a year of a change or a shift, you can say that, as the demand growth slowed down. Fiscal 25, that is the current year, we are seeing a demand growth of somewhere close to four and a half to five, five and a half percent. And that's largely to do with the fact that because there were general elections, there was some shortage of labour and a little bit of a slowdown in the infralink capex with extended monsoons and all, which saw some kind of a moderation.
In fiscal 25 and 26, we are expecting around six to seven percent of growth. On a capacity trend, it's also fairly well balanced. We have somewhere close to 630 odd million tonne capacity.
Over the next three years, we are expecting around 130 to 140 million tonnes. So it's also likely to grow at around 7%. So the demand supply situation is fairly well balanced, if I can say so, for the sector.
Govindraj Ethiraj: The capacity, you're saying 450 million tonnes is demand. Obviously it's scattered. 630 million tonnes is capacity.
So does that mean that many plants are not really working to optimum levels?
Manish Gupta: If I can say that the utilisation or operating rates for the cement sector, that has reached around 70%, which was a decadal high in fiscal 24. We expect that with these capacities, which are coming up 130 to 140 million tonnes, the operating rates will be at 68 to 70% over the medium term as well. And this is a fairly optimal rate from an economic standpoint.
So there would certainly be some plants which are having challenges, not because of the demand supply situation, but more about their cost structures, their leverage and all that. But on an industry basis, it seems to be fairly well balanced.
Govindraj Ethiraj: Right. And you've written a recent report or put out a recent report where you've talked about the consolidation that's been happening. And you specifically talked about 65 million tonnes of capacity that's been consolidated and how and why that reflects a certain efficiency that's, I guess, coming to the sector as a whole.
So walk us through that.
Manish Gupta: Sure. So, I mean, consolidation is not something new to the sector. We have seen the phases of consolidation in the past as well.
Pre-COVID also there was a consolidation happening, some 25 to 30 billion tonne capacity changed hands. But what's different this time around is that the pace of changing hands of capacity has gone up. As we've mentioned in our report, something like 11% of the installed capacity at the start of fiscal 24, which is totalling to around 65 million tonnes, is likely to change hands this time around, which is the highest ever in the block of two years.
So this is a big shift that we're seeing. Of course, some of these acquisitions are helping improve the efficiency aspect of it. If you look at cement from a cost perspective, there are two big cost elements which are there.
One is related to raw material, which is limestone. And second is with respect to the lead distance to the market they are supplying. So each of them will be somewhere close to 25 to 30% of their total cost.
So with these acquisitions, players are able to access limestone at the more economical rates. And also when we were looking at these acquired companies, we saw that these companies are actually positioned in the same regions where the acquiring companies also have their own capacities as well. So which means that with this acquisition, they are actually trying to reduce the lead distances as well, which will be beneficial from a logistical efficiency standpoint as well.
So that, along with the growth and scale in their respective regions, et cetera, is likely to help in improving the business risk profile for the acquiring companies. And that's what we are finding out in our report.
Govindraj Ethiraj: Right, and I'll come to the acquired companies in a moment. But one of the things you pointed out is that the cost of acquisition here per tonne is less than what it would cost to set up a greenfield unit of cement per tonne again. Is that something that happens often or is it rare?
Manish Gupta: Not often, but what's happening is somewhere close to around 80-odd percent of the capacities being acquired, these are capacities which were under some kind of a distress. So when we looked at the enterprise value per tonne for these acquired companies, that is averaging around 6,500 per tonne. If I add to it the catch-up capex or the capex that these companies may have to do to ramp up these capacities, that will be around 1,500-odd per tonne.
And with that, the total cost of acquisitions on getting these companies, these capacities up and running will be around 8,000-odd. And that's exactly the same or more or less matches the same cost if one were to greenfield capacity, which will also be costing around 8,000-odd per tonne. So that is what we're seeing.
And largely it has to do with the fact that most of these acquisitions are for distress capacities as of now.
Govindraj Ethiraj: If I were to expand that question and is this sort of ratio, if one were to call it, or the difference between, let's say, the greenfield cost versus the cost at which a unit is being sold, in this case cement, but it could be other industries as well, does that happen usually? It is not a usual trend.
Manish Gupta: A greenfield would always be much less? Usually greenfields will be lesser as compared to acquired assets, but this is a unique trend that we are seeing this time around.
Govindraj Ethiraj: And how are you seeing the outlook? I know you said that you're seeing sales pick up again in the coming year from about 4.5 to 5 to about 6 to 7%. Are there regions within that which would be faster?
Manish Gupta: Yeah, so as I said earlier, cement is more of a regional play. And we see that the eastern and the central region are driving the growth at a faster rate as of now. Their growth will be somewhere close to 8 to 9% odd.
Northern and the southern regions are relatively moderate at around 6 to 7%. And western regions would be growing at 5 to 6% as we see it as of now.
Govindraj Ethiraj: And what are the sectors that are driving growth faster in the eastern and central versus western and southern?
Manish Gupta: The two biggest sectors where cement goes is infrastructure and housing. And that's where a lot of catch-up is happening in the eastern and central region. And that is the reason that these regions are seeing relatively faster growth.
And it's not a new trend. It has been happening over the last few years and that we expect is likely to continue.
Govindraj Ethiraj: Manish, thank you so much for joining me.
Manish Gupta: Thanks, Govind.
BYD overtakes Tesla
BYD, the Chinese and Shenzhen-based company, grew about 29% in 24 annual revenue to an all-time high of about $101 billion, according to results published late on Monday, surpassing Tesla's 97.7 or about $98 billion sales in the same period. BYD started overtaking Tesla in sales from the third quarter of 2024. Tesla's market share in Europe continued to shrink year on year in February, according to data that was released on Tuesday, as sales dropped for the second month, despite the fact that EV registrations as a whole have risen across Europe.
Tesla has sold about 42.6% fewer cars, or about 43% fewer cars in Europe so far this year, according to data from the European Automobile Manufacturers Association, reported by Reuters. Tesla commanded a roughly 1.8% share of the total market and 10% of the battery or electric market in February, down from 2.8%, which is of the total market, and 22% of the total electric market the year before. Meanwhile, Scott Galloway, Professor of Marketing at NYU Stern, author, entrepreneur, podcast host, pointed out that this is not the first time BYD technology has leapfrogged Tesla.
He was referring to BYD's latest announcement of a charging technology that allows it to charge its latest EVs in just five minutes and then have them run for about 249 miles. The charging system is expected to debut in its new sedan and SUV, which will launch next month, and something that we've discussed in the core report just last week. Galloway says that earlier this year, BYD rolled out its self-driving technology for free across much of its fleet, including its $9,700 model.
Tesla's full self-driving software package alone costs $8,000. Last year, BYD surpassed Tesla to become the largest producer of EVs globally, despite not selling cars in the United States, and its momentum is only accelerating. Total passenger cars delivered in both Jan and Feb rose 90%.
BYD is already available on Indian roads, though not the latest models, as we've discussed earlier on the core report as well.
What does disruption really mean?
K Ganesh is a well-known entrepreneur who's driven early-stage investments and growth in new-age companies like BigBasket.com, which is now majority owned by the Tata Group, Portia Medical, a home healthcare company, and Bluestone.com, an online jewellery company, amongst many others, over the years. His life before the platform, that's the digital and technology platform and commerce world, is a little more interesting and gritty, at least to me, and maybe some of you as well. He recently wrote a book called Mastering Disruption, a Practical Guide to Understanding New-Age Business Models.
In a conversation in our new edition business books, I took him back to his computer or PC days and the ventures he had started then, and shut, the struggles and the lessons.
INTERVIEW TRANSCRIPT
Govindraj Ethiraj: Was this the first time this happened to you, where something completely changed that was beyond your control, as opposed to your earlier ideas where you were, in a way, controlled because you said, okay, this is my idea, this is the problem that it's gonna solve?
K Ganesh: No, that, unfortunately, that luxury did not exist. Okay, right, because, partly because we were in IT & T, we were in technology. So IT&T was a typical example.
We started with third-party maintenance.
Govindraj Ethiraj: And that was your idea for which you were in total control.
K Ganesh: So at that time, control was good in the first two years because the computers used to cost one lakh. 10,000 rupees used to be the cost of an annual maintenance contract. So I'll come to you, I'll say, Govind, give me 10,000 rupees, your computer for next one year, I'll take care.
Whatever is the problem, no questions asked, I'll replace it. You'll have a working computer. So people used to pay 10% as an annual maintenance contract.
That was a beautiful model because I got money up front. It's almost like insurance money. Okay, right, I got money up front.
I got 10,000 from each of the people I had to support. In two years, the industry completely changed. Computer prices crashed to 20,000, courtesy.
Now at 20,000, 10% is 2,000. Earlier, I was getting 10,000 from you, now I get 2,000 from you. The cost doesn't change one fifth, right?
So that happened. Two international computers came in with three year warranty. Computer reliability increased so much that people no longer wanted annual maintenance contracts.
Like you don't sign AMC for your television or your smartphone today, or even for your computer today. Computers don't fail, okay, right? When you fail, you repair it.
So in two years, this whole business model got disrupted and vanished. So we had to change into networking, system integration. So we had to keep on evolving.
So one of the challenges, generally true in startups or entrepreneurship, but all the more so in technology, it happened. And that has not stopped. Even today, if you see Big Basket, for example, I mean, it's not my company anymore.
Tata owns two thirds of Big Basket, the balance one third is owned by us, founders and investors and all that. So it's really a Tata managed company. I mean, look at eGrocery, they were number one in eGrocery, they're still number one in eGrocery.
But the quick commerce came and completely disrupted. So when you talk about quick commerce, 20 minute, 10 minute delivery, you talk about Zepto, Blinkit, and then Big Basket comes. So disruption, change outside your control is par for the course if you're an entrepreneur.
I'm sure you see this in your media business too, right?
Govindraj Ethiraj: All the time. But I think the interesting part is that, at least as I'm seeing it, being disrupted in some ways is more challenging to learn rather than being the disruptor. Because as a disruptor, you've been a disruptor and disrupted.
What teaches you more? Because as a disruptor, you're in full control, as you've been in your own career. But as a disruption, you're, I'm sure the first few days or weeks go in just trying to figure out how am I going to respond to this?
And I'm sure there are these seven stages or whatever, from panic to, so tell us about that.
K Ganesh: Yeah, so no, you're absolutely right. As a startup, when my slate is clean and blank, looking at the problem, looking at the pain point, trying to use technology or do some jihad or whatever, coming in disruption, it's a lot more fun, easy, and an open canvas to start painting on. Once you have a running organisation, working organisation, or you reach some scale.
Govindraj Ethiraj: Which has also been successful in some ways.
K Ganesh: Yeah, which has been successful. Okay, even if it's successful, all the more so if it's successful because it's large. Then your backside literally is on fire.
Because now you're open to guerrilla tactics from upstarts, from people left, right, and centre, who will come and nibble at your fringes. And what Clayton Christensen talks about as disruptive innovation, okay, right? Start at the fringes, they can come in.
Now, as an incumbent, either a large legacy company, or as a grown startup, okay, right? Or a scaling startup, you need to decide what to do. Now, every time an upstart comes and nibbles at you, you can't react.
Then you will not be focussing on your core business. You will end up getting distracted by everything that comes up. At the same time, if you ignore it a bit too much, they will start coming into the mainstream.
They'll start at the fringes and start coming to the mainstream. And we have seen this. We have seen this internationally.
Blockbuster saw the same thing on Netflix. They refused an offer to acquire Netflix, okay, right? For a pittance, okay, right?
And how Netflix started and slowly ate their full business. Barnes and Noble with Amazon. You can see that.
And you see that continuously every time. I mean, Kodak is a classic management case study, okay, right? They invented digital photography.
The first digital camera was made and presented in a Kodak board meeting by an engineer that they said shut it down, okay, right? They had the patent. They could have done that, okay, right?
So similarly, Instagram, they allowed Instagram to happen. They acquired a photo sharing site. They could have easily pumped it up and been an Instagram equivalent.
So it's always a challenge, to use your words, if you're an existing larger company to look for not being disrupted.
Govindraj Ethiraj: And how do you then, as an entrepreneur, business leader then, manage your time between scanning the horizon for threats and separating what could be a real threat? And of course, it's an evolving situation, but what could be a real threat versus something that you can ignore or maybe academically ingest, but not really do much about it?
K Ganesh: Yeah, that's a very great question. It's not always easy to answer because I've got it wrong multiple times. Take the case of IT&T, for example, okay, right?
That computer maintenance was going to go down and you cannot live. We used to have a positive cash flow in the first two years because we used to collect money in advance for annual maintenance contracts, okay, right? That is a great place to be for a bootstrapped entrepreneur.
Those are days when VC did not exist. So it's a great time. It's almost like in your media, you get subscribers.
You have enough subscribers paying your money, then you have to do that. So that's a great place to be. But we saw pretty quickly that's going to go away because computer prices started falling, computer reliability started increasing, and the concept of annual maintenance contract insurance people did not want.
It was not in their mind. They used to change the computer in three years and the warranty is three years. Why do you want to do maintenance for computers?
Okay, right? So what we did was we said, where is the services industry for corporate computer support, IT support going? That is when Nobel had launched networking cards.
The network was happening. Now, networking cards are still in their infancy. We said, no, corporations will need support to network their computers.
So can we go there? Similarly, other peripherals, desktop publishing and started coming in. So you needed system integration, okay, right?
So at every point of time, we saw the next two years where the likely popularity is going to be there. Likely demand is going to be there. We trained our people, we acquired skillset.
For example, in the earliest days of Nobel Network Engineers, we had more certified CMEs. We used to call certified network engineers. We had more CMEs than Wipro or HCF in our roles as a startup IT and T.
In fact, Wipro, when they did the complex implementation, used to contact us in Delhi to be able to fly in people and do that stuff. That we were able to do smartly. Where we failed miserably, this was, I'm talking about the 1990s, beginning of 90s and all that.
We were focused completely on hardware, hardware maintenance, hardware services. We completely missed the bus on software. We were there, we were there in the IT industry at the right time.
And I hold myself responsible as the co-founder and the CEO that if I had even spent 10% of my time on software, we would have been thousand times more successful. If not like Infosys or Wipro, I would take any day one-tenth or one-hundredth of Infosys or Wipro. We would have done that.
So, I did not look at the market, did not see the outside environment, did not analyse where it's going and saw and missed the opportunity, which was a thousand-fold.
Govindraj Ethiraj: So this was a case where you didn't?
K Ganesh: Yeah.
