Markets Hit Record Highs Amidst Volatile Trade
The markets got political continuity with the key positions in the new cabinet being almost identical to what they were earlier
On Episode 315 of The Core Report, financial journalist Govindraj Ethiraj talks to senior economist Dr Brinda Jagirdar.
Our Top Reports For Today
SHOW NOTES
(00:00) Stories Of The Day
(02:07) Markets hit record highs amidst volatile trade, flat run ahead
(03:46) Is India pulling away from the global interest rate cutting cycle?
(11:32) Nirmala Sitharaman set to be Finance Minister again
(12:30) Auto sales fall sharply in May
(13:50) Surprise! Gold is getting more difficult to find and mine
NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.
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Good morning, it's Tuesday, the 11th of June and this is Govindraj Ethiraj broadcasting and streaming from and headquartered in Mumbai, India’s financial capital.
Before we start off…are the stock markets at a crossroads again ? If you think about it, the major driver for stock markets has been the General Elections of 2024 for which votes were counted and results were announced on June 4.
The BJP had the majority of votes and has formed the Government with two allies, the JD and the TDP.
Except for the presence of the allies, this is exactly what the markets have got.
The markets were looking for policy continuity and that has been secured, largely. That has been further helped by the fact that the key economic portfolios nwo announced are almost identical to the previous reign. More on that shortly.
Not surprisingly, the markets have closed at fresh highs and more on that shortly.
This also means that the triggers will now be either global or local, of which the major next move, as we mentioned earlier is the Union Budget next month.
Till then, brace yourself for a somewhat flat run or slow rise.
Meanwhile, the top themes and stories for the day and before we start, I will be on a conference break till the end of the week so I will be back on Sunday with our weekend edition and then on Tuesday since Monday is a market holiday.
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Markets Seek Direction Again
If the markets wanted political continuity, they have got it in precise shape and form with the key positions in the new cabinet being almost identical to what they were earlier. More on that in a moment.
On monday, after moving up and down, the benchmark indices snapped a three day winning run to end lower, driven by IT and stocks like HDFC Bank, Maruti Suzuki, Bajaj Finance, and ITC.
The BSE Sensex hit a record high of 77,079 earlier today, topping the 77,000-mark for the first time.
The Nifty50, too, touched a new peak of 23,412, surpassing the 23,400-mark for the first time ever on Monday.
The indices finally closed lower, the Sensex ended 203 points, or 0.27 per cent, lower at 76,490, while the Nifty50 ended at 31, down 0.13 points or 23,259.
The broader markets, however, stayed afloat with the BSE MidCap, and SmallCap indices adding 0.56 percent and 1 percent, respectively.
Oil meanwhile is now holding steady after falling last week as traders look for fresh cues.
Brent traded below $80 a barrel after losing 2.5% last week. Traders will be watching for monthly reports from OPEC and the International Energy Agency, due Tuesday and Wednesday, that will shed light on the outlook for the rest of the year after the producer group’s most recent moves, Bloomberg reported.
Is India Pulling Away From The Global Interest Rate Cycle?
Interest rates in the financial system are expected to remain steady with the Reserve Bank of India keeping the repo rate steady at 6.5 per cent for the eighth time in a row over the weekend.
The rate setting panel of the RBI also left the monetary policy stance unchanged at ‘withdrawal of accommodation’.
The RBI has hiked FY25 gross domestic product (GDP) growth projection to 7.2 per cent as against 7 per cent earlier, but left retail inflation forecast unchanged at 4.5 per cent. Analysts were expecting the GDP growth to be at 6.9-7 per cent level for 2024-25.
Meanwhile, Reuters is reporting that consumer inflation may have snapped a four-month downward trend in May due to rapidly rising food costs, also suggesting the Reserve Bank of India is still several months away from cutting interest rates.
A Reuters poll of 50 economists conducted June 5-10 predicted consumer price inflation (CPI) is expected to have picked up to 4.89% last month from April's 4.83%. Forecasts for the data, scheduled to be released on June 12 or tomorrow, ranged from 4.30% to 5.20%.
So what is the RBI’s thinking on interest rates in the context of inflation and the overall growth environment and how is it likely to pan out, given particularly that the European Central Bank (ECB) has already cut rates and the Federal Reserve of the United States is being watched closely to see when it will follow next.
I reached out to Dr Brinda Jaghirdar, senior economist and began by asking her how she was seeing India’s interest rate moves?
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Nirmala Sitharaman Is Next Finance Minister
The Government is betting on continuity on the economic front, at least for now with key portfolios unchanged in the new Government.
This will come as a relief to businesses, particularly those who were worried about any dilution thanks to the presence of allies.
The current line up would suggest that there is absolutely no change and life can return to normal.
Nirmala Sitharaman is the next finance minister, Nitin Gadkari gets roads and transport, Amit Shah gets home, Piyush Goyal gets commerce, Rajnath Singh gets defence and Hardeep Singh Puri gets petroleum and natural gas.
For those asking, there could not be a better demonstration of continuity.
And yes Mr S Jaishankar gets external affairs, so all is steady on the home front and external.
The Railways and Information & Broadcasting goes to Ashwini Vaishnav, so broadly again the same.
Auto Sales Fall Sharply In May
The new ministers, economic and otherwise will have to deal with economic challenges apart from climate which is affecting the economy.
Retail sales of cars in India fell 1% in May, tracking slowing wholesale growth, as elections and extreme heat across the country dampened demand and delayed purchase decisions, Reuters quoted the Federation of Automotive Dealers Associations saying.
Extreme heat conditions dissuaded customers from visiting showrooms, with walk-ins dropping by around 18%, said FADA President Manish Raj Singhania in a statement.
FADA has also been struggling with high inventories at its dealerships in recent months, as told to The Core Report earlier as well.
Sales growth in two-wheelers slowed to 2.6% in May from 33% in April, said FADA.
Overall retail sales across segments, which include two-wheelers and commercial vehicles, grew 2.6% in May, compared with a 27% rise in April.
India's auto industry represents 7% of the country's GDP and auto sales are a good indicator of private consumption.
Overall the markets continue to grow and are at record levels across segments, particularly passenger vehicles and within that, SUVs.
Gold Is Getting Harder To Find
After reports yesterday that China was slowing down gold purchases following high prices, it is now emerging that the gold mining industry is struggling to sustain production growth as deposits of the yellow metal become harder to find, according to the World Gold Council.
CNBC quoted data from WGC saying mine production inched up only 0.5% in 2023 compared to a year ago.
“We’ve seen record first quarter mine production in 2024 up 4% year on year. But the bigger picture, I think about mine production is that, effectively, it plateaued around 2016, 2018 and we’ve seen no growth since then,” WGC Chief Market Strategist John Reade said in a report quoted on CNBC.
“I think the overwhelming story there is: after 10 years of rapid growth from around 2008, the mining industry is struggling to report sustained growth in production,” said Reade.
New gold deposits are becoming harder to find around the world as many prospective areas have already been explored, he elaborated.
Large-scale gold mining is capital-intensive, and requires significant exploration and development, taking an average of 10 to 20 years before a mine is ready for production, according to WGC.
Even during the exploration process, the likelihood of a discovery progressing into the development of a mine is low, with only about 10% of global gold discoveries containing sufficient metal to warrant mining.
Around 187,000 metric tons of gold has been mined to date, with the majority coming from China, South Africa and Australia. Gold reserves that can be excavated are estimated at around 57,000 tonnes, according to the United States Geological Survey.
Aside from the discovery process, government permits getting harder to secure and requiring more time to come through have made mining more difficult, Reade added. Securing licences and permits needed before mining companies can start operations can take several years.
Additionally, many mining projects are planned for remote areas that require infrastructure such as roads, power, and water, resulting in added costs in building these mines and financing operations, Reade said.
“It’s getting harder to find gold, permit it, finance it, and operate it,” he said.
Gold prices are taking a breather after rallying to record highs in recent months bolstered by strong demand led by China. Spot gold is currently trading at $2,294.3 per ounce.
