Markets Hold On Highs, Global Cues To Drive New Levels
The markets continue to search for direction and the Union Budget will provide some
On Episode 323 of The Core Report, financial journalist Govindraj Ethiraj talks to Sehul Bhatt, Director Research of CRISIL Market Intelligence and Analytics as well as Sandeep Jain, President of the Federation of Indian Micro and Small & Medium Enterprises (FISME).
Our Top Reports For Today
SHOW NOTES
(00:00) The Take
(02:30) Stories Of The Day
(03:14) Markets hold on highs, global cues to drive new levels.
(05:34) New GST announcements once again expose the regulatory complexity
(06:35) India is importing steel for the first time in many years, why and how this impacts local industry
(15:54) For India’s Essar Group, its never say never in steel
(17:37) India’s small enterprises want a piece of the PLI cake to drive jobs and manufacturing growth
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, its Monday, the 24th of June and this is Govindraj Ethiraj broadcasting and streaming from and headquartered in Mumbai, India’s financial capital
The Take
Ease of doing business is a term that we use often…a quick glance at the recent announcements from a Goods & Service Tax meeting between the central and state governments came up with moves that only tells you how difficult it is indeed doing business in India.
And how once implemented, rolling back laws or simplifying them is tougher than extracting a tooth from a proverbial tiger.
The GST concessions offered themselves - like exemption to some services offered by Railways, hostels, milk cans, cartons and solar cookers - are so diverse and wide that each of them suggest that a specific lobby has triumphed rather than merit.
Just to remind us all, GST came into effect only in 2017 and by any explanation or definition, has got progressively complex and challenging to navigate every month since then it would appear.
I would really like to hope that the Government would reduce GST on air conditioners since there is more than sufficient evidence to prove they are not luxury and that people are dying like flies from the heat waves.
Please do not think of the air conditioned drawing room elites rather those working in small factories across the country, which make up the bulk of manufacturing and employ some 90% of labour.
Anyway, some of the other pull backs like waiver on interest on penalties on tax demand notice issued under a Section 73 of the GST Act for between 2017 and 2020 only illustrate how long the arm of the tax man is. That is if you are not accused of fraud, suppression or misstatements.
And then only if you pay up by 2025 March.
There is much more to all of this and there are demands from the Small and Medium enterprises which we will come to.
The bottomline, our tax systems have to become simpler. Every individual transgression or fraud in a country with millions of businesses, small and large leads to laws which make life tougher for everyone, since it's a blanket response.
Small enterprises struggle under the weight of compliance and we must think of them when framing laws, not the mighty conglomerates with armies of chartered accountants and tax consultants to manage their problems.
Our top stories and themes for the day:
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Stock Markets Search For Fresh Cues
The markets, as we have discussed over the last week, continue to search for direction and while the Union Budget will provide some, it does appear that it will be tough to do anything beyond some tax cuts.
Not that tax cuts are not good but individual tax cuts are unlikely to have a major impact. What the market would like is of course lowering of capital gains tax on sale of shares which of course is politically tricky to do as well.
The general mood among regulators of course and quite rightly is that there is too much froth and embedded risk in financial markets right now, even if nothing is going wrong on the face of it. Like how India now represents some 80% of world futures and options volumes. And the figures, in terms of contracts, have risen sharply over the previous year.
Back in the markets, the indices settled were lower on Friday. The BSE Sensex closed 269.03 points or 0.35 per cent lower at 77,209.90 levels. Nifty50, fell 65.90 points or 0.28 per cent to 23,501 levels.
Foreign investors are, as we have been projecting and predicting back in the stock markets after the election results were announced.
They invested Rs 12,170 crore in Indian equities so far in June.
But they are net negative in 2024 since there were substantial withdrawals in April and May.
Total outflow is now at Rs 11,194 crore so far in 2024 (till June 21), data with the depositories showed, according to Business Standard.
The interesting thing and I am now saying this more anecdotally because I will need several months of specific data to make a definitive statement, is that the actual flows of foreign investment are not commensurate with the steady flow of bullish brokerage reports, some of whom of course are projecting a dreamy future so far out that some of us will not be around to see them.
Be that as it may, the medium term is bullish, except of course for valuations where again, it depends who you speak to on which day.
By the way, the Wall Street Journal is questioning Nvidia’s valuations and asking whether there are similarities to the dot com boom.
If the WSJ can question Nvidia, surely we should also question some of the valuations we are seeing here, if not many.
The big cues this week will come from Wall Street, including from the US GDP numbers for the March quarter on June 27.
GST Council’s New Rules
India’s Finance minister Nirmala Sitharaman on Saturday announced biometric-based Aadhaar authentication to check fake invoicing.
“There is going to be a rolling out of biometric-based Aadhaar authentication on an all-India basis. This will help us to combat fraudulent input tax credit claims made through fake invoices in some cases,” the minister announced at the briefing after the 53rd GST Council meeting over the weekend.
There were many other announcements I already covered in the opening take suffice to say that it is depressing to note that we have a GST category which covers hostel accommodation outside educational institutions to the tune ₹20,000 per person per month where an exemption can be availed only if the stay is up to 90 days.
Oh yes, I forgot sprinklers for fire and water which will now be charged at 12%.
Any error in reporting all of this is mine though I doubt there are any.
And then cartons and milk cans, regardless of the metal used in them, we are told.
How India’s steel imports are rising
India produces some 139 million tonnes of steel and most of it is consumed by growing infrastructure and construction sectors, among others.
However, for the first time in many years, imports have overtaken exports, suggesting not so much demand but price shifts.
India’s domestic steel industry has been clamouring for higher import tariffs, a plea that does not seem to have been heeded.
Meanwhile, imports rose according to a new report from rating agency Crisil.
India imported around 8.3 million tonnes in the last year, the figure was up around 38% over the previous year.
Most of that came from China, South Korea, Japan and Vietnam, yes Vietnam, in case you had not noticed already.
Vietnam’s steel exporters to India rose 130% on year.
Hot-rolled (HR) coils and plates were the most imported steel types, accounting for 62% of the import volume and witnessing a significant increase of 117%.
There are some shifts for example a decline in imports of some speciality grade steels, because of domestic manufacture linked in turn to production linked incentives or PLI schemes.
The interesting thing is India is exporting and importing steel at the same time, reflecting the price shifts and seasonal behaviour of trade.
I reached out to Sehul Bhatt, Director Research of Crisil Market Intelligence and Analytics and began by asking him why India’s imports had shot up.
Essar’s Never Say Never
The Mumbai headquartered Essar Group has said it is awaiting final approvals to start investing about USD 4.5 billion or over Rs 35,000 crore in building a low-carbon steel plant in Saudi Arabia, its top official Prashant Ruia told PTI.
The approvals are expected anytime now, after which the conglomerate will start working on the 4 million tonne per year steel plant along with port facilities at Ras Al-Khair in Saudi Arabia.
The project has been in the works for a time and was reported on last year as well.
The plant will meet domestic steel demand in Saudi Arabia.
"Saudi Arabia is going through a large growth phase, a large part of steel today is getting imported into Saudi Arabia. So this is basically a domestic plant," he said.
Essar’s plant, which could take around 3.5 years to build, hopes to supply into electric vehicle manufacturing factories that Saudi Arabia is putting up apart from other industries.
The question of course is why is Essar investing overseas and not in India ?
Partly of course because it had to sell its roughly 10 million tonne steel plant in Hazira in Gujarat to ArcelorMittal and Nippon Steel in 2019 in an insolvency process.
It also sold its 20 million tonne oil refinery to a consortium led by Russian oil major Rosneft in 2018.
Anyway, so now, Essar says it has turned debt-free two years back after selling some infrastructure assets.
So back to domestic steel, Prashant Ruia told PTI that he hoped for a re-entry into the Indian steel industry. He said the group is looking for an appropriate time to make its entry into the Indian steel industry.
"It's a very very interesting space to be in. We've done it for 25-30 years. Once the right opportunity comes we will absolutely look at it. We are trying to build a plant in Odisha for iron ore pellets but it's not a full steel plant," he added.
India’s Small Enterprises Want Slice Of PLI Scheme
India’s small and medium enterprises want a share of the Government’s production linked incentive (PLI) schemes.
This was part of a 10-point representation made by the Federation of Indian Micro, Small & Medium Enterprises (FISME) - an umbrella body of 740 associations across India - to the Finance Ministry last week.
A share of subsidies or benefits will obviously help create more jobs though the administration of it could be somewhat tricky going by the experiences of larger companies also using PLI schemes to expand their manufacturing base.
The FISME started in 1995 as a Federation of geographical and sectoral associations of Small and Medium Enterprises (SMEs) in India spread across districts and states. Its earlier avatar was born in 1967 as the National Alliance of Young Entrepreneurs (NAYE) in 1967.
Back to now, the FISMe also wants a revision in the Special Mention Account classification used by banks in their loans to them, this is similar to being declared a non performing asset. In this case the SMA is triggered if principal or interest payments are delayed by 30 days.
Obviously once the red flag is raised, bringing it down is not easy for the small enterprise.
I reached out to Sandeep Jain, President of the FISME and began by asking him for a mood check among MSMEs, including his own company which manufactures auto components out of Gurgaon, near Delhi.
