Markets In Free Fall
Consistent selling by FPIs, concerns over weak earnings, slowing economic growth, and a weakening domestic currency continue to affect market sentiment
On Episode 506 of The Core Report, financial journalist Govindraj Ethiraj talks to Dhirendra Kumar, Founder and CEO of Value Research as well as Dr Viranchi Shah, spokesperson and until recently president of the Indian Drug Manufacturers Association (IDMA).
(00:00) The Take
(05:57) Markets in free fall
(07:20)The rupee has a solid rebound thanks to RBI intervention
(09:51)How do you really pick a mutual fund? Some lessons
(17:00)India’s pharma industry braces for tariff hits
(24:59)And the city of Hyderabad and state of Telangana makes peace with the beer makers
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 12th of February and this is Govindraj Ethiraj, headquartered and broadcasting and streaming like always from Mumbai, India’s financial capital.
The Take
In a few months, Mumbai city will see the commissioning of a new and second city airport, in Navi Mumbai.
Two airports in a city or in close proximity in a state are rare, Goa is one example, the other is Delhi of course, which has two, including Hindon and soon to be in Jhewar, in UP but close to Noida.
The Navi Mumbai airport has been conceptually in the works for decades but as things usually go with large infrastructure projects in the country, it is only now nearing completion.
There is an ownership change too, from the GVK Reddy group to the Adanis which may or may not have speeded up progress in the last lap.
We are told that to start with, the no-frills carriers will shift from Mumbai’s Terminal 1 in Santacruz to the Navi Mumbai airport.
All this was the good news.
In April, when the airport promises to start operations, most of Mumbai’s residents will have to allow anywhere between 3 to 4 hours of cardiologically stressful conditions to reach the airport.
Allowing for 2 hours before arrival or maybe even more, you would have spent half a day or more just reaching the departure point.
You might as well start driving, but then once again it depends in which direction you are going.
Mumbai is designed to discourage you from leaving, particularly if you are north-bound or inflict such damage on your mental and physical faculties that you will choose to stay put.
The road that leads to the airport on one end, the majestic Atal Setu bridge, sails over the sea but is not really connected to the western part of the city, rather only the eastern part.
And needless to add, the eastern and western parts of Mumbai are like two worlds apart and have been for decades, maybe even centuries. Who knows.
A promised 4.5 kilometre bridge cum that connects the west and the east and to a new coastal road and westerly sea link quite literally lies abandoned.
Building this important connector was never going to be simple.
After much to and fro we are told now that work on this most critical component, a segment of this connector that crosses the north south railway lines in central Mumbai will start now.
This is literally years after the columns comprising the rest of the bridge have been erected.
But then, the project was conceptualised in 2013 to connect east and west and send traffic from and onto the trans harbour link, now called Atal Setu.
Not surprisingly, it stalled, was revived in 2016 and stalled again and then revived in 2021.
For which, an existing 100 + year old bridge will be dismantled.
Blame for the delays has been liberally passed around, including on right of way and buildings obstructing the path.
And yet work started on the columns leading upto this bridge across the railway line because presumably it is good form to construct where you can and then think about the rest later.
Mumbai is of course littered with such half done bridges.
From all prior experience, this bridge could take two years or five or six. The promise is a record shattering 12 months, according to officials quoted in The Print.
Usually expressways get constructed quicker in India today, a 1,000 km stretch is often delivered faster than a 100 metre bridge in Mumbai, or three years versus six years.
A reading of local news tells us that the local municipal corporation and the Railways who control the railway lines and territory around it are not seeing eye to eye.
We are also told that when it is a double engine Government, when the same party runs both the centre and the state, things should move faster.
Evidently not in the state of Maharashtra where the problem if any is too many engines trying to drive a single train.
Mumbai has a shiny new coastal road which does miracles for those commuting from north Mumbai to south Mumbai, the few who still do that stretch that is.
What would have taken maybe 45 minutes to an hour from Bandra to Marine Drive or the other way around to an hour is now wrapped up in 10-12 minutes.
The only hitch is that the axis of the city has shifted several times in the intervening years.
One new point of this shifting axis lies in Bandra Kurla Complex or BKC which is increasingly becoming difficult to navigate to and within. Most people who work there tell me they want to run from there.
But where will they go ?
Parts of central Mumbai, including Worli are looking promising once again. A metro rail through south Mumbai which has taken over 8 years against a promised three to four to build might shift things around again.
Mumbai lives on and off its dreams, of better infrastructure and a better life which is always beyond reach.
Mumbai also survives in shocking contradictions, a smooth coastal road on one end and potholed and uneven roads leading to it, bad enough to keep the country’s orthopedic surgeons busy for a lifetime.
Those who work in the richest civic body in the country do not notice or feel the poorly laid and laid roads with all their uneven bumps including at traffic signals slowing down traffic further.
Back to the airport.
It is an unfair strain on the users of the airport if they have to spend half their lives reaching the airport and back from it.
But in another insight into the actual lack of any double or triple engines, the constituency that wants the airport constructed and delivered evidently does not really care about how a good number of the people using it get there or or out of there.
Meanwhile, let's hope air traffic continues to grow at the same rate or faster - 161 million domestic passengers flew last year, up 6% - than it did in the year.
If not, there are other, perhaps bigger problems to think about then just lack of roads to an airport.
And that brings us to the top stories and themes of the day
Markets in free fall
How do you really pick a mutual fund? Some lessons
The rupee has a solid rebound thanks to RBI intervention
India’s pharma industry braces for tariff hits.
And the city of Hyderabad and state of Telangana makes peace with the beer makers.
Markets
Consistent selling by FPIs, concerns over weak earnings, slowing economic growth, and a weakening domestic currency continue to affect market sentiment.
And then there are the Trump tariffs, almost like a slow moving avalanche.
Indian stocks have lost about $180 billion in market value in the two days since U.S. President Donald Trump said he would slap reciprocal tariffs on several countries, with many analysts saying the world's fifth-largest economy could be the worst hit, according to a report in Reuters.
More on the hit shortly.
The Sensex has fallen nearly 2,300 points in the last five days, while the Nifty 50 has fallen below 23,000.
On Tuesday, the 30-share Sensex tumbled as much as 1,018.20 points, or 1.32 percent, to settle at 76,293.60.
The index traded in the range of 77,387.28 to 76,030.59 on Tuesday. With today's closing, the Sensex has shed 2,290 points in the last 5 trading sessions.
Mirroring the Sensex, the NSE Nifty50 also ended lower by 309.80 points, or 1.32 per cent, at 23,071.80. The Nifty50 recorded a day's high of 23,390.05, while the day's low was 22,986.65 on Tuesday.
Broader markets also mirrored the benchmarks, as the Nifty Smallcap100 and Nifty Midcap100 indices ended down by 3.45 per cent and 3.02 per cent, respectively.
A report in Business Standard says in the past two months, the smallcap index on the NSE has tanked 17.5 per cent its record high level of 57,827.69 touched on December 12, 2024.
The index is on the cusp of hitting a 'bear phase', termed as a fall of 20 per cent or more from the recent peak.
Shares of smallcap companies have been under pressure thanks to slowing corporate earnings growth in the December 2024 quarter (Q3-FY25) and selling by foreign portfolio investors (FPIs).
Total 131 stocks from the BSE Smallcap index have hit their respective 52-week low in intra-day trade on Tuesday. The list includes Delta Corp, Honasa Consumer, JK Tyre, Mishra Dhatu Nigam, Tata Chemicals, NCC, RITES, Motherson Sumi Wiring India and SKF India, the BS report says.
Rupee
Meanwhile the rupee did a strong rebound thanks to strong intervention by the Reserve Bank of India.
The rupee closed 0.7% higher at 86.8275 against the U.S. dollar, logging its biggest one-day gain since March 2023, Reuters reported adding that the RBI likely sold between $4 billion and $7 billion to shore up the currency on Monday to help it hold above the 88 handle and the intervention continued on Tuesday, traders said.
The rupee had hit its all-time low of 87.95 in the previous session.
A strong RBI intervention obviously suggests that the rupee has not been let go in a real sense as yet, though there have been indications that a gradual freeing could happen.
It is equally likely that the RBI did not expect this level of sustained pressure, including FPI outflows, now over $10 billion in 2025 already.
India and Thailand At Most Risk of Trump Tariffs
Economists at global banks from Morgan Stanley to Nomura Holdings Inc. have identified India and Thailand as among the nations most exposed to risks from President Donald Trump’s vow to impose reciprocal tariffs on trading partners, a report in Bloomberg said.
India and Thailand stick out because the tariffs they impose on the US are, on average, far above the rate charged on them by the US, according to a range of estimates from analysts who considered scenarios of like-for-like levies.
“Emerging Asian economies have higher relative tariff rates on US exports and are thus at risk of higher reciprocal tariffs,” Nomura analysts led by Sonal Varma said in a note to clients. “We expect Asian economies to step up their negotiations with Trump.”
India’s top importers of liquefied natural gas are already negotiating purchases of more fuel from the US ahead of a summit between the two countries’ leaders this week. And Thailand is considering buying more American products, adding to its increased imports of ethane and agricultural goods planned for this year.
The average rate that India charges US imports is more than 10 percentage points higher than US levies on Indian goods, the Bloomberg report said.
India and Thailand are among Asian economies that may face a tariff hike of 4 to 6 percentage points, assuming the US imposes duties to reduce the differential, according to analysts at Morgan Stanley led by Chetan Ahya, who added there may be scope for India to boost its purchases of US defense equipment, energy and aircraft.
SIPs In Small Cap Mutual Funds
Small Cap Funds pulled in some Rs 35,000 crore in calendar 2024, nearly twice as much as what large-cap funds have received.
The phenomenon is not surprising given that small caps in general have remarkable resilience and appreciation despite all kinds of doomsday scenarios painted by the veterans and some intervention by the regulatory body, SEBI, last year.
A controversy kicked off last week after S Naren, Chief Investment Officer, ICICI Prudential Mutual Fund, advised caution regarding SIP investments in mid-cap and small-cap stocks.
“We think it is a clear time to take out lock, stock, and barrel from small- and mid-caps,” he had said, something we reported and discussed yesterday as well.
The larger question is how does one regard mutual fund investing in general and specific and what should inform the approach and what does history tell us ?
I reached out to Dhirendra Kumar, veteran mutual fund industry tracker and founder of Valueresearchonline.com
INTERVIEW TRANSCRIPT
Dhirendra Kumar: No, no, it will not only survive, it will thrive and let me tell you that you know people are actually missing out on the context. Small cap, mid-cap and you know large cap, multi-cap, flexi-cap or you know these are there are mainstream vehicles, you know there are diversified vehicles. Mutual funds were invented to make you know investing simple and with that in mind earlier most mutual fund used to be a go anywhere fund and that is what you can actually call the tax saving funds as one.
They are not restricted by their mandate to invest in small cap, mid-cap or any sector or thematic theme or anything. Likewise, this is something investor's favourite pastime is to chase recent performance and they are you know particularly susceptible simply because you know small cap funds invest in smaller companies. Some people choose a defined supply.
If you have to rig a stock, you really can't rig you know you can't really go and rig TCS or Lance industry but you can surely do something about a 300 crore capitalisation company where you will have 150 crore with the promoter and another you know 40-50 crore with some set of investors who will not sell. So, the float in the market will be less. So, that is why you know when a defined amount of money goes about chasing and we have seen that recent past performance it becomes a self-fulfilling a circular thing.
More money pouring into small cap fund, they in turn mutual fund managers are slaves of investors money coming into which fund. If they get money in liquid fund, they will invest in T-bills. If they get money in small cap fund, they will invest in small caps.
If they get money in index fund, they'll invest in index. Nothing more, nothing less. They are expected to be fully invested.
Small cap becomes more vulnerable simply because you know they're more volatile and if more investors tend if they start pulling out, they're so much more vulnerable. They can actually fall much more freely than the overall market and that is what we witnessed in 2008 as well. When the market fell, the small cap funds actually fell by 70-80 percent while the large cap, the Fensex fell by about 45 percent.
Govindraj Ethiraj: Right, so what we are seeing today however is of course an unprecedented flow into the small and mid-cap. I mean last year the figure that I have, you can correct me if this is not correct, is about 35,000 crore went into small cap funds and SIPs and that was half of and this was double of what went into large caps. So, this obviously means that appetite is going in a certain direction from the investor's point of view but the stock is just not there or not enough at least at this value or a affordable value.
So, there is a mismatch there. So, how does this correct? Is time the only factor or?
Dhirendra Kumar: Time is one thing, the other is you know we will have smaller companies evolving from there. Now, the problem is that you know the small companies tend to be generally in a market like this. If a promoter gets excited about going public today, he is normally of the racketeering kind.
He may not need the money but simply because you know he'll go public simply because he's getting the money easily and that is what we have witnessed in all the SME IPOs and that is where all the investigations are on, that is where you know and for a while it can be sustained. The stock price can be rigged to a poor level that you know some investors can be eased out or they can get an exit but I think the only way it can happen is once we have many of these smaller companies which were venture funded, they start going public. You know I'm referring to small caps which are sub 10,000 crore.
We have witnessed you know some very high quality small caps coming into being. You know you have many of these new generation companies also and some of them are profit making too. There will be a supply but you know there is Bombay Stock Exchange, listed cow universe is so big and so old that you still have every five, seven years you have something like this happens.
Then lot of old companies come and weave a story and start dodging investors and actually start making money.
Govindraj Ethiraj: So you're saying that basically while investors should obviously continue to invest I mean this is sort of the last piece of advice I could ask you for is that should you be maybe looking at the slicing differently. So earlier the slicing was or not earlier but let's say in the last couple of years it may have been small cap versus mid cap versus large cap and maybe occasionally some sectors you know invest in defence companies or emerging opportunities and things like that. So if you look at where we are today in the beginning of 25 where the market is clearly in a weakened state, what do you feel investors should define their investing strategy in mutual funds including via the SIP route?
Dhirendra Kumar: I think for investors you know they get attracted to these small caps, mid caps, thematic stories or a sectoral play but investors have a very simple clear roadmap. They should do SIP and they should do SIP in a diversified vehicle and I'll just list the diversified vehicle for you. The tax saving fund even if you don't have to save taxes they are worthwhile because you know it is filled with individual investors they are not very big and flexi cap fund, multi-cap fund, the value fund and aggressive diversified hybrid funds aggressive advance you know which is 75 percent into equity.
A 75 percent equity 25 percent into most investors need can be very nicely filled with this one and you don't need a sixth fund you know this is your investment universe and what happens is this variety of investment that we have small cap, mid cap and all the thematic and all the sector funds they are basically to tempt investor because investors look at recent performance something or the other is always at the top or at the bottom the ones which are at the top they are also at the bottom they dominate the bottom at the top. So just ignore them and be honest and make sure that you are investing for five years and more make sure and then if you have done this then you don't have to listen to Narendra.
Govindraj Ethiraj: Okay, Dhirendra thank you so much for joining me.
Dhirendra Kumar: Thank you.
Will India’s Pharma Exports Be Hit
India’s pharmaceutical exports are projected to double from approximately $27 billion in 2023 to reach $65 billion by 2030 and beyond.
Of this, roughly 31% or one third goes to the United States making the US the top importer of Indian pharmaceuticals.
Not surprisingly, it will be in the crosshairs of the Trump administration given that India is a net exporter to the US.
A Bain Bain & Company report said India currently ranks 11th in pharmaceutical export value, India can secure a position among the top five nations by 2047.
The largest component of India’s pharma exports at $19 billion (70 per cent of total exports), generic formulations are projected to grow to $180-190 billion by 2047.
Moving beyond commodity generics, India must enhance its capabilities in specialty generics, which offer higher margins and greater global market potential.
I reached out to Dr Viranchi Shah, spokesperson and until recently president of the IDMA.
Dr Shah is also a member of Pharmexcil (Pharmaceuticals Export Promotion Council of India) and MD of Saga LifeSciences and National President of the Indian Drug Manufacturers Association and began by asking him how the industry was gearing up for Trump.
INTERVIEW TRANSCRIPT
Dr Viranchi Shah: I believe that the industry is watching this news very cautiously and I don't think there is one, let's say, opinion that has been made so far for several reasons. Number one, we don't know if the pharmaceutical industry will have tariffs on it or not because pharmaceuticals are life-saving drugs and they do impact the availability and accessibility of drugs in the US as well as in all the other markets. So, usually governments are not very hard or very strong in terms of tariffs or barriers for such kinds of life-saving or critical imports.
So, we are not very sure whether India will be subjected to tariffs or not. One, and second, even if there is something that does happen, whether pharmaceuticals will be a part of it or not. But a general sense is that almost 40% of the generics sold in the United States originate in India and we play a very constructive role as far as the healthcare system of the US and several other countries are concerned.
So, hopefully, we will not be subjected to tariffs. However, if suppose it happens, one of the impact that I see is that suppose we consider the impact on the APIs because APIs is something where India and certain other countries like China and other players do play a part. In such cases, it will then have to be seen what is the difference between the tariffs on India versus the other significant players in the same product.
And most likely, even in such event, if the tariffs on India are lower than tariffs on some other countries, even in that case, in my personal opinion, we are here to gain because the other source of API would be that much more affected as compared to an API coming from India. So, that would be in a favour in a way, hypothetically, if this is what happens.
Govindraj Ethiraj: So, a couple of questions. So, first is like President Trump has been referring to in the case of let's say industries like automotive where you know they want to go after steel and aluminium where there is scope for domestic manufacturing or at least the feeling is that they can substitute with domestic manufacturing. Is there domestic manufacturing capacity or the possibility of it in the US for these kind of categories of drugs including generics?
Dr Viranchi Shah: Very limited. But just to give you a comparison of one of the companies I know and the cost of converting a thousand tablets for example from an API to a tablet, doing it in the same company's plant in India was approximately about four and a half dollars and doing the same product with the same ingredients, same equipment in the US was in excess of thirty dollars. That was a comparison I know about a company which is based on a dependable data.
So, kind of cost escalations that go then only for very high value products it may get let's say more competitive to do it or at least not raise any issues when you transfer that product from India or any other country to the US.
Govindraj Ethiraj: Okay, let me put it differently. I know we are sitting here in India but how price sensitive is the market? So, let's say we are exporting 27 billion dollars worth of products assuming there are let's say 10 percent tariffs the value of that becomes let's say 30 billion dollars landed on a very rough basis in the US.
What is the price sensitiveness of the US consumer to this category in your understanding?
Dr Viranchi Shah: Let us understand it. The price competitiveness, the US is a very different dynamics. There are certain major players as far as distribution is concerned about three or four players really major in terms of their reach and size and then there are a set of importers and pharmacy benefit managers and it's slightly different from what we have in India.
So, that simple comparison is not but I can tell you as far as the importers are concerned how does that translate into a retail price is a very different game it depends on several factors but as far as the imports are concerned definitely they are price sensitive. We have to compare of what could be the cost of doing the same in the US or is there any other alternative supplier that can be more efficient, more cheaper, faster than India. So, at least in the immediate or short run I don't see any other player which has the kind of capabilities that India can offer.
Govindraj Ethiraj: And US is roughly 30 percent of the market of all pharmaceutical exports from India or one third. What are the opportunities like in the rest of the world? How is that looking to the industry right now?
Dr Viranchi Shah: So, if you see consistently for example I think the last year's growth in export was in excess of nine percent as far as pharmaceuticals was concerned and we have a similar trend if you compare see COVID was of other like 21-22 was a different because you know everywhere there was a supply chain and there were unrealistic growths and changes but if you see for the last five or ten years apart from you know removing that COVID period our exports has consistently grown last couple of years it has been in excess of eight nine percent currently when the growth in exports is facing certain challenges in terms of overall numbers for the country pharmaceuticals still continues to perform well so I believe that there is therefore a very positive outlook for you know the international demand for pharmaceuticals from India.
Govindraj Ethiraj: Right and are there any other trends that you're seeing last question as well any other trends that you're seeing in 2025 or this year apart from let's say the where all the attention is going to be which is exposed to the U.S.
Dr Viranchi Shah: See U.S. is actually a trendsetter right so we must understand that if U.S. is hysterical so U.S. does certain things not only in pharma for any other commodity there will be countries who will try to emulate now everybody will not be able to do because the kind of size and scale of U.S. and the importance it carries in global trade is so much higher so for example another country in the Africa if they want to do something that U.S. does while there could be a political wish probably but in terms of actual execution they may not be able to do but definitely you know there will be local noises that will come forward and say why don't we also add 10 percent in import duty or do this or do that so those kind of challenges will continue in my opinion in 2025 but how much it actually translates into an impact on business especially in pharmaceuticals I'm not too sure.
Govindraj Ethiraj: Right Dr. Shah thank you so much for joining me.
Dr Viranchi Shah: Thank you.
Beer Wars
India's top beer-consumer state Telangana has allowed beer prices to be increased from Tuesday, weeks after a brief halt in supply by Heineken's Indian unit United Breweries over pricing issues.
We are returning to this because we reported the original battle, on the basis of a report from Reuters.
The order also directed that all existing stock be sold at the revised rates from Tuesday.
In January, the 'Kingfisher' beer manufacturer halted the supply of beer briefly.
United Breweries dominates the market in the southern state of Telangana with a 70% share.
The company, in its January 8 decision, said it had decided to halt supply over delayed payments and a lack of government approval for higher prices since 2019/20, which hurt its finances.
India is the world's eighth-biggest alcohol market by volume, and states individually regulate the pricing of alcohol products, which are major contributors to their tax revenue.
Musk Bid Fior OpenAI
PARIS — Elon Musk aims to “slow down a competitor” when the investor group he led put forward a $97.4 billion proposal for control of OpenAI, the company’s CEO Sam Altman told CNBC on Tuesday.
Asked how seriously he is taking Musk’s bid, which Altman previously declined in a X social media post, the OpenAI chief said: “Not particularly.”
“I think it’s to slow down a competitor and catch up with his thing, but I don’t really know ... to the degree anybody does,” Altman added, in response to another reporter’s questions on the sidelines of the AI Action Summit in Paris.
Elon Musk is leading a group of investors in offering to buy control of OpenAI for $97.4 billion, CNBC confirmed on Monday. The offer is for the nonprofit that oversees the artificial intelligence startup behind ChatGPT.
“It’s time for OpenAI to return to the open-source, safety-focused force for good it once was,” Musk’s attorney Marc Toberoff said, adding that he submitted an offer on Monday.
Musk has his own AI company called xAI which is behind the chatbot Grok.
