Markets Recover from Trump and Earnings Battering
The benchmark indices looked up on Wednesday after a hammering on Tuesday
On Episode 488 of The Core Report, financial journalist Govindraj Ethiraj talks to Ambareesh Baliga, veteran market analyst as well as Pushan Sharma, Director- Research at Crisil Intelligence.
(00:00) Stories of the Day
(01:00) Markets recover from Trump and earnings battering
(02:17) What are the underlying trends in the markets right now?
(09:42) The Rupee is holding relatively strong
(12:11) Oil prices yet to respond to Trump’s national energy emergency
(14:08) India’s whiskey & steel export strategy to the US
(17:08) Decoding India’s earnings growth slowdown for Q3
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 Thursday, the 23rd of January and this is Govindraj Ethiraj, headquartered and broadcasting and streaming like always from Mumbai, India’s financial capital.
Our top stories and themes for the day
Markets recover from Trump and earnings battering.
What are the underlying trends in the markets right now ?
The Rupee is holding relatively strong.
Oil prices yet to respond to Trump’s national energy emergency.
India’s whiskey & steel export strategy to the US.
Decoding India’s earnings growth slowdown for Q3
Markets
The benchmark indices looked up on Wednesday after a hammering on Tuesday, thanks to gains in HDFC Bank after its quarterly results though most of the action happened in the last hour of trade after the usual roller coaster ride.
The Sensex closed with a gain of 567 points at 76,405.
The NSE Nifty 50 index finally ended 131 points higher at 23,155.
HDFC Bank reported a 2 per cent growth in Q3 net at Rs 16,735.5 crore, as against analysts expectations of a likely drop in net profit.
The broad market indices were moving in the reverse direction, after a while.
The BSE MidCap index slipped 1.2 per cent, while the SmallCap tanked 1.6 per cent.
Among the sectorial indices - the BSE Realty index tumbled to a 10-month low and more on that shortly.
The Capital Goods index was also down nearly 2 per cent. Among others, the IT index rallied over 2 per cent on Wednesday, Business Standard reported.
Foreign portfolio investors (FPI) have sold Indian stocks and bonds worth $7 billion in January so far.
Looking For Underlying Signs
The markets are desperately looking for signs that are not coming. The Union Budget is still over a week away and that could be the next big possible event but one that could disappoint as well particularly if there are no major tax sops, particularly on individual taxes.
On the other hand, most institutional investors, particularly FIIs are still alluding to high valuations and putting their sell orders where their mouth is.
Given all of this, what are the underlying signals and what sort of phase are we in?
I spoke with Ambhareesh Baliga, veteran market analyst and began by asking him how strong the selling pressure was?
INTERVIEW TRANSCRIPT
Ambareesh Baliga: Overall signal which is coming from the markets is that possibly it's time for the markets to correct. And that's what we have seen in the last close to two and a half, three months. Again, this is because of the sort of macro numbers which have been coming, which have been nothing too great.
Earnings of Q1 was a bit disturbing, but we thought it was a blip. Q2 confirmed that there is a slowdown, there is a margin pressure across the sectors. And Q3, whatever we are seeing, clearly again reconfirms that.
I think all these things put together, I mean, have put their pressure on the market, despite the fact that retail money has still been coming. If you look at December, December was record for the SIPs, as far as mutual funds are concerned. But then whatever is happening globally, because of which we are all possibly seeing that the money outflow has been quite strong, because of which the retail money is not able to make that effect what we saw in the last close to three and a half, four years.
That is what was pushing the markets up. So today we are in a situation where most of the retail investors are finally feeling cautious. There is a bit of a panic I can notice in that space.
And like most of the stocks or sectors where they've invested, they've been losing money. I mean, for the last eight to nine months, although the markets have been falling for the last three months, retail investors have been losing money for the last eight, nine months at least. Because they've been investing in those sectors where actually moving up sharply, for example, defence and railways.
And that's where we saw a major cut in 2024. So most of the portfolios have been in the negative. In the past, they've been following this thing that whenever the market falls, it's a good time to buy.
And that played out very well for them all through. But this time it's not playing out. Every extra rupee you're putting in, you're getting 10 paisa, 20 paisa.
You're happy you're putting in more money. So we're in a virtuous cycle. But now what's happening is every rupee you're putting in, you're getting back 90, 95.
So because of which fresh money will slow down. And I'll not be surprised if you see the January numbers. I mean, we still have not been declared, but when the January SIP numbers come, I mean, we could be surprised with a lower number.
I'm not saying negative, but I'm talking of a lower number than what we have seen in the past. So that could be another trigger for the markets to start correcting further, because we were depending on the retail money coming in. So overall trend, which I noticed now is that we are in that downswing.
But downswing does not mean there will be a one way down. We'll see those bounce backs like in between. So we should see some short rallies.
For example, I'll not be surprised if we see a pre-budget rally. I mean, normally we see that. And after this sort of a correction, a normal pre-budget rally can be expected.
But if you're talking over the next two, three, four months, I see the markets at a lower level. If you ask me, are you looking at a crack or a crash? No.
If it asked me four, five months back, I would have said, yes, possibly you should see a crash. But then markets have come down like decently well, but not very, very sharply in short time, which is what we call crash. And even going ahead, I don't see that happening.
But then it would be painful for a lot of investors because they've been used to instant gratification. That's not going to happen, at least in the near future.
Govindraj Ethiraj: Got it. And I'm going to come to a theme question in a moment. But before that, so the belief all this while was and that because we've seen such strong domestic flows that were not just counterbalance, but outweigh foreign portfolio selling.
Absolutely. So why is that not happening then? No, because I mean, the amount of outflows of FIIs is decently large.
So we're looking at $7 billion this month, but that includes bonds. Yeah.
Ambareesh Baliga: Yeah. And at the same time, it is not just the retail money through the mutual funds, which is a tool which is pushing the markets up. It was also the retail money, which is coming directly into the markets.
And that's the first thing to stop. And I'll be surprised if it's already reduced by quite a lot in the last two, three months, because, I mean, again, you look at the sort of investments they would have made in the last seven, eight months. SIPs of the last seven, eight months will surely be showing losses as of now.
So, I mean, a couple of months you can still manage, but beyond that, you start questioning yourself. Am I doing the right thing? Is the fixed deposit better than investing in equity at this point of time?
All those questions come up.
Govindraj Ethiraj: So what is the theme or the themes that have somewhat survived this downswing, as you called it, so far, at least?
Ambareesh Baliga: I mean, as of, you see, I mean, if you look at the theme, which was there in the last two years, it was basically defence and railways. But that theme, we saw that thing getting burst around the middle of 2024. And then after that, we've seen a major correction.
I think most of the stocks have corrected 35, 40, even 50% in some cases. But the one theme which has started doing well in 2024 was that electronic manufacturing services, third-party manufacturing. Like we have about 12 to 15 stocks in this space.
I mean, one of the major is Dixon. But now lately, what we have seen is that the performance, although it's good, but performance is not keeping pace with the analysis expectations. Because these stocks have become multi-baggers in the last about a year or 15 months.
So, I mean, although that theme was running for the last couple of months very well, but I'm starting to see cracks in that theme right now. So, maybe what we've seen in defence and railways happening in 2024, I think we'll see that happening in this theme in 2025.
Govindraj Ethiraj: Is there something which looks like, you know, is in some ways reflects the passing of an era? Like, you know, every cycle sees some stocks or some themes which become stars and then they disappear, if not for a long time, then sometimes even forever.
Ambareesh Baliga: I mean, as of now, I don't see any such theme which will possibly disappear forever. But there are a couple of themes which can possibly play out decently well going ahead. I mean, those themes haven't done too well in the recent past.
When I say a recent past, possibly the last couple of years, but I think those themes should start doing extremely well going ahead. And two of those themes are, one is consumer. Because consumer story has been going through a very bad phase, especially in the last couple of quarters, there's been an urban slowdown.
Rural hasn't really picked up as expected. But that theme possibly can start playing out in the next two or three quarters. The other one is speciality chemicals, which played out extremely well in 2021 on China plus one story.
I think that should play out now going ahead. The difference between then and now is that most of these companies have expanded capacities. Now, quite a few of them have world class facilities, world class capacities.
So that China plus one, you can actually play out extremely well now, when there would be trade sanctions against China, those trade barriers.
Govindraj Ethiraj: Thank you so much for joining me.
Ambareesh Baliga: Thank you. Always a pleasure.
Rupee
It was a good day for the rupee, at least in relative terms.
The rupee strengthened on Wednesday, on the heels of most Asian currencies..
The rupee closed at 86.3225 against the U.S. dollar, up nearly 0.3% on the day.
Almost like equity markets, the currency swung away during the day.
It was under pressure in the earlier part of the session and was supported by dollar-selling intervention by the Indian central bank; it ticked up in the latter half of the day on the back of dollar sales by foreign banks, traders told Reuters.
The dollar index was down 0.1% to 107.9 after swinging back and forth over the last two days as the trade tariff news flowed out of Washington.
Gold Prices Keep Shooting
Prices of gold, a safe haven investment in such times, rose to a near three-month high on Wednesday, thanks once again to the uncertainty surrounding the U.S. President Trump's policies and a softer dollar.
Spot gold rose to $2,759.83 per ounce and hit its highest since Nov. 1 and is close to its record peak of $2,790.15 hit in October, Reuters reported.
Spot silver has meanwhile risen to $30.89, hovering near a one-month high hit on Jan. 16.
The dollar index is hovering around a two-week low hit earlier in the week. A weaker dollar makes gold more attractive for holders of other currencies.
The New Trump Tariff Tracker
Since it is quite evident that many of Trump’s actions or inactions but threats on both counts will keep most global economies at the edge of the seat, I felt it would be useful to have a Trump Tariff Tracker till things settle down on this count, if they do
So the latest is that Trump on Tuesday vowed to hit the European Union with tariffs and is contemplating a 10% punitive duty on Chinese imports because fentanyl is being sent from China to the U.S. via Mexico and Canada.
In his campaign of course he had promised more tariffs.
He is standing by a 25% tariff on Mexico and Canada from 1 February to which Canada is apparently lining up a fitting response since large chunks of Canadian oil are powering refineries in the US, particularly on the east coast.
Oil Prices
Oil prices moved up on Wednesday as the dollar weakened.
Traders are tracking U.S. inventories and of course the likely impact of the national energy emergency he declared on his first day in office.
Brent crude futures rose 43 cents, or 0.54%, to $79.72 per barrel
Oil is also being helped by a marginally weaker U.S. dollar as it usually does.
"The oil market's attention is slowly turning away from U.S. sanctions against Russia towards President Trump's potential trade policy," analysts told Reuters.
The U.S. president had said his administration would "probably" stop buying oil from Venezuela, among the top suppliers of oil to the country.
Trump has already declared a national energy emergency to speed permitting, rolling back environmental protections, and withdrawing the U.S. from the Paris climate pact.
Trump's policy is unlikely to spur near-term energy investment or change U.S. production growth, analysts at Morgan Stanley wrote in a note, adding that it could, however, moderate potential erosion of refined product demand.
Meanwhile, Trump’s promise to boost power output has been welcomed by companies like Siemens Energy which said in Davos it
expects a "massive tailwind" from Donald Trump's power strategy for artificial intelligence infrastructure, like data centres.
Shares in Siemens Energy, which makes everything from gas and wind turbines to power network equipment and transmission technology, rose nearly 10% to a record high on Wednesday after Joe Kaeser, who chairs its supervisory board, said it was "in the sweet spot" to benefit, 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.
The Whiskey & Steel Strategy
India’s government is looking at cutting tariffs and importing more goods from the US if US President Donald Trump follows through with threatened trade action, Bloomberg is reporting .
India’s trade surplus with the US which was $35.3 billion for the year ended March 31.
Among the options discussed, the government could buy more whiskey, steel and oil from the US, officials told Bloomberg.
It could also reduce some import tariffs, with officials drawing up a list of likely products, such as bourbon whiskey and farm goods like pecan nuts, they said.
Elsewhere, India is set to take back at least 18,000 illegal Indian immigrants from the US to help placate the Trump administration.
Trump has held off on all tariffs for now but has reiterated his threats against Brics group of developing countries particularly if they try and develop an alternative currency to the dollar, something China has floated as a concept.
India could also consider buying more goods from the US in sectors including soybean, dairy, vehicles, medical instruments, and aircrafts, Bloomberg said, adding that sectors like electronics, hi-tech machinery, textiles, footwear and chemicals among sectors could benefit if China was hit with higher tariffs by the US as threatened.
Immigrants and Immigration
U.S. Secretary of State Marco Rubio has discussed with his Indian counterpart, Subrahmanyam Jaishankar, concerns related to "irregular migration" on Tuesday, Reuters quoted the US State Department saying.
In earlier conversations on The Core Report with among others Mukesh Aghi, President & Chief Executive Officer of the US- India Strategic Partnership Forum, it is quite clear that from the US perspective H1B visas cannot be delinked from illegal immigrants from India who are of course heading there in large numbers.
President Donald Trump is looking to double down on illegal immigration and advance his goal of deporting millions of immigrants who are in the U.S. illegally.
The Indian government is prepared to work with the Trump administration to identify and take back all its citizens residing illegally in the U.S., Bloomberg reported on Tuesday, citing sources.
The report added that the two countries have together identified some 18,000 Indian migrants who are in the U.S. illegally and could be sent back home.
"Secretary Rubio also emphasized the Trump Administration's desire to work with India to advance economic ties and address concerns related to irregular migration," the State Department said in a statement.Advertisement · Scroll to continue
India, separately on its part, has said that the movement of skilled professionals is an important part of India-U.S. ties and benefits both countries amid a debate over H-1B visas on which Trump and his billionaire backer Elon Musk offered support to the visas.
India received about 78% of the 265,777 H-1B visas issued by the United States in the fiscal year ended Sept. 30, 2023.
Importantly, Elon Musk has backed H1B visas.
A Revenue Growth Outlook
Revenue growth of India Inc likely declined 80-90 basis points (bps) on-year to 4-6% in the three months ended December 2024, Crisil Intelligence has said in a new report.
This is based on an analysis of 400+ companies that account for almost half of the listed market capitalisation.
The report says this is because the construction segment, which accounts for a fifth of overall revenues, dragged because of an extended monsoon and slower recovery in government spending after the general elections, while the industrial commodities and investment-linked segments had a subdued outing.
I reached out to Pushan Sharma, Director at Crisil Ltd and began by asking him what were the key trends he was seeing.
INTERVIEW TRANSCRIPT
Pushan Sharma: So, if we look at the overall performance, we can break it down into three parts. There is the construction, which also includes commodities, investment-linked sector, that's about 38 percent of the overall revenue. That's been underperforming the overall growth.
There are the export-linked sectors, which account for about 20 percent, one-fifth of the overall revenue. That's around the same trend of the overall revenue growth. And then there are the consumption-linked sectors, consumer discretionary products, as well as services.
They are performing better. So, they are actually pushing growth forward. So, that's the overall breakdown, if you were to see, if we divide into these three parts.
Govindraj Ethiraj: So, what's the composite takeaway, Pushen? If some things are going up, some things are going down. So, it could be going down because there is a problem with that industry, and therefore, is not being affected by the overall demand slowdown that we seem to be seeing.
Pushan Sharma: Right. So, the overall takeaway is that commodity-linked sectors, because the commodity prices are going down, those are actually showing a decline in growth. For example, steel, where prices are declining by about 10 percent, we're seeing that the revenue growth is declining by about 7 to 8 percent.
Coal, again, it's flattish, 1 percent growth. The flip side is that the consumption-linked sectors, things like consumer products, discretionary products like automobiles, we're seeing growth for around 7 percent. On the discretionary services side, we're seeing much better performance.
For example, telecom, the revenue growth is around 17 percent. Airline, about 14 percent. Hotels, about 11 percent.
Govindraj Ethiraj: And all of this is year-on-year.
Pushan Sharma: All of this is year-on-year growth. So, the consumption-linked sectors are doing well, where there is linkage to commodities and more so the government spending. There, we're seeing some signs of slowdown.
Govindraj Ethiraj: And what does this tell us about the demand or the propensity to spend?
Pushan Sharma: The demand, I would say, is still muted. If you see the FMCG sector growth, it's not volume-driven. To some extent, it is price-driven or product-mix related.
Even if we talk about automobiles, where we saw 7 percent revenue growth. If you look at the car segment, we see that utility vehicles, which used to account for about 59 percent of overall sales, the last year, the same time period, they're about 65 percent. Even commercial vehicles, we're seeing an upmove towards the higher tonnage vehicles.
So, a lot of it is product-mix related. Overall, if one were to see that, you know, the overall revenue growth has been declining. If we look at the YOY basis, it has been on a declining trend.
And it bottomed out last quarter, I would say, at about 2.4 percent. This quarter, it's at about 5.2 percent. If you look at the overall revenue growth for all of these, you know, listed entities, and you see that trend over the last, you know, 12 quarters, what we see is that the YOY growth, that has been on a declining trend.
So, if we were to look at the numbers in Q3 of FY23, we were at 16 percent growth. And then it went down to the range of around 8, 7, 8 percent growth for the next three quarters. And now we're in the range of around 6 percent growth.
So, that has been tapering down. But in all probability, it could be a bottom. And we should be seeing some better prospects as we go ahead.
Because the commodity prices are lower and that gives companies some flexibility in terms of what they can offer to the customers.
Govindraj Ethiraj: So, you said telecom revenue, for example, was up almost 17 percent. So, what explains that?
Pushan Sharma: That's because the pack prices, they have increased. So, from July onwards, we've seen anywhere between 12 percent to 25 percent increase in pack prices. And that's what is actually supporting growth.
Govindraj Ethiraj: So, as an overall, again, if you were to, you know, apply that to other sectors as well. So, how much of all of this is because prices have been raised and or because of inflation?
Pushan Sharma: So, where we're seeing growth is largely on the consumption side. Right. So, if we talk about telecom, their 70 percent growth, like I said, is largely price-led.
Airline, again, the 14 percent growth, a large part of it is price-led, although volume is contributing to some extent. Automobile, we're seeing growth of around 7 percent. Again, a huge majority share, more than 50 percent, is price and product mix related, because the volumes other than two-wheelers are quite subdued.
FMCG, again, we're seeing overall growth of 7 percent. Here too, the volumes are quite muted. In fact, the HUL has just come up with his results today.
They, again, are talking about muted volume growth.
Govindraj Ethiraj: Right. So, to go back to construction where we started and what's your sense on what the next few months, this is a broader outlook question as well, is looking like. That's one.
Second, is construction as a whole, is it stable? Is it growing? Is it not?
Pushan Sharma: So, if we just talk about construction, the key parts of the construction segment are steel and cement. The demand for steel is still, I would say, moderate to good. We're seeing high single-digit growth in demand.
But the pressure here we're seeing is in terms of cheap Chinese imports. China has an aggregate production of around 1,100 million metric tonnes. And it is currently overproducing about 120 million metric tonnes.
So, there's an oversupply which it exports to the rest of the world at cost or slightly above cost, in some cases, even below cost. So, that's on the price and demand dynamics. In terms of cement, if we see, a bag of cement used to cost about 400 rupees per bag, which was in Q3 of FY24.
The same is about 350 rupees in the quarter that just went by. So, there's a sharp decline in price there. And that's largely because of price war that we're seeing in that market.
So, if we talk about, if we keep aside these dynamics of price, supply and demand, if you just look at what is really going to drive growth going forward, a major element here is government spending. We've seen that the government spending had been slightly subdued over the last nine months. We're expecting that to pick up.
And overall, that should bode well for the construction segment.
Govindraj Ethiraj: Right. Thank you so much for joining me. Thanks.
Pushan Sharma: Thanks a lot, Govind.
