Markets Recover In Special Trading Session
A special Muhurat trading session for Diwali on Friday brought some cheer into the markets which have seen a terrible October
On Episode 425 of The Core Report, financial journalist Govindraj Ethiraj talks to Dr Amir Ullah Khan, Economist and Research Director of the Centre for Development Policy and Practice.
(00:00) The Take
(05:29) Markets recover in special trade, all eyes on US elections
(06:27) Oil prices rise on speculation that Iran might retaliate
(06:55) Nvidia to replace Intel on Dow Jones Index
(08:50) Berkshire Hathaway has moved to record cash levels at $325 billion, what could that mean
(13:33) Bibek Debroy’s unfinished agenda, through the eyes of a fellow economist and co-author of multiple books.
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 Monday, the 4th of November and this is Govindraj Ethiraj, headquartered and broadcasting and streaming from Mumbai, India’s financial capital.
The Take
Walking around GE Capital’s offices in Gurgaon in the late 1990s, it would have been tough to imagine that hundreds of young executives working night shifts could be building the foundation of what would become one of the most powerful and unbreakable economic links between two countries, in this case India and the United States.
Senior GE executives like Pramod Bhasin and Raman Roy - often called the father of India’s BPO industry - more than 25 years thus created the architecture for an industry that progressively employed millions even as it integrated real time with businesses in the United States and elsewhere in the western world.
AI may take over many of those jobs today but the early BPO revolution has already given way to the Global Capability Centre (GCC) wave.
Today, there are over 1,700 GCCs in India or captive centres for large multinationals, many in the USA. And there are almost two new ones being set up every day.
Corporations like NVidia, whose founder-CEO Jensen Huang got a rock star reception two weeks ago during his India visit, first set up their development centres in Bangalore more than 20 years ago.
As did Intel, GE, Cisco, Google, Meta, Oracle and a host of other technology and non technology companies expanding to Hyderabad, Chennai and Delhi.
Even Apple’s exports of iPhones from and made in India have jumped by some 30% in the last six months with exports touching $6 billion in this period, putting annual exports on track for $10 billion.
On both products and services, India and the United States of America are tightly linked, like never before.
Which brings us to the elections in the United States this week and what it could mean for India ?
The one thing about a tight race is that neither side’s agenda is absolute.
Current president Joe Biden did not really alter his predecessor Donald Trump’s China policies and if anything, over time, only further tightened controls on Chinese imports and trade.
Similarly, while the Biden administration may have been lax on immigration in the last four years, the next four will see much tightening, whether it is Donald Trump or Kamala Harris who becomes president. Because this is an issue that is clearly resonating with voters.
Indian companies exporting to the United States could in the worse case see tariffs on products and clamp downs on H1B visas and the like.
The larger point however is this.
The United States is on an unprecedented economic growth path right now.
So much so that the IMF in July revised upwards its GDP growth projections for the US from 2.6 to 2.8%. The previous decade saw less than 2% growth incidentally.
The Economist in its October 19th edition points out that residents of America’s poorest state of Mississippi on an average earn more than the British, Canadians or Germans.
It also says that those who thought that China would have overtaken America by now as the world’s biggest economy at current exchange rates have been proved wrong.
China’s GDP was around 75% of the US in 2021 and is now 65%.
All this may change later but this is how it stacks up now.
America by the way is the largest producer of oil and gas in the world as well.
And China is the largest importer of crude oil, followed by India.
The Economist says that an economy with an unemployment rate of 4% and a per person GDP of $85,000 does not have to be made great again, it is great.
India like many other countries will benefit from a strong US economy that is of course open to trade. Remember, US stock markets are also on an unstoppable bull run with all indices at record highs. Global markets tend to keep pace with Wall Street, even with some lags.
Despite Mr Trump’s exhortations of tariffs, it is difficult to believe that tariffs even if imposed on countries like India will be prohibitive.
China might be a different story of course.
And while more H1B visas might be tough, that will not fundamentally alter the power balance, at least when it comes to Indian IT companies.
The bottomline is that the Indian and the US economies are very tightly interlinked.
This process began decades ago and is only getting stronger even as America’s biggest and most successful corporations tap into both the talent and the market that India offers.
For the United States, like some others, good economics will sooner or later, make for good politics as well.
Top Stories & Themes
Markets recover in special trade, all eyes on US elections
Oil prices rise on speculation that Iran might retaliate
Berkshire has moved to record cash levels at $325 billion, what could that mean
Nvidia to replace Intel on Dow Jones Index
Bibek Debroy unfinished agenda, through the eyes of a fellow economist and co-author of multiple books.
Markets Recover
A special Muhurat trading session for Diwali on Friday brought some cheer into the markets which have seen a terrible October, being the worst month since March 2020 or Covid time.
October also saw FIIs sell over $11 billion of stock as they shifted out and mostly to China.
In Friday trade, the Sensex closed 375 points up at 79,724 points while the Nifty closed up 99 points at 24,304.
Since, 2023 Diwali, the Nifty has risen about 25%.
Gold has of course done well.
High prices kept volumes a little low. Prices hit a record high of 79,775 rupees per 10 grams earlier this week, marking a nearly 33% increase since last year's Diwali, Reuters computed.
Oil Prices
Oil prices have firmed up once again over the weekend on reports that Iran may attack Israel from Iraqi territory in the coming days.
Brent crude rose very marginally to hover near $73 a barrel but was down 3.2% last week, following Israel’s limited attack on Iran over the weekend, Bloomberg reported adding some analysts warning that the market had “relaxed too quickly,”.
The New Tech Titans
This must hurt, getting edged out of a key index only to make way to your rival.
Nvidia Corp., the chipmaker powering the artificial intelligence boom, is joining the oldest of Wall Street’s three main equity benchmarks, Bloomberg is reporting, adding that Nvidia will replace rival Intel Corp. in the 128-year-old Dow Jones Industrial Average prior to the start of trading on Nov. 8.
Sherwin-Williams Co, th paint company. is also joining the index, replacing Dow Inc, among the largest chemical companies in the world.
Sherwin Williams is seen as a surprise addition and is also present in the Indian paints market incidentally though more in the industrial and coatings space.
The Nvidia stock has risen 900% in the past 24 months and ended last week with a market value of $3.32 trillion, about $50 billion shy of Apple Inc.
Intel joined the Dow Jones in November 1999 when it was added along with Microsoft Corp., SBC Communications and Home Depot Inc.
The struggling Intel’s shares have lost 54% this year.
The Dow Jones Industrial Average started as an index of 12 industrial stocks that included General Electric Co, whose then subsidiary GE Capital brought business process outsourcing into India.
Dow Jones 30 stocks usually include a mix of shares from technology, financial, health care and consumer sectors. A committee selects the 30 components and weights them by price rather than market capitalization, as the S&P 500 does, Bloomberg reported adding that while the Dow’s influence has faded over the years as passive managers linked to benchmarks based on market value, the index remains an exclusive club and still serves as one of the highest profile showcases of American industrial heft.
What Does All That Cash Mean?
When mutual funds or long term investors increase their cash reserves by selling stock they are holding, these are usually a sign that there is inherent overvaluation in some stocks or in the market.
The reason for selling could be specific to a company’s fortunes too but that may not be the only case here.
Berkshire Hathaway Inc.’s cash pile reached $325.2 billion in the third quarter, a record for the conglomerate, as Warren Buffett continued to refrain from major acquisitions while trimming some of his most significant equity stakes, Bloomberg reported, adding Berkshire once again cut its holdings in Apple Inc.,with its stake valued at $69.9 billion at the end of the quarter, down from $84.2 billion in the second quarter, indicating that Berkshire cut its stake by about 25%.
Buffett said in May that Apple would likely remain Berkshire’s top holding, indicating that tax issues had motivated the sale. “I don’t mind at all, under current conditions, building the cash position,” he said at the annual shareholder meeting.
Berkshire reported $34.6 billion of net share sales in the three months through September.
The company has struggled to find ways to deploy its cash pile, as Buffett has found market prices too high to find attractive deals. At the annual meeting, Buffett said Berkshire wasn’t in a rush to spend “unless we think we’re doing something that has very little risk and can make us a lot of money.”
Indian equity funds' allocation of cash relative to their asset size rose to a 5-year high at the end of August, as fund managers are worried about markets being too rich and other macroeconomic risks around U.S. elections and Chinese growth, Reuters reported in the last week of September.
According to Morningstar data, active equity funds in India with a fund value of at least $1 billion held an average of 5.39% of their portfolios in cash as of end-August, their highest levels in five years.
Some funds held more, like the ICICI Prudential Value Discovery Fund, whose cash allocation rose to 14.7% by the end of August from 7% at the beginning of the year.
There were a few others as well.
The situation may not have changed much since but it would also be logical that if the market corrects between 7 and 10% from peak, it's already over 7%, then funds would start bargain hunting more aggressively.
Of course Indian Mutual Funds are still seeing unprecedented flows of money so things are a little different.
Slowing Demand
India’s urban middle class has slowed down spending for at least the second straight quarter as inflation and unemployment weigh on sentiment, Bloomberg is reporting.
At least 7 of India’s largest companies, including Reliance Industries Ltd.’s retail arm and consumer bellwether Hindustan Unilever Ltd., have flagged softer consumption demand and a challenging operating environment in their earnings for the July to September quarter.
The reasons range from fizzling out of post-pandemic euphoria, higher interest rates, muted wage growth and poor job prospects.
On the other hand, while India’s rural consumers are showing signs of spending more thanks to a good monsoon season that boosted incomes in the countryside, it can’t make up for the pullback among nearly 500 million city dwellers.
“The cause of concern is that growth is taking place only in certain segments,” R. C. Bhargava, chairman of Maruti Suzuki India Ltd., told reporters on Tuesday after India’s largest carmaker posted underwhelming profit. “What used to be 80 per cent of the market is not growing,” he said, referring to the entry-level small cars whose sales is seen as a gauge of urban consumer demand.
Small cars made up as much as 80 percent of Maruti’s sales as recently as 2019, according to Bhargava.
Revenue from operations for Reliance’s retail unit, India’s largest retailer and part of billionaire Mukesh Ambani’s conglomerate, slipped 3.5 per cent for the quarter ended Sept. 30 — a fall it attributed partly to weak demand for fashion and lifestyle products.
Revival of rural demand, welcome as it is, cannot offset the shortfall in urban mass spending.
For Unilever’s India unit, smaller towns and villages make up only a third of its sales, Chief Financial Officer Ritesh Tiwari told reporters last week. Any recovery in demand growth was a few quarters away, he said.
Investment banks like Goldman Sachs Corp. have already downgraded India’s growth projections to 6.5 per cent.
The latest data from credit information firm TransUnion CIBIL shows credit card delinquencies increased by 17 per cent as of June from a year ago.
The final bets are on sales numbers from the festival season and to what extent the usual bump up will negate the slowdown earlier.
The Passing Of Bibek Debroy
Dr Bibek Debroy, who died last week, has been called a philosopher economist and is remembered for a variety of things, but the principal of them being a free market economist who spoke up against controls and shortages.
Dr Bibek Debroy, earlier chairman of the Prime Minister's Economic Advisory Council passed away on Friday last week at 69.
He worked on a blueprint for transforming Indian Railways, indeed wrote columns on the Railways a true railway buff could even as he taught chess to school children in Delhi over the weekends.
And he had a sporty pursuit of sorts which not many knew about and more on that shortly.
He also argued for simplification of laws and jettisoning old ones, particularly in states and taxing rich farmers.
In one conversation I had with him several years ago, he spoke in passing of some books he was reading and possibly working on a translation.
That’s a lot of reading and writing I said.
Yes, he responded, given that the books were in Russian. I almost fell out of my chair.
I discovered later he was self taught and fluent in Russian and in Sanskrit.
He won equal acclaim for his work in translating Indian scriptures like the unabridged Mahabharata into English in 10 volumes, the Ramayana in three volumes followed by the Harivamsa and the Vedas.
Back to Dr Debroy, the Economist, I caught up with Dr Amir Ullah Khan, a former civil servant development economist and research director of the Centre for Development Policy and Practice based out of Hyderabad.
Dr Khan teaches at various leading institutions and even worked on the Encyclopedia Britannica.
And he has co-edited two books with Dr Bibek Debroy titled Enabling Agricultural Markets for the Small Indian Farmer and another called Integrating the Rural Poor into Markets.
And he co wrote a book called Intellectual Property Rights, Beyond 2005.
I began by asking Dr Khan what were the 2-3 issues that Dr Debroy was passionate about from his vantage point that also deserved further discussion, attention and pursuit.
INTERVIEW TRANSCRIPT
Amir Ullah Khan: Moving now, very clearly there are three of them. The first and the one that was his big favourite was legal reform. Vivek spent a major part of his life arguing for, and you know it is very contemporary in today's context when we are discussing the judiciary so much, Vivek's constant worry was that India's industry and India's rule of law atmosphere is so dependent on judicial reforms and therefore he was very keen that the judicial process be shorter, be more efficient, judicial appointments be done with due care and that access to justice becomes universal and easy. So that was his first agenda and there is a lot that we still need to do and I don't think I need to emphasize that and you know toward even till the end Vivek repeated and underlined that worry of his.
The second very clearly developing markets for agriculture, that was the work that I did with Vivek repeatedly. There his worry was that it is indeed the farmer who is vulnerable because of price fluctuations, because of price discovery and simply because the market system at that level is broken. So he argued consistently for major reforms for agriculture and agriculture procurement.
The third issue that Vivek was very interested in and really tried his best to ensure that the Indian economy goes to the next level was that Vivek's understanding of how important it was to foster competition and again he was among the earliest people who worked on the then MRTC and I was fortunate to work with him on that and while the monopolies regime that existed got dismantled and to a large extent because of Vivek's push and logic and his articulation, but even now and again this is something that I need not explain to this audience, there is again this fear of competition being curbed to put it kindly and therefore it was important for him that we have absolutely free and fair competition.
So to put it in opposites, it is legal reforms, it is agricultural reforms and it is reforms in terms of competition, the ability to have a completely free and fair market with free exit and free entry.
Govindraj Ethiraj: Right, so to pick up on free market, I mean that's something that he was known for and I think what you pointed out is in a general sense. Are there any specific manifestations that you feel we need to still work on given what he had envisioned as a free market? I mean is India heading in that direction today?
Amir Ullah Khan: Yeah, I think that's a very good question and it really takes me back to the very early days of working and talking about Mr. Vivek and Vivek emphasized and used the example of land rights to show how markets in India are flawed and he used this and he spoke about it, he wrote on this obviously arguing that till we get our titling right, there is a very brilliant paper and a column of his that I worked with on how you know one could take a leave from say markets like Australia which had you know just overnight cleared the land titling issue.
The big problem in India apart from you know infrastructure and so on is land. We have really high prices of land today, artificially so and the big reason for that is that land titles are not clear because land titles are not clear, it leads to litigation and it takes away a lot of tradable land from the market and therefore even in a city like Delhi, the amount of land available for transactions is but a third of the total land that is available and that is why you plant prices which rival Tokyo and London. So that you know I just wanted to use that to emphasize the clear manner in which Vivek would argue for institutionalizing the market by ensuring that titles are clear. His thought process was very algorithmic in that sense that look we start with price, with titling.
If the titling is clear then half the transaction costs are reduced. Once the titling is clear then the law also is, it doesn't become a burden and doesn't you know become a bottleneck and therefore it goes on to the next issue where the transaction becomes easy and then the financial system takes over and then taxes and so on. But he was emphasizing that it is the titling and the fuzziness of the titling that leads to the maximum amount of delay and the increase in transaction costs as far as land deals are concerned.
So I'm using that to tell you what he said and what is still unfinished by far.
Govindraj Ethiraj: And I know I mean when we talk about agriculture and agriculture and farm labor I mean that's a very broad issue. Do you have any sense on what his contemporary thoughts were on you know I mean we talk a lot about migration of labor from farm to city and we've seen the reverse of that now to some extent. So how would his thoughts or what would he be or perhaps if you knew what he was thinking or if he was on these issues at this point.
He was very clear and very consistent on this issue.
Amir Ullah Khan: For him it was very important that farm produce be sold without any barriers not just across the country but across the world and he was among the early proponents of the agreement on agriculture and how it needed to be broadened under the WTO to allow for three year access to agriculture markets which are due to be beneficial to countries like India. On the farm labor again it was the same consistent thought. We've been said that farm labor can only fetch higher wages when it is absolutely and clearly mobile.
Whenever there is this wherever there is there are these barriers to farm labor mobility that is what would upset Vivek a lot and that is what is happening unfortunately in our country because there is very little labor mobility across state. While there is migration that happens within states across states we don't see too much labor mobility. There is some migration happening in the IT and whatever sectors but labor mobility our manual labor or agriculture labor is still very very slow and it's because of a variety of factors not the least of whom being you know reservations for jobs at local levels and and you know state-wise differentiation among labor and linguistic barriers.
So for him farm produce had to be freely tradable and farm labor had to be free to look to be mobile.
Govindraj Ethiraj: In your sense when he was I mean was he benchmarking India against something you know like he said I mean did he have like a vision which said that okay I hope that India will become like this. I think you've already broken down some of it you've said okay if we free up land titles if we make agricultural labor or farm labor more mobile then obviously those will have larger economic benefits but is there something that he had like a I don't know his idea of a developed country or something like that?
Amir Ullah Khan: Yeah you know Vivek was not one of those who'd use inter-country comparisons even because he did believe that you know countries have their own paths to take and must understand and comprehend local issues and produce solutions that are indigenous but if I must answer your question his answer would have been the European Union that he wanted India that was more like the European Union prior to the Brexit complications where there was absolute mobility of labor and absolute mobility of produce by way of uniform tariffs.
Uniform and low tariffs. On low tariffs he had constantly argued that India should emulate East Asia and Southeast Asia where tariffs were at a low and inter-regional block trade in ASEAN had grown tremendously during the time that Vivek was studying that trade. So the two examples that he would use would certainly have been European Union and ASEAN.
Govindraj Ethiraj: So you know he was I mean he had many diverse talents I mean much has been spoken and written about his work on the Mahabharata and the Ramayana. How would he find the time to do all this I mean you know to think about economic policy on one hand pictures on the other I mean did you know how he divided his day?
Amir Ullah Khan: Yeah I mean I spent a lot of time in it but you know just to just to answer a question you did not ask me which was that of the multiple things that he did and justifiably so people are talking about his you know prodigious translations but one thing that everybody is missing on at which you know I am privy to was his absolute fascination with cycling. You know I mean he and I we did a Delhi cycle race with the PhD chamber of commerce and he was so passionate about it. He would come to the stadium at four in the morning and be with us.
He wouldn't cycle himself but and then he would like he like only he could he actually wrote out this brilliant piece on on cycling and how it developed and forth and the secret to Vivek Nethra's multi-tasking of that level was his absolute levels of focus and concentration. So you know he could be talking about dog breeds for 10 minutes or writing about them and in those 10 minutes the rest of the world didn't matter to him but when he would switch from there to talking about patenting which was the other book that I wrote with him on intellectual property rights in India when they were developing then he would only be talking about why you know compulsory licensing is not a good thing for pharma sectors but he had this amazing ability to work on 10 things but allot them specific individual time where he would not think about the other and it would allow him to focus his rather remarkable mind and memory on that one particular problem for those 10 minutes.
So that way Vivek always had time for everything you know you could take him out for dinner you could ask him to come and watch a cricket match you know I remember that time when he had to go to the hospital he was having actually having a heart attack and his worry was that will Tendulkar complete his century we wanted to watch those last six rounds and we literally had to drag him the world I'm missing the word for even as you know determined sense of focused concentration on what he was doing at the moment.
Govindraj Ethiraj: Amir thank you so much for joining me.
Amir Ullah Khan: Thanks so much Govind, lovely.
