Markets Regain More Ground
It is quite likely that markets will remain volatile even if they edge back towards earlier peaks till the Government settles down to business
On Episode 312 of The Core Report, financial journalist Govindraj Ethiraj talks to veteran market analyst Ambareesh Baliga as well as Viktor Vanya, director and co-founder of energy analytics company EMA Solutions.
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SHOW NOTES
(00:00) Stories Of The Day
(03:43) Markets regain more ground, set to stabilise further.
(12:49) Oil prices edge up after Saudi minister says they might hold back on supply increases
(13:25) Sharp spikes in prices of tomato, potato and onions push up food costs again
(16:09) Demand for LNG is spiking as more gas based power plants start firing up to meet power shortages
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 Friday, the 7th of June and this is Govindraj Ethiraj broadcasting and streaming from and headquartered in Mumbai, India’s financial capital
I want to start with a stocks story
Stock Prices of Heritage Foods and Amara Raja Energy have rallied up to 32% over the last two days following Andhra Pradesh's Telugu Desam Party (TDP) winning in local assembly elections and emerging as a key player in the formation of the national government.
What a double engine win one might say.
Now Amara Raja is a profitable company - its automotive batteries on the brand Amaron are quite well known and is also into energy storage solutions, Lithium-ion cell manufacturing.
Heritage Foods is a branded dairy products company and also makes cattle feed.
Both stocks have done well.
But now, a fresh surge in the stock is attributed to the political connections between both companies and the TDP.
Amara Raja’s MD Jay Dev Galla was a former MP from the party while Heritage Foods was promoted by Chandra Babu Naidu’s son.
But stocks of both companies are in the news, not because of their inherent strengths, which must be, but because of their political connections, past and present.
I am reckoning that a large car maker in India pre-installs Amaron batteries versus lets say Exide because it trusts the product and does not think of who knows who in the company. Because the car company has to think of its own consumers as well.
This is an unfortunate trap for companies who might be doing business normally but are not seen as such.
The problem is also with those who create this perception.
For example, `Modi’ stocks or stocks that will or could do well because of either their perceived affinity to the administration or the fact that the Government was investing heavily in infrastructure which in turn would benefit these companies. Or they were just state owned enterprises.
Well known brokerage CLSA came up with Modi stocks.
CLSA incidentally is a Hong Kong based brokerage that was acquired by Chinese full service investment bank CITIC Securities around 11 years ago.
The point is that it is distressing to note that stock prices are so visibly predicated on political connections almost 30 years into liberalisation.
All I can say is that this is not something that long term investors should bet on.
In the short term, all kinds of investors determine stock price behaviour. There is nothing to say that either the investors or stock prices will be rational in their stock selection process.
Even in businesses that have a high political factor, as in infrastructure and natural resources, investors must be careful of companies whose success is limited to managing deals.
This is like restating the very obvious.
But there are many stocks in the market that are not dependent on political connections and links. Bet on them.
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Markets & More Today
The stock markets were placed further yesterday after seeing a clear third term for Narendra Modi.
The BSE Sensex closed at 75,075, up 692 points or 0.93 percent while the Nifty50 closed at 22,821, up 201 points or 0.89 per cent.
The markets were volatile though in positive territory.
It is quite likely that markets will remain volatile even if they edge back towards earlier peaks till the Government settles down to business.
In general, the next economic milestone is the Union Budget which will be next month. Of course much else could happen before that and it will be of course interesting to see what the cabinet looks like finally and the roles for the alliance partners, particularly in economic ministries, if so.
In the broader markets, the BSE MidCap index gained 2.3 per cent, and the BSE SmallCap index rallied 3.3 per cent.
Wall Street has been roaring away.
The S&P 500 rose to a record - its 25th this year - after Nvidia crossed through the $3 trillion barrier for the first time and softer-than-expected jobs data raise hopes for an interest rate cut.
The Nasdaq Composite also set a record, climbing almost 2%, with technology stocks Hewlett Packard Enterprises and CrowdStrike soaring on better-than-expected sales and earnings, respectively, reported CNBC. Apple rose for the 89th day on Wednesday, the longest run since March 2022.
The Dow Jones Industrial Average lagged, relatively.
So the latest pecking order is Microsoft, Nvidia and then Apple. Nvidia’s shares have risen 24% since its blockbuster earnings report in May, while Apple’s shares are up only 5% this year as sales growth stalled in recent months, said CNBC.
Back to Indian markets, now that markets have settled after wild gyrations between Monday and Thursday, where could we be headed next.
I reached out to veteran market analyst Ambareesh Baliga and began by asking him how he was seeing the present and the near future and the key question, and whether, more importantly, the markets were at a turning point of sorts ?
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Oil Prices Edge Up
Oil prices rose for a second day, after a Saudi energy minister warned that OPEC's planned production increases can be reversed, Bloomberg reported.
The prospect of production increases and thus more supply of oil, which we discussed earlier this week, obviously brought prices down.
Brent crude was holding around $78.50.
Vegetable Prices Continue To Rise
Costlier vegetables made your vegetarian thali dearer by 9 per cent to Rs 27.8 in May, up from Rs 25.5 the same month last year, ratings agency CRISIL has said.
A vegetarian thali has roti, onion, tomato, potato, rice, dal, curd, and salad. A non-vegetarian thali has the same foods but chicken (broiler) replaces dal.
The average cost of a home-cooked thali is calculated based on input prices in North, South, East and West India.
“The cost of the veg thali increased owing to a surge of 39 per cent, 41 per cent and 43 per cent year-on-year in the prices of tomato, potato and onion, respectively, largely because of the low base of last fiscal,” CRISIL said in its monthly Roti Rice Rate report, released on Thursday.
The prices of rice and pulses also increased by 13 per cent and 21 per cent, respectively.
The further increase in the price of a vegetarian thali was prevented by the fall in prices of cumin, chilli and vegetable oil.
“Prices of cumin, chilli and vegetable oil fell 37 per cent, 25 per cent and 8 per cent, respectively, preventing a further increase in the cost of the veg thali,” it said.
As compared to Rs 27.4 in April, the cost of a veg thali was up by a marginal 1 percent.
Prices of a non-vegetarian thali, which has broiler instead of dal, fell 7 per cent during the same period. In May this year, a non-veg thali cost Rs 55.9 against Rs 59.9 in May 2023.
“The decline in the cost of the non-veg thali can be attributed to an estimated 16 per cent drop in broiler prices year-on-year on a high base of last year,” the report said.
The Core Report has been speaking to representatives of the broiler industry who have pointed out that supply has been steady and while they had anticipated some impact of heat waves, that does not seem to have impacted at least last month.
The Rains Are Advancing
Southwest monsoon reached Maharashtra on Thursday, bringing respite to the state where many parts have been reeling under scorching heat and severe water shortage, the Business STandard reported.
India Meteorological Department (IMD) scientist Sunil Kamble said the monsoon has reached Sindhudurg district in south Konkan and Sangli and Kolhapur in western Maharashtra.
It is likely to reach Mumbai between June 9 and 10, he added.
And of course we will be welcoming the rains right here atThe Core REport
Several parts of Maharashtra have been witnessing severe water shortage, with high temperatures exacerbating the situation.
As on Thursday, 11,565 villages and hamlets in 34 districts were being provided water through government and private tankers, according to official data.
Gas Based Power Plants Are Firing On All Cylinders
Heatwaves and a hard focus on ensuring continuous power supply is fuelling a survey of gas-fired power in India.
This in turn is leading to forecasts that imports of liquefied natural gas (LNG) will rise sharply over the next two years, Reuters is reporting.
The country's gas-fired power generation doubled in April and May to 8.9 billion kilowatt-hours (kWh) compared with the same period last year, data from Grid India showed, eating into the share of coal-fuelled electricity for the first time since the COVID-19 pandemic, said Reuters.
More than 75% of India's power generation was from coal in 2023, while gas-fired plants have accounted for only about 2% in recent years, largely because of the high cost of gas relative to coal.
In May, coal's share dipped to 74%, compared with 75.2% during the same month last year, while gas's share nearly doubled to 3.1% from 1.6%.
The Government had earlier armed itself with an emergency clause invoked to force operation of idle gas-fired power plants to avoid power cuts during the 43-day general elections that ended on June 1.
This all means that gas based power plants are not running on regular days or times.
Why is that the case and what is driving the surges in demand and where will it come from.
To understand it, I reached out to Viktor Vanya, Director & Co-Founder
Director & Co-Founder of energy analytics company EMA Solutions and began by asking him to give us a context of gas base
