Markets Slow Down
The stockmarkets on Friday slowed down once again as they usually do after a big jump
On Episode 388 of The Core Report, financial journalist Govindraj Ethiraj talks to Tarun Phatak, research director of Counterpoint Research.
SHOW NOTES
(00:00) The Take: What was the Mahindra Group Thinking?
(05:38) Markets slow down
(07:22) After Hyundai, another Korean giant LG considers India IPO
(08:44) Apple gains market share but the mobile phone market is a Chinese monopoly
(17:21) Government hears basmati rice exporters, scraps floor price ahead of bumper crop
(18:21) The new Oracle is Oracle(19:56) IT unemployment in the US rises
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 regards any feedback, you can drop us a message on [email protected].
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Good morning, its Monday, the 16th of September and this is Govindraj Ethiraj, headquartered and broadcasting and streaming from Mumbai, India’s financial capital
The Take: What was the Mahindra Group Thinking?
There are two issues at play in the Securities & Exchange Board of India Chairperson Madabi Puri Buch imbroglio.
It is another matter that she is now being attacked by near comical sequential public revelations extracted most likely from her own filings and disclosures and most probably leaked from within her office.
So the first of course is whether Ms Buch returned favours as a Sebi board member or Chairperson to various companies.
The second and I feel equally important, whether the companies who worked with her spouse sought any and whether they should have thought through their own actions.
There are several ancillary issues here which of course all arise from the fact that a private sector professional has moved into public life in a financial market regulatory role without the necessary public disclosures that lets say, a politician standing for elections has to disclose in an affidavit.
It is of course a continuing mystery to me why Ms Buch does not put out her family’s income statements and sources of income, for lets say, the last 7 years, once and for all, instead of playing whack a mole with the revelations as they come.
Now, back to M&M and the other companies who have done business with her spouse.
Ms Buch was a whole-time member with Sebi from April 2017 to October 2021. She became chairperson in March, 2022.
The Mahindra Group issued a statement last week saying that Dhaval Buch, who joined the company in 2019 after retiring from Unilever, was hired solely for his expertise in supply chain management.
"Compensation has been specifically (made) and only for Mr. Bach's supply chain expertise and management acumen, based on his global experience at Unilever," Mahindra Group said.
Actually the compensation is not the issue here.
A decision to work with the spouse, Dhaval Buch in this case, regardless of competence and qualifications, could not have been signed off by some junior human resources manager. There are bigger problems by the way if that was the case.
Picture a board room or a meeting of senior professionals of M&M taking a call on a supply chain professional who has to be brought in or back to resolve a critical, well, supply chain issue in the company.
Surely someone would stand up and say, yes he is very good and qualified, has even worked with us in the past and we like him but it may not be a good idea to sign him up now since his spouse is holding an important position in a body that one way or the other regulates our existence too.
Now the purists could argue that this is unfair to the spouse of the person in public life and the decision, if made on merit, should not sit on anyone’s conscience.
Unfortunately, as is also quite evident, that is not how the real world works.
M&M, speaking purely now as a virtual insider, should not have signed up. Nor should Wockhardt’s affiliate company have taken a house on rent from the Buch family in south Mumbai.
Further, I would argue that assuming the spouse joined public life later, then the company in question should take utmost care to ensure nothing changes that could even suggest there were favours granted.
The important thing is both companies mentioned could have easily found alternatives if they really wanted to, unless they were so oblivious to the potential real world ramifications down the line.
I would find that difficult to believe, at least the part that no one saw something like this coming.
Now the spouse. Yes, given that there is a wealth of genuine experience and qualifications, why should she or he (in this case) suffer ?
Well he should not, but the price of public life is such that you can’t draw fine lines between your or your family incomes and then expect that it will withstand public scrutiny.
They could argue that this is an unfair deprivation of income. Yes it could be. In which case they could have easily decided jointly - something they are doing in their public statements - not to take up a role in public life.
The explanation that each spouse is an independent professional and has every right to pursue their independent vocations, including in public life, does not wash very easily. Actually it does not exist anywhere in the world and scandals have erupted from time to time.
It's unfair but it's the real world.
But let’s go back to the companies in question, the giver and not the taker.
No one is suggesting that these companies sought favours or got any and there is no real proof of that either.
But the fact that any listed company has to deal with a regulatory body all the time and that alone should have caused the red flag to go up.
All of which has led to a cloud over many parties at the same time and made worse by the fact that Ms Buch is not making a clean sweep public disclosure of her dealings.
As a shareholder of either of these companies (I am not) I would surely ask if there was really a need to stick one’s neck out in this fashion.
Even if assuming there was total lack of oversight on this nuance - I once again do find that difficult to digest - this episode should be an object lesson to companies on their dealings in future.
Because regulatory heads may come and go, the companies and their reputations will be around forever.
The Top Stories & Themes For The Day
Markets slow down
Apple gains market share but the mobile phone market is a Chinese monopoly.
After Hyundai, another Korean giant LG considers India IPO.
Government hears basmati rice exporters, scraps floor price ahead of bumper crop
The new Oracle is Oracle
IT unemployment in the US rises.
Markets Slow Down
The stock markets on Friday slowed down once again as they usually do after a big jump that we say the day before.
The indices had hit record highs on Thursday, rising close to 2% in anticipation of interest rate cuts in China which could boost commodity industries.
On Friday, the BSE Sensex fell 71.77 points to close at 82,890.94, while the Nifty 50 was down 32.40 points at 25,356.50.
The broader midcap and small cap indices if you were looking out for them continue to rise.
The Nifty Midcap 100 closed at a record high of 60,034.05 with a gain of 393.75 points while the Nifty Smallcap 100 index closed up too.
Foreign investors have infused Rs 27,856 crore in domestic equities in the first fortnight this month.
Foreign Portfolio Investors (FPIs) have been consistently buying equities since June. Before that, they pulled out Rs 34,252 crore in April-May, the PTI reported.
The only major trigger one can see at this point for the week ahead is what the Federal Reserve in the US will do on Wednesday and how much it will cut interest rates by. This will be the first time in 4 years that it would cut interest rates. The European Central Bank has already cut rates twice in the last three months.
The WSJ says the size of the first cut by the Federal Reserve—and where rates will be three months from now—is anyone’s guess.
Traders are assigning a nearly dead-even chance that the central bank will unveil a quarter-percentage-point or half-point cut Wednesday at the conclusion of its meeting.
Investors are now trying to discern whether recent economic data is simply showing a hot economy returning to normal or the early glimmer of a recession, says the WSJ.
Second Korean Giant, LG, eyes India IPO
South Korea’s LG Electronics Inc. is looking at an India IPO that could raise as much as $1.5 billion, Bloomberg reported.
The IPO could take place as early as next year and value the Indian company LG Electronics India Pvt Ltd. at a valuation of about $13 billion.
A prospectus might be filed with India’s stock market regulator as early as next month, Bloomberg said.
LG of course follows Hyundai Motor Co. who is also looking at an IPO later this year and is expected to raise around $2.5 billion in that offer, were it to happen.
India's Foreign Exchange Reserves
India's foreign exchange reserves continue to rise and have hit a record high of $689.24 billion as of Sept. 6, Reserve Bank of India data on Friday last week showed, according to Reuters.
Reserves rose by $5.3 billion in the reporting week, after having risen by a total of $13.9 billion in the prior three weeks.
The rupee has been closer to 84 against the dollar in recent weeks and has now settled at 83.8875 on Friday, having strengthened somewhat and quite strongly at least in a relative sense in more than two months.
Could Smartphone Sales See A Bump Up?
The upcoming festival season could push up smartphone sales, and iPhone's new launches could help.
Apple’s new iPhone 16 is likely to drive up exports - which touched over $12 billion last year - and local sales further.
The iPhone16 will be available this week in stores along with other Apple products with new and improved versions.
Some 157 million smartphones will be sold this year and 33% of them will be financed by EMIs or loans, according to Counterpoint Research.
Loans obviously make it easier for people to buy smartphones, being aspirational products.
The interesting thing is despite Apple’s growth and Samsung’s command, Chinese brands like Oppo, Vivo, Realme and Xiaomi control over 60% of the smartphone market.
I reached out to Tarun Phatak, Research Director of consulting firm Counterpoint Research to understand how the premium smartphone market was doing presently and the iPhone's impact on it.
INTERVIEW TRANSCRIPT
Tarun Phatak: We are at a very interesting stage of the year when festive season is about to begin in the next couple of weeks, with this all these online players like Flipkart, Amazon gearing up for that big billion Day sale and the Amazon Prime, Amazon Great India festival. So what we are currently looking is a positive trend, especially on the consumer electronic deep diving into smartphones, especially, we are seeing a healthy upgrade cycle in our consumer research. Whatever we are picking up the initial the early signs are looking positive. So as a result of it, what we are predicting is a 3% volume growth, although this is still single digit. But if you look at the value, I think it should hit close to like 8-9% which means people buy more high end products during this festive season. And one of the reason why we are bit optimistic on this growth is because if you look at the previous cycle that came into in India market as was 2021 when just after the covid, there was a huge pent up demand. People bought a lot of these electronic goods, including smartphones. And the demand really, really went up that year. So that was the year 2021, at the same time, if you look at the replacement cycle in India, smartphone market, which is closer to like 38-40 months, which brings us very closer to this time of the year when people who bought their phones in 2021 are looking to replace them in 2024 or so, and they'll use this festive season as an occasion to upgrade themselves. And that's why we are bit optimistic. And at the same time, there are other factors, like macroeconomic we are better. We are also looking into some of these trends that are happening in India market, like, for example, premiumization and at the same time, affordability index. Right now, almost like 33% of the overall smartphones are being purchased on EMI. So a bit by bit, everything is there. So I think the key takeaway will be, like high end phones, premium smartphones, what we call we expect their growth to be much faster than the overall smartphone market.
Govindraj Ethiraj: How does this outlook contrast with what you had projected, let's say, three to six months ago, in terms of total number of smartphone sales as well as the activity in the premium end of it,
Tarun Phatak: Right, So we were projecting almost like flattish growth for the year earlier, because first half was not that great. Like first quarter was very bad. People were not upgrading the phones. Macroeconomic conditions were not good at that time. And at the same time, we have seen lot of new launches as well. We have done in Q2 it pay was there. And then again, people didn't go offline and buy these products. We saw inventory building up in the channel. So first half was not that great, but now we have seen Prime Day in July. There were multiple new launches, even during Independence Day sales, the sales is getting better and better every week. As a result of it, I have increased the projection to 3% volume growth, 8% value growth, but premium market, we are still at the same it will grow double digit this year for sure,
Govindraj Ethiraj: Right. So if you had projected about 157 million smartphones this year, that's 2425 are you holding the same number, Then?
Tarun Phatak: Earlier, it was closer to like 155 now we are in close to like 157-158
Govindraj Ethiraj: Rell us about premium. And now, so we've seen the iPhone 16 announced and now about to launch and hit the stores in a week's time. So how is it likely to disrupt or or affect the market at this point?
Tarun Phatak: Right. So I think iPhone, the demand for iPhones remain very healthy, like, even almost like, four days since launch, right? Three days since launch. So what we have seen, there's a lot of inquiries that are coming, like, Okay, people are waiting to upgrade. And there are two things that are working, although one can argue that the hardware changes are merely incremental. That has always been the case, because the benchmark for Apple is super high, right? Hardware is hitting a plateau in terms of like changes. But there are two things that work in Apple's favor. One is they have been accumulating a good amount of user base in the past three to four years in India, and this user base is actually very, very sticky. So there are higher chances that there will be an increased mix of people who will upgrade from iPhone to off iPhone this year. So that number used to be less because your base was less earlier, but now Apple has picked up base in India. The second thing is the first time iPhone user. I think that is where Apple will continue to gain, and that is why they are growing double digits in India, because the amount of first time youth, college-going students, people who are entering into the job segment, the aspirational value for Apple remains very, very high so, and that is point number two. The third is, if you look at right now what is happening, they have positioned the iPhone 16s as a generative AI ready phones, like with the Apple intelligence and just like ly, people wanted to be like 5g ready. I think lot of these users will say, Hey, I'm going to upgrade to an iPhone 16, because I want to be an AI ready phone within an apple ecosystem. So that will drive the overall ESP of Apple in India. So it's working for them. And what we are hearing the offline demand this time will be much higher for them, because during the festive season, we have seen like Flipkart dominating the show, even the last couple of years, when they have been like reducing the prices of the n minus one or n minus two this year. Yes, online will remain, but at the same time, Apple will get a lot of benefit from the surge in demand in the offline, especially in tier three and tier four cities.
Govindraj Ethiraj: Right. So how does Apple's first time users incremental First Time Users compare to other brands? Number one, number two, what's shifting or changing in the dynamic between the big brands in India, Tarun, like, between Apple, Samsung and so on?
Tarun Phatak: Yeah. So Apple's first time users largely very high. So for example, these are the users who are entering into the premium segment for the first time. So most of them, they are like the users who have been the users of OnePlus Samsung, vivo, oppo. So that shift from Android is happening, so that Apple continues to enjoy because it's like a Hotel California like very easy to get into, very difficult to get out. So that's Apple for you, the stickiness of the ecosystem, which will even increase more with the Apple intelligence. So that is from the Apple side. But if you look at the other brand strategy on the Android side of things, they are also going very aggressive. So for example, Samsung is going very aggressive in terms of the form factors, foldables and the AI strategy as well. So that's what lot of these players are doing on the premium side of things. Like vivo is doing great with the cameras. So they are playing more on the latest and the greatest specifications. Apple is more on the brand value and aspirational value. So it's a different strategy, like vivo is more on the camera side. Mobile is more on the software side. Samsung is more on the AI and the form factors. And yeah, it depends. Like there are still lot of users who still prefer Android ecosystem for the sake of simplicity, and they will continue to find these upgrades very exciting in terms of the hardware parameters of features we have currently and the kind of devices that are going to be available during this Festive season.
Govindraj Ethiraj: Tarun. Thank you so much for joining me.
Tarun Phatak: Thank you.
No Floor Price For Basmati Rice Exports
Last week, we spoke of a Government floor price for basmati rice exports at $950 a tonne which exporters, including on The Core Report, said were making them uncompetitive and causing them to lose business to countries like Pakistan.
Moreover, there was a bumper rice crop on the horizon, the exporters said, including to The Core Report.
On Friday, the floor price was removed.
"The decision to do away with the MEP will help India export basmati rice in large quantities, and that is going to ensure good returns to our farmers," Satish Goel, president of the All-India Rice Exporters' Association, told Reuters.
Citing India's rich biodiversity in basmati rice, Goel said there is a big overseas market for basmati varieties that are priced around $700 a ton, so it was a logical move to remove the MEP altogether.
The Oracle
Remember Oracle, the database company.
Well, it had its best week on the stock market since 2021 and bolstered Chairman Larry Ellison’s net worth, briefly edging him past Amazon founder Jeff Bezos on Friday to become the world’s second-richest person, CNBC reported.
Ellison’s net worth reached $208.4 billion shortly after the market opened, then fell to $197 billion, according to Forbes’ real-time billionaires list.
Oracle stock rallied 11% on Tuesday after the company reported quarterly results that topped expectations. Its stock is now up about 54% this year, behind only artificial intelligence chipmaker Nvidia — up 141% — among large-cap tech stocks.
Ellison, co-founded Oracle in 1977 and owns about 40% of the outstanding stock, making him the company’s biggest stakeholder.
His company’s revival in recent years has been sparked by its improving position in cloud infrastructure and growing adoption of its cloud databases, said CNBC.
On Monday, Oracle said its database software will become available for AWS customers to use atop Oracle hardware sitting inside of Amazon data centres.
Over the past year, Oracle has also forged similar partnerships with Microsoft
and Google, the other two leading cloud infrastructure companies. Ellison told analysts on this week’s earnings call that Oracle is now in prime position in the cloud and in traditional data centres.
US IT Worker Unemployment Rises
This might or might not come as a surprise to you but the unemployment rate for information-technology workers in the United States is rising to levels not seen in a long time.
IT unemployment levels rose to 6% in August, up from 5.6% the prior month as the boom in artificial intelligence continued to drastically alter the tech landscape, the WSJ reported
Joblessness for IT workers is at its worst since the dot-com bubble burst in the early 2000s, the WSJ reported and the culprit is AI, according to consulting firm Janco which said that AI is causing “seismic change” comparable to that seen when personal computers came into wide use.
They also said Job reductions in IT remain concentrated in traditional technology roles like managing back-end corporate systems while AI and cybersecurity are providing pockets of growth.
