Markets Struggle Once Again To Hold Gains
The stock markets are failing to hold on to early gains as sellers are waiting for prices to rise before getting out
On Episode 418 of The Core Report, financial journalist Govindraj Ethiraj talks to Madhavi Arora, Chief Economist at Emkay Global Institutional Equities as well as Sheetal Sapale, VP Commercial at Pharmarack.
(00:00) Stories Of The Day
(01:00) Markets struggle once again to hold gains as sellers take charge
(01:50) Consumer products giant HUL says urban demand is slowing, reports lower sales
(03:40) Gold prices hit fresh highs, Goldman Sachs cuts India outlook
(06:13) IMF projects lower global growth next year, what does that mean for India?
(13:21) India’s disease profile is changing rapidly, what that means to you and the pharma industry
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, it's Wednesday, the 24th of October and this is Govindraj Ethiraj, headquartered and broadcasting and streaming from Mumbai, India’s financial capital.
The top stories.
Markets struggle once again to hold gains as sellers take charge.
Consumer products giant HUL says urban demand is slowing, and reports lower sales.
Gold prices hit fresh highs, Goldman Sachs cuts India outlook.
IMF projects lower global growth next year, what does that mean for India ?
India’s disease profile is changing rapidly, what that means to you and the pharma industry.
Markets & More
The stock markets are failing to hold on to early gains as quite evidently sellers are waiting for prices to rise before getting out.
On Wednesday, the main indices the BSE Sensex and NSE Nifty50 fell back to close in negative territory.
The BSE Sensex fell 138.74 points to close at 80,081 while the NSE Nifty50 dropped 36.60 points to end at 24,435.50.
Interestingly, the smaller caps and thus broader indices are swinging back again.
The Nifty Smallcap 100 and Nifty Midcap 100 closed with gains of 1.25 percent and 0.64 percent respectively.
The results season continues to look weak.
And I am scanning a little more than normal just to give you a sense on how things are looking which of course is not very encouraging right now.
Hindustan Unilever reported a smaller-than-expected quarterly profit on Wednesday thanks to higher expenses and a slowdown in urban markets.
Profits were down a little over 2% to Rs 2,612 crore for the second quarter, compared to Rs 2717 crore last year.
Reuters quoted its CEO saying the September quarter, (consumer goods) demand witnessed moderating growth in urban markets while rural continued to recover gradually, adding .
Hindustan Unilever garners 60% of its sales from urban areas.
Broadly, rural demand has gathered pace over the last three quarters, including the July-September period, overtaking urban growth, said Reuters.
Two wheeler major TVS Motor Company too reported a lower-than-expected quarterly profit on Wednesday thanks to higher costs.
One sector that continues to do well is healthcare.
Dr Lal PathLabs, India's top diagnostics firm by revenue, reported a bigger-than-expected second-quarter profit on Wednesday, driven by continued demand and a rising awareness for health and wellness, said Reuters adding its consolidated net profit increased 18% year-over-year to 1.29 billion rupees ($15.4 million), increasing for the sixth quarter in a row.
The company, which operates about 300 labs in India, said the number of samples it tested climbed 10% and that it is building back volumes.
Prices of some tests are rising as well.
Deeper insights into India’s healthcare transitions coming up shortly.
Rupee
The rupee is still slipping, once again at its weakest closing level on record on Wednesday thanks to a strong dollar.
The good news is that it did better than its Asian peers.
The rupee ended at 84.08 against the U.S. dollar, its weakest closing level on record, and marginally lower than its closing level of 84.0775 in the previous session, Reuters said, adding the dollar index was up 0.2% and touched a peak of 104.37, its highest level since early August.
Gold Prices
Gold prices hit record highs once again on Wednesday, defying the dollar's rise, which kept pressure on the yen and the euro.
Gold has risen close to 32% this year and many fund managers are now advising upping the hedge in gold.
"Gold has scaled new highs despite real and nominal yields edging higher, the dollar strengthening and U.S. equity markets scaling new highs," analysts at Standard Chartered said in a note reported by Reuters.
Which is of course interesting that gold is not moving in the contra direction in some of these developed markets, unlike in India where there seems to be a divergence between equities and gold right now which was not there before.
There are also question marks on how much the US Federal Reserve will actually cut interest rates as earlier predicted and expected.
This is because recent U.S. economic data has pointed to an economy that continues to expand and create jobs, Reuters said.
Silver is steady after hitting its highest since late 2012 at $34.87 in the previous session.
Goldman Lowers
After all the bullishness, it was time I guess for a retreat.
Goldman Sachs has lowered Indian equities to "neutral" from "overweight" on Tuesday, as India’s slowing economic growth weighs on corporate earnings, amid record foreign outflows from domestic markets, Reuters reported.
The brokerage also cut its 12-month target for the blue-chip Nifty 50 index to 27,000 from 27,500, saying that markets could 'time correct' over the next three to six months.
The fresh target, however, still represents a more than 10% upside from Tuesday's close of 24,472.10.
"While we believe the structural positive case for India remains intact, economic growth is cyclically slowing down across many pockets," Goldman strategists wrote in a note published Tuesday.
So what is prompting this not so surprising turnaround ?
Well, Goldman says high valuations and less supportive domestic and external factors, including the Middle East tensions, could keep markets range-bound in the near term.
They also hoped that a large price correction is unlikely, given strong domestic inflows into equities.
The Nifty 50 index has lost 7% since the record high it hit on Sept. 27 as several global funds moved funds to China, pulling out close to $11 billion in the month of October alone.
Last year, it was a rosy picture.
Goldman had upgraded Indian equities to "outperform" last year, citing strong economic growth prospects, steady domestic mutual fund inflows, and a potential supply chain shift from China.
IMF Lowers Global Growth Forecast
The International Monetary Fund lowered its global growth forecast for next year and warned of accelerating risks from wars to trade protectionism, even as it credited central banks for taming inflation without sending nations into recession, Bloomberg reported.
Global output will expand 3.2%, 0.1 percentage point slower than a July estimate, the IMF said in an update of its World Economic Outlook released on Tuesday.
It left the projection for this year unchanged at 3.2%. Inflation will slow to 4.3% next year from 5.8% in 2024.
The IMF had projected India 7% this year and 6.5% next year.
“The risks are building up to the downside, and there is a growing uncertainty in the global economy,” Chief Economist Pierre-Olivier Gourinchas said in a briefing.
“There is geopolitical risk, with the potential for escalation of regional conflicts,” that could affect commodity markets, he said. “There is a rise of protectionism, protectionist policies, disruptions in trade that could also affect global activity.”
A Bloomberg Economics analysis earlier this year found that Donald Trump’s vow to impose 60% tariffs on imports from China and 10% duties on those from the rest of the world would likely spur inflation and pressure the Federal Reserve to raise interest rates.
In a briefing on Tuesday, Gourinchas said that tariffs and trade uncertainty across countries risk reducing global economic output level by about 0.5% in 2026.
The IMF last week flagged concern about global public debt, which is expected to reach $100 trillion, or 93% of world gross domestic product, by the end of this year. The surge is driven by the US and China.
The Euro Zone is looking weaker than before.
In terms of next year’s outlook, the IMF forecast for the euro area was downgraded to 1.2%, 0.3% lower than in July, due to persistent weakness in manufacturing in Germany and Italy.
I reached out to Madhavi Arora, is the Chief Economist at Emkay Global Institutional Equities desk and began by asking her how she was seeing the global growth outlook projections
INTERVIEW TRANSCRIPT
Madhavi Arora: So, well, there has been a very patchy growth story. To be very fair, the global growth has actually surprised on the upside this year. Beginning of this year, nobody was expecting this kind of a growth outlook.
So, we have to first credit the fact that the growth globally has turned out much better than expected, which is, again, led by the US because the last part of the market was actually rising in a scenario of probably a hard landing beginning of the year. As we stand today, clearly, even with the Fed cutting 50% rates in anticipation of a weaker growth, that hasn't really played out. The consumer's story in the US is still quite resilient.
But at the same time, we have seen slower growth in Europe, which is led by Germany. They've seen slower growth in the UK. We've also seen slower growth in certain parts of Asia, which is led by China and even Korea, for that matter.
So, there's been a very differentiating growth story across the world, and probably that is weighing on a lower growth outlook. And of course, eventually, the restrictive monetary policies in the world have obviously started to show up with a lag, wherein you are going to see a much slower growth than you saw last year, but yet much better than what you expected beginning of the year.
Govindraj Ethiraj: So, the United States has obviously surprised, as you mentioned as well. And how does that change the equation? At least, is there any historical precedent to say that, okay, if the United States grows, let's say, much beyond what it did the year before that, this is what could happen to global growth?
Because the US does pull a lot of global growth along with it.
Madhavi Arora: Well, I don't know US led bit, but obviously, it's the biggest contributor of global story. But for India, roughly a 100 fall in global growth tends to sort of hit us by around 20 bps on our growth. It's a mathematics that we should keep in mind.
Govindraj Ethiraj: Got it. Okay, so how are you seeing the India numbers now? So, what the IMF is saying is that this, and let me quote the exact words, that the pent-up demand accumulated during the pandemic has been exhausted as the economy reconnects with its potential.
What does that mean? Or what could that mean?
Madhavi Arora: So, that's what has happened across the world, right? There was a suppressed consumerism which has come back with a rage. There was also a wealth effect which only played out for a certain segment of the economy.
In the early part of the post-pandemic recovery, the K-shift bit that everybody knows about, it's a global theme, it's not an India theme per se. Even in the US, it's the urban consumers who are doing very well. There are certain pockets, especially the rural and semi-rural America, which is also struggling.
Same is the case with India. We saw the rural-urban divide which widened the early part of COVID. And then within urban also, we saw initially the premium segment doing very well, but then there was a catch-up which was done by the upper middle class segment, which was led by a massive increase in job growth and the salary growth that we saw in sectors like ITB, FSI, which is now likely to sort of have normalized.
And obviously, that on a year-on-year basis will impact your urban demand. So, we are seeing that urban mid-segment demand is now looking to slow. And that obviously is a worry because that had sort of helped the consumption story for India even when the rural segment was absent.
Govindraj Ethiraj: Right. So, IMF has said that we were at 8.2%, it's 7% and then projecting ahead at 6.5%. So, is that in sync with what you're seeing? I mean, your own expectations or projections?
Madhavi Arora: We are looking at a 6.5%. We are much lower than IMF. So, RBI is also quite optimistic. But you have to understand that 8.2% with the GDP numbers are very noisy because it has the net indirect taxes impact. So, the ideal way to see is gross value added, which is the much more stickier number where the slowdown is much lower. It probably will slow towards from 6.7% to 6.4% this year, while GDP on an optical basis will look from an 8.3% to a 6.5%. So, that is a correct number or even a 7%, a much sharper fall. But actually, the India story is not like a 100 bps or 150 bps slowdown, but it's actually going to be 30-40 bps slowdown, which is why you should see the gross value added in non-gross domestic product because last year, the government actually paid out practically no subsidies.
So, YNYB subsidies were running negative as they actually collected least in the modern internet indirect taxes. So, the net indirect taxes, which are just to the value add, made the GDP look optically very high. We didn't have an 8.5% kind of story and neither have we probably seen that kind of a slowdown from 8.4% to a 7% or 6.5%. It is more likely to be a 6.7%, which is the value add, which will probably go down to a 6.3%, 6.4%. While GDP will be probably the case in our forecast, we've been very cautious in the growth story. So, we are looking at 6.5% versus there.
Govindraj Ethiraj: Madavi, thank you so much for joining me.
Madhavi Arora: Sure. Thank you.
Changing Disease Profiles
India’s disease profiles are changing. Very broadly as we know, with time and prosperity, we now face and grapple more non communicable diseases than communicable ones.
For instance, in 1990, non communicable diseases made up around 38% of the total disease profile.
That number now is over 64%.
Moreover, within that 64%, cardio-diabeto and obesity leads with 66% while chronic respiratory follows at 22% and 12% is cancer, according to figures put together by pharma research company Pharmarack in its frequent industry surveys.
You might recall that those with cardio-diabeto and linked conditions were more susceptible to Covid impact than others.
In numbers, the breakdown is quite worrying.
India is a big country but so are its health problems.
Close to 240 million Indians suffer from prediabetes and diabetes.
Some 315 million have high blood pressure, some 254 have generalised obesity, some 351 million have abdominal obesity and High LDL cholesterol
Of course, many of these conditions would overlap.
So someone with diabetes could also be obese and someone who is obese could be suffering from high blood pressure and diabetes.
So why is this happening ?
The reasons range from increased consumption of packaged and processed foods among younger people leading to cases overweight, physical inactivity or lack of activity.
And then the older reasons.
Some 253.0 million people (200.2 million males and 53.5 million females) aged 15 years and older are tobacco product users in India
About 14.6% of the population in the 10-75 age group use alcohol, a
2019 survey by the government revealed.
77% of Adult experience at least one symptom of stress, and 1 in 3 persons is struggling with stress & anxiety
And finally 67.4% of the Indian population live in areas that exceed the country’s own national air quality standard
This has changed the nature of medicines and the research that goes into them as well, as data is showing and presumably the top and bottom lines of pharma majors.
I spoke to Sheetal Sapale, VP at Pharmarack and author of this report and began by asking her to take us through the disease transitions.
INTERVIEW TRANSCRIPT
Sheetal Sapale: So I thought of doing this study because nowadays there is a lot of it is being talked about, you know, cardiac conditions, people dying of cardiac conditions, diabetes. So I wanted to check out whether it is just the news or it's genuinely increasing. That's the reason why I did a little long-term study for almost a decade.
In fact, I looked at the disease pattern, how it was in 1990 and how it was in 2016. That's almost 25 years gap. So 1990 what we had seen as non-communicable disease or lifestyle diseases, they contributed to almost 40% of the diseases and other diseases like typhoid, cholera, so which are more of hygiene related diseases or seasonal diseases, they were almost 50-55%.
25 years down the line, now the lifestyle diseases or the so-called non-communicable diseases like cancer, asthma, cardiology, cardiology problems, diabetes problems, or obesity problems, they are almost 60% plus. And that this report which I'm saying is around 2016 and today we are in 2024. So probably if I were to look at the same figures today, that 62% would have gone 65% or so.
I don't have the numbers with me. But then there is definitely an increase in the proportion of lifestyle diseases. So probably as India is prospering, we are also moving towards the disease conditions of the developed countries.
That's number one. And number two is nowadays there is awareness and people are able to afford different treatments. Earlier people were not able to afford treatments, but today people are able to afford treatments.
Then I also tried to look little more details on what are those non-communicable diseases which have become more prominent. And I realized that it is more of the cardiovascular, diabetes, and obesity. They contribute to almost 60%, 66% of these diseases.
And that's where the things started getting interesting. I said that if this is the disease profile which is changing, how is the pharma industry operating in it? And then I tried to look at the different molecules, innovative molecules, which have entered the country in the last two decades.
So the number was huge. A good number of newer molecules have entered or been launched in this country in the last two decades in both the cardiac segment as well as the diabetes segment. And that's the reason why in terms of value also the market has moved up because majority of these molecules, they are patent protected.
So because they were patent protected in terms of pricing, they were premium and the launch was done in such a way that the products were available to a bigger segment of patients in the country.
Govindraj Ethiraj: Got it. So for example, I can see from your charts that in the last two or three years in anti-diabetes you have semaglutide, which is of course what is also known as ozempic and very popular. Similarly, you have newer drugs in cardiac like Celexipag.
And I'm sure in the other categories you have equally new ones. So tell us about what's changed in the way these drugs are working and the way people are using them and to what extent are they actually helping solve or cure conditions?
Sheetal Sapale: See, it's like it's a different way of mechanism of action than these drugs have. Probably the traditional anti-diabetics, they were helping the increased production of insulin. Whereas these newer drugs, they prevent the different agents in the body which actually break down the incretins or the hormones which help the production of insulin.
So the mechanism of action is slightly different which probably our current traditional medications may not help. Everyone has got a different mechanism of action but which is definitely superior to the ones which are available in the traditional way. Similarly, some popular drugs which were launched in the obesity segment, semaglutide, which is actually anti-diabetic but which is more used in the country for obesity or weight loss.
The mechanism of action is they make you feel more satiated, they have an impact or they work on that section of the brain which reduces your feeling of hunger. And you know this it's not very easy to get these type of drugs because it's working on multiple areas of your body. It is working on some brain functions of your body and definitely then these medications will be expensive.
Similarly, we have products like mericiguat or sacubitril-valsartan in the area of heart failure which reduces to a great extent the complications of heart failure which reduces the extent of hospitalization and for a heart patient even this incremental support is really helpful.
Govindraj Ethiraj: Right, just to recap that between obesity, diabetes and cardiovascular diseases, what's the biggest in terms of incidence in India right now?
Sheetal Sapale: I would say actually all are connected. I wouldn't say that diabetes is more or hypertension is more because if you are having a condition of diabetes then you would have heart problems. If you are obese then you will have heart problems as well as diabetes.
So the connection is actually everything is connected. So if I see in India in this 1.4 billion population we have almost 100 million people who are diabetic today and then there is something called as pre-diabetes wherein you know you are not a diabetic but you are the person who will be on the verge of having diabetes. There are close to 136 million people.
Almost 300 million people have high blood pressure. If you see obesity almost 500 million would be you know somewhere highly obese or almost obese. So the complications are really very high and there is a lot of interconnection.
So I cannot say diabetes is more or cardiovascular is more.
Govindraj Ethiraj: And if you were to look at the top companies that are benefiting from creating these newer drugs and molecules or have benefited in the last few years, how would you categorize them? I mean how many are pure Indian, multinational, what's the mix like?
Sheetal Sapale: A significant number of multinational companies have entered in the market. I would say 10 to 12 multinationals have entered the market with their blockbusters molecules. In India we have good number of Indian companies.
The top you know 10-20 Indian companies have very strong reach across the different cardiologists, diabetologists, endocrinologists and they have a name. They have a name for their quality. So a good partnership has been observed between the multinationals and these Indian companies to have a better reach of these products in the country.
So multinationals could actually promote their product to wider masses, wider doctors could have reach to a better patient base because of these partnerships and at the same time Indian companies could have now more advanced and scientific products. So they could actually even access the premium segment or premium priced segment in the cardio-diabetes segment today.
Govindraj Ethiraj: And you're also saying that the value that companies see in creating or innovating drugs in the cardiovascular or other lifestyle disease segment is much higher than all the traditional diseases which are also still there.
Sheetal Sapale: Yeah because see this condition is today for India considered to be a very life-threatening condition. I would say another condition which would be you know I'm saying in terms of perception would be cancer wherein the patient is terminally ill or you know even the treatment of that condition is very expensive. After cancer probably it is the cardiac and diabetes which are the two conditions where the treatment is expensive, the condition is life-threatening but in these two cases it is much more recoverable.
So if I'm able to take medications I can come back, I can lead a normal life. So why not pay for these medications.
Govindraj Ethiraj: Sheetal, thank you so much for joining me.
Sheetal Sapale: Yeah, thank you.
