Markets Survive a Fresh Volley of Tariff Fire
U.S. President Donald Trump unveiled a 25% tariff on imported vehicles, expanding a global trade war and sending stocks into turmoil
On Episode 542 of The Core Report, financial journalist Govindraj Ethiraj talks to Ajay Bagga, veteran investor and market analyst as well as Ajay Srivastava, Founder of Global Trade Research Initiative.
SHOW NOTES
(00:00) Stories of the Day
(01:09) Markets survive a fresh volley of tariff fire
(03:29) How FIIs continue to drive sentiment and price movements
(14:29) Goldman raises its year end gold price target to $3,300
(16:56) India is now facing tariff impact on auto, auto components, steel and aluminium from the US. What’s next?
(26:06) Indian media and entertainment industry revenues fell 3% last year even as Digital advertising in 2024 grew 17 per cent to Rs 70,000 crore, which was 55 per cent of total
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 Friday the 28th of March and this is Govind Rajathiraj at Quadroton broadcasting and streaming from a warm Mumbai, India's financial capital. The top stories and themes and a quick reminder that Monday is a market holiday and therefore we won't have an edition but we will have a special edition for which you should watch out.
The markets survive a fresh volley of tariff fire.
How foreign institutional investors continue to drive sentiment and price movements.
Goldman Sachs raises its year-end gold price target to $3,300 per ounce.
India is now facing tariff impact on auto components, steel and aluminium from the United States. What's next?
The Indian media and entertainment industry revenues fell 3% last year even as digital advertising grew 17% or 55% of total.
The Markets Hang In There
US President Donald Trump unveiled a 25% tariff on imported vehicles, expanding a global trade war and of course sending stocks into a fresh dizzy state. The new duties on cars and light trucks will kick in on April 3rd, that's one day after he said he will announce reciprocal tariffs aimed at countries he says are responsible for the bulk of the United States trade deficit and that includes India. Now, Indian auto components companies will take a bigger hit and more on that shortly.
But amazingly all of this did nothing to the markets who seem a little bored almost with Trump's repeated threats despite the fact that he is actually seeing them through in some form or the other. And thus the indices closed higher on Thursday despite opening on a weaker note and I say this because this is somewhat unusual in recent times and in some ways also reflects a certain degree of underlying strength in the market right now. Of course we have to see whether it'll last.
The 30 stocks added about 317 points to close at 77,606. The nifty 50 was up 105 points to close at 23,591. Small cap shares were up.
The nifty small cap 100 was up by over 1%. The nifty mid cap was up by about 0.4%. So Tata Motors and the auto parts makers that supply Tesla among others fell on Thursday after those 25% tariff announcements. Tata Motors fell about 5% and Tesla's biggest Indian supplier Sona Comstar also dropped 4% and that led to a 1.2% drop in the auto sector according to Reuters. Importantly the United States is a key destination for Tata Motors' owned Jaguar Land Rovers luxury cars which are imported from plants in the United Kingdom and Slovakia. Among other stocks Sambardana Motherson India's biggest auto parts supplier fell 2%. Bharat Forge which also supplies Tesla was down 0.4%. Meanwhile, one announcement that could keep market spirits on the higher side is a likely move by India's reserve bank to double the 10% cap on investment in a listed company by individual foreign investors according to an exclusive Reuters report. Now that's up from the 5% holding in an Indian company allowed to overseas Indian citizens by special rules under the Foreign Exchange Management Act. Current foreign exchange management rules only mentioned non-resident Indians and overseas citizens of India. Under Schedule 3 a government official told Reuters and now they would broaden this to include all individual foreign investors.
Foreign investors have pulled out about 28 billion dollars from Indian stocks in September's record high in the benchmark NSE nifty 50. Of course all of that was just reversed literally days ago. Now the thinking in the past has been that institutional investors in a way are more reliable and predictable as in they come in and invest long-term money and individual investors which could apply to investors anywhere in the world may or rather pull out money if things turn.
So now what India is doing is expanding the definition to include individual foreign investors to maybe balance out institutional foreign investors. How that could play out I'm not very sure but it's definitely a forward move given that markets are now more open and there's more funds coming in. So I reached out to Ajay Bagga, veteran investor and market analyst and I began by asking him how and why even small amounts of foreign portfolio investment continue to drive turnaround in sentiment and that's actually in both directions though right now we are talking about the upward direction and also his overall sense of flows between India and China and the region as well as across the world.
INTERVIEW TRANSCRIPT
Ajay Bagga: To contextualise it Govind, we have seen very heavy selling for the last five months. So from September 24th, 26th when we peaked , fifty thousand dollars went to China over two weeks time and we saw money going out of India. We thought that trend would reverse but it's taken five months for that trend to actually reverse. So what has helped is one after five months of falling the markets have had a positive month in March and five months together of successive market fall hadn't happened since 1996.
So you can just see that in context that in 29 years we have not had five successive months of negative returns on the markets and those were largely because of foreign portfolio investors outflows because domestic flows kept coming. So that way it becomes important that there was a turnaround. What we have seen Govind in March is that finally that intensity of selling started to get lower and then the number turned positive.
It's not that huge amounts have come unlike what we saw in September last year when we reached the all-time highs that was a peak of inflows and then a month in December we had seen some flows coming in towards the year end but overall we have seen a negative. But because the intensity reduced the domestic flows could make an impact and that kind of selling was not happening so that has helped the markets but overall apart from the flows what has happened in the backdrop is the domestic macro has probably bottomed out in September. Corporate earnings have probably bottomed out in December and we are going to see double digit corporate earnings growth for the next four quarters. That's what seems to be the consensus.
We are looking at about 1040 rupees Nifty going to 1200 rupees plus in the next financial year going to about 1360 to 1380 by FY 2027. So what happens is in another three months Govind the one year forward will then move to FY 2027. So fundamentally also the market is better off.
RBI new governor has come in with a lot of monetary easing, a three-pronged approach, rate cut, liquidity injection, macro prudential easing and then inflation coming down because of seasonality on the food inflation part that has helped as well.
Govindraj Ethiraj: To come back to the foreign portfolio investors so I'm just trying to understand you pointed out you know that we've not really seen this kind of selling in 29 years. Now what is it that we can take away from the nature of investing and the market itself given that FIs are still in a way determining the flows. I think for example maybe six months ago there was confidence that FIs are not going to determine the direction of the market but at least the events of the last few weeks seems to suggest that they are and if there is a turnaround at least some part of it is if there is a turnaround in the markets some part of it is being driven by them.
So I'm just trying to understand is it the nature of their investments, it's their stock selection and the research that they bring in which causes these shifts or turns.
Ajay Bagga: One is the sentiment of Govind because it's a number that's seen every day. So the marginal HNI, the marginal proprietary desk, gets influenced by that number. Second as you said they are still 16 to 18 percent of our market depending on the data point when we are seeing it.
So they are quite important and thirdly the promoter stocks don't really come into the market. So as far as the free float goes they have an inordinately high proportion especially in the large weightages in the market. So in the large caps or the bigger part of the mid caps they could be quite market moving.
Fourth is that in terms of allocations there is a decent amount of that money which is coming through ETFs which is coming through global emerging market funds or which is leveraged money which goes out as fast. So when that money goes out we have seen about 28 billion dollars going out from September end till today. So that 28 billion shouldn't have made a difference to a 5.3 trillion dollar market. You would say okay 900 billion is their holding what if 2.28 billion went out it's hardly not even 3 percent. So why did it make such a big difference? A in the free float part they are quite big.
Second, it comes as an intense sale. Third, what I have seen running money in India is our fund managers. When I would be working for an Indian fund manager we would make sure the impact cost is managed and we will not just sell. But if you are working for Frankfurt or New York or Boston the thing will be everything must go right now.
So the price damage is much higher. That's my personal experience but that's anecdotal. So when the top down comes from Hong Kong or Singapore some trader of a leverage fund, a hedge fund, is clearing his position or creating liquidity then they don't really watch out for the impact cost.
An Indian fund manager will distribute out his selling and will not be so pressurised. I worked for both Indian and MNC fund managers. That was my anecdotal experience.
Govindraj Ethiraj: Right. I know you track flows across the region very closely. So I mean we've seen for example a lot of funds going into China after the deep seek announcement and even today there is disproportionate flow towards AI stocks and tech stocks in China and not so much other stocks.
So what's your sense of flows in the region in general or maybe in other parts of the world versus India and India's sort of continued or rather likelihood of getting continued flows?
Ajay Bagga: A large portion of the flow went into China. China this year has got about 13 billion dollars already in the first three months and that is very creditable. They did four things very right and they came in with a very strong four-pronged strategy.
One, Xi Jinping actually met the private companies. They had gone out of favour after they made Alibaba, Jack Ma disappear. Xi was frowning on the prima donnas of the Chinese tech industry.
He embraced them. He met all of them and that helped set the sentiment. Second, they were able to very nicely monetise their deep launch.
So monetization of Chinese tech happened and a lot of money which was bidding up the magnificent seven big tech in the US started seeing that maybe we should allocate into the Chinese tech. There is some monetization. Third was their stimulus measures which they kept on doing and fourth was injecting liquidity.
In the end, liquidity is oxygen to the markets. What the LBI governor did for us, you are seeing that turnaround happening because having tight liquidity is as good as starving the markets of oxygen. If you see this time around, the Fed did a stealth easing because they cut down the QT from 25 billion a month to 5 billion.
So that was the stealth easing of monetary policy that was done. You are putting in 20 billion dollars of liquidity in the US market. So the same thing China also did.
So government policy, stimulus, monetization of technology and fourth was the liquidity injection and boom, you got 13 billion. There are some other pockets which have got money regularly but largely emerging markets were starved of capital. A large portion of that incremental money has gone into US money market funds which were like 5.5 trillion dollars have gone up to 7 trillion. So because you are still making 4% plus in a dollar asset and if you leverage it up, borrow short and put money there, you are making good dollar returns. So on the average, the incremental flows were going into US money markets. That was what was hurting.
Then the dollar falling from 109 to 104 on the dollar index has also helped. So that incremental flow is coming to emerging markets. In India, the flows have restarted in March.
We are expecting it will pick up in May, June as the next quarter's earnings start being talked about in operational results. And then I think you should see a flurry of interest. But definitely the money coming out of US equities into emerging markets, that trend has started.
China has been the major beneficiary so far. We are expecting India to follow. Europe has got a lot of that money but that's a developed market.
But Europe has done very well. It is an outperforming market here today. It's up some 14-15, top 100 index.
Because of the defence expenditure, an austere economy like Germany putting in a 5 billion euro bid on stimulus and rebuilding its defences. So we have seen defence and euro banks really take off because of the stimulus that the European economies are bringing in.
Govindraj Ethiraj: Ajay, thank you so much for joining me and sharing your thoughts.
Ajay Bagga: Thanks very much, Govind. Thanks for having me.
Gold Still Rises
Gold prices rose on Thursday as the United States hiked those auto tariffs ahead of an April 2nd deadline for reciprocal tariffs. Spot gold was up to about $3,036 an ounce. Prices had, if you recall, hit a high of $3,057 on March 20th.
Gold futures were up as well. Importantly, Goldman Sachs on Wednesday has raised its end-2025 gold price forecast from $3,100 to now $3,300 per ounce, citing stronger-than-expected ETF or exchange-rated fund inflows and sustained central bank demand, according to Reuters. Analysts told Reuters also that they expect gold to breach the $3,100 mark in the second quarter and the market could potentially push another 8-10% higher by end-2025 if the current macro and physical market tailwind sustains for the yellow metal.
An Interest Rate Cut Is Around The Corner
The Reserve Bank of India will cut interest rates at a second straight meeting on April 9th, with just one more cut expected in August, which could mark the shortest easing cycle on record, according to a Reuters poll of economists. With inflation in India easing to a seven-month low of 3.6% in February, the economy is forecast to grow at about 6.4%, which is the weakest in four years. The central bank does have room now to cut rates further, and on the other hand, there is of course expectation that the central bank will cut rates and give a general boost to the economy.
According to that Reuters poll, a strong majority of them, 54 of 60, in that poll conducted between March 18th and 27th, yesterday expected the Reserve Bank to cut its benchmark repo rate by 25 basis points to 6%, at the conclusion of its April 7-9 meeting. One economist told Reuters that there are not many strong growth drivers going into fiscal year 26, and the Reserve Bank needs to sustain their support to growth. Inflation has also created a room for them to ease, and they should utilise that space to recalibrate monetary policy.
As we heard earlier as well from Ajay Bhagat, the Reserve Bank of India has been injecting liquidity into the banking system over the last few months to increase money supply. There are some questions which often arise on transmission of these interest rates and liquidity to lower rates of the kind that you and I can feel. Another economist told Reuters that if transmission needs to happen, especially in a rate-cutting cycle, banking sector liquidity needs to be on the positive side.
The Tariff War Continues
Indian auto component makers are more likely to be impacted than vehicle manufacturers by the latest round of tariffs announced by US President Trump. Trump on Wednesday announced the imposition of a 25% tariff on auto imports, that includes passenger vehicles and light trucks, with another 25% tariff expected to be applied on imports of most major automotive parts, that's engine and engine parts, transmissions and powertrains, and electrical components by May. India exported around $9 million, that's 9, or around 75 crore rupees of passenger vehicles to the US from the figures that I could get.
But the components industry was worth close to $6.8 billion last year, while India's imports from the US stood at about $1.4 billion, at 15% duty. Prior to this announcement, the US charged zero duty on imported components, or close to zero duty. Now, I reached out to Ajay Srivastava, former Director General of Foreign Trade Official and founder of the Global Trade Research Institute, and I began by asking him where things stood right now in the context of the discussions going on, particularly by line item, and where we were headed, or more importantly, should be headed in coming days.
INTERVIEW TRANSCRIPT
Ajay Srivastava: So, as things stand today, Trump is hitting us with tariffs on two sectors. Auto sector, he announced yesterday only, auto and auto components. And steel and aluminium, announced two weeks back.
So, these are the sectors on which tariffs have already been implemented, announced, or implemented on us. There are no country-specific tariffs, like imposed on Canada or China. So, we are waiting for the April 2 Big Bang announcements by Mr. Trump. To expect that India should escape, India may escape because Trump is hinting that, you know, I'll not be a happy person, because it's about tariffs. This is not against India. It's about his whole world strategy, right or wrong.
And he has been naming India repeatedly as tariff abuser, tariff king. And so, I'll be really surprised if he exempts us from any more tariffs than he does in other countries. And that will say only one thing: that they have been able to negotiate a deal, which compensates for whatever his perception about Indian tariffs is.
And that will go beyond tariffs. That's what my worry is.
Govindraj Ethiraj: So, if you were to look at some of the announcements that we've been seeing, and India has already taken some steps, for example, on motorcycles or high-end motorcycles, possibly on whisky or bourbon. And just yesterday, the government has said that they're going to remove this tax on ad spends, digital ad spends. That's a 6% equalisation levy.
So, these are all various steps, which will hopefully go into making a larger package to appease the US government. So, what's your sense? If you again, going back to line items.
Ajay Srivastava: So, I said Trump is about tariffs, and we should fight the tariffs. Tariffs have limited impact, especially in Trump's case, when he's putting tariffs on everybody. Everybody will be at equal disadvantage, more or less equal disadvantage.
Then nobody will be seriously hurt if that happens. But if we start appeasing him by giving concessions on other areas, deeper areas in quick succession, then I think we may be taking on bigger things on us, bigger burdens on us than tariffs would ever put on us.
Govindraj Ethiraj: I noticed that you've not mentioned any line items. But if I was to ask you going forward, what would your strategy be at this point, if you were sitting on that negotiating table?
Ajay Srivastava: So, Govind, I'm very clear that 95% of US exports to India, they're industrial goods, 95%. And India is in position to offer tariff-free entry to US industrial goods, 90% of the US industrial goods tariff entry from day one. So, I'm very clear that the Indian government should make such a list and hand it over to the US immediately today, tomorrow, day after tomorrow, before April 2.
I'm saying this with full confidence that these are the items we have been allowing for more than a decade from our FTA partners, like Japan, South Korea, and ASEAN countries. And these are very competitive economies, far more competitive on industrial goods than the US ever is or will be in the near future. So, when we can get our industry to fully absorb zero tariff imports from these economies, opening these to the US will not hurt any of our sectors.
So, I think we should give that to the US. We should not open the auto sector. We should not touch agriculture at this point of time.
Govindraj Ethiraj: From what I have been hearing, agriculture and dairy are or should be out of the table. But I don't know how the US government will respond to that because that's an area where the US will be very keen. For example, soy bean exports or dairy exports from the US to India, and they have capacity.
So, how would we respond then?
Ajay Srivastava: So, if he is talking about you not allowing world trade, we say we are allowing zero tariff on your most trade, more than 90% of the trade. That should satisfy him. Why he's talking about agriculture is that he knows that we have not opened agriculture to most of our FTA partners.
That's why they are intelligent people. They anticipate that India will be easy on industrial goods, like we are talking right now, and tough on agricultural goods. That's why they are not even talking about industrial goods, they are talking about agricultural goods.
But I think our leadership is very clear that agriculture is a sensitive subject for us. It's a livelihood issue, it's not a trade issue. 700 million people, their livelihood is dependent on agriculture.
US agriculture demands are not about tariffs alone. They don't like our MSP scheme that will disrupt the PDS system that will affect the poorest directly. They have problems with stopping dairy imports if the animal has been fed with meat or blood.
These are our cultural sensitivities, so we have reasons to stop these. The point is, they are going beyond the tariffs in agriculture. As I say, it's not a trade subject for us.
They should understand. I think they're intelligent, they may understand. If they don't understand, we say, okay, impose tariffs, we'll face it.
Govindraj Ethiraj: Coming back to industrial products, you said 95% of our imports are industrial products. And the same industrial products we are getting at zero tariff, because we have free trade agreements with some of these Asian countries. Now, how is it that we're importing so much from the US then?
Is it because of specific brands or specific product categories?
Ajay Srivastava: It's a great question, Govinda. I would have loved to answer this. What we import from the US is crude petroleum, that is crude oil, $4.5 billion. Then petroleum products, $3.2 billion. Then steam and coking coal, $3.4 billion. Then cut and polish diamonds, $2.6 billion. Gold, $1.3 billion. And waste and scrap, $4 billion. So if we total this, this amounts to about 60% of US exports to India.
So the US is into either agricultural commodities or into these low-end commoditised products or very high-end products like they will make aircraft, aircraft parts, semiconductors, those things. But the bulk of the industrial products are simply absent. They are not competitive.
It's not that India is not taking. They don't make it competitively. So even if we open it, they won't be able to supply much.
That's why I read this, the items which we import from the US.
Govindraj Ethiraj: And you're saying therefore, their thrust is going to be to make us open up in areas where clearly going back to agriculture and dairy.
Ajay Srivastava: That's the approach. But they don't realise that we don't, we may not consume soybean too much and those things are there. And agriculture is, as I say, not a trade issue at all.
With us, many inefficiencies are there. Plot size is low and productivity is low. We cannot risk putting the lives of half the population in danger.
Govindraj Ethiraj: Right. Mr. Srivastava, thank you so much for joining me. Thank you, Ruben.
Ajay Srivastava: Thank you.
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Meanwhile, Germany's economy minister as well as the industry blasted US President Trump's plans to impose those 25% tariffs, saying the move sends a fatal signal to free and rules-based trade, according to CNBC. German Economy Minister Robert Habeck called for the European Union to provide a decisive response to Trump's latest tariff announcement, saying the levies ultimately harm the US and the EU and global trade as a whole.
The announcement of high tariffs on cars and car parts is bad news for German carmakers, for the German economy, for the EU, but also for the US, Habeck said Thursday in a Google Translated statement. It is now crucial that the EU delivers a decisive response to the tariffs. It must be clear that we will not back down in the face of the US.
Strength and self-confidence are required, he added in that report quoted by CNBC. Elsewhere, Japan has also reacted quite strongly, saying that it was a big investor in the US and did not deserve to be treated in this fashion, which is the imposition of tariffs on Japanese car exports into the US, and more on all of that, I'm sure, in the coming days. Meanwhile, US tariffs on copper imports are also coming in weeks as opposed to months, which was expected earlier, thanks to which copper has been trading at a record high, in New York.
The Indian Media And Entertainment Industry Slows
India's media and entertainment industry earned about 250,000 crores in revenue in 2024, as it undergoes rapid transformation, according to a new report by Ernst & Young and FICCI, the industry body. The report said that growth slowed due to falling subscription revenues and a global decline in animation and VFX, so that's visual effects work outsourced to India. The industry contributed about 0.7% of India's GDP and is expected to now grow 7.2%, to be worth about 268,000 crores in 2025. Advertising grew about 8.1%, events grew 15%, and on the negative side, subscription income went down, that's across TV and print, according to Ernst & Young. Pay TV lost about 6-7 million homes, bringing down subscription revenues, as people moved to digital mediums like YouTube, they said. Box office overall was weak, which saw a 5.6% drop in revenues. There was a fall in transaction gaming revenues, after implementation of higher GST or goods and service tax on real money games. A strike by Hollywood scriptwriters in 2023 and struggling international studios led to a 9% revenue decline in 2024 and reduced broadcast ad revenues, affecting the production of animated content in India, the report said. The good news, digital advertising in 2024 grew 17% to 70,000 crores, which is now 55% of total advertising revenues and driven by social media and e-commerce ads.
Now that's obviously good news for those who are in the digital media industry. Other segments that grew were OOH or out-of-home advertising media, which grew 10%, digital out-of-home grew 78% and radio revenues grew 9% to 2,500 crores, thanks to growth in ad volumes and alternate revenue streams. Print advertisement revenues grew 1% in 2024, with premium ad formats driving growth.
Li Ka-shing faces the ire of the Chinese government
Li Ka-shing is an interesting story because there is a strong Indian connection, and it's more perhaps visible than you think. Li Ka-shing was born in 1928, emigrated to Hong Kong from mainland China in 1940, and we'll come to his businesses and the current news in a moment. He started as a salesman founding his own plastics company, then invested in real estate and became Hong Kong's largest real estate developer.
In 1979, he acquired the conglomerate Hutchison Wampoa, and he had two sons, the youngest of whom, Richard, launched a satellite programming venture in 1991, focused on 38 nations in Asia and the Middle East. And that satellite venture was called Star TV, which was then subsequently acquired by Murdoch and then sold to Disney, which is now partnered with Reliance. So there you are.
Now, to come back to Li Ka-shing's current problems, China has told state-owned firms to hold off any new collaboration with businesses linked to Li Ka-shing and his family after the Hong Kong billionaire angered Beijing with his plan to sell two Panama ports to a global consortium. The directive was issued to state-owned enterprises last week at the behest of senior officials. Bloomberg reported, though they added that existing tie-ups are not affected.
The 96-year-old billionaire, if you haven't done the math already, struck a deal with BlackRock Inc., or rather a consortium led by BlackRock, to sell ports in Panama and elsewhere to the United States effectively, and thus putting his conglomerate's entity in the crosshairs of U.S.-China relations. The port sale is expected to net C.K. Hutchison and his company received more than $19 billion in cash and triggered a response in Beijing after Trump hailed it as the U.S. reclaiming the strategic waterway from Chinese influence, though the Panama ports are just two of 43 facilities being divested globally.
