Markets Weak As Tech Takes Beating
Tech stocks took a beating on a wide range of concerns but primarily perhaps was that the sector was overblown
On Episode 344 The Core Report, financial journalist Govindraj Ethiraj talks to Dr. Rajanya Ravasia, wealth manager and founder of Adventum Wealth.
Our Top Reports For Today
SHOW NOTES
(00:00) The Take
(04:00) Stories Of The Day
(05:57) Markets weak as tech takes beating. Budget weighs on stocks.
(11:44) Are controls on overseas investments slowing flows?
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, it's Monday, the 22nd of July and this is Govindraj Ethiraj broadcasting and streaming from and headquartered in Mumbai city but in transit right now.
Before I come to the Take, my episodes for the next 8 days will be intermittent and shorter as I am away for a conference. I also have a few longer interviews lined up.
The Take
Last week was a good one to remind us how technology rules our lives. My own flight was delayed by several hours because of delays caused by a computer systems breakdown.
Working backward, now you know which airlines or organisations depend on Microsoft for their operating systems and which in turn use the Austin-based Crowdstrike’s product for cyber security.
It was an update of this Crowdstrike software which caused the Microsoft Windows systems to freeze all over the world.
Microsoft said their estimate was that CrowdStrike’s update affected 8.5 million Windows devices, or less than one percent of all Windows machines.CrowdStrike sits on Microsoft’s Azure cloud infrastructure.
But between Microsoft, Google and Amazon and their cloud computing businesses, vast amounts of data lie on their servers wherever they are.
Which is a monopoly challenge that has to be dealt with but not easy to do because scale creates efficiency, reduces cost and improves, at least theoretically, the quality of the product or service. Obviously upto a certain point.
The other moral of the story, a software like Crowdstrike might protect you from external attacks and threats as and when they come but not from itself and of course human failure, which includes the possibility that someone did not do multiple checks before releasing the update. Or why they did not roll it out incrementally rather than one big dump.
Which of course is a good time to remember that there are an increasing number of devices we depend on in our daily lives, which are updating all the time, from our phones and computers to cars and other appliances.
In most cases, we have the choice of accepting an update so we know something could go wrong but we would not have a way out either way. Crowdstrike was an auto update by the way. Not that it could be anything different given the nature of businesses who run 24X7 on such systems.
We are more connected than ever before.
We have to also remember what our lives would be like if we are not connected.
If there were no core banking systems running our banks who in turn were not connected to each other, we would be running to physical bank branches - I am old enough to remember that - to stand in lines to deposit or withdraw cash or just check a bank balance.
The UPI system we feel proud about which allows instant fund transfers of the smallest of amounts by scanning a QR code via our phones or keying in a phone number means there is something which is connecting all of this on databases and to use that oft-used word, cloud.
Most of the mail systems we use are sitting on servers or controlled by organisations in the Bay Area, California.
Remember that none of this, including our ability to access our bank accounts or do transactions has really suffered in all these decades of centralised databases. Yes, there have been occasions, but very rare overall. This is a function of people as much as technology.
There is of course that element of trust which we have willingly or unwillingly conferred on these organisations.
So it comes to how much. How much data do we store where? If a bad update from Crowdstrike can cripple systems, remember, only those that use them and Microsoft operating systems, then how should we think about it ?
What about the future ? Should such companies be local so problems are localised and we are actually prepared for external cyber attacks which are of course happening all the time.
I am not sure.
The best talent creates the best software, whether for driving various functions or preventing cyber attacks.
If Crowdstrike were to be proved to be incompetent and worse, unreliable, other players would take over, and there are enough hungry sharks swimming in the technology ocean.
Of course we need regulation to ensure we can switch service providers easily and efficiently if we don’t like one. Which should not be like switching from Android to iPhone or vice versa. The fact that you have common charging jacks for that latest iPhone and Samsung phones did not come out by accident, let me assure you.
I am sure many enterprises are asking these tough questions right now. How do we protect ourselves from similar failures next time? It does not matter if the breakdown was triggered by an external attack or an internal human failure.
The outcome will be the same, which is that businesses will lose business, customers will be inconvenienced and reputations will be hurt.
I can blame the software provider for the fact that my fleet of aircraft was grounded this morning but my customer does not care. It is my responsibility.
I want to highlight the point of talent again. It is only the smartest brains that will produce the best product.
We have to zero in on them wherever they are in the world, at least for the businesses that can. And make sure they are delivering a trusted, reliable product.
We also have to ensure we have the smartest people overseeing this, like we have in some of the top banks in India. Make no mistake, it is not an accident that we don’t have breakdowns and data hacks, at least so far.
But more importantly, we should retain our trust in technology and depend on it to deliver services we need to make our lives better.
But like in everything else in life, we need a Plan B too.
Markets Plunge on Tech Beating
It was not just the Microsoft/Crowdstrike outage which crippled businesses across the world, from airlines to hospitals that reminded us how vulnerable the tech industry was.
Tech stocks took a beating too on a wide range of concerns but primarily perhaps was the one that the sector was overblown.
The Nasdaq 100 Index had its worst week in three months, says Bloomberg, adding that after driving the rally in US stocks for most of the year, Big Tech slammed into a wall this week. Ouch.
The concern that tech and within artificial intelligence and within that that stocks like Nvidia are overvalued is not going away on Wall Street.
AI darling Nvidia Corp. sank 8.8% this week, while Amazon.com Inc. dropped 5.8%.
Yes, we think of Amazon as tech because of its vast cloud service portfolio or Amazon Web Services which controls 32% of the global market for cloud and represents some 17% of its own revenue, according to reports quoting Synergy Research Group of the US.
Wall Street feels the big tech giants' profit growth will be slower this year.
Back home, the Union Budget tomorrow is also weighing on investors…there is some speculation about whether or not some of the tax slabs on capital gains on income earned from sales of assets, including stocks, will be shifted around, I can also see some stockbroking research reports, evidently the beneficiaries of some informal briefing, preparing the ground, at least statistically.
That does not mean it will happen but it is clear the waters are being tested.
On Friday, the BSE Sensex slumped 739 points to end at 80,605 levels, while the Nifty50 ended at 24,531, down 270 points.
Earlier, the indices hit record highs again at 81,588 and 24,855, respectively, in the morning trade.
The BSE MidCap and SmallCap indices fell 2.2 per cent each.
The big theme to prepare for in some ways will be regulation.
We have discussed often how the regulators are debating on how to cool down a heated market for loans and stock market investments.
It is inevitable that more curbs will come as they should, in addition to the few that are already there.
The rising volumes in the derivatives segment have now become a macroeconomic issue instead of being a risk concentrated to only a few individual investors, said Madhabi Puri Buch, chairperson of the Securities and Exchange Board of India (Sebi).
Buch’s comments come at a time when financial regulators have cautioned against the rising euphoria in the futures and options (F&O) segment, where daily turnover has shot up to nearly Rs 400-trillion in notional terms.
Buch highlighted the unanticipated surge in the volumes and loss of household savings to speculative activities.
And to a point that The Core Has been making in recent months.
“Many young people who have entered that market have lost tons of money, nobody could have expected that. It has now reached a state where the micro-objective of protecting the individual investor has to change to thinking about the macro-issues. At a macro-level, we are worried that the household savings are not going into capital formation but into speculative activities,” Buch added.
Meanwhile, Reliance reported first-quarter profit below analysts' estimates on Friday, hurt by lower margins on fuel sales.
Reliance’s consolidated profit fell to 151.38 billion rupees ($1.81 billion) in the April-to-June quarter, from 160.11 billion rupees a year earlier.
Analysts had estimated a profit of 162.87 billion rupees, according to LSEG data.
Oil-to-chemicals earnings before interest, taxes and depreciation fell 14.3% to 130.93 billion rupees from a year earlier, due to lower transportation fuel cracks, particularly gasoline cracks, which were down 30%, Reliance said in a statement.
"The business was impacted by lower fuel cracks with tepid global demand and ramp-up of new refineries," the company said..
Reliance is a key Indian buyer of Russian oil sold at a discount and has signed an annual oil purchase deal with Russian oil major Rosneft, Reuters reported.
And as we have been pointing out, the discount on Russian crude has reduced quite sharply in the last few months.
That will surely affect the margins for oil companies in India as we have been tracking consistently here.
Meanwhile, Reliance’s consolidated revenue gained 12% to 2.36 trillion rupees.
Reuters points out, quite importantly and correctly that Reliance’s Jamnagar complex, which houses two refining plants with a combined capacity of about 1.4 million barrels per day, is at the core of Reliance's oil-to-chemicals (O2C) operations, making it a key profit driver, despite the company's aggressive expansion into retail, telecom and green energy.
This is something we have discussed here in the past as well.
Reliance’s pot of gold is still in oil and not data, at this point.
Speaking of oil, Brent crude is now quoting around $82.63 and thus below $83 a barrel, weaker than what it was last week.
India Reserves Are At A High, Investing Overseas Should Be Easier
More money is diversifying out of India as wealth is generated and investors look for options globally, geographically and across asset classes, from stocks, bonds to real estate, among others.
There is nothing unusual in this, most wealthy will want to diversify their wealth across geographies which is also a good because when markets and economies go up and down, as they always do, they are able to move to bring back capital as they want, keeping the engines running more smoothly.
The Government of course is uncomfortable with too much capital going out of the country, given our own history of currency crises.
While the current reserves at $667 billion, a record high, we should focus more on the enabling environment to bring in capital than focus on controls to stop it from going out.
The freedom of movement is what brings capital in the first place and India in the last three decades at least has not seen any outflows that could damage the economy.
One of the niggling aspects of controls is the Government’s move to impose a Tax Collected At Source, a presumptive tax which is refundable but nevertheless increases your cost of acquisition or travel. There is some hope that the Union Budget 2024 will look at it but seems unlikely.
How much is this affecting flows in general and what are investors who are diversifying looking at ?
I spoke with Rajanya Ravasia, wealth manager and founder of Adventum Group, based between London and Mumbai and advises investors on investing mostly in real estate in countries like the UK which he feels is attractive and provides good return on capital.
I began by asking him about the impact of TCS
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