Stock Markets Hit Fresh Highs
Most major names continued to rule, including ITC, Tata Motors, HDFC Bank, Infosys, HUL and Ultratech Cement
On Episode 329 of The Core Report, financial journalist Govindraj Ethiraj talks to Mithileshwar Thakur, Secretary General of the Apparel Export Promotion Council (AEPC).
Our Top Reports For Today
SHOW NOTES
(00:00) The Take: Indians are spending more money overseas than ever
(04:54) Stories Of The Day
(05:38) Stock Markets hit fresh highs, almost forgotten IT stocks like Wipro are moving now
(08:46) Monsoons set to revive in July after a bad June showing
(11:03) Indian electric 2 wheelers sales stagnate even as world sees excess lithium supply
(13:03) Garment exports could benefit from PLIs, can the industry take advantage?
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 Tuesday, the 2nd of July and this is Govindraj Ethiraj broadcasting and streaming from and headquartered in Mumbai, India’s financial capital.
The TAKE: Indians are spending more money overseas than ever, a lot of it on travel
The money spent has risen from around $1 billion 10 years ago to around $31 billion today.
By the way, remittances coming into India have also hit a $120 billion mark, a new high. This is the gross figure, the net comes closer to $107 billion.
The Government has already responded to this rising trend of overseas spends, with 1970s laws including presumptive tax on credit card spends overseas and a campaign to host weddings in India.
Indian spend on overseas education is rising too, as more students go overseas.
If this figure comes down, it will because countries like Canada and Australia are now putting the brakes on overseas students, large numbers of whom obviously come from countries like India and China.
Australia and Canada are seeing pressure on local housing because of which they are now calibrating the number of student visas they give out.
Back to travel for which there is no curb, the obvious question is why do people travel overseas so much ? For one, the kind of people is shifting constantly. Wealth is firstly distributed far more widely across India than ever before and people from smaller cities who may not have travelled much overseas earlier are doing so now.
Which is a good thing.
Increased direct connectivity from lets say middle eastern airports to smaller towns in India. An airline like Emirates flies to nine airports in India or from them.
Qatar Airways flies to 13 destinations in India, including Nagpur, Amritsar and Goa.
Apart from the fun of visiting new places and destinations and satisfying travel lust, a key reason is cost. Whether for family holidays or destination weddings
Indian tourism has inflated itself beyond reach.
For some time now, Indian tourists have preferred to fly to Phuket, let's say in Thailand which now has direct flights from cities like Mumbai or Bali which again has direct flights from Delhi, than say Goa where good hotels usually quote in the Rs 15,000 to 20,000 per night range in the best of times. Don’t even ask what they quote like in peak season.
The Government’s response is to dissuade people from going overseas by imposing taxes of some sort.
Experience over decades shows Indians find a way to do things they want to do, taxes or not. The lesson of the last decades is to offer the freedom to choose. Indians will choose to fly more to let's say spiritual destinations if they desire to, as they clearly are.
Equally, younger couples may want to get married in an exotic overseas beach so that it is memorable for them.
The Government should not even by suggestion, try to tell people where to go or not. It can surely remind people of the wonderful destinations there are in the country, as there are.
But then, it should focus on the sheer costs and why hotels in India are so expensive.
The tax system is set up in such a way that GST on rooms of tariff of Rs 7,500 and above is 28%, the peak level.
While rooms between Rs 2,500 and Rs 7,500 are at 18% and so on. No one is saying 5 star hotels are not luxury but policy makers surely can see the unintended consequence here, the return for investment in a holiday is not seen as favourable. Because a holiday is not just what you experience inside the four walls of a hotel or resort but the whole experience of it.
The larger point was about expenditure going up overseas.
That figure should trigger a look at how to make it attractive to stay in India or get married here. When I see attractive I do mean financially attractive. Equally, imposing presumptive taxes on credit card spend is a bad idea and quite likely India is the only country in the world that does it.
A free market for movement of tourists will automatically balance out over time as people weigh all their options. Without restraints as we are imposing now.
The Government should equally make it easier for overseas tourists to visit India and spend here.
Which they will not again because India is not the most attractive destination, including from a cost point of view right now. Unless you specifically want to see the palaces of Jaipur or Taj Mahal. Those numbers are not increasing right now.
A holistic view is very critical for dollars coming in and fewer dollars going out, as that evidently seems to be the objective.
Okay, here go the stop stories and themes for the day:
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Markets Hit Highs, Old Favourites Return
The stock markets hit fresh highs as the week began. Let's get the numbers out of the way.
The BSE Sensex index gained 443 points to end at 79,476 levels, while the Nifty50 closed at 24,142, up 131 points.
As you can see, the Sensex is in breathing distance of 80,000 and the Nifty of 25,000
Most major names continued to rule, including ITC, Tata Motors, HDFC Bank, Infosys, HUL and Ultratech Cement, cementing the rising flows into legacy and large cap stocks by institutional investors.
Of course the broader indices, continued to move faster than the benchmarks, the BSE MidCap index, for instance, ended 1.1 per cent higher, hitting its new lifetime high of 46,696 while the BSE SmallCap index, too, ended 1.58 percent higher, close to its record high of 52,976, hit in intraday trade.
So once again, despite all the fears expressed by all veterans and regulators in recent months, money has come gushing back to small cap stocks which is where most opportunistic money would go in any case because investors would tend to think that large caps are well researched, institutionally invested and thus more expensive which they are eve in real rupee terms.
The Wipro Upgrade
For some time and for various reasons, Wipro as a stock was written off as was the company from a stock point of view, with the conclusion that it was unlikely to grow much, like the rest of the IT Services industry, struggling to show growth in a tight environment of lower IT spending in the west, including in the US.
And then are the challenges of what AI can and will do to business.
So while Wipro, like other IT services companies, are now fighting back, interestingly, the stock market is also viewing them with fresh, what I can say, love.
Moneycontrol reports that a double upgrade by CLSA sent shares of Wipro higher by as much as 4 percent on July 1, making it the top Sensex gainer, with the rating revised from 'Underperform' to 'Outperform' and the target price raised to Rs 607 from Rs 431 per share.
The revised price target implies a potential upside of nearly 41 percent from the June 28 closing level.
It's not that the growth expectation is great because CLSA expects Wipro to provide Q2 constant currency revenue growth guidance in the range of 0-2 percent.
But there are contracts flowing in, one example which caught the markets fancy was Wipros announcement of a contract worth $500 million spread over five years.
The fact that Wipro secured this size of contract in this case from a communications services provider which could be a telecom company, at a time like this was seen as a positive.
Elsewhere, several large caps including in IT Services and in consumer products as we have been pointing out are being revisited.
To the extent that it reflects a business turnaround for these companies and these sectors, that is obviously welcome news.
India Monsoons Could Revive After Bad June Showing
For all the projections earlier, June was a bad year for a monsoon season that was supposed to be robust.
This has had a direct impact on food inflation, made worse by the heatwaves and prices, among other things of TOPs. Which is tomatoes, onions and potatoes.
India is likely to receive above-average rainfall in July after receiving 11% below average in June, the weather department said on Monday.
All regions except northeastern states are likely to receive rainfall equating to more than 106% of the 50-year average in July, Mrutyunjay Mohapatra, director-general of the India Meteorological Department (IMD), told a virtual news conference, reported by Reuters.
India received 11% less rainfall than normal in June as all regions except the south received below-average rains after the monsoon lost momentum in mid-June, according to IMD data.
The southern region received 14% above average rainfall, it showed.
Watch this space for more updates as they income including on the specific impact of the falling rainfall levels last month.
Saudi Goes For Big Gas Projects
Saudi Aramco has awarded construction contracts worth $25 billion for the development of its Jafurah gas project, as it looks to boost gas production, Bloomberg reported.
The contracts awarded include $12.4 billion for increasing gas output at Jafurah, plus $8.8 billion for expanding the so-called master gas system, which delivers natural gas to customers around the country, according to a statement.
Saudi Arabia incidentally has some of the biggest gas reserves in the world.
The Jafurah field is estimated to hold 200 trillion cubic feet of gas.
The World Is Looking At Lithium Oversupply
There is much talk of gigafactories coming up, including in India.
On the other hand, lithium which powers electric batteries which go into cars and two wheelers among others, is seeing supply increase and demand go down.
Argentina for example will see four new projects that will produce lithium in the weeks and months ahead, according to a yet-to-be released federal government time-line seen by Bloomberg News.
That will almost double production capacity in Argentina, whose growth potential has long lured the attention of battery makers around the world.
Yet, Bloomberg says, for global lithium markets, the extra production comes at a time when buyers are already well supplied, with inventories piling up amid the gloomy outlook for electric vehicle demand.
Spot prices of lithium carbonate in China have slid to the lowest since August 2021.
Argentina is now a major lithium producer behind Australia, neighbouring Chile and China.
While the new capacity won’t all be used straight away, it nevertheless represents a significant overhang in a market in which global production is estimated by Bloomberg Intelligence to total 1.4 million tons this year.
Electric Two Wheelers
Speaking of lithium and electric, electric two-wheeler (E2W) sales remained flat during the first quarter (April-June) of the current financial year at 222,127 units, according to Government data reported by MC.
The total E2W registrations were marginally up by 1.62 percent from 218,574 units in the same period last year, the Vahan data showed.
Industry players attributed the muted growth in numbers to the reduction in subsidies granted to EVs by the government by replacing the FAME2 Policy (valid till 31st March 2024) with the Electric Mobility Promotion Scheme (EMPS) 2024.
The new scheme, which is valid from April 1 to July 31 this year, offers a maximum subsidy of Rs 10,000 per e-2W or Rs 5,000 per kWh of battery capacity, whichever is lower.
Could India’s Garment Exports Industry Get A Leg Up With PLIs
Last week, India’s textiles ministry said the government has approved over Rs 10,000 crore production linked incentive (PLI) scheme for textiles and is now considering extending it to the garments sector with a view to boosting domestic manufacturing and exports.
The government approved the PLI scheme for textiles over a five year period to promote production of MMF (man-made fibre)
Apparel, MMF Fabrics and Products of Technical Textiles in the country to enable the textiles industry to achieve size and scale and to become competitive.
India’s textiles industry is about USD 165 billion and "we have to take it to USD 350 billion" the minister for textiles said.
I reached out to Mithileshwar Thakur, Secretary General of the Apparel Export Promotion Council, the official body of apparel exporters in the country.
AEPC has roughly 8,000 members and represents roughly $16 billion in exports.
One key problem for Indian garments is of course scale. The average number of machines in an Indian garment factory is around 250 to 400 while internationally, the average is closer to 1,000.
There are good flawed policy reasons for this, from the past.
The question of course is can it be reversed.
I began by asking Mr Thakur how he was seeing the possibility of PLI helping the somewhat dispersed garments industry and where it could benefit and whether this would help India become more competitive.
