The Markets Add Another 899 Points
Indian stock markets rose for the fourth consecutive session on Thursday
On Episode 536 of The Core Report, financial journalist Govindraj Ethiraj talks to Sheetal Sapale, Vice President (Commercial) at Pharmarack as well as Sumit Mitra, CEO at Tesco Business Solutions.
SHOW NOTES
(00:00) Stories of the Day
(01:00) The markets are on a strong wicket, add another 899 points
(01:59) Wall Street takes solace from Federal Reserve comments on the transitory impact of inflation in the US
(03:03) The rupee is on best winning streak since January 2024
(03:51) Lifestyle diseases see new launches in weight loss even as other categories grow
(13:57) Newer GCCs like McDonalds are coming to India, even as older ones like Tesco complete over 20 years
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 21st of March and this is Govindraj Ethiraj broadcasting and streaming from Mumbai, India's financial capital, as we head into the weekend.
The top stories and themes,
The stock markets are on a strong wicket, they add another 899 points.
The rupee is on its best winning streak since January 2024.
Wall Street takes solace from the Federal Reserve's comments on the transitory impact of inflation in the United States and that interest rate cuts will come.
Lifestyle diseases see new launches in weight loss even as other categories grow.
Newer global capability centres or GCCs like McDonald's are coming to India even as older ones like Tesco complete over 20 years.
The Markets Ride Strong
Indian stock markets rose for the fourth consecutive session on Thursday and they're exhibiting what I would call baseline strength in the last few days wherein the buying is now outpacing selling pressure, keeping the indices in the positive and climbing steadily as we've seen. In previous weeks, the markets would be pulled back on days they opened in the positive. FI selling has evidently paused as funds also rotate out of the United States in search of juicier opportunities for a couple of reasons and we'll come to that.
A key trigger is of course what's happening on Wall Street which was up on Wednesday but already weak on Thursday following the Federal Reserve's pronouncement that they would stick to their promise of cutting rates twice in Back to India, on the Lal Street, the Sensex was up 899 points to 76,348 while the Nifty 50 was up 283 points to 23,190. Some 44 of 50 constituent stocks of the Nifty 50 were higher according to business standard while elsewhere in the broader markets the Nifty Mid Cap 100 and Nifty Small Cap 100 were up about 0.6 and 0.7 percent. Now back to Wall Street, the prospect of lower interest rate means traditionally that funds move out to newer markets including emerging markets like India as they've done before.
Add to this the uncertainty created by the potential impact of tariffs and funds will obviously seek more predictable markets as some have already publicly indicated and we've reported in recent days. China is no doubt a very big beneficiary of this but India also stands to gain. Futures were weak on Thursday.
Earlier the Fed's commentary seemed to suggest that tariff pressures could be absorbed though any interest rate moves could come only after tariffs kicked in as they do. The S&P 500 which has briefly slipped into correction territory last week is now more than 7 percent of its record high according to CNBC. Back home some finance and business news, Reliance-owned Jio Financial has reached a preliminary agreement with Germany's Allianz SE to form an insurance business in India.
According to Bloomberg this follows Allianz agreeing to sell its 26 percent stake in its non-life and life insurance joint ventures with Bajaj FinSev that's part of the Bajaj Group for about 2.8 billion dollars.
The Rupee Holds Strong
The Indian rupee rose for the seventh straight session on Thursday, its longest winning streak since January 2024 thanks to steady dollar sales by foreign banks and pairing of short bets on the currency according to Reuters.
The rupee rose to a near two-month high of 86 rupees 20 paise per US dollar earlier in the day before closing at 86 rupees 36 paise. According to Reuters, most currencies are benefiting from a weaker dollar fuelled of course by concerns of a US economic slowdown. The dollar index is currently near its lowest level this year.
Just to go back to what the Federal Reserve said, it lowered its 2025 GDP projections for the United States while increasing its inflation expectations. Reuters added that concerns about US President Donald Trump's tariff policies have dented investor confidence about the US economy and of course the dollar.
Lifestyle Disease Conditions Are Rising As Are Cures
There is much action in the lifestyle disease space even as disease profiles evolve and change and the pharmaceutical industry is rapidly responding. The spotlight on Thursday was on the diabetes and obesity space with drug giant L.I. Lilly announced it was launching its blockbuster diabetes and weight loss drug Mounjaro in India, beating rival Novo Nordisk. US-based Lilly and Danish Novo Nordisk have seen massive demand globally for their weight loss drugs, says Reuters. Many of these drugs are sold in India in a virtual black market, that's me telling you.
Not surprisingly, Lilly has moved quickly to launch in India at a much lower price point than in the West and rather it's an India price. As we've discussed in the core report, obesity is a major challenge in India with 24% of women and nearly 23% of men between the ages of 15 and 49 being overweight or obese and this number was lower about a decade ago. India also grapples with childhood obesity.
Mounjaro will be priced at Rs 3,500 for a 2.5mg vial and about Rs 4,375 for a 5mg vial. The drug is typically taken once a week and could cost between Rs 14,000 and Rs 17,500 depending on the dosage. In the United States, the same average monthly price of Mounjaro ranges from $1,000 to $1,200, that's obviously between about Rs 87,000 to a lakh of rupees per month.
So in the US, it could be anywhere between 6-8 times what it costs in India. An analyst at Systematics Institutional Equities told Reuters that the launch is ahead of Novo Nordisk and the first mover advantage should help but pricing seems high for the Indian market. At the highest dose, a patient will have to spend close to Rs 700,000 per annum.
Reuters also pointed out that many Indian companies are racing to launch generic versions using for instance Semaglutide which is likely to go off patent in 2026, that's next year in India. Now, Novo Nordisk's oral Semaglutide tablet Ribels was launched in India about 3 years ago, that's Jan 2022 but already has about 65% of the anti-obesity drug market which also includes other weight loss medications. The market for anti-obesity drugs as we will hear more about shortly has grown dramatically from about Rs 137 crores in November 2020 to about Rs 535 crores in November 2024 according to market research from PharmaTrack and more on them shortly.
To get a sense on how the anti-obesity medicine market is playing out, I spoke with Sheetal Sapale, Vice President at PharmaRack and regular guest on The Core Report and I began by asking her how she was seeing the launch of Mounjaro.
INTERVIEW TRANSCRIPT
Sheetal Sapale: So the anti-obesity space is actually picking up well. Five years back, say in the year 2020-21, the market was just a 130 crore market and today it is almost 576 or almost a 600 crore market. The market has actually grown more than four times of what it was.
Of course, there is a lot of discussion and promotion that certain drugs have been made like Ribels, Semaglutide which has been launched by Novo, a good amount of awareness was made and because of which patients also or consumers started taking up this product. So today the demand for anti-obesity products is very high and the market is definitely going to grow faster because cardiac diseases, diabetes, lifestyle diseases are definitely increasing in the country. The treatment options are available.
So earlier the treatment options were just change your lifestyle, reduce or focus on your diet but today we have options available like one tablet once a week or one injection once a week for lifetime or at least a good number of months should bring down your weight drastically. So these options are available. So people who are not even open to thinking about this type of drastic measures to reduce their weight are now open to at least trying out the options.
Govindraj Ethiraj: Right and a drug like Mounjaro which is obviously now much cheaper than what it was brought in from outside the country as many people clearly were is being targeted at two or three levels. I think it's targeted at obesity, diabetes in specific. So how do you see people consuming it or what do you see it being prescribed for?
Sheetal Sapale: See these drugs though they are meant for diabetes they will get consumed more for your obesity because the way it is being promoted it is for obesity only and the way the product also works is it reduces your digestion rate. It makes you feel fuller. The need to sort of desire to eat more dies down.
So it could be and you know if you see that way it is even promoted by the company it is promoted more for induction of weight or management of your obesity. So it will be consumed as an obesity and obesity product only.
Govindraj Ethiraj: So when you talk about it you know the market for anti-obesity going from 130 crore rupees a year to 500 crore rupees. So would you say that this is a demand-led market or a supply-driven market as things stand?
Sheetal Sapale: It is a demand, yeah it could be a demand-led market. The only thing is the supply of products is there and awareness of treatment options and easy treatment options are available. So if you look at the return on investments that the patients would see are much much better because the amount you are spending for improving or reducing your weight it is nothing as compared to the advantages that you get by consuming these products.
So the demand is definitely there and there is a huge demand. I mean if I were to talk about the huge demand in terms of prevalence of obesity, almost 22 percent of the male population of the country and almost 24 percent of the female population of the country that is male and female adults fall into some sort of the other obesity. Now if I just want to apply a simple calculation India's population is 1.4 billion and considering that 50 percent of this population are males and of that if I consider 22 percent are obese it means I am talking about 158 million males which fall in the obese category. Of course out of which not all would be falling in the morbidly obese category but then this is the type of obese population that sits in the country.
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Obesity is in the spotlight but other lifestyle diseases are also growing as is the treatment for them. Pharmarac says the gastrointestinal or GI segments saw strong double digit growth which is a little unusual at this time largely due to the increasing prevalence of gastroesophageal reflux disease or GERD as is commonly known which rose from about 19 percent in 2020 to about 22 percent last year thanks to stress, poor dietary habits and sedentary lifestyles. Also peptic ulcer disease cases increased by 15 percent in urban India attributed to high NSIDUs and H.
pylori infections and here is where the health and climate impact our lives. The sudden rise in temperatures across India contributed to increased sales of oral electrolyte solutions while growing consumer awareness of gut health has led to a consistent month after month increase in probiotic consumption, says Pharmarac. As I continued the conversation with Sheetal Sapale, I also asked her why there were such sudden spikes in gastrointestinal drugs at this time of the year.
INTERVIEW TRANSCRIPT
Sheetal Sapale: So gastrointestinal if you see typically the type of products which fall in this category are the antacids, the laxatives, the anti-flatulence and all of these ailments are majorly because you know some sort of indigestion, bloating, constipation. If your dietary habits are not good, if you're not consuming good amount of fibre, you are having too much of fat content or you know content of whole wheat or maida that we call, then you are actually going to face this type of health issues and the lifestyle and the type of fast food that we eat definitely these conditions are going to increase. So that's you know one is your dietary conditions which leads to increase of such conditions and because of which these types of I would say drugs start picking up in that is one.
Second is antacids typically are taken when there is indigestion and some sort of heartburn. I see you know this is what I feel is many times when we have some problems with the heart. The first indication is also a heartburn and we tend to self-medicate. So probably you know some you know some cardiac problems also may be may come out because of this sensation of heartburn and it may be you know not really gastro related problem but cardiac related problems for which a self-medication goes by taking let me take an antacid because you know I feel I have got acidity problem.
Govindraj Ethiraj: Right and I guess the warning there is that for those at least who are listening or watching is that they should be consulting their physicians for the right medicines if they do feel this. Tell us about hyperlipidemia because that's to do with I mean obviously lipid levels.
Sheetal Sapale: So high lipid levels are high fat content in your body. So high fat content in your body would be for two reasons. First is you are eating foods which are very high in fats, typically the fast foods, and second is a sedentary lifestyle because if you are not exercising much, whatever you are eating is sitting in your body and this is again you know these fats again our arteries are like pipes.
So this fat will go and deposit somewhere so it gets and deposits in our arteries. The moment it gets deposited in our arteries, the space which the blood gets to for it to flow becomes narrow. The consequence of this is the heart has to pump in more or you know give more pressure to ensure that blood reaches all the places in your body.
So this leads to hypertension conditions where the tension in your blood or arteries increases. So everything is connected. You eat the wrong food and you are actually pressurising your heart, your kidneys to function normally.
Govindraj Ethiraj: Right Sheetal, we've run out of time. Thank you so much for joining me.
Sheetal Sapale: Thank you so much.
GCC To Go
The India Global Capability Centre movement or captive units for global multinationals in India continues to gather steam. The number of GCCs in India is now well over 1700 and several are being set up every week in the country now including from the United States which might be facing other challenges including of tariffs but not here. The latest announced presence in India is McDonald's which has said it will set up in Hyderabad which is its largest global capability centre outside the United States.
It's already acquired about 200,000 square feet of space in Hyderabad's IT hub of Madhapur and plans to hire about 2,000 people over the next few years according to several media reports. McDonald's chairman and CEO Chris Kempinski met political leaders in Telangana a few days ago and was accompanied by McDonald's global business services team. While McDonald's is one of the big brands to enter now, others like the $88 billion British retailing giant Tesco have completed 20 years in India as GCCs.
Tesco, a grocery and general merchandise retailer, is more than a century old and it employs close to 5,000 people at its campus in Bangalore split equally between technology and business roles. It also employs another 600 people in and near Delhi. Tesco also has a joint venture with the Tata Group in India operating the retail chain Star Bazaar.
Now Tesco has been consolidating its presence and skills in India at its GCC, integrating more tightly with global operations and growing further including by now offering AI-linked competencies to others. I spoke with Dr. Sumit Mitra, CEO of Tesco Business Solutions and I began by asking him to talk about the last 20 years and also to walk us through Tesco's activities in India and how it linked and merged with its parent globally.
INTERVIEW TRANSCRIPT
Sumit Mitra: Tesco has been one of the pioneers in terms of setting up a kind of in-house centre of GCCs, GICs, whatever you want to call it. This was set up in 2004. We bought our own land, we have a 15 acre campus, we set all that up.
So I call myself almost the fourth chapter of this. So the original plan was labour arbitrage and how we move work from the UK and other countries that we operated into Bangalore and drive labour arbitrage benefit and some standardisation. I joined the Tesco group in 2017 where I wanted to kind of take a step change and those of you who don't know Tesco went through a bit of a financial crisis in 15-16 where we had one of the biggest write-offs in the FTSE.
So that meant that we had to build something that transforms our core business and we wanted to leverage GBS as a model which was not just about Bangalore but setting this up globally as a horizontal across our business to drive cost transformation and create value for the group. So as we stand today we are an integral part of the Tesco group supporting the whole Tesco group and its subsidiaries. So we are located obviously in Bangalore, we have a centre in Dundee, in Waterford, in Wellin, Garden City and also in Budapest where we support our global business.
So if I fast forward now let me talk about what we actually do here. If I now look at India 100% of all architectural design of Tesco, there are no other architects anywhere, is done out of Bangalore. If you look at the entire end-to-end maintenance of all our 5,000 stores globally is managed from Bangalore.
If you think about the valuation, finding land, doing the micro-economic study in terms of where we will open the store is again done out of Bangalore. So that's property. Then we look at our commercial and the product side.
The whole supplier experience, the end-to-end supplier journey starting from doing a supplier due diligence, setting up a supplier, managing 1.2 million promotions, managing the whole end-to-end of contract and commercial management, managing all the commercial income, space range and merchandising, the online business, it's all managed and supplier insight etc. This is all managed through us in Tesco Business Solutions. Then if you think about people's solutions, you'll be astonished to know that 5.8 billion pounds of Tesco's payroll is actually managed from Tesco Business Solutions. That also includes 120,000 recruitment. We own the whole end-to-end recruitment of Tesco. We own the learning, we own the whole group pension, quite a big operation.
And then finally the contact centres which are the end-to-end customer contacts from suppliers, customers, colleagues through WhatsApp, chat, email, social media are all managed through our centres. And then 80% of the entire finance of the organisation including tax, treasury, FP&A, business partnering, R2R, C2C, managing the whole cash centre of excellence is all delivered through Tesco Business Solutions. And then we have a horizontal which is our enterprise analytics business which then brings all the data together because you're sitting on so much data and how do you create value and IP that we would sell you know so bring it back into Tesco to unlock huge value.
And then we have the engineering team so if you think about seven, eight years ago it was a service-led technology organisation but now it's almost reversed almost 90% of our colleagues are engineers who are actually solving very complex problem building retail platforms, building software-led tills which is cloud-based, building personalisation toolkit and number of other things that they're involved in.
So we almost pivoted from service-led to solutions-led from an end-to-end perspective. And the way we are measured is very much on incremental revenue, incremental margin, incremental cash that we deliver.
Govindraj Ethiraj: So you're saying that 90% of the 5,000 people who work in Tesco in India are engineers now?
Sumit Mitra: Of the 5,000 people they work, 2,500 are technology, 2,500 are business solutions. So out of the 2,500, 90% are engineers.
Govindraj Ethiraj: In percentage terms, I'm assuming there has been transformation in that composition in the last 20 years as well.
Sumit Mitra: That's correct. So if I look at all the work that we have brought in, especially in the business solutions area, we should have been about eight and a half, nine thousand people. So what we have done is we have moved, we haven't made a single redundancy in the last seven, eight years.
So we have done two things. One, look at anything that is task-based, rule-based and mundane. We looked at different automation.
We looked at robotics. We now look at AI for Ops in terms of how we drive hyper-automation through AI. And what we've done in that is we re-skilled our colleagues to move up the value chain.
So as we take on more work from our subsidiaries or from our core business, we up-skilled our colleagues to take on more value-added work so they can move up the ladder. And if you look at almost 40% of our colleagues that work here have worked over five years in our business and over 15% of our colleagues have worked over 10 years. So what that does, it gives us the real business content and context, which is really important to create that value in the retail space.
Govindraj Ethiraj: You're also, for example, offering some of your AI solutions to other enterprises, which I'm assuming is an outcome of the work that your engineers are doing here. So tell us about how that works or could work and also in a way, what's the path ahead looking like?
Sumit Mitra: So if you look at it, it's no longer about services led by humans. How the world is going is how service 2.0, which is about service delivered through software and the service wrapped around it. So the way we look at this is we've built a number of IP products for Tesco, whether it's cost intelligence model, whether it's AI for product quality, whether it's cash monitoring engine that we've built.
So these are built through a hundred years of retail knowledge that we have, you know, Tesco is a 105 year old company and the 21 years of running GCC in India. So that gave us a lot of business context and content. And by using that and then bringing technology, we are able to build solutions that are easily white labelled and transferred.
So if you look, we have a business called Transcend that looks at picking solutions and picking software for other retailers, because it is one of the largest food retailers in Europe. And we built another organisation called Omnisol that looks at business solutions type products that we can sell to other retailers that are not competing with us. So therefore it's leveraging our expertise, leveraging our skills, our retail know-how, and retail intelligence to unlock untapped value opportunities that we see in the retail sector.
Govindraj Ethiraj: So you're saying a lot or a good part of the product or solutions that Tesco as a group is selling to other retailers are being made in India or being produced in India?
Sumit Mitra: The majority of it, but we are a collaboration business. So it's not like India working in isolation. We have other hubs, we have our partners in the UK.
So it's working with everybody, building that squad together to drive those solutions and build those solutions.
Govindraj Ethiraj: There's a mandatory AI question. I know you said that you're not reducing headcount and you've maintained headcount, but even as you've expanded capabilities, and I'm assuming AI flows into that somewhere. How are you seeing the application of AI in terms of what you're going to do for either Tesco itself, that is your parent or for others as you look ahead, both in the last seven, eight years, it's not like we haven't been using it.
Sumit Mitra: So this generative AI concept that has come up in recent years has accelerated a lot of conversations around AI. And also people are desperate. It's like almost a FOMO if you don't get into AI space and people are trying to find use cases to build.
So I call it almost FOMO, which is about fear of being obsolete. So therefore, how do you actually build those capabilities within? So I see AI in three buckets.
One is around, there are things that humans shouldn't do, which is task-based, rule-based, you can bring in machine learning, which is another form of AI. So how do you use that? Anything that humans shouldn't do, they can do, but shouldn't do.
The second bucket is something which humans cannot comprehend or can't do at all. So therefore, how do we bring in the power of AI to take away all human activities? Because humans can't comprehend that scale of data.
So how do we leverage that? And the third is how do you work in conjunction with humans to make humans more clever? So part of the process is done by, say, agentic AIs, which is the buzzword now, and AI assets that you've built, which makes humans cleverer and helps you to make decisions within the business.
As a retailer, to our 30 million customers that we have and the club card usage that we have, we are sitting on gigantic amounts of customer data. And then if you look at supplier data, if you look at store data, if you look at customer feedback data, it's a hyena's crying when you're sitting on all this data and you don't know what to do with it. And that will help us to bring that data together and use the power of deep science to build personalised shopping behaviours and personalised inputs into our customers.
That would create a real value. So therefore, AI can be used in a number of ways. And the way I look at it is, humans have to be in the loop, number one.
Number two, you need to make sure that there is right governance in place whilst you drive efficiency. How do you invest some of that back into having the right controls and governance? Because what you don't want to do is lose control of the business.
Third thing is around making sure that when you are actually building that story, you're following the guide rails that is set up with the business so that, you know, the data security and data privacy, because data is the big differentiator at the moment. So how do you make sure you harness that data, but secure that data as well?
Govindraj Ethiraj: As you look ahead, once again, two questions. One is, is there an illustration of a project that you're working on, which exemplifies everything, all of this coming together, in some ways addressing a problem of either the problem of today or the present or the future? The second is what is expansion or growth looking like for you or from your vantage point?
What does expansion or growth mean as a Tesco Bangalore entity?
Sumit Mitra: So let me answer the second question first. So if you look at Tesco's presence in India, it's almost four fold. We have Tesco Bangalore, which is the engineering and the business solutions hub.
We have Tesco Dhanhambi, which is our B2B business that sits in Gurgaon. We have Tesco Sourcing, which is about sourcing products from Bangladesh, Sri Lanka, India, et cetera, and then work from our UK buying perspective. And the fourth one is the joint venture that we have with Tata Group on Star.
So that's growing. Dhanhambi is growing. Sourcing is growing.
Now, from a Tesco Bangalore perspective, it's no longer about head count. Gone are those days where people talk about 5,000 heads, 10,000 heads. It's about skill count.
It's about the capability that you are building for the business. So therefore, whilst our numbers, the head counts will remain the same, but our skill count and capability will develop as we grow our colleagues and make those disruptive hires as we bring along. And performance management is a big thing for us.
So we manage people through performance management, making sure people are getting trained and the what and the how aspects of our colleagues are right up there. Because to me, I call it a possibility mindset. So how do you develop that mindset, which comes with tests and learning, which comes with taking risks, being brave, but also having that safety net to make sure that psychological safety does exist in your system.
So I have no intentions of expanding the centre, but the whole focus is on how to improve the capability and skills.
Govindraj Ethiraj: And to come back to the question on what's exciting, you talked about everything from architectural design to maintenance, to valuing land, to working with the supply chain. What's the sort of exciting problem that you're trying to solve right now, either for the present or the near future?
Sumit Mitra: If you look at India as a country, let me start sort of at a macro level. If you think about India as a country, gone those days of labour arbitrage, I think it's intellectual arbitrage at the moment that is in play. And therefore, I think there is a big shift now, what is happening where multinational corporations are understanding the GCC is the route forward in terms of building your own.
But you can't do this in isolation. It's an ecosystem that you work with. So how do you partner, collaborate with niche players to help you support in that GCC journey?
I think that's key. And that's what we want to do. We want to ensure that we're not saying we are best at everything that we do.
So how do we partner with various partners and niche partners? And I will not apologise for having multiple partners because each partner is good in different ways. So how do you bring that together and create that ecosystem of collaboration and build for the future?
And what's an example of a niche partner? So for example, I don't want to name any specific companies. So for example, if I want to drive automation in my report area, I know there are startups who have done fantastically well in that area.
So I will bring that startup in to help us work through that. If I want to drive transformation in my payroll, I know which payroll vendor I can work with to accelerate my transformation journey in payroll. So it's niche, it's courses for courses, is getting the right people with the right skill set at the right cost at the right time to drive your transformation journey.
But there are certain things we are clear about. For example, we will not share our data with third parties. We will build our own AI engine and AI tools and own algos to make sure that we create that competitive advantage.
Govindraj Ethiraj: Right Sumit, we've run out of time. Thank you so much for joining me.
Sumit Mitra: No problem at all. It's a pleasure.
