The Markets Are Rising And Also Diverging
The markets now hit fresh highs for the 6th consecutive session on Thursday as both metals and auto stocks gained ahead of the rest
On Episode 398 of The Core Report, financial journalist Govindraj Ethiraj talks to Sabina Dewan, president and executive director of the JustJobs Network.
SHOW NOTES
(00:00) Stories Of The Day
(01:00) The markets are rising and also diverging
(04:26) Oil prices slide as contrary to expectations, Saudi Arabia and others might hike production
(05:46) Indian steel companies want import duties to be doubled
(07:13) Credit card defaults are rising and why that is worrying
(10:49) Housing sales are falling, finally, as high prices deter buyers
(12:07) Why are labour unions striking now and intensifying their demands?
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 Friday, the 27th of September and this is Govindraj Ethiraj, headquartered and broadcasting and streaming from Mumbai, India’s financial capital.
The Take will be back on Monday with a well, fresh take and meanwhile our top stories & themes for the day:
The markets are rising and also diverging.
Oil prices slide as contrary to expectations, Saudi Arabia and others might hike production.
Credit card defaults are rising and why that is worrying.
Indian steel companies want import duties to be doubled.
Housing sales are falling, finally, as high prices deter buyers.
Why are labour unions striking now and intensifying their demands ?
Markets, The Big Divergence
The markets now hit fresh highs for the 6th consecutive session on Thursday as both metals and auto stocks gained ahead of the rest.
The current rally got started after the 50 basis points rate cut from the US Federal Reserve last Wednesday and at this point is not showing signs of stopping.
At best it is taking pauses.
With more rate cuts being hinted at by the Federal Reserve, the expectation is that more foreign funds who have been relatively passive in Indian markets could step on the gas.
There is always that issue of valuations but then, the counter I usually hear is we thought markets were stretched at 70K and so on.
It does help the markets that there are no real downsides being anticipated.
There is an external, geopolitical risk, including of the war in the middle east escalating.
At this point, that is not affecting oil prices which we will come to shortly.
Reuters reported that the auto index jumped 2.3% to a new high as well with stocks like Maruti Suzuki, Tata Motors and Mahindra climbing on the back of promises of tax cuts and incentives for the clean mobility sector.
Karnataka is the third largest buyer of electric vehicles in India.
A similar tax cut has already kicked in Uttar Pradesh in July.
Metals are also rising amidst increasing global prices, riding in turn on the China promise of stimulus-driven growth which the markets by the way, have not fully bought into.
The Sensex was up 666 points to settle at 85,836.12. During trade, it hit 85,930.43, just 70 points short of 86,000, during intraday trade.
Veteran market analyst G Chokkalingam has called 90,000 for the Sensex in coming months on The Core Report earlier this week.
The Nifty50 also hit an all-time high of 26,250.90 before ending with a gain of 212 points at 26,216.05.
The broader indices are wavering now and the divergence is perhaps a little more apparent and visible now, between the large caps and the rest.
This is something to watch closely because it does reflect to some extent who is calling some of the shots and the big moves.
Yes, I meant the institutional investors.
The Nifty Midcap 100 index ended higher by 0.10 per cent. The Nifty Smallcap 100 index, on the other hand, ended in the red, down 0.50 per cent.
Meanwhile, in an indication of how things might pan out for the big IT companies here, as we have been discussing on TCR, IT services firm Accenture on Thursday unveiled a $4.0 billion share buyback and reported better-than-expected fourth-quarter revenue thanks to demand from companies looking to adopt generative artificial intelligence technology.
Shares of the company were up nearly 7% in premarket trading on Thursday, the Business Standard reported.
The Dublin-based company reported fourth-quarter revenue of $16.41 billion, compared with analysts expectations of $16.38 billion, according to LSEG data.
Its generative AI business, which helped the company offset the slowdown in demand for IT services, continued to grow for a fourth successive quarter.
Oil Prices Fall Despite…
Oil prices fell once again after reports emerged that Saudi Arabia was considering increasing output, and factions in Libya reached a deal that opens the way to the return of some crude production, Bloomberg said.
So all in all, more supply and it’s clear who is blinking.
Brent crude prices dropped toward $73 a barrel and is down almost 4% since the close on Tuesday.
The Financial Times has reported that Saudi Arabia is ready to abandon its unofficial oil price target of $100 a barrel in a bid to regain market share.
So, it's an interesting situation because the producers are now likely to increase production - after threatening to cut back -even as China, the world’s largest buyer, shows no signs of pulling in more oil thanks to a weak economy and outlook.
While oil traders had largely shrugged off China’s earlier monetary stimulus measures, President Xi Jinping on Thursday called for the government to provide more fiscal spending, underscoring the growing anxiety in Beijing over the nation’s slowing growth, Bloomberg reported.
A stronger dollar is also affecting commodities such as oil priced in the currency.
Meanwhile, several nations including the US, EU and in the Middle East have proposed a three-week cease-fire between Israel and Hezbollah in Lebanon, said Bloomberg.
Steel Makers Complain Again
Indian steel companies have asked the government to double tariffs on steel imports to curb a surge in cheaper steel shipments from China, Reuters is reporting.
India is the world's second-biggest crude steel producer and became a net importer last year and into the current year. Imports from China hit a 7-year high and overall steel imports hit a 6 year high.
The amounts are small though, at around 3.7 million tonnes.
The Indian Steel Association (ISA) wants the Government to double the customs duty on steel imports to 15%.
ISA represents major steel producers such as JSW Steel, Tata Steel , ArcelorMittal Nippon Steel India and state-run Steel Authority of India
"There is an imminent threat of further surge in imports in the coming months," ISA said.
Though this letter has been written before the latest stimulus measures by China which have sent metal prices including steel up.
The problem in recent months has been that China has been manufacturing below cost and dumping elsewhere so as to keep its factories running.
But that could change if the stimulus measures hold
So even if the customs duties have not gone up, the stock prices of Indian steel companies surely have, in anticipation of higher Chinese prices spilling over to India.
Other countries have also hiked tariffs, Reuters reported saying Japanese and European steel makers have sought import curbs. In the U.S., a 25% tariff on Chinese steel takes effect on Friday.
Credit Card Payments Delays Rise
Indians are delaying repayments on credit cards and personal loans, leading to a rise in delinquencies after months of bingeing on small-ticket consumption loans, says an insightful article from Mint.
This is not a surprise as such because the regulatory response we have been seeing in the last year, including by the Reserve Bank of India drawing attention to small, unsecured loans and making them more expensive, reflected the knowledge of precisely this data, but obviously earlier.
The volume of credit card dues where repayments are delayed by over 90 days has increased 17 basis points (bps) year-on-year to 1.8% in June, showed data from credit bureau TransUnion Cibil.
Mint quoted analysts saying one reason for the rise in credit card delinquencies is because a section of borrowers are exhausting their credit limits but are unable to repay.
A Macquarie Capital analyst on Wednesday quoted in Mint specifically singled out young millennials for using the entire limit and directly fully defaulting and turning into a NPA without even revolving the loan, which is to pay a part of the dues.
Bankers feel while there is a rise in small-personal-loan delinquencies it has not reached alarming levels.
The problem of course is social. Unsecured loans means people are borrowing money to spend as money and not to create an asset.
This again has been alluded to several times by the RBI in the last year and more.
C.S. Setty, chairman, State Bank of India (SBI), said at an 18 September event since SBI is one of the largest lenders to non-bank lenders and to microfinance institutions where most of the unsecured lending happens, it has seen some problems with small value loans of ₹50,000 to ₹1 lakh.
Interestingly, a good part of this problem obviously is the reckless, app enhanced lending which we have seen where friction is so low that people often act without thinking and nothing really slows them down.
Moreover, the kind of borrowers.
Meanwhile, last month RBI increased the frequency of borrower information to credit information companies or credit bureaus to every fortnight, from every month at present. This will be effective from 1 January 2025.
Where of course I discovered that I could borrow several times before even my credit history was established.
Because apparently borrowers are already doing it and the fact the data is taking time to get collated allows people to get away.
This is not me saying it, it is the SBI chairman Mr Setty.
“Someone makes an attempt to lend to him (first time borrower) and even before his credit history is established, he is already borrowing from multiple lenders," said Setty, pointing to how some borrowers take multiple loans even before credit history data has been updated.
Of course the banks are saying they are not the primary source of these small loans, mostly going to folks below 35. The primary source is non bank finance companies who represent some 82% of these loans and 31% of value, according to the non bank finance companies.
“Where we once saw an average loan burden of ₹5 lakh spread across four credit accounts, we are now seeing that debt load increase to ₹5.6-5.7 lakh, and the number of accounts per borrower rising to seven. This is a clear indicator of credit deepening and the resulting over-leveraging of borrowers," another analyst told Mint.
Remember, we have no choice to correlate several things at one go, rising speculation in markets, much younger speculators as per Sebi’s own reports and studies, who in turn are losing money hand over fist.
And then there is inflation and a gap between aspirations and incomes.
Housing Sales Down
Credit card outstandings might be rising but housing sales are down, something once again stray pieces of data have suggested or alluded to in recent months.
Housing sales fell 11 per cent during July-September to 1.07 lakh units in seven major cities on lower launches and an annual 23 per cent growth in average prices, real estate consulting firm Anarock has said.
So, as prices are rising, sales are falling, which is perhaps good news and this is happening in all the major cities.
New housing supply has also slowed down in the top 7 cities, down 19 per cent with 93,750 units launched in July-September 2024 against 1,16,220 units in the corresponding period in 2023.
Anarock is blaming the slowdown on high prices and monsoons and that the market is stabilising after its peak in January-March 2024.
So the good news is that discounts might be on the way from developers who are likely to make it more attractive.
You also have to see the dramatic rise in costs, by 23 per cent annually - from Rs 6,800 per sq. ft. in Q3 2023 to Rs 8,390 per sq. ft. in Q3 2024," Anarock said.
Why Are Labour Strikes Increasing?
Thousands of Indian workers marched through several towns and cities including New Delhi, Lucknow and Kolkata earlier this week protesting and demanding the repeal of four labour codes which they say favour multinational corporations.
The labour laws were of course introduced almost 5 years ago.
"The labour laws were introduced by the ruling Bharatiya Janata Party in 2019, despite union and opposition objections," Reuters reported the national vice president of the All India Trade Union Congress (AITUC), one of 10 unions which organised the protests, telling demonstrators in the capital.
Meanwhile, near Chennai, more than 1,000 workers have disrupted operations and protested in a makeshift tent close to Samsung's home appliances factory near the city of Chennai since Sept. 9.
They want higher wages and union recognition at the plant, which contributes roughly a third of Samsung's annual revenue in India of $12 billion, Reuters reported.
In 2019, the Indian Government replaced some 44 laws with four labour codes to establish minimum wages, working conditions, and factory safety standards though they have yet to be implemented following resistance from worker unions.
So what’s triggering the protests and why is it picking up steam so to speak at this point ? And more importantly, what does this portend for industry at large, particularly manufacturing ?
I reached out to Sabina Dewan, President and Executive Director, JustJobs Network, a research house that focuses on strategies for job creation and workforce development.
INTERVIEW TRANSCRIPT
Sabina Dewan: The fact that the government took over 44 labor laws and put them into four labor codes and has now notified the rules for all four of them, this step received both commendation and criticism, but I think most people would agree that reform was long overdue. So, in that sense, the fact that we've tried to make the labor laws streamline them is a positive step. That said, why these protests are having now, protests are often politically motivated and I'm not qualified to talk about the politics of the situation, but what I can say is that the soil is really ripe for this kind of collective action, given that our labor market is suffering so much, right?
We've got higher levels of informality now, we've got higher levels of self-employment, which means workers are beyond the purview of labor regulations and protections. We've also got really inconsistent regulation, uneven implementation, and varied interpretations because there's so much heterogeneity and the labor codes have, are not specific enough, and the way that the states are also notifying their own rules is also heterogeneous. And so that's causing a great deal of uncertainty and precarity in the labor market at a time when things are so uncertain and becoming more and more uncertain with technology and climate change that are anyway upending the way people live and work.
Govindraj Ethiraj: Right. So, in the case of the labor laws, what are the specific labor code areas that people are most concerned with at this point?
Sabina Dewan: There's a number of them, right? So, we have four codes. We have a social security, occupational safety and health, industrial relations, and a code on wages.
And I think that, you know, each of them has provisions that are causing concern for workers and trade unions. So, you know, there's several. So, for example, if you take the occupational safety and health code, most workers are left out of its gambit because you've got, it mostly applies to companies that have more than 20 employees.
And we know that in India, majority of private enterprises actually have less than 20 employees and therefore are unprotected. Right. If you look at the social security code, it's unclear how much of it actually applies to unorganized workers.
So, the social security code mentions gig workers, but says nothing about part-time workers, for example. So, there's a lot of very specific provisions in each of the sort of broad codes. And then, as I said, you know, it's the labor rules are part of the concurrent list of the Constitution's schedule, which means both the center and the state have the power to legislate.
So, then what the states then do with this, these central codes is sort of on them. But in a, you know, when companies operate across borders or you have, for example, platform companies that operate across states, again, this kind of the application of the legislation and regulation becomes really difficult to implement. And therefore, workers are left out, not just because they're unorganized or in enterprises less than 20 employees, but also because the law is simply not capturing the reality of today's heterogeneous labor markets.
Govindraj Ethiraj: Let me come to the Samsung case in, you know, near Chennai. So, the workers there are asking for two things from what I can see. One is higher wages, which Samsung says is actually high and higher than the median in that region.
And the second is recognition of the union. So, how are you reading this?
Sabina Dewan: So, I do think that there has been a, you know, not just in India, but around the world, a weakening of worker voice, right? We have just hyper-capital-driven, hyper-financialization and capital-driven markets. And this has over time weakened worker voice.
There's no question, if you look at labor markets in Europe, for example, that have a long tradition of social contracts, the best way for economies to work actually is when you have social dialogue, right? What in international terms is called social dialogue, where you have workers, which are represented by strong and vibrant unions. You have employees.
So, you know, different kinds of industry federations and so on, and government collectively conversing over these issues. But if workers don't have a voice and they're not at the table, then this kind of, you know, sort of capitalistic and hyper-financialization is, it leaves, you know, what should be a three-sided conversation to be mostly just driven by private interests. And that's a huge problem.
Govindraj Ethiraj: Right. So, you're also saying, therefore, that companies are not doing enough in this regard and maybe that this should be a warning signal or an alert that they should be focused more on these kind of dialogues, I mean, corporate sector as a whole.
Sabina Dewan: Absolutely. Absolutely. And, you know, we've had examples of where some of these dialogues have, for PR purposes, the private sector sometimes says that they're fostering this kind of dialogue, but really they've sort of handpicked a couple of worker representatives that aren't truly, you know, representing the workers that are in those factories or in those companies.
Also, Govind, a part of it is that there's a trend toward a growing precarity in the labor market, as I said earlier. You've got technology that's disrupting labor markets. You've got climate change and the energy transition that's creating upheaval.
You've got inflation that affects the kinds of investment that's happening in companies. So, you know, one day some, there's a lot of investment in, for example, platforms, you know, and the next day this investment contracts and all of a sudden these companies are laying off workers. So all of this creates a lot of churn.
And at the end of all of this churn are workers that are increasingly unprotected because labor regulations aren't applying to them because of the new kinds of work arrangements. And companies are, you know, in many ways so afraid that they're going to be held responsible for, you know, for not protecting workers adequately. And they're also trying to just handle this market volatility and cater to their bottom line profits that it creates a really difficult, uncertain, toxic environment.
And so in this environment for everyone to kind of actually say, okay, what we really need is authentic dialogue where equal stakeholders, government, workers, and businesses come together and actually work out some of this growing labor market precarity is really important. And these protests only going to become, you know, more and more prominent and more and more frequent.
Govindraj Ethiraj: Right. So you're saying that the government also needs to be a part of these discussions. And is that practical in terms of how industry would see it?
And is there any other way to do it or is that the only way?
Sabina Dewan: Oh, absolutely. Government needs to be part of these conversations. In fact, I mean, businesses, private sector converse with government all the time, right?
There's all kinds of conversations, lobbying going on when government's drafting regulation. So, and the government has a huge role to play in terms of drafting these laws, you know, making sure there's even regulation and implementation of them. So they are the stakeholder of the biggest scale in this conversation.
They absolutely need to be at the table as do workers and obviously the employers themselves and the companies themselves. It needs to be a tripartite conversation.
Govindraj Ethiraj: Sabina, thank you so much for joining me.
Sabina Dewan: Thanks so much for having me, Govind.
