The Markets Saw Their Best Week in 3 Months
The Nifty 50 posted its best week in three months, thanks also to re-rated stocks like Reliance Industries.
On Episode 527 of The Core Report, financial journalist Govindraj Ethiraj talks to Dhairyashil Patil, President of the All India Consumer Products Distributors Federation (AICPDF).
(00:00) The Take
(04:50) The markets saw their best week in three months, where will they go next?
(07:50) The dollar is weak and the rupee is steady
(08:20) Large gold shipments continue to move around the world on fear of US import tariffs
(10:17) Why are Indian consumer product distributors taking quick commerce companies to the competition commission?
(21:51) And Bill Gates recommends this for fighting food shortages
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 Monday, the 10th of March and this is Govindraj Ethiraj, headquartered in Broadcasting and Streaming, as always, from Mumbai, India's financial capital.
The Take: It's five years of the pandemic
It's now a full five years since the COVID-19 pandemic struck the world and changed the trajectory of our lives in more ways than one.
The World Health Organisation declared the pandemic on 11th March 2020, that's tomorrow. Millions have died since then and many, including some I know, carry the after-effects of contracting the disease without a vaccine. It is a good time to ask if we've learned the right lessons from the crisis and whether we've got over the economic euphoria that characterised post-COVID recovery and that's something that we are still staring at.
COVID-19 locked us in our homes in a never before way. The virus also saw a remarkable but coordinated response by the healthcare sector to come up with a vaccine at a timeline never seen before in history, helped also by the latest technology, including in software and AI. This period also saw massive fund injections by governments into economies, which in turn sparked inflation and then subsequently a wealth effect via the stock markets, particularly in technology in the US.
Inequality has increased since 2020 with the world's richest 1% earning a bigger proportion of national incomes than before the pandemic. Interestingly, after the 2008 financial crisis, which also benefited a few, that is before the income caps had reduced. The last five years have also seen an unprecedented digital participation leading to new channels of financial power in the markets, including in India.
This has been accentuated by the app economy, which has led to unsustainable levels of speculation, consumption and borrowings, and new fads and even currencies like Bitcoin. The behaviour change brought about by this period in personal consumption riding on top of inflation is something we are still grappling with and will continue to do for some time. For example, high inflation has been an issue in several major elections around the world, including in the major ones last year, from the United States to India.
A Reuters report says, fuelled by post-lockdown spending, government stimulus packages and shortages of labour and raw materials, inflation peaked in many countries in 2022. And then, after countries borrowed money to protect welfare and livelihoods, global government debt rose by 12 percentage points since 2020, with even steeper increases in emerging markets. Now, to fight all of this, central banks have been raising rates.
As we know, while the United States and Europe have already started pulling back from them last year, India has done so only last month. Interestingly, India has the challenge of reducing interest rates without sparking another debt and borrowing frenzy. The larger point is behaviour.
We are still shaped in thought and action, perhaps, by the bull market times of the last few years, including the perception formed by the post-COVID bump we saw in consumption, which, of course, began flattening globally more than a year ago. Many believe that the heightened borrowing-led consumption and the financial market returns are here to stay, particularly if you are younger and came into the workforce in the last five to six years. Adjusting to the pre-COVID economy is not something we may desire.
After all, who does not want to live in a world where we can continue to splurge on stocks and pizzas via slick apps that make us buy and consume usually more than what we want and can afford? And a rising stock market, which gives us the feeling that our wealth is growing even if incomes stopped rising meaningfully a few years ago. But gravity, like in all such occasions, tends to pull us back.
And these are good moments to acknowledge the presence of it, even as we right-scale businesses and the consumption that drives them. We've already seen the stock markets pull back, accompanied by the tightening of loans and the slowing of growth in the companies and in the economy. And to wrap up on healthcare, the perception of the healthcare industry, quite fascinatingly now, is defined, at least in the public eye, by the new innovations around weight loss and, of course, the companies that make them.
Life-saving vaccines are now a distant memory, though do not forget that they were equally instrumental at that time in driving up stock prices, at that time again, of pharmaceutical giants like Pfizer, Moderna and AstraZeneca. And the United States, under the Trump administration, has now said it is pulling out of the World Health Organisation, an organisation it feels did not anticipate or do enough to manage the pandemic. Life seems to have come full circle.
And that brings us to the top stories. And remember, this is a holiday-shortened week.
The market saw their best week in three months. Where will they go next?
The dollar is weak and the rupee and oil are steady.
Large gold shipments continue to move around the world in fear of U.S. import tariffs.
Why are Indian consumer product distributors taking quick commerce companies to the competition commission?
And Bill Gates recommends reading this book to fight food shortages.
Will The Market Recovery Continue?
The Nifty 50 posted its best week in three months, thanks also to re-rated stocks like Reliance Industries. The Nifty rose about 1.9%, close to 2%, its best in three months, while the Sensex gained about 1.6% and logged its highest weekly gain since January end. All of this was last week.
Foreign investors, on the other hand, continue to sell consistently around $2.8 billion in the first week of March. If they are selling, who is buying? You might rightly ask.
Obviously, domestic funds and investors, as analysts have been pointing out, are still seeing inflows and they have to get back into the market at some point. There is a contrast though. While Indian markets are down over 14% since their peak in September 2024 and technically a good time to enter again, for investors who are watching valuations, they still seem high.
A report in Bloomberg points out that overseas investors have pulled about $15 billion from local shares this year, putting outflows on track to surpass the $17 billion record in 2022. The sell-off has wiped out about $1.3 trillion from India's market value. India's benchmark Nifty 50, however, is trading at 18 times forward earnings compared with 21 times in September.
But despite that drop, Bloomberg points out that the market's multiple remains higher than that of all its emerging Asian peers. Picking up on that earlier point of a post-COVID normalisation, India's economy will grow at a four-year low of 6.5% in the current fiscal year. So foreign investors could take some time to come back, though the bullish calls continue, including Morgan Stanley, which pointed out once again that the number of affluent Indians is rising.
According to an analyst who spoke last week, the middle class in India will go from 70 to 170 million in the next decade. And more importantly, 20 million Indians will move into the rich category. So these iPhone and luxury car consuming individuals will drive top-end consumption, which of course they already are.
And all of Apple's incremental revenue growth in the last two years has come from India, the Morgan Stanley analyst said, adding that energy consumption in India per capita is also rising as it goes from 800 watts to 2,000 watts, which will drive India's growth story. Looking at my electricity bills, I can surely testify to that. All of this does not mean FIIs are returning right now.
So the good news is that as it happens in these kinds of times, the Securities Exchange Board of India wants to work with all institutional investors, domestic and overseas, to address their issues, SEBI's new chairman Tuhin Kanta Pandey said at a money control event last week. High capital gains tax rates on foreign investors has been suggested as one bugbear or problem. Of course, that can now help only attract, but cannot be the only reason investors invest in India, because despite all these challenges, including higher tax rates, the returns are worth it.
If the returns are being questioned, at least in the near term, the no amount of tax incentives or lower taxes will help because that's not how investment calls are made. Though it is always nice to hear a regulator speak of the importance of long-term capital and a conducive environment to encourage foreign investments.
And that, at least in my mind, is a good stage to set for the near future.
The Rupee Weakens
The Indian rupee weakened slightly on Friday, but more importantly, the dollar is weaker now, hovering close to a four-month low against its major peers. The rupee was at about Rs 87.14 against the US dollar, down slightly from Rs 87.11 in the previous session, according to Reuters, which also pointed out that Asian currencies were range-bound, while the dollar index dipped below 104 at its closest or closing in to its weakest level since November.
Gold Continues To Move Around
There is a massive amount of physical gold still moving around the world. The latest is Australia, which has shipped a record amount of gold to the United States in January as fears of potential tariffs saw traders rush to deliver metal into New York warehouses, according to Bloomberg, adding that those exports added to $2.9 billion in the month, the highest amount in records dating back to 1995, according to the Australian Bureau of Statistics. Gold, of course, is moving from many other countries and regions too. Australia typically exports to countries closer in proximity throughout the Asia region, but the recent turmoil in global precious metals markets has disrupted normal trade flows at a time when prices were already near all-time highs.
There are continuing fears that US President Donald Trump may slap tariffs on gold imports as well, creating unusually large and persistent premiums that incentivise imports to the US, according to Bloomberg.
China Goes Into Deflation
China was on track for the longest streak of economy-wide price declines since the 1960s as a result of weak spending, according to Bloomberg.
China's consumer inflation dropped far more than expected to fall below zero for the first time in 13 months, a sign of the deflationary pressures persisting in the economy. The consumer price index has declined to 0.7 percent from a 0.5 percent gain in the previous month. Even when adjusted for the effect of an earlier-than-usual Lunar New Year holiday, consumer inflation slowed to amongst the weakest levels in months, according to Goldman Sachs, quoted by Bloomberg.
China's core CPI, which excludes volatile items like food and energy, decreased for the first time since 2021, with a drop of 0.1 percent, only the second time that the gauge has contracted over more than 15 years, according to Bloomberg, which also added that factory deflation has extended now into the 29th month.
Consumer Product Distributors Are Up In Arms
Last week, the fast-moving Consumer Goods Distributors Association, the All India Consumer Products Distributors Federation, filed a petition with the Competition Commission of India against leading quick commerce platforms, alleging unfair pricing and monopolising the market. That plea was submitted by Dereshil Patil, president of the AICPDF, who will join us in a moment. Quick commerce and hyperlocal delivery has become very popular in the last few years.
The word quick commerce also defines fast and efficient delivery services, according to that petition, which said that quick commerce companies are indulging in practices of deep discounts and exclusive supply distribution agreements, engaging in unfair pricing and affecting the competition in the market for selling consumer goods. It says that practices are negatively impacting the livelihoods of over 10 million mom-and-pop stores as well as the operations of super stockists across the country. Now, there is no doubt about predatory discounting, as several analysts have spoken on the court, particularly from the supply chain industry.
But the question also, I guess, is that what are the inefficiencies in the traditional system that exist, which are manifested in higher prices, and could that be or to what extent could that be brought down? So I reached out to Dhairyashil Patil and I asked him to break it down for us and explain why his body was going to the Competition Commission and what they expected to achieve.
INTERVIEW TRANSCRIPT
Dhairyashil Patil: So the impact is on multiple folds, deep discounting and predatory pricing is the result of this entire thing. Because nowadays, if you see anything, people or the consumers buying online need to be discounted. You will hardly find an example where people will buy goods from the quick commerce or e-commerce without any discount.
So the consumer is being fooled in a number of ways and numerous ways. The algorithms used by all these quick commerce and all these e-commerce entities are actually not being used to the advantage of the consumer. See, in the algorithm, the consumer is convinced in such a way that he is convinced and preconditioned in his mind that the product which he wanted to buy once or he searched once, he's been shown numerous times and he's been preconditioned to buy that product.
Now, this is one thing which is hurting because it is hurting the entire privacy of the consumer. First thing.
Govindraj Ethiraj: This is more a behavioral thing isn’t it?
Dhairyashil Patil: Yes, absolutely. Absolutely. Because see, now the quick commerce is banking on convenience. That is why I wanted to make the point that convenience is only the matter.
There are a lot of things where the consumer is also being confused. Discounting is a major part. Without a discount, consumers will never buy from these quick commerce companies.
Right now, they are subsidising delivery costs, which also the consumer will not be very happy to pay if they are being charged. Simple example, as you asked, what is the problem? Let us not name any company.
There's a 1 kg product whose MRP is 710 rupees. Now, we have searched about 100 products like this, similar who are having issues. The MRP for all these products across the platforms, you come to say the general trade or the quick commerce or the e-commerce platforms, the MRP is the same.
Now, 85 to 89% of the goods for all the FMCG companies are being sold by the general trade. Now, the general trade is being serviced by the authorised distributors of the company. Now, the retailer, that is the general store that we are talking about, receives this product at 657 rupees from an authorized distributor of the company.
That is an extended arm of the company. So, for the retailer, the distributor is the company. Now, the same product is sold at 469 rupees on Zepto, is sold at 554 rupees on Blinkit, and it is sold on 461 rupees in Instamart.
Now, this retailer who is big in number is getting this price as his landing cost at 657 rupees. How can he compete with all these people? See, a lot of us are telling us, you will have to adopt technology and change everything.
See, everybody wants to clean Ganga, but you will also have to remember, you have to have Himalaya in place. If there is no Himalaya, the point of Ganga won't be there.
Govindraj Ethiraj: If I can ask you about this specific product, and if you're saying that these e-commerce companies are selling it at 469, 554 and so on, what is their acquisition price? Are they buying from the same distributor or are they sourcing from the company, for example? They are mostly sourcing it from the company.
Dhairyashil Patil: We will have to find out, that is why we have gone to this authority, which is a CCI, and we have full faith on our judiciary system, that they will find out whether the companies are giving this kind of discount, or whether this quick commerce are putting in money for deep discounting and predatory pricing to establish monopoly in the market.
Govindraj Ethiraj: But who do you feel is discounting in this particular case? Do you feel the company is offering it, let's say at 450 rupees, or is it the quick commerce company, which is taking a hit?
Dhairyashil Patil: See, the companies believe in the retail trade because it is an absolutely loyal network to them, which the companies have been establishing since the last 60 to 70 years. We really doubt whether companies are giving such heavy discounts to them. And if the companies are willing or are giving such a discount, then we will also rightfully ask them to give that price to us also.
Clear-cut case of deep discounting and predatory pricing, which is trying to establish a monopoly into the market and disturbing the entire ecosystem.
Govindraj Ethiraj: Right. So one is the price. Now, this is also a different distribution channel, isn't it?
When it leaves the company or the brand, let's say it's Levers or Nestle or Colgate, it's going directly, maybe through a logistics partner directly to a dark store, and then it's being distributed. Whereas in your case, the way it comes to the Kirana store is a different path, isn't it?
Dhairyashil Patil: No, sir. This is absolutely a myth created by these people, that they are taking out the middle man from the entire chain. They have done nothing.
See, in general trade, the company supplies, the company depot supplies to a distributor, and the distributor supplies to a retailer, and forward the retailer supplies it to the consumer. This is the traditional distribution system. In quick commerce, the company supplies to their mother depot, the mother depot supplies to their dark store, and the dark store supplies to the consumer.
Now tell me, where is the middle man gone? His name has only been changed. The name is changed from distributor to mother depot, from retailer to dark store.
So the process is absolutely the same. Just by changing the name, they cannot say that they are more efficient than the distribution system. The distribution system in India is covering 13 million outlets across the country, and for the most, even in Leh Ladakh, you'll find Maggi noodles supplied by a distributor and serviced by the retailer.
So you have also seen at the time of the pandemic, where were all these people? That time, the retailer was there on the street serving the Indian public.
Govindraj Ethiraj: There's no quarrel on that, but I think the debate here is to do with, since you've complained to the competition commission, we're talking about price and whether there is discounting or not. So you're also saying that therefore, when the company is supplying to a mother depot, as you call it, and mother depot to a dark store, you're saying that that chain is not cheaper or more cost effective than the older chain?
Dhairyashil Patil: Absolutely not. See, the distribution and network chain, whatever is supplying right now, the average margin of a retailer is from 8% to 12% across all companies. Average margin for the distributor is from 3% to 5%.
So all put together is what you can say about 20%. And rest is the logistic cost. Now, it's not the logistics that we are providing, because we have our own vehicles, the cost of logistics is very low.
The labour which we employ, the cost of labour for us is also very, very low. The godowns, the infrastructure, whatever it is, it is almost owned by the distributors. That is why the rental part is also very low.
So our cost of operation is very, very low. Our cost of distribution is 1.3% per average cost of distribution. Here, they will have to pay 5% GST on transportation, because they are applying numerous plus things.
So all of these things put together cannot be cost effective. And in the long run, this model, I don't want to say anything about. But when a business is on a transactional loss, how can you justify it to be an operational profit?
Govindraj Ethiraj: So at this point of time, you've also complained to the FSACI, that's the Food Safety and Standards Authority of India. And you've questioned or rather posed a question on shelf life. Why is that?
Dhairyashil Patil: See, we have found a number of cases and done a survey with the consumers, where the consumers have been receiving products with very, very minimal shelf life receipt. See, I've received a product which is going to expire in two days. So I'm compelled to use a product which is going to expire in two days.
So it was found that most of the consumers were receiving food items near to expiry dates. We are very much thankful to the Ministry of Health and the FSACI department, who has brought out a notification on our suggestion that consumers should receive the product with minimum 30% shelf life available or 45 days, whichever is higher.
Govindraj Ethiraj: Right. Okay. What is it that you're looking for right now? So in the beginning, you said that you want more transparency on the pricing, including from the companies themselves. Is that your key demand, at least from the CCI?
Dhairyashil Patil: Sir, we are Indians and we always will be Indians. See, we are not afraid of any competition. See, we just want a fair playing field.
We want a level playing field for everybody. Then we also can compete. See, the deliveries right now done by the retail system, which is existing there, is at least 10x of whatever all quick commerce is doing.
So we can service. We know how to service. We have been servicing the population since ages, and our service is more emotional than professional.
Govindraj Ethiraj: Dhairyashil, thank you so much for joining me.
Dhairyashil Patil: Thank you.
Bill Gates Highlights A New Book And A Solution To Fighting Food Wastage
Bill Gates has recommended reading author Vaclav Smil's book on how to feed the world. He says it will transform the way you think about hunger, food and what we eat or don't. In his Gates Notes blog, he writes that in the introduction to his latest book, How to Feed the World, Smil writes that numbers are the antidote to wishful thinking.
Gates says the Canada-based Czech academic, across his decades of research and writing, has tackled some of the biggest questions in energy, agriculture and public health, not by making grand predictions, but by breaking down complex problems into measurable data. Gates says that many discussions about feeding the world focus on increasing agricultural productivity through improved seeds, healthier soils, better farming practices and more productive livestock, all of which are priorities for the Gates Foundation. Vaclav, however, insists we already produce more than enough food to feed the world.
The real challenge, he says, is what happens after the food is grown. And the numbers tell a striking story. Some of the world's biggest food producers have the highest rates of undernourishment.
Globally, we produce about 3,000 calories per person per day, which is more than enough to feed everyone. But a staggering one-third of all food is wasted. In some rich countries, that figure goes up to 45%.
So, distribution systems fail, economic policies backfire, and food doesn't always go where it's needed. Gates says that like all of Vaclav's best books, it challenges readers to think differently about a problem we thought we understood, adding that growing more and better food remains crucial, especially in places like sub-Saharan Africa, where there simply isn't enough. But Gates says that as the world's population approaches 10 billion, increasing agricultural productivity alone won't solve hunger and malnutrition.
We also need to ensure that food is more accessible and affordable, less wasted, and just as nutritious as it is abundant. After all, says Bill Gates, the goal is not to make more food for its own sake, but to feed more people.
