US Stock Markets See $6 Trillion Rout In 2 Days
Indian markets are still doing better than most others, being just about the silver lining in last week’s fall
On Episode 550 of The Core Report, financial journalist Govindraj Ethiraj talks to Steven A. Altman is a Research Assistant Professor in the Department of Management and Organizations at the New York University Stern School of Business.
SHOW NOTES
(00:00) The Take
(08:41) US stockmarkets see a $6 trillion rout in 2 days, or 1.5 times Indian market capitalisation
(12:01) Why gold prices are strong but silver is falling
(13:14) Crude prices crash to $65 a barrel
(14:12) Can India increase its market share of global trade?
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 7th of April and this is Govindraj Ethiraj headquartered in Broadcasting and Streaming from a really warm Mumbai, India's financial capital.
The Take
Startups aren't the villain but they're not the only answer either
Swami A. Parthasarathy, regarded as one of the greatest living exponents of Vedanta, had a sharp reaction to a question I posed to him some years ago. Fixing me with a stern look, he said, an industrialist who is a large two-wheeler maker was sitting exactly where you were a few days ago. I told him that selling two-wheelers to middle-class Indians is no achievement.
The day you can sell a Mercedes to them, I will consider it an innovation. Now, Swami Parthasarathy wasn't being literal. He didn't expect a two-wheeler consumer to suddenly afford a Mercedes but I understood the message.
It was applicable then as it is relevant today. Speaking of innovation, India's Trade Minister Piyush Goyal last week sparked a firestorm when he remarked that food delivery apps are turning unemployed Indian youth into delivery personnel for the rich. Where are India's startups today, he asked.
And he said, we are focused on food delivery apps, turning unemployed youth into cheap labour so the rich can get their meals without moving out of their house. He was referencing a viral post contrasting India's startups with those in China, arguing that while India is building food delivery and instant grocery businesses, China was focused on electric vehicles, battery technology, and next-generation manufacturing. That comment drew criticism from all corners, including from the food delivery startups themselves, who perhaps suddenly felt orphaned by a system that until recently seemed to place them on a higher pedestal almost each passing day.
Former Infosys CFO Mohandas Pai, who runs his own venture capital firm, pointed out that the government had done little to help deep tech startups grow in India. The finance minister, he said, was the very agency that harassed startups for years by imposing the angel tax, making it restrictive if not impossible for a wide range of investors to back early-stage companies. He also said that the Reserve Bank of India treats overseas investors poorly, particularly around their remittances and alternative investment funds or AIFs because of outdated foreign exchange rules.
And that debate, by the way, is still raging across India's startup ecosystem and I'm sure is blowing back into the government in some ways. Now, wading into this discussion is in some ways, I think, besides the point because it misses a few crucial elements. And that's why I think we need to think about innovation differently and perhaps even boringly, to put it plainly.
And we must also separate this conversation from the typical hype cycle, which I'll come to shortly. For starters, if you ask me where India needs the most innovation right now, I would say it's gems and jewellery, pharmaceuticals and textiles. Industries that may sound less glamorous but are important.
Last year, India exported around $33 billion of gems and jewellery, of which about $10 billion went to the United States. Textiles and handicraft exports were at about $36 billion in all that is. And pharmaceutical exports were valued at about $26 billion.
And the US obviously took away a chunk of these. Now, India's textile industry is currently breathing a little easier because tariffs on competing countries like Vietnam and Bangladesh are higher. But as the pharmaceutical sector discovered just last week, even small victories can be short-lived.
After initially indicating that there would be no tariffs on pharmaceutical imports into the US, as Indian industry had expected, the Trump administration reversed course and now said that they were reviewing potential tariffs on pharmaceutical products. At this point, India's pharma industry is chewing its nails, unsure of what kind of tariff it might come or when. Now, tariffs on pharmaceutical imports would directly raise healthcare costs in the US.
Will the current administration really go there? Well, we don't know. So where does India's biggest innovation challenge lie for the present?
I would argue it lies in becoming more productive in the goods we already produce at the scale at which we produce and the jobs we create for them. Is that the kind of challenge Silicon Valley venture capitalists are eager to fund? Not a chance.
India is grappling with hundreds of systemic challenges from delivering quality education and higher education to affordable healthcare and of course infrastructure. And our today's startup entrepreneurs solving these problems may be a nibble here and there, but largely insignificant in the broader scheme of things. And these are not issues with quick technology or platform-based solutions that could lead to billion-dollar cash outs.
One area where India has clearly demonstrated leadership is financial inclusion, particularly through the India stack, which is a set of open digital infrastructure and software, including Aadhaar and UPI that enables paperless, cashless and presence-less public service delivery at scale. But none of that had venture capital behind it, at least not in the critical foundational phase. It was driven by strong ideas, a unified vision and consistent government support, which obviously continues to this day.
So the first and important distinction we should draw is between capital and innovation. Capital can surely drive innovation, but it is not a necessary prerequisite in India, as we've seen again and again over the decades. Now take for instance the Indian Space Research Organisation, which completed its hundredth space launch in January this year.
The government said last year that 90% of foreign satellite launches are being carried out now through ISRO. In the last nine years, India has launched 393 foreign satellites aboard ISRO's PSLV, LVM3 and SSLV launch vehicles for 34 countries. And guess what?
232 of those satellites were for the United States. So we must be doing something right and innovative for the Western world to depend so heavily on our launch services, including for cost-effective satellite deployment. Take oil exploration giant ONGC, which is state-owned.
Chairman Arun Kumar Singh told me last month that they were excited about how artificial intelligence or AI is transforming the way they operate, particularly in reducing the time and cost of well discovery. He told me, and I quote, that recently we drilled a well purely based on AI predictions about where to locate it and it turned out to be 98% accurate. That's a big deal because we believe our investment in AI will significantly improve efficiency in oil exploration and development over the next few years.
ONGC has about 100 engineers now working around the clock to deepen AI and digital adoption. The challenge, Singh said, is finding more of these bright engineers. Now it's quite likely that many of these engineers might prefer to work on apps that deliver groceries in under 10 minutes by manufacturing a need for speed rather than fulfilling an actual one.
But there will always be others, whether at ISRO, ONGC or elsewhere, who are quietly innovating within their domains away from the spotlight. Which brings us to the other question, who will solve India's deep-rooted productivity problem? It's clear that both the private sector and the government struggle with this.
It's also clear that sector-by-sector innovation and not hype is what's needed to move the needle. And this kind of innovation does not always need venture capital, nor does it rely on entrepreneurs dreaming of billion-dollar exits or supercar purchases. Now there's nothing wrong with aspiring to build wealth or dreaming of Lamborghinis, but to expect these dreams to lead to or somehow solve India's structural challenges is misguided.
Now the reason we talk about startups so much and expect them to solve all of India's problems in some ways is because we, including the media, place them on a pedestal they perhaps never should have been on. And I'd argue that the media has been one of the biggest culprits. It began with a noble enough intent, highlighting fresh entrepreneurial stories that offered a counterpoint to India's stodgy family-owned businesses and business houses.
But in doing so, the plot was lost. When founders of companies that have never made a profit start judging other businesses by handing out awards for excellence of some sort, usually at events hosted by media houses, you know there's a problem. Now this is how the hype cycle swells and engulfs more victims.
As more people read about entrepreneurs raising millions, the act of raising funds itself becomes the perceived achievement and the end goal. And that's exactly how it's been portrayed and continues to be. At some point though, the hype boomerangs.
It comes back after a long arc and hits those caught in the path. So when a union minister like Piyush Goyal compares India's startup ecosystem to China's and asks uncomfortable questions, people get upset. But really, he's just responding to the narrative built by the same hype machine we all fed into.
But the good news is, and there is good news, is that India has space for all to co-exist. And that's not a pun that's intended. The Bangalore-based entrepreneur building a grocery delivery app with hopes of a quick exit, a young engineer working late nights at a public sector company or a government company figuring out how to drill oil for an energy-starved nation or launch a rocket into space.
All of them have a role to play and will do so, meeting some need, fulfilling some aspiration somewhere for someone. And yes, there are now entrepreneurs in India's space sector too, under the somewhat predictably named space tech. Some of them, like before, will go on to solve India's real complex problems.
And that brings us to the top stories and themes for the day.
U.S. stock markets see a $6 trillion route in two days, more than India's market capitalisation.
Indian markets shudder and sway.
Why gold prices are strong but silver is falling.
Can India increase its market share of global trade?
And crude prices now crash to $65 a barrel.
Indian Markets Are Still Doing Better Than Others
So last week was a tough one. And Indian markets at the end of the day were still doing somewhat better than others across the world, being just about the silver lining in last week's fall.
U.S. President Donald Trump's reciprocal tariff announcement continued to send shockwaves through the global financial markets as investors try to digest the precise impact by sector and country. And as you know by now, China has already launched its own retaliatory tariffs. It did not help that Trump moved the goalposts a day after the tariffs when he said that pharmaceutical imports into the U.S. were still under review, sending India pharma stocks, which survived the first round of announcements on April 2nd, into a tizzy. On Friday, the BSE Sensex fell about 930 points to close at 75,364 and the NSE Nifty 50 was down 345 points to close at 22,904. The broader markets also took a hit with small and mid-cap stocks going down about 3%. The big news was obviously Wall Street, where the Dow Jones lost about 3,900 points in just two days.
And the market saw a loss and wiped out $6 trillion in value, which is obviously more than India's market capitalization. Investors who were looking for the Federal Reserve to ride to the rescue were left wanting on Friday when Jerome Powell, the head of the Federal Reserve, said the tougher-than-expected tariffs would dent growth and, more importantly, boost inflation, according to CNBC. He also said that the central bank would stay in its holding pattern on interest rates, dashing hopes for now of a Fed to put afloat under the market carnage, according to CNBC again.
So the problem, of course, is not the fall in itself, but the fact that a recession in America, which many economists and analysts are now bracing for, will hurt companies there and elsewhere, like IT companies in India, for whom more than half of their export business comes from America.
Vietnam Buckles, Will Others Follow?
Are America's tariffs a bargaining tool or a long-term strategic move or action? Well, it depends on who you ask. Vietnam is offered to remove all tariffs on U.S. imports after the Trump administration announced a 46% levy on the country, according to an April 5 letter from Vietnam's Communist Party, according to Bloomberg. The offer was made by the party chief in a letter to the U.S. President. In that letter, the party chief requested that the U.S. not apply any additional tariffs or fees on Vietnamese goods and asked to postpone the implementation of the tariff announced by Trump last week by at least 45 days after April 9. The letter also confirms comments made by Trump on Friday on social networks following a call between the two leaders.
Vietnam has become a key manufacturing and export alternative to China, says Bloomberg, and was slapped with one of the highest tariff rates worldwide. Now, India, in keeping with its not stated but expected position so far, is not retaliating with any tariffs of its own. Reuters quoted a government official saying India has looked into a clause of Trump's tariff order that offers a possible reprieve for trading partners who take significant steps to remedy non-reciprocal trade arrangements.
India is one of the first nations to have started talks over a trade deal with America and is seen as being better placed than countries like China, Vietnam, and Indonesia, which have all been hit by higher tariffs, according to that government official. India has joined countries like Taiwan and Indonesia in ruling out counter tariffs, even as the European Commission plans to now launch its counter tariffs following China.
Gold Stays Strong, But Silver Falls
Gold is traditionally seen as a safe haven investment in times of political and economic uncertainty and, as we know, has hit multiple record highs this year, including last week when spot prices hit a record high of $3,167 an ounce on Thursday.
Silver prices, on the other hand, have dropped nearly 9% since Trump's latest tariff announcements on Wednesday to about $31 an ounce. The silver prices had dropped to 8-week lows thanks to concerns about demand linked in turn to recession fears stemming from the recent US tariffs. Reuters quoted the Silver Institute Industry Association saying that silver typically tends to move alongside gold, but industrial users such as electronics and photovoltaics account for more than half of global demand, estimated at around 700 million troy ounces as of last year.
For the gold-silver ratio, the measure of the amount of silver needed to buy one ounce of gold is currently at 100, the highest since June 2020. An analyst told Reuters that the upside provided by heightened safe-haven demand will be capped by silver's negative industrial angle.
Oil Prices Fall
Oil prices have now fallen to about $65 a barrel, a very sharp drop by any standards.
Bloomberg is reporting that Saudi Arabia slashed its flagship oil price by the most in more than two years, just days after the Organisation of Petroleum Exporting Countries' Plus or OPEC Plus alliance announced an unexpectedly large output hike. All of this sent oil prices falling further, having fallen now more than 10% last week. Remember, the other geopolitical and risk tensions continue to remain, so clearly prices have fallen despite all of that.
State producer Saudi Aramco will lower Arab light crude to its biggest buyers in Asia by $2.30 a barrel for May, according to a price list seen by Bloomberg. OPEC, in which Saudi plays a key role along with Russia, announced on April 3rd it would add more than 400,000 barrels a day back into the global market next month, which is a figure three times larger than previously expected and signposted, says Bloomberg.
Can India Increase Its Global Trade Market Share?
Trump tariffs are obviously more severe than what anyone expected and has the global economy reeling as much for its economic impact as for its implications, which is the resetting of global trade as we've known it. So what are the longer term implications of this move, and could trade flows shift permanently, and if so, how? And what does past data and experience tell us?
I reached out to Stephen Altman, a research assistant professor at the Department of Management and Organisations at the New York University Stern School of Business, as well as senior research scholar and director of the DHL Initiative on Globalisation at NYU Stern's Centre for the Future of Management. Professor Altman is also an author of the DHL Trade Atlas, which addresses trade patterns over a longer time period, including which countries and regions could lead. It delivers a comprehensive analysis of trade trends for nearly 200 countries and territories around the world.
Professor Altman has a PhD in international business and strategy from the University of Reading, an MBA with distinction from the Harvard Business School, an MPA from the Harvard John F. Kennedy School of Government, and a BS in economics from the Wharton School of Business at the University of Pennsylvania. And his research focusses on understanding the patterns of international flows of goods and services, capital, information, and people, and how cross-country differences and distances shape those flows.
And I began by asking him how he was reading this tariff announcement, particularly in the context of its severity, and also how he was looking ahead in the global context, as well as in the Indian context.
INTERVIEW TRANSCRIPT
Steven A. Altman: So I'm based in New York University. I've been collaborating, though, for a long time with DHL, producing our Trade Atlas and our Global Connectedness Report. So I try to stay close to industry and to the world of logistics.
Of course, the introduction of new tariffs is a negative development for trade. It's important to try to keep it in perspective. I think, in terms of doing so, we should start off by recognizing that we go into this episode with actually a pretty strong pattern of trade growth.
So before this escalation of tariffs, we were actually expecting trade to be growing over the next five years a little bit faster than GDP. If these tariffs stay in place and all of the retaliation that we're just starting to see, and if that continues, that would substantially slow trade growth. I still am optimistic that we'll see some trade growth over the next five years, but we have a high degree of uncertainty here.
But most likely, this is going to substantially slow, but hopefully not reverse, the growth of global trade. It also will create quite a lot of shifts in terms of trade patterns, particularly with respect to the U.S. We'll probably want to come back to that. But maybe just on the overall picture, one thing that I think is really important to emphasise before going further is that the U.S. represents only 13% of imports currently, 9% of exports. So the U.S. is an important player in world trade, but it's far from large enough to be able to unilaterally determine the future of trade. And I'm quite optimistic that other countries are not going to follow the U.S. down this path of raising tariffs across a large number of trade partners. We'll see retaliation against the U.S., but I don't see many other pairs of countries going down that path, because while this will be costly for the United States, the U.S. is actually one of the countries that relies the least on imports relative to the size of its economy. For smaller countries in particular, the cost of escalating tariffs would be much greater.
Govindraj Ethiraj: If you were to separate the two, it's an interesting point because you're saying that, let's say, the EU is not or unlikely to impose tariffs across 180 countries. It would only retaliate against the U.S. in this case, and maybe China as well. If you were to separate these two categories or these two quadrants, how does world trade look like?
Steven A. Altman: The part that doesn't involve the U.S., expectations are actually quite positive. When we were preparing the trade atlas, our baseline scenario called for limited increases in trade barriers, actually called for substantially faster trade growth over the next five years than we saw over the preceding decade. And with one caveat, I think that's generally what we would expect for the rest of the world going forward.
The one caveat that we have to keep in mind is that trade growth is quite cyclical. So, when you see faster macroeconomic growth, trade tends to grow faster than GDP. If you see a macroeconomic downturn, trade tends to shrink faster than GDP.
So, in the event that we find ourselves, and we weren't talking about this a few months ago, but in the event we find ourselves in an economic downturn, that would have cyclical effects on trade. But in terms of non-cyclical development, I don't see any reason to be pessimistic about the developments for the rest of the world. And even for the U.S., there's still high uncertainty on how this is ultimately going to play out. So, were the policies that were just announced to stay in force over the next five years without a set of new exceptions introduced, that would have severely negative effects for trade? But we don't know what negotiations might take place.
Govindraj Ethiraj: One of the questions that I've been asking economists, even in India, though they may not have that much of an idea, is that a lot of the sustenance of these tariffs depends on the U.S. consumer's ability to absorb higher prices. What's your sense of that? I mean, you know, for example, all the products that one typically consumes, it may be dairy products, agricultural products, food products, things that you buy at Walmart, all of that is going to be more expensive.
Clothes are going to be more expensive. So, how much can the consumer withstand?
Steven A. Altman: I think we'll see a very strong reaction against price increases by U.S. consumers. I think one of the key messages from the election that just happened was the strong concern that people have about inflation. You know, I was talking back during the Trump campaign about what I called the impossible three I's, proposals that were coming out here.
There's a proposal to reduce imports by raising tariffs, a proposal to reduce immigration via a set of other policies, and at the same time, an emphasis on reducing inflation. Those three things don't go together. If you reduce imports and you reduce the labour supply, you would expect an increase in prices.
So, these policies have a tension between them, and we have to see how it gets resolved. But I expect a strong reaction by consumers.
Govindraj Ethiraj: Right, and if I were to now come to supply chains, so as we look at the tariffs that we have or are seeing in front of us, how could global supply chains shift or change around even, or maybe they were already changing around from, again, your vantage point?
Steven A. Altman: I think in this context, I mean, we were seeing some changes already. If the tariffs that were just announced stay in force, that would have large effects going forward. I think the key here is to pay attention to relative levels of tariffs.
So, some countries are hit much harder than others, and so you would expect shifts toward the countries that face less. One thing that I think is quite illustrative, there was a study done a few months ago by CPII, an institution in France that does some great modelling. One of the scenarios that they looked at was one in which the U.S. imposes tariffs on all of the other countries except Canada and Mexico. So, under that scenario, it's a 10% tariff on every other country except China, 60% on China. In that scenario, where Canada and Mexico are exempt, that model predicts roughly one quarter increase in Mexico's exports and a similar, it's in the 20-something percent range, increase in import. So, the countries that are relatively less adversely affected do actually have opportunities to gain in terms of trade to the U.S. I think it's also important to pay attention to the effects of retaliation on competitive opportunities because if I was working in a company that exports and competes against exporters from the United States, the retaliation against the U.S. immediately makes my product more attractive to buyers and so I would be looking to those customers of that U.S. competitor and trying to take market share from them in this context. So, it's going to be dynamic, but there are opportunities both with respect to relative opportunities to the U.S. and opportunities to gain share in other markets.
Govindraj Ethiraj: What would or could be the long-term impact of these actions? And the context I'm asking this is, this is not a deal. I mean, this is not a transaction that you either win or lose.
There is an after effect, which is geopolitical, political, and people are going to obviously respond for the longer term, even if this set of actions are aimed at the short term, which is, you know, to do a deal. I don't know if people have modelled this, but how's your sense? I mean, what could be the longer-term fallout of this method of transaction in tariffs and trade?
Steven A. Altman: Yeah, well, maybe it's worth separating it into two possibilities. So, one is, if we were ultimately to see these kinds of tariffs imposed over the long term, one would expect a series of negative effects that having higher tariffs imposed over the long term would be expected to reduce economic growth, reduce dynamism, and industries become less competitive. So, those kinds of things that just come from introducing new trade barriers and sustaining them would be expected.
Even if we don't see that, I think there will be some effect that is simply from this introduction of higher uncertainty that would prompt people to worry more about, in this case, particularly the U.S.'s reliability as a trade partner, but also more generally the extent to which they're comfortable relying on foreign partners. So, you could see some onshoring in some cases, as well as other risk mitigation strategies holding more inventory and so on.
Govindraj Ethiraj: Have you seen this happen in some way in the past, or are we truly entering a new era?
Steven A. Altman: I mean, I think we should say that what was just announced is really unprecedented. So, I think that is something that we can't really look so closely to the past for understanding, but in terms of thinking through how countries are likely to respond to tariff increases, how trade flows respond to tariff increases, here I think that is familiar territory. The fact that China just announced retaliation against the U.S. tariff is not surprising. That is the pattern that we've tended to see. We had a lot of escalation of tariffs, particularly between the U.S. and China during the first Trump administration, that resulted in some substantial changes to trade flows. I think that's probably instructive about what might happen moving forward.
For your audience, it might be worth mentioning, if I just keep this in mind as an including point, that in our DHL trade atlas, we actually had quite an optimistic expectation about trade growth for India, predicting that India, in our baseline scenario, would achieve about 6% of the world's trade growth, the third largest amount after only China and the United States. I think the current scenario probably creates opportunities for India's share to be even larger. So, we'll have to see how it develops.
Extremely high uncertainty, but for the nimble companies that can navigate this environment, I'd be looking to mitigate risk and to take advantage of opportunities while they're out there.
Govindraj Ethiraj: So, you're saying that net India should be better off in this tariff regime, or could be better off?
Steven A. Altman: In terms of shares, I'm talking about shares of trade growth rather than absolute trade growth. So, if you could imagine that all of this interaction with tariffs shrinks the pie, but India has the possibility to get a larger share of that pie in this scenario, because you can think both in terms of the opportunities going to the U.S., where there were possibilities. We just talked about how the tariffs proposed for India are lower than for China, as well as, for example, Vietnam.
So, that can potentially create opportunities. Also, when we look at opportunities for exporting to other countries, I mentioned before, in the baseline model, you had the top three countries in terms of predicted shares of trade growth over the next five years were China number one, U.S. number two, India number three. This current scenario is certainly, if it stays in place, it would be expected to reduce the U.S. share of trade growth. So, that even just by definition creates opportunities for other countries to increase their shares.
Govindraj Ethiraj: Professor Altman, thank you so much for joining me.
Steven A. Altman: You're most welcome. Thank you for the invitation. All the best.
