Our Top Reports For Today
- (00:00) Stories Of The Day
- (01:10) Optimism with caution, the 2024 business and markets outlook.
- (07:10) How will the rupee move in 2024. Hint, not much.
- (11:29) How the White House is the world’s largest oil trader.
- (12:46) Free market liberal Arvind Panagariya takes over as Chairman of Finance Commission
NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.
2024 Business and Markets Outlook
How’s 2024 started off for you…I hope well.
The coming year promises to be exciting for more reasons than one. India will elect a new Government which as things stand will be the old one, something the financial markets are betting on.
Businesses will continue to expand steadily and in some cases cautiously as they feel out the consumer across different segments of the consuming class. It is true that expensive cars and real estate are selling more than their cheaper counterparts.
That is an opportunity for some but also something to be careful about.
The good news is, as advertising giant FCB India’s India head Dheeraj Sinha told me in a year end interview that played out last week, Indian consumers want to upgrade and want to be rewarded. Anyone who can meet these aspirations will and has always done well or better in Indian markets.
But there are some caveats. Young consumers are living beyond their means and incomes, while rising, have to catch up to stay in step with their aspirations.
Many parts of India that are linked to global businesses, like Information Technology services, global delivery centres or arms of large multinationals handling usually tech and innovation functions for their parents continue to do well though their growth is pegged on the US and European economies largely.
2023 for the first time saw the IT industry slowing down on hiring, maybe in 25 years. No industry can keep growing of course like no stock market can keep going up but the longer the passage of time for a trend, then the reversal when it happens usually tends to shock the system.
Many industries which are domestically focussed from consumer products to pharmaceuticals and financial services, infrastructure to energy will of course continue to do well but will face the usual competitive challenges and the cyclical demand supply pressures.
I could go on but the imponderables are obviously on the geopolitical front…the Suez Canal which we usually read about in history books and then forget about has made headline news twice in the last year, once when a ship ran aground - at a time when global supply chains were desperately trying to catch up with post Covid demand- and more recently, when Houthi rebels in Yemen started attacking ships passing through to send a message to Israel and the west on the Israel-Hamas war.
Speaking of Covid19, it is of course back and cases are rising with the stock markets yesterday showing some early nervousness on the broader impact and the benefit to pharmaceutical stocks.
Last year as a whole, the US Federal Reserve was pretty much the only institution that the financial world was watching to see where it would go on interest rates. Which in turn has been affecting the dollar and portfolio investment flows into India.
You could argue that the US Fed does not affect the domestic economy, except when you realise India’s IT industry has been slowing down because companies in the United States have held back on investments in turn because of high interest rates.
And oil prices of course which we will come to in some detail shortly. India imports close to 88% of its crude oil requirements so you can see how the strength of the dollar or oil prices can affect our economy.
As a cross border wealth manager told me last year, look at everything you are wearing or carrying or driving in, almost all of it, including your clothes are likely linked to the dollar.
What will matter in India of course looking now from the other side is jobs and where we stand demographically. That is of course one of India’s biggest socio-economic challenges. More on that in a conversation coming up shortly.
Stock Markets Start 2024 On A Weak Note
The stock markets started the first day of 2024 on a weaker note. Several reasons floated around but one was the rising Covid19 cases across India and the accompanying jitters.
Though at times when several reasons are proffered for a certain event, usually neither have much real impact. I mean on the stock markets.
On Covid19, the trends are worrying. India logged 573 new cases of Covid-19 in the past 24 hours, while the number of active cases of the infection has increased to 4,565, the Union Health Ministry said on Tuesday. Two deaths were reported from Covid yesterday. Over 260 cases of the coronavirus sub-variant JN.1 have been detected in India so far.
The Sensex ended at 71,892 levels, falling 379 points or 0.53 per cent, while the Nifty50 shut shop at 21,666, down 76 points or 0.35 per cent.
One trend to watch in 2024 is obviously bond markets and investment in debt instruments. The broader trend, as Uday S Kotak, founder of Kotak Bank, said recently was that India demonstrated a clear trend of moving from saving to investment or from savers to investors.
This of course is that holy grail that Indian financial market veterans have been projecting, forecasting, hoping and even praying for in the last decade or more. And 2023 did seem like a turning point.
Demat accounts with NSDL and CDSL increased from a combined 10.81 crore last year to 13.5 crore in 2023.
But there are some other trends, more Indians, particularly rich ones, are moving base overseas with their present and presumably future capital flows even as remittances back into India hit an all time high of $125 billion last year.
Speaking of flows, the rupee is likely to appreciate to Rs 81 against the U.S. dollar over the next 12 months amid expectations of heavy foreign capital inflows, Goldman Sachs said in a note on Tuesday.
Still, the currency will underperform its Asian peers as the Reserve Bank of India (RBI) could continue to accumulate inflows and build forex reserves "at every opportunity," a Goldman economist said in the report quoted in Moneycontrol.
The Rs 81 mark is actually bullish in contrast to other analysts who are projecting a weaker rupee, closer to Rs 83.33 it was quoting yesterday on Tuesday.
The good news is that the depreciation is very slow, the rupee just lost 0.5% of its value in 2023, its smallest annual percentage change in at least 20 years.
Goldman broadly expects both equity and debt flows to be strong in 2024 thanks also to the Federal Reserve starting to reverse its interest rate hikes in 2024.
Back to debt, FPI investments in debt went positive in 2023 after three years thanks to attractive yields and the upcoming inclusion of Indian bonds in JPMorgan’s index.
FPI investment in debt stood at Rs 68,663 crore in 2023 compared to Rs 15,911 crore of outflows in 2022, according to data from the National Securities Depository Ltd.
The FPI investment in debt in 2023 is also the highest since 2017.
Back to stocks, remember that the Nifty has gained about 20% in 2023, with more than half of it in the final two months of the year.
Also, midcap and smallcap indices are up by roughly around 45% on an average. That kind of gain is pretty hard to replicate and is one reason investment managers are wary of small cap funds for 2024.
Oil And Crude
THe daily interplay around the Red Sea
Now for the energy segment supported by India Energy Week.
Tensions in the Red Sea leading into the Suez Canal, continued to determine the sentiment on oil prices which rose after Iran sent a warship to the Red Sea in response to the US Navy’s sinking of three Houthi boats over the weekend.
Brent crude climbed to around $78 a barrel after declining by 5% over the prior three sessions, with West Texas Intermediate above $72.
Meanwhile, AP Moller-Maersk A/S has again suspended all Red Sea transit to assess the situation in the vital waterway.
Meanwhile, the production cuts from the Organization of Petroleum Exporting Countries and its allies will come into play in the next three months though the threat of the cuts thus curtailing supply has not done much to prices.
Elsewhere, Bloomberg is reporting that India’s crude oil imports from its largest supplier Russia plunged in December to their lowest since January 2023, as six tankers carrying Sokol grade oil could not deliver due to payment issues amid tightening sanctions.
After rising to an all time record of 2.15 million barrels a day in May, oil imports from Russia fluctuated downwards, experiencing a sharp decline between November and December to 1.48 million barrels a day last month, according to Kepler data quoted by Bloomberg.
Of the six tankers left idle around India’s coast, two indicated they may reroute to China, he said.
Speaking of oil movements, the biggest unchristened oil major deciding prices is the White House.
More on that in a moment.
The WSJ is reporting that a record production of US fossil fuels - something we have mentioned in The Core Report earlier - is helping to keep the world stocked, blunting the impact of widening conflict in the Middle East that has crimped key shipping lanes.
Oil and gas prices this past month have sunk about 5% and 23%, respectively.
That is largely because of record production of U.S. fossil fuels.
U.S. oil production had grown to about 13.2 million barrels a day as of October, up almost 900,000 barrels a day from the same month in 2022, according to the Energy Information Administration’s latest available data.
Coming now to the White House.
The WSJ says one beneficiary of cheaper oil is President Biden, whose Energy Department has recently accelerated its purchases of crude meant to replace the barrels it sold off in 2022 from the nation’s strategic petroleum reserve.
The government had sold the barrels at higher prices that year, and is now competing more actively with international oil buyers.
Tankers have recently carried more U.S. crude to the Netherlands, the U.K., Italy, Spain, France, Germany and other countries as more of Russia’s crude has flowed to Asia following Western sanctions.
U.S. oil shipments to Europe have jumped 34% since this time in 2022 and 82% from before Russia’s invasion of Ukraine, Kpler data show.
The energy segment was brought to you by IndiaEnergyWeek, to be held in Goa on February 6. More details on www.indiaenergyweek.com
A Free Market Liberal Rejoins The Modi Government
Dr Arvind Panagariya, former advisor to Prime Minister Narendra Modi, has been appointed as the chairman of a new Finance Commission whose job it is to decide how the country’s tax incomes will be shared with states.
Some 42% of taxes collected are sent to the states.
Dr Panagariya, a PhD from Princeton University, was designated as the head of the 16th Finance Commission on Sunday.
Earlier, from January 2015 to August 2017, Panagariya served as the first Vice Chairman of the NITI Aayog and has worked with the World Bank, IMF.
His new role does not involve setting policy on trade or domestic manufacturing but he is a strong votary of the export-led way to growth and believes the opportunity for India is large, on several counts. And it is quite likely his presence will be felt across policy making.
He pointed out in an interview with me four months ago, for example, that India should lower tariffs, because eventually that affects the country’s exports as well. Equally, going back to our earlier discussion in the show today on the rupee, he felt India’s exchange rate rupee is a bit overvalued.
“You look at any country which has done well on exports, expanding rapidly at paces of 15% or 18% a year, on a sustained basis—these are countries which keep the domestic currency very competitive and we have consistently kind of a bit overvalued the rupee.”
I had the opportunity to catch up with him four months ago on the specific issue of exports and global trade and whether exports was the way to go.
India’s Jobs Challenge
Speaking of India’s export and overall economic potential, the start of the year is a good time to remind ourselves, as our guest today says, demography or a demographic dividend which India will reap for another four decades in terms of working age population is not destiny.
India needs to build capacity and resilience at home to sustain growth and invest in human capital to ready it for disruptive shifts in business models.
Which brings us to jobs. I spoke with well known economic writer, veteran journalist and author Shankkar Aiyyar on jobs in specific and what he felt India needed to focus on and also how important the matter was, particularly in an election year.
That’s it from me, have a great day and week and I look forward to hearing more from you this year and wish you the very best.