A Cloud Of Caution Over The Stock Markets
A cloud of caution has settled over the markets now while the caution is triggered by the Middle East tensions
On Episode 611 of The Core Report, financial journalist Govindraj Ethiraj talks to Vandana Hari, Founder & CEO of Vanda Insights.
SHOW NOTES
(00:00) Stories of the Day
(01:00) A Cloud of caution over the stock markets
(02:08) A big rush of IPOs could dampen market activity
(05:04) Oil prices rise again as analysts compute war risk premia
(13:47) Global FDI flows falls a sharp 11%, China most hit
(15:30) Air India reaches out to passengers and public to announce 15% reduction in international flights, says ill-fated aircraft and engines were in good shape
(18:54) Slim foldable phones is where the action is
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 20th of June and this is Govindraj Ethiraj broadcasting and streaming from Mumbai, India's financial capital.
Our top stories and themes.
A cloud of caution settles over the stock markets.
A big rush of initial public offers or IPOs could dampen market activity.
Oil prices rise again as analysts compute war risk premia.
Air India reached out to passengers and the public to announce a 15% reduction in international flights and said ill-fated aircraft and engines were in good shape.
Global foreign direct investment flows fall a sharp 11%, China most hit, India also affected.
Slim foldable phones are where the action is.
A Cloud Of Caution
A cloud of caution has settled over the markets now while the caution is triggered by the Middle East tensions and what it can do to the geopolitical environment in general and oil prices in specific. The other factor that could spook the large streets somewhat is a supply rush of initial public offers in the coming days. Now large IPOs usually drain out funds and divert trader interest in the short to medium term and sometimes signal peaks as well as we've seen in the past and more on that shortly.
On Thursday the indices were down with investors and traders grappling with multiple inputs ranging from war tensions to oil prices and renewed US tariff threats and the latest ones being fresh tariff threats around pharmaceuticals exports from countries like India into the United States. Moreover the US Federal Reserve is now holding interest rates unchanged at 4.25 to 4.5 percent and that is also causing some concern. The Sensex fell about 82 points to close at 81,361 while the nifty 50 was down 18 points to 24,793 in an overall choppy market day.
Amongst the broader indices or markets the nifty mid-cap 100 and the nifty small cap indices were down 1.6 and about 2 percent each. India's IPO market is now set for its busiest period this year with at least four companies planning to raise about 15,000 crore rupees or about 1.7 billion dollars through initial public offerings next week according to Bloomberg which has compiled this. They include Kalpataru, Ellenberry Industrial Gases and Globe Civil Projects and HDB Financial Services which is the big one.
HDB is a unit of HDFC's bank with a 12,500 crore or 1.4 billion dollar IPO targeted or likely to hit next week which is also the largest ever by a non-bank finance company in India. Now as is the trend with many IPOs in the last year or two a good part of the funds that are being raised from investors will actually only give promoters exits. In the case of HDB Financial Services the fresh issue is only of 2,500 crore rupees and the offer for sale is for 10,000 crore rupees by parent HDFC bank which holds about a 94 percent stake according to money control.
So about 10,000 crore rupees goes to HDFC bank which is effectively the promoter here and only 2,500 crores would go into the company. The trigger for the burst of IPOs is obviously the recovery in the markets up 12 percent in the benchmark NSE Nifty from its March low and also the fact that many of these companies and many more are waiting quite eagerly on the sidelines to jump in and start raising funds. Meanwhile the rupee continued to slip and fell to a three-month low as the West Asia jitters deepened the risk of sentiment amongst traders.
The rupee was down about 27 paise to 86 rupees 74 paise against the dollar, the lowest level since March 17 this year according to Bloomberg. So the factors driving the currency down which is by the way across the region is roughly the same as stock markets and thus in common with all other markets including commodities. The fact that the United States Federal Reserve has delayed rate cuts by around six months is also helping the dollar adding pressure or putting pressure on the rupee.
Ship Insurers Raise Costs
Israel and Iran's escalating conflict has significantly driven up the cost of insurance for ships sailing through the Red Sea and Persian Gulf and according to a report from CNBC and marine insurers are now charging 0.2 percent of the value of a ship for journeys into the Gulf. This is from data from insurance broker Marsh McLennan and this is or rather the figure is up from 0.125 percent so 0.125 percent to 0.2 percent. The 0.125 percent was before Israel's surprise attack on Iran last week. There's also been an uptick in war insurance rates for the Red Sea according to Marsh while cover relating to ports in Israel has more than tripled to 0.7 percent. Israel and Iran are continuing to exchange fresh air attacks over recent days including into the main cities of Tel Aviv and Tehran. Marsh McLennan told CNBC that given the situation currently contained within the region risks are still being placed to enable cargo to flow through these areas.
Computing Oil Prices
Oil prices rose on Thursday after Israel and Iran continued to exchange missile attacks overnight and U.S. President Donald Trump's stance on the conflict it's not clear at this point whether the U.S. will enter the war or not keep investors on edge. Brent crude futures were up more than a dollar to about 77 dollars 76 cents midday on Thursday while West Texas intermediate crude was up to about 76 dollars 40 cents. Brent had hit its highest in nearly five months at 78 dollars 50 cents on June 13th when the attacks started.
So there is still a healthy risk premium which is baked into the price as traders wait to see whether the next stage of the Israel Iran conflict is a U.S. strike or peace talks according to an analyst with trading platform IG who spoke to Reuters. Goldman Sachs said on Wednesday that a geopolitical risk premium of about 10 dollars a barrel is justified. So how is the market computing oil prices right now given the knowns and the unknowns?
I reached out to Vandana Hari, Singapore based energy analyst and founder of Vanda Insights and I began by asking her how she saw factors driving oil prices right now and also whether she was seeing any variations within or across oil products.
INTERVIEW TRANSCRIPT
Vandana Hari: So indeed like this playing out the various scenarios is probably what is engaging oil market participants you know traders stakeholders the most at this point. The challenge there is that first of all the situation is in a massive flux. Headlines from Tehran from Israel from the U.S. leaders are blowing hot and cold stances are changing or shifting quite dramatically in some cases. So the picture is also constantly changing sometimes on a minute to minute basis. But within that context I think what the market has done and this is all in the initial hours and days now we are into the seventh day of the direct attacks between Israel and Iran is to look at some of the worst case scenarios because you know you want to sort of take a look at them first and then decide you know what probability you want to assign to them in the sense should you be prepared for the worst possible supply disruption.
So amongst the worst case scenarios probably the most discussed has been a blockade of the Strait of Hormuz because Iran has periodically threatened to do that whenever tensions have risen historically but it has never actually done it. My personal view on this is that it's a near impossibility or highly improbable should I say because just with one stroke Iran would be turning the entire world against it. You know all definitely all its neighbouring countries which will not be able to send their oil across to the global markets and all the consuming countries as well.
So it'll make a lot of enemies in one go. Some of the other worst case scenarios the market has also looked at and discarded for the time being is a regional oil facility getting hit either deliberately by I mean I can't see why Israel would do it but perhaps by Iran as some sort of a retaliation or accidentally getting hit. Now accidentally getting hit is really impossible for anybody to predict but deliberately I think that also the probability has been set aside.
So as of now what you see in crude as you were mentioning earlier crude has jumped you know there's about I would say give or take $10 per barrel premium in Brent at $76 today the premium on account of the geopolitical risk but otherwise what prices tell you and this $10 premium tells you is that the market is not accounting for any of the worst case scenarios in terms of a severe supply disruption.
Govindraj Ethiraj: Right and if you look at let's say Iran as a producer what is its contribution currently and let's say if Iran were not to be able to produce and distribute the oil that it's currently producing what happens then?
Vandana Hari: Yes, Iran produces about 3.3 million barrels per day. It's been quite steady over the past several months. Its exports are about a little over half of that; the vast majority of its exports go to China. This has been quite a stable number the question what happens to the market if and only if Iranian oil production and supply is somehow disrupted is I would say really not much perhaps you would get an incremental jump in crude as a knee-jerk reaction but the wider OPEC plus has way more than that amount of spare capacity so it could easily step in but as of now amongst the scenarios because Israel has not hit Iranian oil facilities to any substantial degree so as of now the scenario is not Iranian oil production getting disrupted either.
Govindraj Ethiraj: Right so from what I'm taking away the $10 jump that we have seen is really the risk geopolitical risk premium that is being factored into oil and we are not really seeing any other factors played which sort of leads me to the question until now we were looking at some sort of demand compression and supply increase and you refer to that as well so are those factors still weighing on prices or is that something that the market is not looking at right now?
Vandana Hari: Yes one of the reasons you could say that crude has not jumped much more is that we have this crisis erupted in a background of a very subdued almost pessimistic outlook for global economic growth global oil demand growth and on the other hand a surplus supply expectations especially so after about three months ago OPEC plus decided to accelerate the 2.2 million barrels per day that they were bringing back into the market initially they had decided to do it very very gradually well into 2026.
September is when the 2.2 would have been returned so they were being very very cautious but something has dramatically shifted within the internal dynamics of OPEC plus and these eight members are bringing back at quite a rapid clip this 2.2 million barrels per day so yes overall the picture which will endure once the dust has settled on this Iran Israel crisis is one of amply supplied market and a rather sluggish oil demand growth.
Govindraj Ethiraj: Right last question Vandana so within or across oil products for example natural gas or specific refining products like diesel or petrol or aviation fuel are there any trends that you're seeing there which are specific or slightly different?
Vandana Hari: So we have seen diesel show a bit of a bigger risk premium jump especially benchmark diesel prices in Europe now one of the infrastructures that did get targeted was an Israeli refinery in in Haifa Israel's biggest refinery which has been completely shut down as of the last weekend so there is an expectation now that Israel will also have to import more refined products so overall there's a little bit of a bigger bump in diesel prices in Europe to some extent that is filtering through to diesel cracks globally but otherwise I would say we haven't seen much turbulence or shifts in refining margins one thing to keep in mind refining margins were good when prices were crude was languishing in the low 60s mid 60s for Brent now crude prices have gone up but refiners won't necessarily be able to pass through all these costs into the fuel prices refiners freight costs will also go up at least for this period of time while this crisis is lingering insurance costs especially for ships going into the middle east have also gone up so that could bring some pressure on refining margins.
Govindraj Ethiraj: Right, Vandana, thank you so much for joining me.
Vandana Hari: Thank you very much Govind.
Global FDI Is Falling
Global foreign direct investment fell about 11% in calendar 24 to about $1.5 trillion, which made it the second consecutive year of double-digit contraction, while international project finance deals fell about 27%. Mint quoted the United Nations saying on Thursday, investment activity weakened sharply, particularly in major economies like China and India.
The World Investment Report 2025 by the UN Conference on Trade and Development, that's UNCTAD or UNCTAD said, according to the report, after stripping out financial flows routed through European conduit economies, global FDI actually rose 4% last year. But overall, the report is a sober assessment of global investment trends, particularly in Asia or developing Asia, which remains the world's largest recipient. So FDI inflows into developing Asia fell 3% in 24, reflecting the growing uncertainty in cross-border capital flows, says the report.
China saw one of the steepest drops with inflows falling just under 30%. India saw a smaller 2% decline, though UNCTAD pointed out that an uptick in greenfield project announcements suggests that much of the new investment is yet to translate into actual flows. So this is linked to project announcements.
The larger concern is that UNCTAD is still warning that the investment outlook for 2025 has turned sharply negative, citing persistent geopolitical tensions and economic headwinds. This is something that we can see even in countries like India, where there's uncertainty about capacity expansion, given the fact that we don't know where the whole tariff battle or tariff talks in, let's say, the case of India, the United States are going to land.
Air India Reaches Out
So Air India has reached out to passengers and the public with a backgrounder on the ill-fated AI-171 from Ahmedabad to London, which crashed on the 12th of June, even as the airline announced a 15% reduction in international flights because of aircraft shortages starting today. The letter signed by Air India CEO Campbell Wilson says the aircraft was well-maintained with its last major check in June 2023 and the next scheduled for December 2025. Its right engine, he says, was overhauled in March 2025 and the left engine was inspected in April 2025, so in recent months.
Both the aircraft and engines were regularly monitored, showing no issues before the flight, he said. He also said that these were the facts as we know them today and the day that Air India, together with the entire aviation industry, awaits the official investigation report to understand more. He also reiterated that the flight was led by Captain Sumit Sabharwal, a highly experienced pilot and trainer with over 10,000 hours of flying wide-body aircraft, while First Officer Clive Kunder had about 3,400 hours of flying experience.
Air India says that as directed by the Director General of Civil Aviation of the Government of India, on June 14, they have been conducting thorough safety inspections of their 33 Boeing 787 aircraft. So far, inspections have been completed on 26 and have been cleared for service. The remaining are currently in planned maintenance and will have these additional checks done before being released into service.
Following that review, the DGCA has told Air India that the Boeing 787 fleet and maintenance processes fully meet safety standards. But the airline also says that because of the time required to perform these enhanced safety checks, along with the application of extra caution, external factors like airspace closures in Iran and the Middle East, as well as nighttime restrictions at some international airports, along with the normal airline technical issues, all of this has led to higher than usual number of cancellations on their long-haul network in the last few days. Apologising for these inconveniences, the airline CEO said they would continue enhanced pre-flight safety checks on their 787 fleet and, as an added measure, on the Boeing 777 aircraft for the time being.
The fact that all of this will take time and will affect schedules, Air India is reducing its wide-body flights by about 15%. This is international flights starting June 20th, that's today, at least till the mid of July. So that looks like about three weeks.
This will also allow, says Air India, to have more backup aircraft ready to handle any unexpected issues. Wilson said that passengers would be offered rebooking for all of this on another flight at no extra cost or a full refund and that they would share the updated international schedule within the next few days and to reach out, that passengers should reach out to them through their helplines for any questions or assistance. Meanwhile, Tata Suns chairman N. Chandrasekaran on Thursday skipped the annual general meeting of Tata Consultancy Services, marking his absence from a shareholder gathering of a group company for the second consecutive day, the Economic Times said.
TCS company secretary informed shareholders of TCS that the chairman, that's N. Chandrasekaran, would not be able to attend the AGM due to some exigencies. He could not also attend the Tata Consumer Products AGM on Wednesday, reportedly because of his focus on the air crash on the 12th of June, which resulted or has resulted so far in the loss of at least 270 people, including 241 passengers and crew.
Foldable Phones Are In
Samsung will unveil a thinner version of its flagship foldable smartphone at a launch likely to happen next month as it battles Chinese rivals to deliver the slimmest devices to the market, according to a report at the CNBC.
Folding phones, which have a single screen that can fold in half, became popular when Samsung first launched this device in 2019. It did look like that particular format would not really take off, but eventually it did, and it has. And also Chinese players like Honour and Oppo have since aggressively released foldables that are thinner and lighter than Samsung's offerings, says that CNBC report.
An analyst at CCS Insight told CNBC that with foldables, thinness has become more critical than ever because people aren't prepared to accept the compromise for a thicker and heavier phone to get the real estate that a folding phone can deliver.
