Are Indian Markets Breaking Out To Aim For Record Highs?
The Indian markets look to be in touching distance of their all-time highs hit on September 27th, 2024
On Episode 711 of The Core Report, financial journalist Govindraj Ethiraj talks to Mihir Gandhi, Partner and Leader - Payments Transformation and Fintech at PricewaterhouseCoopers Private Limited. We also feature an excerpt of journalist and author Puja Mehra’s conversation with Economist Anoop Singh in her recent episode of How India’s Economy Works.
SHOW NOTES
(00:00) Stories of the Day
(01:00) Are Indian markets breaking out to aim for record highs?
(02:56) Trump’s Asia visit seems promising but the big question is China
(04:47) What analysts are predicting for gold in the next year?
(06:27) How towns like Panipat and Karur are driving India’s role in the global ecommerce market
(07:50) UPI payments growth is slowing down but why the real value might come now
(16:28) Why public financial management systems are critical in an era of global financial and trade uncertainty
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 feedback@thecore.in.
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Good morning, it's Tuesday the 28th of October and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.
Our top stories and themes for today
Are Indian markets breaking out for record highs?
Trump's Asia visit seems promising but the big question is China.
What analysts are predicting for gold in the next year?
How towns like Panipat and Karur are driving India's role in the global e-commerce market?
UPI payments growth is slowing down but why the real value might come now?
And finally, why are public financial management systems critical in an era of global financial and trade uncertainty?
Is There A Breakout Coming?
Trump or no Trump, the Indian markets look to be in touching distance of their all-time highs hit on September 27th, 2024. It's that kind of moment when spectators want a batsman to hit a six and end the agony rather than take ones and twos. Of course, there is no win here except that hitting a new all-time high after more than a year at this point would be something of a psychological relief.
So at current levels, the Nifty 50 is about 1% away from its all-time peak of 26,277 hit last year. The markets, of course, slipped after that and then started recovering earlier this year. Remember, we're only talking about benchmarks.
The mid and smaller cap indices have a longer way to go. The NSE benchmark Nifty 50 index is around 26,000 levels now and I'll come to the specifics. Within striking distance, like I said, of its all-time high of 26,277, it is worth noting, though, that Nifty is about 1% away from its peak, while the Nifty mid cap index is about 2.2%. Those small caps are further behind about 7.3% from their peaks, according to Business Standard.
Meanwhile, after markets recovered on Monday after Friday's pause, which in turn came after a six-session gaining streak, the benchmarks closed higher on Monday because investors are expecting the U.S. and China to sign a deal, and more on that shortly. And then, of course, there's softer-than-expected U.S. inflation data, which fuelled expectations of two additional rate cuts in 2025. The Sensex was up 566 points to 84,778, and the Nifty 50 was up 170 points at 25,966.
So there you are, very close to that 26,000 mark. In the broader market on Monday, the Nifty mid cap and Nifty small cap index were up 0.9% and 0.8% each. So the markets are riding on expectations of trade deals between the United States and several countries, some of which may have happened in some form.
Now, India does not figure in the list of countries referred to, but U.S. President Donald Trump is visiting Southeast Asia and Japan, and not India at this time. Speaking of Asia and Trump, the U.S. President is set to meet his Chinese counterpart Xi Jinping on October 30th, that's later this week, and that comes after Mr. Trump's whistle-stop tour of many of his country's most important Asian allies, according to The Economist, which also points out that this will be the first time that Mr. Trump and Xi have sat down together in six years. But more importantly, in these six years, the Chinese leader has changed.
A new analysis by The Economist of more than 14,000 of his speeches, writings, and other communications since 2013 suggests that Mr. Xi appears more assured and less tentative than ever before, and thus is a tough leader to sit across at a negotiating table. Ahead of all of this, stock futures, and then stocks on Wall Street, and then Asian equities earlier in the day, that's on Monday, rallied after U.S. and Chinese negotiators said that they had constructive trade talks ahead of that leaders' summit. Treasury Secretary Scott Peston said the two sides had reached a successful framework for the two leaders to discuss on Thursday.
Asian markets were also up after the White House said it had reached trade agreements or frameworks with Malaysia, Cambodia, Thailand, and Vietnam, thanks to which benchmarks in Japan, Taiwan, and South Korea hit record highs, while the Shanghai Composite closed at its highest in over 10 years, according to The Wall Street Journal. Now, back home, the rupee did not share that enthusiasm. The rupee logged its worst day in a month on Monday and closed at Rs.
88.24 against the U.S. dollar, down 0.4% on the day, which also marked its steepest one-day fall since September 23, according to Reuters. Frequent interventions by the Reserve Bank of India had helped the rupee hold up above the 88 mark last week, but traders also pointed to an easing of that defence on Monday, according to Reuters.
What Are Gold Forecasts Saying?
Well, gold's winning streak is seen extending into next year, with analysts forecasting an annual average price of $4,000 per ounce for the first time, thanks to continuing economic and geopolitical turmoil, which obviously make gold attractive, according to a Reuters poll.
The poll was conducted across 39 analysts and traders and returned a median forecast of $3,400 per troy ounce of gold for 2025, up from $3,220 in July. Looking ahead, the expectation is that prices will average around $4,275, which is up quite sharply from the $3,400 projected just three months ago. Gold, of course, as we know, has hit successive record highs, though it's been weak in the last week and yet has gained about 54% this year.
Analysts have also raised their silver price forecasts, and they now expect it to average about $38 in 2025 and $50 in 2026. The forecasts in July were much lower. Silver, just to remind you, has gained about 65% this year and hit an all-time high of $54.40. So right now, gold prices are still slipping, and they were down in early trade on Monday in India, as well as investors booked profits after that run-up and heightened volatility that we saw in recent sessions.
Gold futures for December delivery were down to about Rs. 1,21,930 per 10 grams on the multi-commodity exchange.
Small Towns Score For E-Commerce
Last year, the towns of Panipat and Karur together shipped goods worth about $160 million from Amazon or through Amazon, which obviously highlights the growing importance of smaller manufacturing hubs and, more importantly, their interconnectedness with the global market.
Amazon's Global Selling Programme, which was started in 2015, helps Indian small enterprises sell to consumers and customers in about 18 global markets, including the United States, Britain, Germany, Canada, and the United Arab Emirates, a Reuters report quoted an official saying. Some of the other smaller towns include Badohi and Erode. The categories which drive this are, or are growing, are health, beauty, home, apparel, and toys.
Amazon says it's helped Indian sellers cross $20 billion in total exports, including nearly $7 billion this year, at a time, of course, when traders and exporters are battling U.S. tariff walls. The U.S., of course, is the top destination for Indian sellers on Amazon, followed by Britain, Germany, and Canada. Exports to the U.S. had fallen from $6.8 billion in August to $5.4 billion in September as tariffs hit shipments of shrimp, textiles, and gems and jewellery, amongst others.
Amazon's export base, the company says, has grown to about 200,000 sellers, up 33% in a year, and it touches 28 states and seven union territories.
The Future Of Payments
The E-commerce industry hinges on a successful payment ecosystem. India's digital payments industry is projected to triple in volume and value by 2030 from about 206 to 617 billion transactions, according to a new report from PwC called the Indian Payments Handbook 2025-30, which is also the 6th edition.
The report says that this has been driven by big shifts in regulation and innovation, of course, as pipelines either clogged or otherwise have opened up, connecting people to people and then to businesses. On the other hand, UPI is nearing some form of saturation, even as it stabilises, and the future, therefore, will not come so much from growth, which will continue, but newer and interesting use cases. And there is, of course, the challenge of who will pay for all of this.
Remember, when we do UPI transactions, it's free to all, including the banking system taking the load. So where could India's payment ecosystem go in the next five years? I spoke with Mihir Gandhi, Partner Leader Payments Transformation and FinTech at PwC and asked him about the growth trajectory of digital payments in both volume and value over the next five years and what's driving it.
INTERVIEW TRANSCRIPT
Mihir Gandhi: From a futuristic perspective on the payment side, what we expect is UPI will still continue to be the dominant form factor through which almost volume-based payments will continue to happen in the future.
Govindraj Ethiraj: So if you were to look at credit specifically and or credit cards, what have been the significant, let's say, developments within credit and the way credit is being dispensed? And what are the likely changes that you're seeing as you look ahead?
Mihir Gandhi: So I think from a credit perspective, credit cards, rupee credit cards, which are being linked to UPI, will continue to see further transaction volumes, right? The value is slightly less compared to the general credit card industry, so that's fine. But overall, credit cards as a segment are expected to grow from 120 odd million today to 210 million in the next five years.
This is primarily driven by multiple factors. The first being an increase in the number of product variants that will exist going forward. This is largely driven by co-brand credit cards, different credit cards, super premium credit cards coming up in the market, which will target the existing credit card holders.
Secondly, there'll be new credit card customers coming into the market, where we are seeing a lot of new segments of people who will be eligible for credit cards, wanting to use credit cards. So this plus, you know, using credit cards in multiple areas, both physical as well as online, because a lot of acceptance and a lot of offers are there on credit cards and rewards will also drive credit. So I think these are some of the factors that will drive credit growth in the future.
Govindraj Ethiraj: Right. And if I were to come back to UPI, so two issues, one, I think, is the fact that it's free. And there will be, as your report also says, some kind of price, which is in the form of a merchant discount rate that someone has to get compensated for these transactions that's happening.
That's one. So could that potentially slow down things? The second is we're seeing an increasing number of frauds, I mean, which are not linked to UPI per se, but a mechanism for transfer of funds through this route.
So are these issues that you're looking at? Absolutely.
Mihir Gandhi: I think a lot of effort has been spent by the industry to have different representations to bring back price to UPI and that is essential because there is a cost involved in delivering the service. Hopefully we can get back some pricing interchange MDR on UPI, right, going forward. It's a very nominal ask from the industry and hopefully the authorities will kind of provide their approval to do this going forward.
But this is important because the subsidy that we are currently getting from the budget for UPI transactions is not adequate to cover the cost of UPI transactions that are happening and every year the transactions are increasing. So a study that we did was a back of the envelope calculation was 8 to 10,000 crores is the total value of UPI subsidies that ideally the industry should be getting for those specific segments of merchants and customers. However, the budget is just providing some of anywhere around 1500 to 2000 crores, which is not enough for the industry to subsidise or use the UPI transactions, right?
So that's one. The second question is on frauds. You are right, there are a lot of frauds that are happening or the fraud types are increasing in the payments industry and fraudsters are becoming innovative to tackle things that the industry and the regulator has supported.
So first is to stop the request to collect on UPI transactions. This was where I could request you to, you know, have a collect transaction. You didn't know that it was a collect transaction, but you kind of entered your PIN and the transaction went through and your money got debited from your account, right.
So I think that collecting transaction requests has been stopped right recently by the regulator. Second is there are campaigns which regulators and different participants are doing to ensure that the customer is aware that, you know, such SMSs are not good to come or such links will not come in. Hence, please do not click on such.
And third is there is a formation of a centralised fraud and payments kind of body that has been formed at the RBI level for reporting and providing information on such frauds and hopefully that combat these frauds. So I think these three measures are very welcome and hopefully they will help to curb and reduce the number of frauds.
Govindraj Ethiraj: Right. And as you look ahead, you've talked about, you know, a balance between growth, profitability and compliance. It is included in your report that compliance levels will increase.
To that extent, do you feel that there are some aspects which could slow down and therefore also restrict, let's say frictionless or the level of frictionless growth that we've seen? And maybe things will become a little more mature, but at the same time with more friction than before. That's going to be the other way around.
Mihir Gandhi: There, what we are seeing is that because of the recent developments and innovations the industry and the regulators are encouraging, including biometric authentication, including OTP less kind of authentication. I think that the friction, which is there today a little bit, will still go down. Keeping in mind the security, the governance and the strong authentication that is required.
So I feel it is going to be the other way around with a lot of this innovation happening because at the end of the day, if you see why digital payments work, they use it to reduce their friction. They don't want to enter their card details or things all the time. So that's why tokenization came in.
Now we are talking about biometric coming in because I don't want to enter my OTP or fetch my OTP from my SMS, put it in the app or put it on the transaction website. So I think that is where the level of friction will further reduce. However, governance, security, fraud, reduction and fraud will continue to be the key themes.
Having said that, at a company level, which is a fintech or a bank level, the level of governance and compliance will have to improve. It has already increased. The regulator has prescribed specific formats, specific documents that need to be submitted, information and that is being done.
But I think the compliance and governance with the appointment of the right board members, the committees within the organisation and the regular reporting will have to improve.
Govindraj Ethiraj: Interesting. So you're saying that it's the companies that will have to now see greater levels of governance and scrutiny rather than the transactions. The transactions will continue and that is being done at a central level.
Mihir Gandhi: But at a fintech level, a lot of these fintechs were not fully regulated or now they come in the regulatory ambit. So they are still not 100 percent there in terms of governance. And that's where the governance will need to be amped up with the appointment of the right people in the board, the committees that need to be formed, the policies that need to be developed and approved by the board, as well as the different ongoing reporting that needs to be done to the regulator.
Govindraj Ethiraj: Mihir, thank you so much for joining me.
Mihir Gandhi: Thanks, Govind. Thanks for your time.
Public Financial Management Systems
We touched upon this a few days ago while referring to a McKinsey Global Institute report called Out of Balance, What's Next for Growth, Wealth and Debt, which talked about how global wealth had touched $600 trillion, outpacing GDP growth since 2000, and powered more by debt and paper wealth than productivity.
In fact, it said for every $1 of investment, the world created $2 of debt, and why the world, according to that report, needed a rebalancing act. And we did speak to someone who had authored a paper on this subject at McKinsey Global Institute. Now, one way governments better manage their finances, including debt, is through a robust public financial management system, which comprises the institution's practices, processes governing how governments collate, allocate, and monitor public funds to ensure that scarce fiscal resources are used efficiently.
Economist Anoop Singh, a Distinguished Fellow at the Centre for Social and Economic Progress or CSCP New Delhi, and also at Niti Aayog, India, recently wrote a book, Managing Public Finances in a New Global Era, India's Experiences and Challenges. Pooja Mehra, Consulting Editor to us at The Core and host of the podcast, How India's Economy Works, spoke to Anoop Singh, who was earlier a member of the 15th Finance Commission of India, and began by asking him to explain the shift and the strategic role of India's public finances in this new global economic era that we are now part of.
INTERVIEW TRANSCRIPT
Puja Mehra: You write that more than global trade, countries will now rely on fiscal spending for reaching development goals and improving living standards. For lay listeners who don't know economics, could you please explain the shift and the strategic role of India's public finances in this new global economic era that we are entering?
Dr. Anoop Singh: Yes, of course. Well, actually, over the last, I would say, 8 to 10 years, trade-driven growth has probably been faltering. In that context, Trump's tariffs bring to the fore where we are, and that symbolises that countries probably cannot rely on trade as an engine for growth.
So it's a big change, but I would say it's not just with the tariffs. The whole process began 10 years ago. Now, the issue is that countries have already announced that public spending, public policy, is now going to be the main engine of growth.
And India has been saying there for some time, the finance minister has rightly been emphasising the importance of capital expenditure for growth. So the issue basically is, let's start at one point. The world is turning to the use of fiscal policy and government spending as an engine for growth at what I call an inopportune moment.
Why is it inopportune? Because global debt has never been as high as it now is. Now, in the past, when we spoke about global debt, public debt, we talked of emerging markets.
We talked about Sri Lanka. We talk of Argentina as where the problem is. But that is not the case now.
The problem of high global debt and high public debt is equally or even more with the advanced countries, the United States, France, and others. So the issue is, if we are in a world where we want to use public policy, but we are also in a world where public debt is very high, how do we use public policy? It's therefore even more important what we spend on.
And it's not so much whether you're spending on good items or bad items. Governments have to decide what they want to spend on. What is important is to know how much you're spending on what.
And one reason why global debt is so high now is because countries across the globe, including advanced countries, have used unusual and undisclosed ways to get their debt high. Even countries like Germany, which has been a fiscal hawk for the last 40 years, found a way to evade its debt. Certainly in other advanced countries too.
So the issue is, if you cannot see what you're spending on, if you cannot see your public debt, you can't manage it. So the issue in the book is, you have to see what your debt is, you have to see what you're spending on. If you can't see exactly the amount, you can't manage it.
And that involves the crux of the problem.
Puja Mehra: Let me read out what you write about food subsidies, for instance. You say that in the financial year 2023, food subsidies were reported cumulatively for about 12,000 crore in 18 states.
But when you do the calculations using this official data, you find that actually it is higher by at least 25,000 crore. That's a huge degree of understatement.
Dr. Anoop Singh: We're talking about 1-3% of GDP in many states. Not all, but quite a few states. Let me make one more point, if I may.
This issue of data gaps and misreporting is a problem, frankly, in almost all states. You may ask me a question, why do I use the word almost all states? Why do I not say all states?
The reason why I say that is important. This is quite remarkable. In India, until recently, I don't mean until right now, but at least a year ago, there's just one state that has followed consistent rules throughout this period.
Only one state. Why I'm making that point is it can be done. If a state wants to do it, it can do it.
This is not an issue of lack of technical assistance. This is not an issue of lack of capacity. This is not an issue if you don't have people.
This is not an issue if you don't know how to do it. This is an issue of intention. And we need to remember that.
Puja Mehra: Right. Let me bring you to the thing of that, because you've done so much data work, at least I and I do follow some of this data. At least I was a bit taken aback by one of the figures in your book, which is that the interest payments by the general government, which is government in the centre, states and local, exceeds 5% of GDP, which is higher on the spending on key development priorities.
Is this sustainable? Or are we stealing from future generations?
Dr. Anoop Singh: You know, the issue of interest spending is becoming very important globally. As I said, across the world, global debt has gone up, which means interest schemes have gone up. They've reached levels that in some countries may be manageable.
For example, in Tokyo, in Japan, so far, the Japanese market buys Japanese bonds. So regardless of what the debt is, at least until now, they buy their bonds. In the US by and large, the treasury market is sound and you can buy it.
The issues in other countries, I would say France is facing problems now. So when interest rates reach this level, it's not only an issue of can you afford it. The issue is you have to continue to issue more debt.
And to issue more debt, you have to perhaps give higher interest in order to get institutions to buy the debt. So the issue on both sides is taking up resources that could be used for human capital. It also means you need to do it or you can't finance your spending.
It's an issue from both points of view. And yes, India's interest rates spending is reaching 5% of GDP, which is high by any standard.
Puja Mehra: And since you say that fiscal reporting in India lags behind G20 peers, you have, in the conversation we've had so far, also said that there are problems of definition, there are problems of disclosures. But in terms of this international comparison, could you give some examples to illustrate the point? It may help change intentions.
Dr. Anoop Singh: India has been publicly a leader of having consistent reporting of fiscal data. India has made that announcement a number of times. But India was a leader of the G20 a few years ago.
It made a central plank of its presidency the importance of data for development, including fiscal data. A few years afterwards, in Bali, G20, India made the same point, the importance of data transparency. So India has officially been completely committed to what I've been talking about.
One more point. At least 10 years ago, India had made a commitment that it would report data on the general government. Now, what is the general government?
It's important in any federation, where there are different levels of government, you have to add them up, because very often they have issues between them, they will need to be netted out. So in India, we understand that local bodies are not at a stage now that we can report our data consistently. But for the central and the states, let me give you an example.
A country like Brazil, I think also South Africa, they issue quarterly data for the general government on a quarterly basis, within one quarter of that portal. India has committed to this, but we're not there yet. The issue of definition is something else.
It's easier to use international definitions and conventions, so it is comparable across countries. However, if any country wants to have its own definition, and not an international definition, in my view, it's okay. As long as you are completely clear what your definition is, and if it's applied to every player in your country, that's fine.
The need for consistency is almost more important than what the definition is, in my view.
