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Equity Markets Weak But Bond Markets Get A Bloomberg Index Boost

After JP Morgan included Indian Government bonds in its emerging market index, Bloomberg Index Services also said it will include 34 Indian government bonds that are open for investment under the country's fully accessible route

By Govindraj Ethiraj
New Update
Equity Markets Weak India
On today’s episode, financial journalist Govindraj Ethiraj talks to Ashish Pherwani, Partner and Media & Entertainment Leader, EY India.

Our Top Reports For Today

    • (00:00) Stories Of The Day
    • (01:00) Equity markets weak but bond markets get a Bloomberg index boost.
    • (05:52) RBI actions reveal systemic excesses as it cracks down again, this time on JM Financial.
    • (09:15) Increase in world trade and ecommerce shipments lead to spikes in Air Cargo movements.
    • (10:15) Digital advertising overtakes traditional advertising in India for first time, at 51%. 
    • (20:34) Is Tesla going to Thailand?

    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.


    Indian Markets Weak But Bonds

    Indian stockmarkets were weak once again, though after four positive sessions though it did appear even on Monday that the momentum was slowing down and it continues to and perhaps the markets will move in a range for some time now even as large investors are clearly shuffling stocks and I will come to that in a moment.

    The BSE Sensex dropped 195 points to end at 73,677 levels, while the Nifty50 closed at 22,356, lower by 49 points. 

    There are a lot of stocks that are popping up on the sell charts of large investors including overseas brokerages.

    The latest to join the list were TCS and HCL Tech, both leading IT services stocks which were downgraded by CLSA India on the ground that the valuations were expensive and the growth outlook remains weak at best for the IT sector.

    CLSA downgraded TCS and HCL Tech to sell from underperform and reiterated a sel on Wipro and LTIMindtree, NDTV Profit reported.

    The contrasting figure is obviously the NiftyIT Index which is up 23% since early November and outperformed the Nifty50 marginally.

    The broader call is that the Nifty50’s forward valuations for 12 months at 28 times is higher than the average of the last 6 years and thus leading to the conclusion of over valuation.

    This metric is used in other sectors as well. 

    CLSA has also put out sells on oil companies like HPCL, BPCL and IOC as of the first week of January and reiterated the sell calls two weeks ago.

    And finally, it has also put out sell calls on Tata Steel and JSW Steel from outperform and reduced price targets.

    So while there are industry specific issues everywhere, including margins as in the case of oil refiners, valuations seem to be the consistent theme, not just for CLSA of course but the market as a whole.


    If equity markets are weak, bond markets have everything going for them. After JP Morgan included Indian Government bonds in its emerging market index, Bloomberg Index Services also said it will include 34 Indian government bonds that are open for investment under the country's fully accessible route (FAR) in its emerging market local currency indexes.

    "The inclusion of these bonds will be phased in over a 10-month period starting on the rebalance date of January 31, 2025," the statement said.

    "The weight of India FAR bonds will be increased in increments of 10% of their full market value every month over the 10-month period ending in October 2025," it added.

    Within the market cap-weighted version of the index, India is expected to be the third largest country after China and South Korea. 

    The inclusion of Indian bonds in the Bloomberg EM index could bring inflows of $5 billion from passive investors and more likely from active investors, the Economic Times reported.

    Last year, JPMorgan announced the inclusion of Indian sovereign bonds in its emerging markets index with a maximum weightage of 10% starting June 2024, which is estimated to bring inflows of $20-30 billion.

    India is still not on the FTSE index being the last major index India is not part of in the global bond index universe. Last year, global index provider FTSE Russell had decided against the inclusion, the ET reported.

    India’s bond market is the third-largest after China among emerging markets with a market capitalisation of more than $1.2 trillion, nearly triple Indonesia’s and almost similar to Brazil's, FII ownership of Indian government securities is significantly lower than EM peers at 2-3%, the ET said adding that FIIs have been allowed to invest in some Indian government since 2020.

    Bloomberg founder Michael Bloomberg said India's continued emergence as a global financial center promises to be one of the most significant economic developments of this decade, and Bloomberg is committed to bolstering it by connecting more investors to India."

    “This development will increase access to, and participation in, Indian markets," a senior official from Bloomberg Index Services Limited (BISL) added.

    Oil Prices Retreat

    Oil prices were down or almost pushed down again after crossing $83 a barrel on the way to $84 a barrel earlier.

    Oil is now just under $82 after The Organization of the Petroleum Exporting Countries and their allies extended their roughly 2 million-barrel-a-day reduction through the end of June.

    Bloomberg said that traders and analysts had already priced in the widely expected OPEC+ decision, which was seen as necessary to offset a seasonal lull in demand and soaring output from other producers, including, presumably the United States. 

    The latest cuts will be returned gradually, subject to market conditions, OPEC’s Secretariat said in a statement.

    The Financial Markets Catharsis

    We spoke yesterday of how the Reserve Bank is becoming more alert, interventionist and aggressive in its actions including very active risk based supervision.

    It’s a new RBI under the current governor Shaktikanta Das, veteran banking analyst Tamal Bandyopadhyay told me on The Core Report just yesterday.

    And now the RBI has struck again, this time against Mumbai based JM Financial Products Limited asking the company  to cease and desist, with immediate effect, from doing any form of financing against shares and debentures, including sanction and disbursal of loans against Initial Public Offering (IPO) of shares as well as against subscription to debentures. 

    The Company shall, however, continue to service its existing loan accounts through the usual collection and recovery process. 

    The Mumbai-based JM Financial Products is run by Vishal Kampani, part of the Kampani family that founded the JM Group.

    JM Financial offers some seven different kinds of products including capital market financing, the subject under discussion and then real estate and real estate mortgage financing

    The RBI said the action was necessitated due to certain serious deficiencies observed in respect of loans sanctioned by the company for IPO financing as well as NCD subscriptions. 

    The RBI has charged that JM repeatedly helped a group of its customers to bid for various IPO and NCD offerings by using loaned funds. 

    The credit underwriting was found to be perfunctory, and financing was done against meagre margins. 

    The application for subscription, the demat accounts and the bank accounts, all were operated by the company using a Power of Attorney (POA) and a Master Agreement obtained from these customers without their involvement, whatsoever, in the subsequent operations. 

    Consequently, the company was able to effectively act as both lender as well as borrower. 

    The company also acted as the arranger of bank account opening as well as operator of the said bank accounts using the POA. Apart from being in violation of regulatory guidelines, there are serious concerns on governance issues in the company, which in our assessment are detrimental to the interest of the customers. 

    The RBI would review these restrictions upon the completion of a special audit and rectification of these deficiencies, said the regulator.

    Yesterday’s crackdown was against another Mumbai-based finance company IIFL for giving away loans against collateral, being gold, not fully verified for purity and finding out only when defaults happened and they were forced to sell the gold.

    Both cases reveal the classic symptoms of overheated markets where investors are willing to take several, near desparate steps to raise funds, to invest them in the stockmarkets. While it is not necessary that loans against gold were for the purpose of investing in stockmarkets, it is of course quite likely and surely a fair amount.

    In the JM case, clearly the attempt is to put in large applications and get allotments in IPOs where there was a perception of a big listing jump. Which also happened in many cases in the last year.

    Any market that goes through a run like the one we have seen in the last couple of years with such high retail participation is most likely to have gone through some excesses and cutting of corners, at least that is what I feel from experience.

    One can only hope that these were the worst cases.

    Booming E-Commerce Pushes Up Air Cargo Demand

    ​​The International Air Transport Association (IATA) has said that global air cargo markets had a strong start in 2024 with total demand measured in cargo tonne kilometres going up 18% in January 2024 compared to January 2023. 

    Moreover, global cross-border trade increased by 1.0% in December compared to the previous month (-0.2% YoY).

    This upturn marks the highest annual growth in cargo tonne-kilometers (CTKs) since the summer season of 2021, IATA said, adding capacity was also up 14%.

    "The booming e-commerce sector is continuing to help air cargo demand to trend above growth in both trade and production since the last quarter of 2023. The counterweight to this good news is uncertainty over how China’s economic slowdown will unfold," said Willie Walsh, IATA’s Director General.

    Digital Advertising Overtakes Traditional As India’s ME Industry Grows 8% To Rs 230,000 Crore or $28 billion

    The Indian M&E sector grew by 8% in 2023, reaching Rs 230,000 crore or (US$28 billion), 21% above its pre-pandemic levels in 2019, the latest FICCI-EY report titled ‘#Reinvent: India’s media & entertainment sector is innovating for the future’ has said.

    Digital advertising grew 15% in 2023 and surpassed traditional advertising for the first time. Social, sports, e-commerce and SME advertisers will continue to drive the growth in the sector moving forward, EY said, with the total advertising pie worth around Rs 110,000 crore.

    New media, comprising digital and online gaming, emerged as the frontrunner in growth, contributing Rs 12,200 billion of the overall increase of INR 17,300 crore, and consequently, increased its contribution to the M&E sector from 20% in 2019 to 38% in 2023.

    With the exception of television, which experienced a marginal decline of 2%, all other segments experienced positive growth in 2023.

    EY said experiential (outside the home and interactive) segments continued their strong growth in 2023, and consequently, online gaming, filmed entertainment, live events, and OOH media segments grew at a combined 18%, contributing 48% of the total growth. 

    India could have a billion active screens by 2030. 

    Of these, around 240 million will be large (TV, laptop, PC), while the remaining will be small (mobile phones, phablets). Pay TV, Free TV, and Connected TV are expected to emerge as significant markets, each comprising between 60 to 80 million homes. 

    The 3:1 ratio in favour of mobile phones will sustain the demand for short videos and social commerce.

    Speaking of screens, online gaming, including esports, fantasy sports and so on in itself could be worth Rs 39,000 crore in two years time. 

    Overall TV viewership is growing, the number of television sets connected to the internet has doubled in the last two years to 20 million and digital subscriptions are now worth Rs 7,800 crore, up 9%.

    FInally, print continues to thrive and grow, up 4% in2023 and is seen as effective for affluent metro and non metro audiences.

    For more on the big trends in media and entertainment, I reached out to Ashish Pherwani, Partner and M &E  Leader, EY India and began by asking him about digital overtaking traditional advertising and whether he was surprised.


    Is Tesla Going To Thailand

    We haven’t spoken of Tesla’s imminent move to set up making a car in India - a low cost one by the way -  because, as The Core Report, has been pointing out, it was never imminent at all.

    One reason is because Tesla wanted to first export cars to India and then phase in production, something car manufacturers already in India including the Indian, Korean and Japanese giants would have surely pushed back on.

    Reuters is now reporting that Tesla is in talks with Thailand's government for a potential production facility in the country having conducted a site survey late last year, an official from the prime minister's office said on Monday.

    The Thai government has offered Tesla 100% green energy to run the facility that could produce EVs or batteries, Supakorn Congsomjit told reporters.

    Thailand is Southeast Asia's largest car producer and exporter, and has ambitions to become the main EV production hub in the region.

    The country has already drawn over $1.44 billion in investment commitments from Chinese EV producers.

    Tesla has of course been wooed by several countries including Thailand and India but indications were that it was holding back on fresh greenfield investments late last year after the market seemed to slow down, particularly in the United States.

    And or course the company and its founder Elon Musk may have been focussed on many other things.

    So will Tesla now go to Thailand. Well, watch this space.