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Global Investors Now Promise Funds Will Flow After Elections

According to JP Morgan Chase analysts, global funds would use corrections in the Indian market to increase holdings, which is already reflected in the high FII inflows in March

By Govindraj Ethiraj
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Global Investors Elections
On today’s episode, financial journalist Govindraj Ethiraj talks to Jigar Pandit, Head of Commodity & Currency Business at Sharekhan by BNP Paribas as well as Sangeeta Gupta, Chief Strategy Officer and Senior Vice President at Nasscom.

Our Top Reports For Today

  • (00:00) Stories Of The Day
  • (01:09) Global Investors Now Promise Funds Will Flow After Elections
  • (05:54) Buying Gold Gets Tough As Governments, Including India, Push Up Prices 
  • (13:51) India’s Billionaire Raj More Unequal Than British Raj, Inequality Lab Reports
  • (15:14) The Big IT Industry Shifts That Will Determine 2024 Trends
  • (26:19) Median Reservoir Levels Hide Distress in Southern States

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.


Markets Swing Away

Equity markets were volatile again on Wednesday ahead of a US Federal Reserve decision on interest rates.

The expectation overnight was of interest rates holding higher for longer.

Speculation as to whether the Federal Reserve would lower interest rates has been keeping global markets on the edge for several months now, more at some points compared to others, including in India right now. 

Indian equities are close to 5-week lows and the indices have been swinging wildly, a trend usually seen when markets are waiting for major triggers.

As we have been discussing, there are actually no known market wide triggers on the horizon till India’s general election results are out in the first week of June.

Speaking of triggers, JP Morgan Chase analysts predicted yesterday there would be more foreign inflows after the general elections.

According to them, global funds would use corrections in the Indian market to increase holdings, which in some ways is already reflected in the high FII inflows in March.

The JP Morgan analyst said rising investor interest in India is forming a “virtuous cycle” of liquidity, sell-side coverage, investor participation and capital issuance.

According to him, if all benchmarked investors (EM, Asia ex-Japan, global ex-US and global) simply close their underweight positions on India, this would lead to $100 billion in inflows over the next few years,” he wrote.

Meanwhile, back to the present and yesterday, the BSE Sensex swung 728 points intraday before closing 90 points higher at 72,102 levels while the Nifty50 closed at 21,839, up 22 points.

Top Sensex gainers included Maruti Suzuki, Nestle, Reliance Industries and Bajaj Finance. The BSE Midcap and Small Cap indices, the focus of all eyes, were mostly steady.

The rupee was weak, closing at a one-month low against the dollar on Wednesday ahead of the release of the U.S. Federal Open Market Committee's meeting.

The rupee lost 13 paise to close at Rs 83.17 against the US Dollar.

Oil prices also fell on Wednesday after hitting multi-month highs, as investors braced for the Federal Reserve's announcement and US crude inventory data.

Brent edged lower to trade near $86 a barrel after its highest close since late October. 

Reserve Bank talks Stock Market Froth Too

Yes, I do know it sounds like a coffee shop.

As we discussed earlier on The Core Report, both regulators the Securities & Exchange Board of India and the Reserve Bank of India have been almost jointly responding to the overall exuberance in borrowing as well as stock market investments and it does appear that there is a link between the two.

The Reserve Bank has said in its monthly bulletin that stocks are riding an intense bull market — notwithstanding intermittent corrections — driven by a broad-based boom. 

While large caps are gaining, mid- and small-caps are rising even faster, with hints of froth and a spreading equity culture." 

The RBI bulletin is a monthly publication focussed on developments in domestic and global economies but doesn’t represent the views of the central bank.

The bulletin also pointed out that FPI holdings in Indian equities have fallen to decadal lows at 16.3 percent, reflecting also greater holding by domestic investors, both direct and via mutual funds.

The regulators are now calling out the froth in the market whenever they can and to whoever they can.

The comments and actions, like asking mutual funds investing in small caps and mid caps to run stress tests on their funds has had the desired reaction. Mid caps and small cap stocks have been sinking since late February and somewhat steady now.

In 2023, midcap funds saw inflows worth Rs 22,913 crore and smallcap schemes Rs 41,035 crore. On the other hand, largecap schemes saw outflows of Rs 2,968 crore, said Money Control.

Gold Prices Are High Because the Government Is Shopping For Gold Too

People in India buy gold for many reasons ranging from savings of course to festive occasions, ranging from Diwali and of course weddings.

That would be the normal reason for gold prices to rise. But this year is unusual. And this is also why we are returning to gold within a day to dive deeper into what is happening.

Central banks world over are buying more gold to shore up their gold reserves pushing up prices to record highs.

India is no exception as we will find out.

Imports of physical gold are also rising. From all accounts some of it is unusual and linked more to geopolitical reasons than financial or market reasons.

I reached out to Jigar Pandit, Head of Commodity & Currency Business at Sharekhan by BNP Paribas and began by asking him what were the forces of demand and supply that he was seeing in gold prices before also asking him for his outlook and strategy.


Inequality In India Rises To Highest In Century

The wealth concentrated in the richest 1% of India's population is at its highest in six decades and the percentage share of income exceeds that of countries including Brazil and the United States, research group the World Inequality Lab found.

"The 'Billionaire Raj' headed by India's modern bourgeoisie is now more unequal than the British Raj headed by the colonialist forces," the authors said.

By the end of 2023, India's richest citizens owned 40.1% of the country's wealth, the highest since 1961, and their share of total income was 22.6%, the most since 1922, the study, whose four authors included Nitin Kumar Bharti and Thomas Piketty.

Thomas Pikketty is a French economist and author of several books including the famous Capital in the Twenty-First Century focussing on wealth and income inequality in Europe and the United States since the 18th century. 

The study titled ‘Income and Wealth Inequality in India 1992-2023: The Rise of the Billionaire Raj’ states that wealth inequality is near its historic highs. 

It also notes that wealth, which can broadly be a measure of assets held as opposed to income earned, is unequally distributed. 

1992 is the year liberalisation of the economy kicked off 

The Big Shifts in Indian IT: India’s Domestic IT Overtakes Global Exports

India’s IT industry was projected to stand at around $354 billion at the end of this financial year or the end of this month.

The projection was made by Nasscom last month.

India’s IT industry is at a turning point of sorts. While there have been many technology upheavals with each round sounding more menacing than the previous, the advent of AI and AI linked tools has brought in a new dimension, jobs. 

There is no doubt that the number of jobs are not growing as fast as before though the industry still employs around 5.4 million.

On the other hand, Global Capability Centres which are India technology outposts for mostly large western multinationals are growing in shape, size and form and also employing more people.

India is home to more than 1,580 GCCs, with a total market size of $46 billion and growing at a compound annual growth rate (CAGR) of 11.4 per cent, according to a Nasscom-Zinnov report.

Dilipkumar Khandelwal, Deutsche Bank’s global head of technology centres and CEO of Deutsche India told the Business Standard. “Our centres in India are so much more than talent hubs; they are an integral part of the bank, focused on delivering exceptional value for our clients. Over the years, Deutsche India has grown markedly, with more than 18,000 employees across multiple functions.

But the interesting twist is this. India’s software industry is growing faster than exports, a big shift from the past when it was exports leading domestic and by far.

Nasscom Chairperson Rajesh Nambiar and also Chairman of IT Services company Cognizant said last month that for the first time the domestic IT growth, in 2023 exceeded the export growth.

Domestic growth was supported by government investments and embracement of emerging technologies, as the market grew 7.8 per cent in 2023, he said. 

So will the industry hold its target for 2023-24 and what are the major trends that marked the year that is going by and will also define the near future, both internal and external. 

I reached out to Sangeeta Gupta, Chief Strategy Officer and Sr VP at Nasscom and began by asking her if the industry’s projections for this year were on track.


Median Reservoir Levels Hide Distress in Southern States

We touched upon reservoir levels yesterday and pointed out that storage levels were lower than the previous year.

What we did not bring out was that the number is still fine if averaged out over 10 years. The bigger problem is some states are really badly affected, mostly in the south of India

There are 150 reservoirs that are monitored by the Central Water Commission on a weekly basis. The total live capacity at full reservoir level (FRL) is around 179 billion cubic metres (BCM). 

The level of live storage as of 14th March was 40% of the live capacity. The ratio last year at this point of time was 47%.

While this is significantly lower, the 10-year average was 41% and is thus no major cause for worry, Bank of Baroda Research has said.

The problem is in the south for instance, where reservoir levels are down from 42% to 24%. Here the states which are under pressure are Andhra Pradesh (13% ratio), Tamil Nadu (30%) and Karnataka (26%). 

The western region is also lower by 9% which is witnessed in both Maharashtra and Gujarat. 

The northern region has seen a dip from 39% to 34% with Punjab (49 to 36%) and Rajasthan (48 to 40%) witnessing the sharpest declines.