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India Almost Equal To China On MSCI Index Now, From One Fifth In 2020

MSCI added five Indian stocks to its Global Standard index and did not move any out. In contrast, the index provider removed 66 Chinese stocks while adding five, Reuters reported

By Govindraj Ethiraj
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India China MSCI Index
On today’s episode, financial journalist Govindraj Ethiraj talks to Manish Raj Singhania, President of FADA (Federation of Automobile Dealers Associations of India) as well as CRISIL Ratings Chief Economist D K Joshi.

Our Top Reports For Today

  • (00:00) Stories Of The Day
  • (00:50) India almost equal to China on MSCI Index now, from one fifth in 2020.
  • (03:18) Auto dealers want car manufacturers to cut back on production.
  • (08:11) How India’s electric vehicle market is evolving differently from the United States
  • (12:15) What is driving inflation and interest rates in India, in contrast to developing countries
  • (17:47) Senior Government minister says India could lose out to Vietnam, China on mobile phone manufacture


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.

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India Gains On MSCI Index And Dramatically So Against China

India's weightage on the MSCI Index has hit an all-time high of 18.2% on Tuesday.

One reason is that India is narrowing the gap with China on the MSCI Index for some time now as we have been reporting here on The Core Report as well.

MSCI equals Morgan Stanley Capital International and is an investment research company that provides, among other things, stock indexes.

The contrast is quite stark if you consider that in August 2020, China’s weightage was five times that of India's, according to computation from Reuters.

MSCI's revisions will come into effect after market close on Feb. 29 and  Indian shares had a 17.9% weight on the index ahead of the February review.

In comparison, China's weight in the index fell to 25.4% after the February revision, from 26.6% a year ago.

MSCI added five Indian stocks to its Global Standard index and did not move any out. In contrast, the index provider removed 66 Chinese stocks while adding five, Reuters reported, adding and quoting analysts saying India could surpass a 20% weight on the MSCI index by early 2024, on consistent flows from domestic institutional investors and steady foreign portfolio investor participation

We have been talking for some time here about large institutional investors pulling funds out of China and also investing in India or projecting higher investments into India in coming months and years.

Back home,  the BSE Sensex ended the session 483 points higher at 71,555 levels, while the Nifty50 closed up 127 points at 21,743 levels.

In the US, inflation rose more than expected in January as stubbornly high shelter prices weighed on consumers, CNBC reported the Labor Department saying.

The consumer price index, a broad-based measure of the prices shoppers face for goods and services across the economy, increased 0.3% for the month. On a 12-month basis, that came out to 3.1%, down from 3.4% in December, said CNBC.

Stock market futures slid sharply following the release. Futures tied to the Dow Jones Industrial Average were off more than 250 points and Treasury yields surged higher.

More on inflation, including in the US and interest rates later in the show.

India’s Auto Sales Hit Fresh Record

India’s car sales hit a fresh monthly record in January with the overall auto retail market growing 15%, according to data from the Federation of AUtomotive Dealers Association of India which represents over 15,000 Automobile Dealerships having over 30,000 dealership outlets.

But the larger issue appears to be on supply, going by dealers who are saying inventory levels are too high.

While demand is strong and hitting record levels, it does appear that manufacturers are now producing beyond what the market can absorb given that inventory levels are now touching close to two months.

More on that coming up shortly.

In specific numbers, commercial vehicles did not grow as such, while two-wheelers grew 15%, three-wheelers 37%, passenger vehicles 13% and tractors 21 per cent year-on-year, respectively, in January.

The good news in some ways was that two wheelers were picked up. Two wheeler sales growth is usually linked to the health of the rural economy. 

The common factor that usually spurs sales is new models, variations and versions and of course the more premium offerings which are increasingly pulling in customers whether in two wheelers and four wheelers.

I reached out to Manish Raj Singhania, President of FADA based out of Raipur in Chattisgarh and began by asking him what drove sales up in January.

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The United States is now slowing down on electric vehicle adoption, for a variety of reasons including range anxiety and cost of repair on collision.

Last month, for example, car rental major Hertz said it was selling 

about 20,000 electric vehicles, including Teslas, from its U.S. fleet about two years after a deal with the automaker to offer its vehicles for rent. Instead, Hertz said it would switch to gas powered vehicles even as hybrids are catching on.

Sales of EV cars in the US have levelled off at around 9% of the new car market and even dipped down at the start of the year, according to reports.

This of course may be part of the overall adoption curve which might see a sharp jump in the beginning, plateau for some time and then rise again. 

But India is evolving differently, some 55% of three wheelers now sold in India are electric, two wheelers are growing fast as well.

I asked FADA president Manish Raj Singhania about how he was seeing overall electric demand

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Inflation & Markets, India & The World

India’s stock markets have often risen in recent months in anticipation of a cut in US interest rates. US interest rate cuts could or would have come if inflation levels ease off further. Which is not happening.

Back in India, inflation came in at 5.1% day before, lower than before but not low enough. Moreover, food inflation in India is high and is keeping overall inflation high. And the one reason it came down between December to January is a lowering of food prices.

Back in the US, food does not have much of a role in inflation levels which are high for other reasons. 

In the US, core inflation is high, which is linked to prices of goods and services and not energy and food. And as we mentioned earlier, inflation has now touched 3.1% in the US and this has been attributed to high shelter prices.

In India, goods and services prices are not putting much pressure, at least relatively.

So how do we correlate if so between what is happening in the United States and India if only to understand the interplay between inflation and interest rates.

I reached out to Crisil Ratings Chief Economist D K Joshi to put things in perspective, including on the latest inflation numbers in India and began by asking him how he was looking at inflation and interest rate trends

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India Could Lose Out To Vietnam, China In Smartphone Exports

India risks losing out to China and Vietnam as it seeks to become a major smartphone export hub and must "act fast" to lure global companies with lower tariffs, the deputy IT minister said in government documents seen by Reuters.

Just yesterday, The Core Report asked analyst Neil Shah of Counterpoint Research if the recent import duty cuts from 15% to 10% would help the manufacturing ecosystem become more competitive against countries like China and Vietnam.

The broad answer, not so much because the value of the components covered in the import duty cuts was not much. And would not have much or limited impact on the final price of the phone, including if sold in India. Over 99% of phones bought in India are now made in India by the way, according to Counterpoint Research.

India is the world's second-largest mobile market where production grew 16% year-on-year to $44 billion last year.

A Jan. 3 letter and a confidential presentation drafted by Indian deputy IT Minister Rajeev Chandrasekhar, and sent to the Finance Minister, show the extent of his ministry's concerns about losing out due to the uncompetitive tariffs.

"India has high production costs due to highest tariffs amongst key manufacturing destinations," wrote Chandrasekhar in the documents, which were seen by Reuters.

"The geopolitical realignment is forcing supply chains to shift out of China ... We must act now, or they will shift to Vietnam, Mexico and Thailand," Reuters quoted the minister saying