Indian Markets Are Falling Even As Wall Street Hits Records
The markets have fallen nearly 1,800 points in the last three trading sessions as negative cues outweigh positive ones
On Episode 641 of The Core Report, financial journalist Govindraj Ethiraj talks to Ajay Bagga, Market Expert.
SHOW NOTES
(00:00) Stories of the Day
(02:41) Oil analysts are predicting more supply in the market which should keep prices stable to low.
(03:49) Indian markets are falling even as Wall Street hits records, decoding the latest.
(19:52) US and EU announce a deal which are sketchy on details.
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 Tuesday, the 29th of July, and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital, but right now in transit, so be prepared for shorter episodes.
Our top stories and themes,
Indian markets are falling even as Wall Street hits records, decoding the latest.
Oil analysts are predicting more supply in the market, which should keep prices stable to low.
The United States and the European Union announced a trade deal, but it's sketchy on details.
The Markets Are Falling
There is a WhatsApp meme going around, which shows that a year ago, around July 2024, the Nifty was at 24,834, and a year later, that's July 2025, it's roughly at the same levels. And in the interim, all that's gone up is sugar levels and blood pressures. The markets have fallen nearly 1,800 points in the last three trading sessions, that's the Sensex, as negative cues outweigh positive ones.
A quick note here, India has positive cues like interest rates, good monsoons, and inflation are only seemingly creating a buffer effect of sorts and not really sufficient to power a market upswing or the fortunes of underlying stocks, as is quite evident now. Earnings are weak, and while the tariff uncertainty is affecting sentiment, it's not something that fundamentally affects the larger economy, not as much in other economies, for sure. And foreign investors are still selling equities, though they are, at this point, investing actively in debt.
The Sensex fell about 572 points to close at 80,891, while the NSE Nifty 50 was down 156 points to 24,680 on Monday trade. The selling was seen in broader markets with the Nifty Small Cap 100 and the Nifty Mid Cap 100 going down about 1.2 and 0.8% each, except for the Nifty FMCG, or Fast Moving Consumer Good and Pharmaceutical Indices, all the other indices were in the red, and the Nifty Realty Index was the biggest loser, down about 4.2% according to the business standard. Now, this is an important week on Wall Street.
The Federal Reserve's meeting will conclude on Wednesday, though it's not expected to cut interest rates. Traders are going to look for commentary on what the path ahead looks like. The other thing, of course, is the big tech earnings.
Remember, big tech is driving a large part of where the markets are going, and these include Amazon, Apple, Meta Platforms, and Microsoft. The S&P 500 ended last week with its fifth straight record close, its longest such streak in over a year, according to the Wall Street Journal. Meanwhile, crude, for those who may have noticed, is about $68.78, or just under $69, and there's no major change.
Oil prices rose on Monday after the U.S. trade deal, and more on that shortly, and also news that there could be an extension of tariff pause with China. Oil traders are now expecting the Organisation of Petroleum Exporting Countries Plus to agree to another bumper production increase this weekend, completing the revival of its current tranche of halted supplies, according to Bloomberg. And all 17 traders and analysts polled by Bloomberg have now said that Saudi Arabia and partners will approve a further hike of about 548,000 barrels per day for September, and OPEC Plus delegates have said a provisional plan for this is already in place.
So if this happens, eight key nations or partners from the OPEC countries would have reversed a 2.2 million barrel supply cutback, which was made in 2023, a year ahead of schedule. In other commodities, gold is now trading around $3,330 an ounce after the U.S.-EU trade deal, following a small marginal loss last week.
Wall Street And The India Impact
The S&P 500, as we just said, ended last week with its fifth straight record close, which was its longest such streak in over a year. The larger question is, what is driving Wall Street right now, and whether one can draw any linkages with Dalal Street. On earnings, S&P 500 companies are generally beating forecasts, and profits are up 4.5% from this time a year ago, according to Bloomberg Intelligence.
Interestingly, premiumization, something we speak about in India, is also driving higher profits in the U.S., and of course, in the U.S. context. I reached out to veteran market analyst Ajay Bagga for an in-depth conversation on how to view the developments from there, or rather there from here, and what it could mean ahead before coming to what he's seeing as cues in the Indian markets. I began by specifically asking him how he was reading the current highs in the U.S. markets, and whether there were signs of a bubble.
INTERVIEW TRANSCRIPT
Ajay Bagga: See, if Trump had not started all this chaos on tariffs, and he had just followed his big beautiful bill, that itself is such a huge stimulus into the US economy. It's such a big boost to the economy in terms of deregulation, lower taxes, and putting money in people's hands. So, that itself is a big stimulus.
Second, you must realise, what is the US doing with this fiscal math? It's a fiscal deficit of more than 6% of the biggest, the most gigantic GDP in the world. They are running a fiscal deficit.
So, the already stimulated economy continued to stimulate it. The cuts that they have made are largely cosmetic, and they are impacting the rest of the world more than the US itself. And on the other side, the big beautiful bill has brought in a lot more promise of corporates being able to do business in a more easy manner, simplified manner, and also being able to retain more of their earnings.
So, that's the good news. The second part is the artificial intelligence boost. So, if you look at the S&P 500 or the Nasdaq, it's become very narrow.
What is taking it to all-time highs is the Magnificent Seven of the big tech companies, plus a few sprinkling more of AI and data centre kind of companies. So, it's not cheap. The valuation is quite high, but the money is rolling in, and the AI bit is really helping.
The third thing which can really stall this whole gravy train is the tariffs. Now, tariffs have not flown through. That is the big question all of us are asking.
Okay, Trump has collected $113 billion in tariffs in custom duties since this administration got inaugurated, but who's paying for it? Because it's not showing up in inflation so far. And you get answers as you look around.
Japanese automakers, for example, cut their prices by 19%. So, post the 25% tariff, the $100 car again came back to $100. So, right now, suppliers are taking part of it.
Chinese, for example, are saying, I make the garment in $2 to $3, and I will supply it at a little bit less than that, so that post the garment duties, you still have what I was supplying to you at. So, one, the suppliers are taking it. Second, companies are talking.
So, if you see this earning season, right from European car makers to Japanese car makers to American car makers, all are talking, each of them is talking about nearly $500 to $1 billion of hits. Nokia, which should not have been hit by the tariffs per se, is talking about a $400 million hit. Shoemakers, apparel makers are talking about hits.
So, slowly, it's coming through. It will come through eventually, and that's when it becomes interesting. But right now, the gravy train is moving well.
On Wednesday, the US quarter 2 GDP will come out. It will come out at nearly 2.5%. The labour market remains strong. Unemployment is about 4.1, 4.2. Participation rate was low even in Biden's time. So, not a big deal that the lower labour participation rate. What that means is people have given up looking for jobs. So, about 20-30% of the employable people are no longer in the market looking for jobs.
But right now, I think the economy is doing well. The labour market is strong. The Fed will cut in September or October.
So, there's a rate cut stimulus coming. You have a fiscal stimulus, plus you make $300 billion more of custom duties that Trump will connect. And he's making the Japanese actually put that $500 billion or the Europeans put in $750 billion.
He's raising money for the economy in terms of new plants.
Govindraj Ethiraj: So, that will help us. Okay. So, I'm going to come to the Indian markets in a moment.
But the question that even analysts on Wall Street are asking is, are there shades or signs of irrational exuberance or a bubble forming? Because Wall Street seems to be now running on a slightly different track than most other markets, definitely Asia.
Ajay Bagga: Govind, if you look at their objectives, those conflict with each other. Like Trump wants a weaker dollar, but a weaker dollar means flows will come into emerging markets. The carry trade will have to start looking at where to invest, because if you invest in the US, there is about $15 trillion of global money sitting in the US markets, both bond and equities.
This is apart from the sovereigns, the Japanese and the Chinese and the Saudis and Indians who anyways hold huge amounts of US treasuries. So, at what point does that money start hurting? It did hurt in the first quarter when the dollar was down about 10% versus the major currencies.
So, when you translated the US market performance, you had a negative market and you had a negative dollar. So, it was a double whammy. Most wealth managers internationally move to protect currency for their clients.
So, they've made them buy some dollar weakness options to help them tide over the currency part. But somewhere it will start to bite. Not right now.
Right now, there's just too much stimulus. And it's a narrow market. It's not a widespread market.
If you took an equal weighted S&P 500, so all 500 stocks on it had that 0.2% weightage, it would have performed some 4% up for the whole year. So, it's more the narrow part of the market, the AI part, which is the narrative part. It is the start of an AI era.
Valuations are quite high. Valuations are not low at all. But the money is there.
The gravy train is still moving. And it's benefiting the US markets.
Govindraj Ethiraj: So, 2000 was also a narrow market, wasn't it? When we saw the whole dot-com bubble. I'm just wondering, I'm sure there are no direct correlations, but I'm wondering if you're seeing any.
Ajay Bagga: Yeah, it was. It was. And that's when it ends.
So, you know, we keep on buying those stories. And we say, no, it's happened for so long. Now, it's made 15 times all-time highs this year, despite all the policy chaos.
15 times Nasdaq has hit all-time highs. So, you just think this will keep continuing. And then one day it stops.
One day, all of a sudden, people realise, oh, this 500 billion a year that the big tech is taking out and putting it into so-called AI data centres power, is this really changing the life of the consumer or the companies for whom it's being built? And then, you know, reality starts. So, it's a late-stage market.
It's not an early market, though the AI guys will say it's very early. Maybe it's not 2000 March. I don't know where it is, but it is definitely late.
Govindraj Ethiraj: Right. And that's an important point. So, let's come to India now.
So, we've seen markets sort of steadily turn weaker, particularly in the last three trading sessions, Sensex has fallen 1800 points. But the overall trend, I mean, all of this month, I think, has been generally weak and looks like there are no positive cues or doesn't look like there are too many positive cues ahead. How are you reading it?
Ajay Bagga: Yeah, there is a slowdown in the macro and the inflation is down. There is no boost coming into the economy. There was a weak fiscal stimulus in terms of the margin tax cuts, which are putting in about one lakh crores over the year.
So, say six, seven thousand crores a month is flowing in from extra consumption. But for this huge economy, you need a much stronger stimulus or policies which catch the imagination of people. So, there are four pillars to the economy.
It's either private consumption, which is OK, trundling along at 7 percent, but it should be at 10, 11 percent if you really want to make nominal 10 percent, because 58, 60 percent of the GDP is private household consumption. The urban shoe has fallen off. Rural areas are doing very well and they're getting all kinds of subsidies also, both at state level, central level.
So, rural consumption is doing well and it should get even more healthier with this good monsoon come October as the harvest is done. With the festival season harvest, we should see better results for the rural consumption pack. Urban is still getting hit.
It's not growing that fast. Second would be private capex, which is really in the doldrums. Nobody's putting up new factories because of the global policy chaos.
And as well, domestically, we have a huge output gap. So, basically, your factory can make 100 units, but you are running at 75 units, 76 units as a country. Why would you put a new factory?
You would put a new factory when you start hitting the 90s. Then you say, OK, I can make money and let me put. Third would be the government capex, which is moving on well.
There is a good recovery. But at the state level, the money is going more into freebies rather than the capex. So, the state capex is stalling, which is the trouble point again for the economy.
And the fourth is exports. Exports, we are not growing, especially the goods exports. And then services are either GCC or IT companies.
IT companies, you've seen the kind of results. So, that's bringing down the whole scenario. So, either the private consumption expenditure moves up, where then you have to cut GST, you have to cut taxes, you have to reduce your petrol and diesel prices.
So, more money is left in the pocket of that 100, 200 million who really consume most of the economy, not the subsistence farmers who anyways will live as they are, who you have taken care of. But, you know, that consumption class needs a boost. Now, RBI was late to the party.
That's why they did a catch-up 50. The rate cut should have started last year itself. Because now you see why classical economists say that it takes 9 to 12 months for the flow through, either a rate hike or a rate cut.
And now you are late. So, you are seeing the government stopped spending last March to September. That catch-up is happening.
But that brought a drag into the overall economy. You have fiscal tightening, because you manage the fiscal deficit very well. If you were running a 6% fiscal deficit, this economy would be very hot.
Inflation would be hot. But the market would also be running. Like a Turkish or an Argentine market at 35%, inflation really runs very fast.
On exports, you have this tariff thing. So, one catalyst we were enthused by was hoping for a tariff deal. But now the way the deals are being done, these are one-sided deals.
Look at the European Union. It's a $1.9 trillion joint block. They trade $1.9 trillion with each other, goods and services. Europeans will be taxed 15%. Or US consumers will pay 15% more for European goods. And American goods will come tax-free, tariff-free.
So, that is what Trump is holding out. I don't know what comes out of it. I don't know how the EU has been pushed into this.
Again, in Japan, there is talk of investments and all, but they have no protection against US goods. The good thing is the US doesn't have the capacity to produce much more than this. They are just solving for their domestic market.
So, I am not very optimistic now for a great deal for India. I think Trump will hold out, especially now that he's got Japan and the EU. We might be treated more like Canada-Mexico than Japan and then the EU.
And Japan-EU, the deals are not that great. So, it's 15% one way and 0% the other way. So, that is also, I think, what caused the market on Monday to really take a look in the mirror.
Though the ministers of the government are saying, we have a big, beautiful deal coming up with Trump. He comes here in September, so maybe we'll lead up to that. I'm hoping that August middle is when the US team comes here.
So, 1st August, we will get another 90 days rollover. Russian oil remains an issue. Both the Europeans are trying to squeeze India.
America is threatening 100%. Now, that's why today's talk between the Chinese and the Americans is very critical, because the US is going to bring up Iranian and Russian oil. And if the Chinese refuse to bow down, that gives India a way out as well.
So, a little bit complex and a little bit less optimistic. What will drive the market? Earnings recovery.
When does earnings recovery come? When there is enough liquidity. RBI has brought in liquidity.
They have cut rates. They will cut rates again. They have the space.
But look at how inflation is falling. This low 2.1 is not good for a high growth economy like India. We need higher inflation for you . In your investment banking days, you figured this out very well.
So, I don't need to repeat it. But 2.1 and then even, say, Nomura yesterday put out a report, they are expecting lesser growth and lesser inflation than the government numbers. So, it goes together.
Govindraj Ethiraj: Right. Ajay, we've run out of time. Thank you so much for joining me. Thank you.
Ajay Bagga: Thank you for having me.
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The inflation rate for the full financial year is likely to undershoot the Reserve Bank's target of 3.7%, making room for further easing, according to the Finance Ministry of India. In its monthly economic review for June 2025, the review also did say that despite monetary easing and strong bank balance sheets, credit growth had slowed, reflecting cautious borrower sentiment and possibly risk-averse lender behaviour. The review said that the economy has a look and feel of steady as she goes as far as fiscal year 2526 is concerned
The EU-US Trade
Business leaders on both sides of the Atlantic breathed sighs of relief as the US and European Union seemingly averted a trade war with the latest agreement on tariffs and investment according to the Wall Street Journal. But now attention is shifting to assessing the deal's winners and losers, and presumably more details. However, several European business groups also given the international context said they were cautiously optimistic that an agreement had been reached, but emphasised that they wanted more clarity on the specifics.
But the deal puts baseline tariffs at 15% for more European goods. So 15% is the number that we are all looking at, including from an India point of view, being where tariffs could land. In parallel, going back to that Wall Street Journal report, the EU said that European companies buy about $750 billion of American energy products over three years, and invest an additional $600 billion in the US.
Aircraft and components, certain chemicals, semiconductor equipment, and some agricultural products appeared to be exempted, or looked set to be exempted from these new tariffs. Cars would face about 15% tariffs, but that's lower from the current levels. European officials said Monday that some details were still being negotiated and anticipated that the two sides would release a joint statement on the agreement, which they described as a non-legally binding document, said the Wall Street Journal, adding that the European industry officials and politicians said the deal leaves the EU in worse shape than before Trump's return to office, but is likely a best case scenario for European companies because it avoids a bigger fight and gives them more certainty over the coming years.
Now, whether indeed there will be certainty after this deal or things will change once again, we of course don't know, but perhaps this is the only thing that they can go with.
