Indian Markets Have Not Changed Much In The Last Year
Nothing has evidently changed on the overall macro indicators though monsoon numbers are looking good.
On Episode 643 of The Core Report, financial journalist Govindraj Ethiraj talks to G Chokkalingam, Founder at Equinomics Research as well as Vivek Kumar, Economist at QuantEco Research.
SHOW NOTES
(00:00) Stories of the Day
(01:00) India should brace for 25% tariffs on exports to the US
(05:15) Indian markets are up but they have not changed much in the last year
(15:37) How India’s IT engineers are unable to keep pace with new technology
(18:49) Tata Motors could buy European truck maker Iveco in a $4.5 billion deal
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 Thursday, the 31st of July, and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital, but right now in transit till the end of the week. So do stand by for shorter episodes.
Our top stories and themes.
The stock markets are up, but the benchmarks have not really changed much in the last year. What does that mean?
India should now brace for 25% tariffs on exports into the US, says Donald Trump.
How India's IT engineers are unable to keep pace with new technologies.
Tata Motors could buy European truck maker Iveco in a $4.5 billion deal.
Markets Are Up, But Where Are They Really Going?
So the question today is whether the stock markets are rising in the last couple of days because of stronger earnings reports in companies like L&T, NTPC, and Asian Pains, or is there a general technical rebound? Nothing has evidently changed on the overall macro indicators, and more on that coming soon. Though, once again, monsoon numbers are looking good.
But tariff threats are still an overhang. US President Donald Trump fired a fresh salvo with an announcement of a 25% tariff on Indian goods and additional penalties. And he was referring to high trade barriers and India's purchases of oil and military equipment from Russia.
He also described India's trade policies as the most strenuous and obnoxious non-monetary trade barriers of any country. In a post on Truth Social on Wednesday, Trump wrote, remember, while India is our friend, we have over the years done relatively little business with them because their tariffs are far too high, amongst the highest in the world. So when he says little business, he means exports from the United States into India and not the other way around.
He added that also, they've always bought a vast majority of their military equipment from Russia and are Russia's largest buyer of energy. Now, all of this is, of course, true. And the reference to the current context is the Russia-Ukraine war, which Trump is apparently trying to end.
Trump's announcement also comes two days before the end of the tariff pause, which is scheduled to expire on August 1st, which is tomorrow. Incidentally, the U.S. on Tuesday announced that the tariff pause would continue with China. So the general expectation as of now till we heard about this 25% was a 15% average tariff rate on Indian exports to the U.S. as opposed to the 10% already in place, which of course compares to the near 0% or no tariffs almost in April this year.
There seems to be a failure of Indian negotiators at various levels to break through with the United States, made worse, of course, by Trump's style of direct and aggressive public attacks without resorting to or waiting for diplomatic manoeuvres. Not many countries, including India, are ready to or are perhaps geared for this kind of negotiation. Perhaps all of this will lead to greater opening up by India, something the core report has consistently argued for.
Not in areas like agriculture and dairy, which are understandable red lines, but everywhere else. So as to make the Indian industry more competitive. India's non-tariff barriers are a problem, and it is unfortunate that the U.S. president is pointing it out so frequently.
Meanwhile, investors are also waiting for the U.S. Federal Reserve's monetary policy decision or a commentary on it. So let's see what happens in the next day or two. The BSE Sensex was up 143 points to close at 81,481.
The Nifty 50 was up 34 points to close at 24,855. The broader markets were down. The Nifty Mid Cap Index was down slightly.
That's less than 1%, much less than 1%. And the Nifty Small Cap Index was down 0.5%. But the rupee continues to be under pressure. It saw its steepest one day fall since May and hit a five-month low on Wednesday thanks to worries over those steep tariffs, apart from dollar demand from foreign banks and importers, according to Reuters, which also added that the rupee hit a low of Rs.
87.51 against the dollar before closing at Rs. 87.42 on Wednesday. So Rs.
87.42. Traders told Reuters the Reserve Bank likely stepped in to support the currency through intervention, though it was not very aggressive. So the dollar index, something everyone is also watching, was down about 0.1% after hitting more than a one-month high on Tuesday. Gold prices were up on Wednesday thanks to that pullback on the dollar, and it was up to about $3,331 per ounce.
Sticking to tariffs and Russia, three tankers with oil from India's Nayara Energy, this used to be SR Oil, have yet to discharge their cargo hindered by the new EU sanctions on the Russian-backed or the Russian-owned refinery company, according to shipping data and sources quoted by Reuters. Nayara Energy runs India's third-largest refinery and is mostly owned by Russian entities, including oil major Rosneft. It was hit with specific European Union sanctions on the 18th of July that targeted Russia and its oil trade, which obviously forced shippers and traders to stop dealing with that output.
So to return to the markets now, the Nifty has been at about 24,850 for a year. Now, obviously within that year, it's moved a lot up and down, but what does this tell us about where the Nifty or the benchmarks are going or not going? I reached out to G. Chokhalingam, founder of Economics Research, began by asking him to decode what's been happening in the markets in the last year and whether that provides us any clues of where it could be going next.
INTERVIEW TRANSCRIPT
G Chokkalingam: Very interesting question. The last one year history of the Indian stock market is quite peculiar. Very rarely such things happen.
As you rightly said, in the last one year there has been no return from Sensex or Nifty. More or less almost same point, both Sensex and Nifty. That is also quite rare.
It happened, but that is also not a very frequent phenomenon in the Indian market. And second, last year, that is the last 12 months, we also saw a record level of a lifetime high market cap. We breached 5 trillion dollars.
We breached 485 trillion rupees in total market value. That was again the first of its kind. Third, we also fell from September 24 to February 25.
Our market cap fell by 100 trillion rupees. That is also again the first of its kind. You know, the erosion in the overall market cap, which was more than the entire market cap of India in 2014 May, when the new government was formed.
So these are the three phases we saw. And fourth phase, February to June, again, tremendous recovery. That kind of recovery is also quite rare in the Indian market.
So in the fourth phase, starting from February 25 to June 25, we saw 75 trillion rupees recovery out of a total 100 trillion rupees loss, erosion in the overall market cap. So that is by February 25, we lost 100 trillion rupees. And from February to June, within a short span, the market recovered 75 percent, that is 70 trillion rupees.
But then July, again, the market brought down. Already, we lost about 25 trillion rupees in about roughly a month's time. So these are the three phases or four phases, what we call.
Why did it happened? In February, it was the worst. September was the worst stretch to valuation.
And second, a lot of promoters, PE funds, they started selling, and a lot of IPOs. So valuation one side and liquidity, draining out of liquidity brought down. Then why recovery?
A lot of stocks are punished much more than what they deserve by property. So in the process of 75 percent recovery, so again, the profit booking started happening. So that's why we fell.
But now, coming back to the latest situation of this July fall, it has to do primarily with, you know, the tariff, US tariff threat. As we are speaking just now, there is news that there will be a 25 percent plus penalty on Indian goods. This is what has been the fear in the minds of investors for the last month.
Apart from that, to be fair, even the corporate results in the month of July were a little disappointing in many cases, particularly in the Sensex and NFT constituents, even in the large, other large cap stocks. The third reason was, apart from the results, there was some profit booking also in July, because by June, as I said, 75 percent recovery happened. So tariff threat, profit booking and corporate results led to this fall in July.
So now, unfortunately, the market may be a little weak further because of this latest announcement from the US president. But I think we can still manage, you know, we may see a few weeks more weakness, but we can manage because the exports to US is only 20 percent of our overall goods exports. So unless the service sector is touched by the US presidency, we can manage it because other factors, domestic factors, are very, very strong, very conditional.
There's a long list. Sure. So I'll come to that in a second.
Govindraj Ethiraj: But just to go back to the Nifty, which is, I mean, a benchmark index in the last year or the benchmark indices in the last year. So benchmark indices, if they've gone through this up and down and back to where we were a year ago, what's been happening within the market? As in, I mean, have you been seeing similar trends in other indices as well, the broader indices as well?
Or have there been some sectors which have been doing dramatically differently in either direction? I mean, this is just to recap.
G Chokkalingam: So the recovery happened more in terms of market cap in small and mid-cap stocks. So because they are the one which were butchered September to February, Nifty Sensex, it was confined to, you know, sectors like cement sector to some extent and, you know, the telecom and healthcare. These are the three sectors which help the whole market.
But otherwise, FMCG, IT, we all know they continue to suffer. And then let us, the banking sector also, banking and the financial. Unfortunately, the banking credit growth which used to be in the strong double digit has slipped down to single digit now.
And the reversal of the interest rate cycle also brought down the net interest margin. So this sector also started facing the pain. So this is what, you know, one can decompose within the Nifty and Sensex basket.
But overall, market cap buildup happened in small and mid-cap because they were the ones which fell even 50 percent from their September peak. So yes, as I mentioned, telecom, cement, the broader, and even some oil and gas companies, they participated in recovery.
Govindraj Ethiraj: Right. And to come back to the points that you were making earlier about how things are looking going forward. So where are you seeing the trends now?
G Chokkalingam: My only wish and I pray that we don't get into any difficulty with services exports to the US because that's a very big portion. Even if it doesn't grow in double digits, even if it stagnates, it means a lot from an economic point of view. Stagnation of revenue has very severe adverse implications in the stock market.
But the economy need not. Even if it grows at two percent, it will maintain, you know, the stream at the broader level in terms of employment, in terms of forex resource, forex earning generation, all that contribution to GDP. So that is the only area we need to worry too much because our dependence on service exports to the US is much, much bigger than goods exports in terms of multiplier effect also.
Because when you export services, any large IT company, the gross margin will be anywhere from 30 to 40, 45 percent also gross margin and money directly goes to employees. So the multiple effect on aggregate demand is also very high. But when you export goods, it is a margin business, value addition business.
So that's a big difference. So the impact on the economy will be big in terms of the quantum and also in terms of linkages through multiplier effect. So therefore, that becomes very important.
And second, it accounts for 20 percent of goods exports to the US. So, of course, I don't think this 20 percent tariff plus penalty is going to be a permanent phenomenon. Political discussion will happen.
I assume that this is not going to be the permanent solution. There is a possibility to talk and all because even if you look at what Mr. Trump has done, he has gone back on whatever is imposed in majority of the cases. So through dialogue and discussion, persuasion, it is quite possible.
So we need not panic. Why I'm saying, apart from this, all other domestic factors are very strong. Even yesterday, the IMF has revised the upward GDP target.
You know, even 6.3, 6.5 will be the fastest in the world among the major economies. Look at the inflation rates, record low levels. Look at the monsoon, 8 percent surplus as of yesterday.
And food grain production will again be at a record high level. So the reversal of the interest rate cycle will continue. Yes, the RBI governor said, you know, the bar is raised, but I don't believe it.
I am of the strong view that RBI will be compelled to cut down because when inflation is going down and your food grain production is record level and the credit growth is in the single digits, this fiscal year we will again see very aggressive rate cuts. So all this would augur well for the Indian economy and the corporate earning ultimately. So there is no need to panic from Mr. Trump's announcement.
Govindraj Ethiraj: Right. And just to sort of round up where we started from. So if the NIFTY is today at the same level as it was a year ago, when you look ahead, do you feel any changes or big changes positively or otherwise in the benchmark indices?
G Chokkalingam: Maximum, this will be a subdued year, the remaining months also, around five months of the current fiscal. I don't see the NIFTY census can view anything beyond five to eight percent range because it is going to take another one or two quarters for the corporate sector to come back. And then this tariff also, it will eat another quarter of a great outlook for certain sectors which are exporting to the US.
And therefore, the remaining five months also, it is going to be a subdued maximum five to eight percent return one can hope for. But there is a possibility of small and mid cap outperforming because even now more than seven lakh new investors are coming into the market every week. And in the last 52 weeks alone, four crore investors were added to the market and their focus would be on small and mid cap.
So there is a possibility of small and mid cap, but then investors should be very cautious. Once again, they should not lose the valuation comfort zone.
Govindraj Ethiraj: Right. Chokka, thank you so much for joining me.
G Chokkalingam: Thank you.
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Meanwhile, supply pressure continues in the markets.
We've already talked about the flood of IPOs that have hit the markets this week, including NSDL. A Bloomberg report says, State Bank of India's recent record offering is leading a summer onslaught of a fast-tracked type of share sale as local companies take advantage of the rally to raise funds. So about 40 Indian firms led by banks are raising about $9.2 billion or 80,000 crore rupees, but via Qualified Institutional Placements, or QIP, and Bloomberg quotes data from Prime Database.
Now, qualified institutional investors are essentially professional investors and not retail investors, and this is a different kind of offering. Of course, pressure is pressure when it comes to secondary market raisings. But QIPs are a phenomenon that we see off and on in the markets and have become, once again, a popular way for local companies to raise funds.
And amongst their advantages, as the Bloomberg report reiterates, that these deals can be executed within weeks instead of the months it could take to carry out an initial public offer or IPO.
Decoding IT Job Trends
Infosys, the IT major, has said in a Times of India report that it will hire about 20,000 graduates this year. The company's CEO told TOI that they recruited about 17,000 people, that's the gross hiring, in the first quarter and plan to bring in about 20,000 college graduates this year.
Now, the term gross hiring is important because it means the company could lose as much or more because of general attrition or specific reductions in workforce. Tata Conservancy Services earlier said that it was laying off about 12,000 people, the largest ever, but that number is not so significant given the fact that it employs more than 600,000 people, so it's about 2% or so. But there is undoubtedly a major reskilling and recalibrating effort in terms of skills and jobs in India's IT industry.
NASSCOM on Tuesday said it anticipates some level of workforce rationalisation in the near term. The Indian IT industry is heading for demand expansion in coming years, but will need a workforce transformation to achieve it, Srikanth Velamakanni, vice chairperson at software industry body NASSCOM, told The Economic Times. What he said is that there is a clear workforce transformation because of the massing platform shift that AI and automation is bringing.
He says that demand will expand for tech services in coming years, but for a different skill set which is able to embrace AI faster. He also said that clients are expecting 15% productivity improvement year on year, but more importantly, non-billable employees working on traditional technologies have become untenable to carry forward. So he says that the entry level cost light fresher layer is still trainable and can be prepared for the shift and is fairly protected from job losses.
So put differently, it does mean that there could be job recruitments or job additions going forward, but of a different kind. And this is also perhaps the key point that the skill sets required are different. So while some part of the incoming workforce will align or will be able to align, others may not.
Velamakanni says that billability is becoming a challenge for companies because of changing client expectations. It is transitioning into a more output and value-based model, which doesn't depend on the number of hours of delivery. This is something that HCL tech also told the core report a couple of months ago.
Moreover, says Velamakanni, thanks to automation and software development life cycles, such as coding, there is new price discovery and pricing pressure in the service industry. So clients are willing to pay a premium for value skills, and they're not looking necessarily for the cheapest vendor, but one that can deliver the highest quality output in a shorter time span. So to sum up, Velamakanni told the Economic Times that every wave of disruption brings new roles, new value chains, and new opportunities.
And it underscores the need for continuous skilling, upskilling and cross-skilling to build a future-ready and resilient workforce.
Tata Goes Global Again
Tata Motors is set to acquire Italian truck manufacturer Iveco from its principal shareholder, the Iagnelli family, in a transaction valued at about $4.5 billion, according to an Economic Times report. If finalised, this would become or could be the Tata Group's second largest acquisition after its roughly $13 billion purchase of Corus in 2007.
It had earlier acquired Jaguar Land Rover in 2008 for $2.3 billion. So you can see that there's a roughly 15-year-plus gap between its last set of major acquisitions and now. So whether this reflects anything broader is not clear right now in terms of acquisitions globally or large acquisitions globally by Indian companies, but this is something that we should and will tackle in coming days.
So the boards of Tata Motors and the Turin-based Iveco are meeting on Wednesday to approve the transaction, the ET reported and an official statement could come soon. Discussions have been going on for the past six weeks and have intensified in recent days, according to that report. Iveco employs about 36,000 people worldwide, including about 14,000 in Italy.
Tracking Agriculture Progress
So the southwest monsoon has been delivering good rainfall across India with the season already seeing a 7% surplus rainfall on a cumulative basis as of 29 July. So the degree of skew in distribution has eased in July 2025 with cumulative rainfall received in the southern part of India clocking at par with long period average near July 25 versus a peak deficit of 15% two weeks earlier, according to a report from Quantico, an economics research firm.
The report also says the monsoon's steady progress has helped Kharif sowing, which has seen a 4% increase in area sown vis-a-vis last year, which all of this is obviously expected to aid or help agricultural output and rural demand. I reached out to Vivek Kumar, economist at Quantico, and I began by asking him where we were in terms of quantifying the season's total impact till date.
INTERVIEW TRANSCRIPT
Vivek Kumar: So the progress of the current southwest monsoon season, the rainfall progress currently clocks about six to seven percent on a cumulative basis. That's the surplus that we are talking about and it's, I would say, broadly pretty much in line with what the IMD had expected. Just to remind you that we are coming on the back of an eight percent surplus rainfall which we saw last season.
So this is the second consecutive surplus rainfall situation that we are witnessing. But there is a subtle change vis-a-vis how the surplus situation in rainfall has panned out this year vis-a-vis last year. Last year, although it was surplus, but there were episodes of disruption in monsoon, both in terms of spatial distribution as well as in terms of the intertemporal spread, which is how the monsoon spreads over those three months, June, July, August, those four months of June, July, August, September, and what's the geographical spread of monsoon.
So it was much more skewed, although the headline was pretty favourable. This time around, we are seeing not just a good surplus outturn, but also the skewness has reduced quite a lot. So barring just the north and the northeast part of the country, where there is still some amount of deficit which is observed, but by and large the region, the country as a whole, is seeing a very good amount of monsoon outturn.
And it's also progressing at a time at which you would want. So the intertemporal spread has been pretty good. We started off early after maybe a fortnight in June, which was a dry spell.
Since then, the spread on a time basis has been pretty good. And just to remind you, July month and August month, out of those four months, June to September, the main or the most volume of rainfall happens in the months of July and August. And this is where the bulk of the swing also actually progresses.
July, from that perspective, is extremely crucial. So we've seen a good outturn, number one, on headline basis. Number two, the spread is pretty good.
And number three, the cases of isolated disruptions are far and few in between this time around. So net-net, I think the picture is much more favourable, although on headline basis it is comparable vis-a-vis last year. The overall picture is much more favourable this time.
So what it does in terms of the agri-economy, well, all said and done, despite the progress in irrigation that has happened in the last few decades, we are still to a large extent a monsoon dependent economy. And what we've seen in the past is that whenever you see a surplus outcome, you typically see the agri-GDP or the agri-GVA exceeding its long-term average. The long-term average is somewhere close to 3.5% for agri-GVA. And if, let's say, we are able to clock a surplus of 6% rainfall as what the weather department forecast, then you could once again expect, I would probably put it somewhere closer to the vicinity of 4% GVA or 4-4.5% range for GVA this time around. So from an economic perspective, it's not just the agri output, it's likely to be a source of support for, let's say, the overall GDP picture. I think what it will also do in the interim is that it is going to provide a boost to rural consumption.
And that is one story which was kind of in a stage of picking up last year. So this time around, you'll probably see much more muscle to that story of rural consumption gaining much more steam or much more momentum in FY26. So that's on the activity front.
You will also see a beneficial impact on the price front. Typically, in a good monsoon year, you see food price inflation remaining fairly benign. And this time around also, there is clear evidence that food price disinflation, we are currently in a state of food price disinflation, which means inflation is, while it is still positive, it's coming down month over month.
And the broader picture which is emerging is that because of food, strong momentum in food price disinflation, the headlined inflation this year is expected to be closer to 3%. Now, this is going to be a sharp deceleration from 4.6% last year. And then obviously, it has already opened up a lot of space for monetary policy to commence easing and the central bank has already delivered on that.
But going forward, also, there is an expectation that if things remain as benign as they are, then you can possibly not rule out further rate cuts from the MPC.
Govindraj Ethiraj: Right. Now, we've seen projections between 6.5%, give or take, overall GDP growth. So you see any of this changing our consensus growth estimates?
Or is this really keeping things where they are?
Vivek Kumar: There are two ways to look at it. One is, let's say, if you have a strong GDP outturn on the agri front, which is your primary sector, then does it really alter the overall headline mechanics? Well, probably it's not going to do that, because there are other factors which could have a somewhat upsetting impact.
Or maybe from a headline perspective, you could probably say that things are going to remain where they are. Because, you know, last year on a GVA basis, we clocked 6.4% on a headline basis at a time when agri GVA was 4.6%. So this time around, with a similar outcome, in fact, slightly much more favourable as if you were to consider the spread both inter-temporal and geographical, then even if you clock a 4.5% GVA, you could still end up in the same vicinity. Because other parts of which are your industrial sector and services sector, they are facing some headwinds, irrespective of the policy support that we've seen come by in case of India in the last six months.
So there is a definite amount of policy support from the Reserve Bank of India.
Govindraj Ethiraj: No, but if you were to look at agriculture in a longer time frame, so let's say a decade or so, these are amongst the better years or amongst the best years, right? The long term average is three and a half, give or take 10 or 20 basis points.
Vivek Kumar: And three and a half for an economy, which let's say if you were to put it from that perspective, that maybe the trend growth would be somewhere close to seven and a half percent. Within that, if the agriculture sector is able to grow by three and a half, 4%, I think that's a good enough deal because there are other parts of the economy where you would want much more action to happen. And as far as three and a half, 4% growth is concerned, looking at where your population growth is, so population growth somewhere happens at just about 2% per annum.
So 4% agriculture growth is much more than enough to take care of your population demand with the food, as well as it's good enough on a real basis to cater to your export market.
Govindraj Ethiraj: Right. And that's a good perspective. Vivek, we've run out of time, unfortunately. Thank you so much for joining me.
Vivek Kumar: Thanks so much, Govind.
