Indian Markets Rise Away On Political And Global Cues
The markets had a Good Friday and a day after a while thanks to expectations of a victory for the ruling BJP Party which turned out to be true
On Episode 441 of The Core Report, financial journalist Govindraj Ethiraj talks to veteran economic writer and author Shankkar Aiyar as well as Sugandha Sachdeva, Founder of SS Wealthstreet.
(00:00) Stories Of The Day
(01:00) Indian markets rise away on political and global cues
(03:43) Oil prices are inching up once again?
(04:45) What does the Maharashtra victory for BJP mean for the state’s economy?
(13:15) Which way could gold prices go?
(21:47) What's at stake for Tesla in China?
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, its Monday, the 25th of November and this is Govindraj Ethiraj, headquartered and broadcasting and streaming from Mumbai,
India’s financial capital.
The headlines
Indian markets rise away on political and global cues.
What does the Maharashtra victory for BJP mean for the state’s economy ?
Oil prices are inching up once again ?
Which way could gold prices go ?
Markets & More
The markets had a Good Friday and a day after a while thanks to expectations of a victory for the ruling BJP Party which turned out to be true and better than what was anticipated.
The fact that results were better for the Government at the centre will of course provide considerable political capital though it is not clear whether much changes on the ground since it is the continuation of the same alliance albeit with changed groupings.
There is a bill that has of course to be picked up which we will come to shortly.
On Friday, remember, the election results were declared on Saturday, the BSE Sensex and NSE Nifty50, ended the week's last trading session on a higher note, rising over 2 per cent each.
The BSE Sensex rose 1,961.32 points to settle at 79,117.11.
The NSE Nifty50 also ended higher by 557.35 points at 23,907.25, after scaling an intraday high of 23,956.10 on Friday.
The Business Standard pointed out that bulls were on the rampage on Dalal Street, with 49 out of 50 constituent stocks of Nifty50 ending in the green.
Gains were led by State Bank of India, Titan Company, Tata Consultancy Services, Ultratech Cement, and HCL Tech. Bajaj Auto was the only constituent stock of Nifty50 to end in the red on Friday.
Among the broader markets, the Nifty Smallcap100 and Nifty Midcap100 indices ended higher by 0.90 per cent and 1.16 per cent, respectively.
Importantly, particularly in terms of cues that Indian and Asian markets could pick up on Monday morning, the Dow Jones Industrial Average closed at a new record on Friday, capping off a winning week for stocks.
The blue-chip Dow gained 426.16 points, or 0.97%, to 44,296.51, a new all-time closing high and its third straight positive session signifying that the post election rally in the US still seems to have some legs.
The Dow ended the week about 2% higher, while the S&P 500 and Nasdaq each added about 1.7%. That marks a turn from last week, when Wall Street’s postelection rally stalled, CNBC reported adding that Friday’s moves marked a continuation of a trend where investors shift exposure from tech to names in more economically sensitive corners of the market.
That can explain why the industrial and consumer discretionary sectors led the S&P 500 higher, while communication services was the worst performer.
While tech struggled, bitcoin neared the long-awaited milestone of $100,000.
Meanwhile, foreign investors have pulled out around $3 billion in November from the Indian equity market this month.
While the sell-off continues, the quantum of net outflows has significantly reduced compared to October, when Foreign Portfolio Investors (FPI) withdrew Rs 94,017 crore ($11.2 billion) on a net basis, Business Standard reported.
Oil Prices Up
Oil prices rose over the weekend as geopolitical tensions from Russia to Iran ratcheted higher while strength in equity markets increased the appeal of risk assets, Bloomberg is reporting..
Brent crude has settled above $75 for the first time since Nov. 7.
The Russia-Ukraine conflict shows no signs of cooling with both sides now armed with longer range missiles capable of considerable damage and harm.
Oil prices in general have been swinging between expectations of oversupply and fear of rising geopolitical tensions and finding the right price point that factors both on a consistent basis might be causing volatility.
Oil has swung between weekly gains and losses since mid-October, Bloomberg said, adding geopolitical tensions have caused temporary gains but failed to provide an extended uplift in the face of widespread expectations of a crude surplus next year.
Maharashtra Goes To BJP
The Bharatiya Janata Party (BJP) is set to clock its best ever performance in Maharashtra since the founding of the party in 1980, and the Congress its worst since 1962, when the newly created state had its first Assembly polls.
The BJP along with allies who represent the Mahayuti is now set to decide who the next Chief Minister will be because while the alliance is the same, the composition has shifted and the BJP has many more seats in its control.
The question of course is what does this mean politically for the centre and economically for the state ?
Remember, the victory comes on the heels of unprecedented subsidies, including to women. The question also is could there be a positive outcome of that.
I reached out to veteran economic writer and author Shankar Aiyar and began by asking him what was the significance of the victory by the BJP?
INTERVIEW TRANSCRIPT
Shankkar Aiyar: Well, after a very long time, actually, there's been a massive mandate for an alliance. I mean, just the BJP on its own is more than twice that of the entire opposition. So, it's a very good verdict for them.
It sort of signals some amount of stability and predictability because it's the same regime. We still don't know who's going to be the chief minister, and there's a bit of a niggle there, but the hope is that all of this six, seven months of uncertainty and volatile campaigning will be put behind, and Maharashtra will try and pick up some of the ground that it has lost in investments in terms of... You know, a lot of the investments have gone to Tamil Nadu and other places.
Maharashtra has not kind of done as well as it could have. While it still is number one and those are the claims, but clearly it has some ground to cover. So, that's the first thing, that there will be predictability.
The second aspect, of course, is that it settles several political questions as to which are the formations. So, between the two Shiv Senas, we know which Sena has done well. Between the two NCPs, we know which NCP has done well.
And the Congress, as usual, is busy writing its own epitaph or obit, as you would want to say. At the central level, this sort of will change sentiments for the union government.
Govindraj Ethiraj: Right. So, if I were to look at, let's say, from a continuity point of view, even if, let's say, there's a change in the chief minister's position, as in the person who will take that role, there is no real change in the government itself. And what could it have been that stopped them from doing something which will maybe allow them to do it now or vice versa?
Shankkar Aiyar: Well, theoretically, it is a BJP-led alliance. So, the policy remains the same. The focus on infrastructure and stuff like that.
But governments are also about personality. So, a kind of personality which was a go-getter, common man, touch to the governance and all that. Now, the budget and the financials, they are in quite a bit of a mess now because of all the promises that have been made.
There is an estimate that in the current run to the election, promises worth over 65 to 70,000 crores have been made. Now, Maharashtra is a state which is among the highest in outstanding liabilities, something to the tune of 7.12 lakh crores. While its state GDP is large and it can probably fund some of it, this is not a good situation because clearly this will have long-term implications.
So, whoever takes up the finance department will have to figure out how to bring down this. Because all of the electoral SOPs that have been offered, I mean, free electricity or what the BJP likes to call zero-bill electricity, the increased salaries for the Madarsar teachers, the new fund for rearing desi cows, the 46,000 crore plus what would be spent on the Ladki Bahin and the increased outgo on the PM Kisan, all of this has implications for the state's borrowing programme, its deficit, its debt.
Govindraj Ethiraj: And you've sort of answered my question before I came to it, but if I were to look ahead, this clearly would have been a problem any government that came into power with so many promises would, let's say, have to tackle. Now, if you were to contrast these promises or place these promises in the context of where the economy is going, how would you then look at the prospects of the ability of a new government to actually deliver on them?
Shankkar Aiyar: Well, here's how you could frame this. The SOPs are needed because there is acute distress in the agriculture sector. There is youth unemployment and rising cost of living.
For all that the RBI has done for over 24 months, food price inflation has been above 7%. This has implications for consumption. This has implications for investment.
It has implications for incomes and employment. So clearly there is a political need to have these SOPs or these income supports. Now, the danger here is, Govind, that once political parties figure out that they can win elections with SOPs, what is the incentive for them to fix the issues of unemployment or agri distress?
That's the moral hazard that India is playing up with. And it's not just Maharashtra. There are about a dozen states which have this cash benefit transfer for women.
And apparently, one estimate says that states in India are spending roughly 2 lakh crores on these cash transfers.
Govindraj Ethiraj: All the states?
Shankkar Aiyar: These 8 or 10 states or 12 states which have these schemes are spending something to the tune of 2 lakh crores. I think this is one of the analysts in the state bank or someone has put together this estimate. My own back of the envelope calculation brought it to about 1.4 to 1.5 lakh. But I may have missed some states.
Govindraj Ethiraj: Now, if you were to look at all these SOPs, and we're calling them SOPs or let's say benefits, because they're transfer of benefits. Now, could there be genuine economic benefit from, let's say, empowering women? And that, to me, at least theoretically could be an objective and an outcome or some of the other moves as well?
Shankkar Aiyar: Well, absolutely. Money in the hands of the private individual is spent better and more efficiently than money in the hands of the government. That's the thesis, the Friedman thinking.
The concern is that all of that spending is sustainable if the government is able to push investments, push employment, and then consumption. If you have money and you see you're not going to get a job, or if you have money which is sort of owed to some private lender in agriculture, that money, does it come to consumption? I'm not so sure.
So the theory is that money given to people will trickle down into the consumption story. In theory, that works. But I mean, it's not like a great sum.
I mean, people are not going out and buying the nine crore Maybach, are they? So this is the money that is sustenance money. Yes, it will sort of calm down some of the social unrest.
Whether it props up the economy is an entirely another story.
Govindraj Ethiraj: Shankkar, thank you so much for joining me.
Shankkar Aiyar: You're welcome, sir.
Gold Prices Up
Gold prices have shot up once again after wilting for a few days against a strong dollar as it is also seen as a hedge against America’s imminent protectionist stance.
Gold headed for the biggest weekly gain since March last year, rising by as much as 1.5% to $2,710.16 an ounce after Ukraine said Russia launched a “new” kind of ballistic missile at the city of Dnipro in an alarming signal to Kyiv’s Western backers, Bloomberg reported.
Gold is up more than 30% so far this year, thanks to central bank buying by countries like India.
Bloomberg reports that there are widespread expectations for fresh records in 2025, with Goldman Sachs Group Inc. and UBS Group AG both issuing bullish outlooks for the precious metal in recent days.
Back home, gold prices were up in their best weekly performance since March 2024, up around 5 per cent higher at ₹77,685 per 10 gm on Friday, just ₹1850 away from the record high of ₹79,535.
According to commodity market experts, gold prices are rising for three reasons: escalation in the Russia-Ukraine war, volatile stock market and uncertainty around the US economy after the victory of Donald Trump in the US Presidential Elections.
I reached out to commodities analyst Sugandha Sachdeva, Founder of SS Wealthstreet and began by asking her what was happening in the gold prices.
INTERVIEW TRANSCRIPT
Sugandha Sachdeva: So, snapping a three-week decline, gold prices have shown a strong weekly performance surging by close to 5%. So, it was one of the best weekly performance since March 2022-23. So, the reason why we have seen such a huge surge in prices after the three-week decline, the basic reason has been the escalating geopolitical tensions between Russia and Ukraine, where they both have kind of intensified missile attacks and which has kind of driven safe haven flows into gold.
So, actually, this conflict is adding a layer of risk to global markets and it is actually prompting investors to seek refuge in gold. And that is the reason, precisely, we have seen a lot of bargain buying and bottom fishing opportunities that have come in prices after a three-week decline. So, prices have also found a very strong floor at levels of around 7,300-5,000 mark in the domestic markets.
And looking at international markets, 25-40 per ounce mark has acted as a very strong support area from where we have seen a strong rebound in pricing. So, these weekly gains have kind of reinforced gold's role as a preferred hedge against geopolitical tensions. However, on the other side, if you see, US is in talks for a ceasefire in Israel and Hamas conflict.
So, that is also another layer which is kind of acting as a headwind for gold prices.
Govindraj Ethiraj: So, one of the factors that has driven prices down has obviously been the strong dollar, which continues to be strong. So, as you look ahead, what are the various forces that are at play, both pushing it down and others pushing it up?
Sugandha Sachdeva: If you look at the overall macroeconomic backdrop for gold, it remains quite mixed. On one hand, we have a stronger dollar, which was just a few weeks back trading at 100 mark. We have seen it testing a new two-year high at 108-odd levels, which is acting as a big headwind for gold prices.
Besides this, Fed has also indicated that they are in no hurry to cut rates. So, we are not going to expect aggressive rate cuts by the Fed next year because we have a lot of uncertainty after the trumps between the US presidential elections. And he is likely to enact expansionary policies because of which it could reignite inflation in the US economy.
And Fed is likely to be very cautious in terms of cutting rates. So, this has kind of clouded the outlook for monetary easing path for 2025. So, we are likely to see higher for longer interest rates.
So, that is also likely to act as a dampener for gold prices. Besides this, we have also seen funds flowing towards Bitcoin. We have seen a phenomenal rally in Bitcoin.
The US yields have also been rising and they are at their six-month highs. So, all of these factors are acting as headwind. Besides this, I've also spoken about the fact that there could be a ceasefire in the Middle East region.
So, that could also erode much of the geopolitical risk premium in gold prices. So, in terms of the tailwinds, we have seen strong inflows into gold ETFs. After three consecutive years of outflows, last six months, we have seen strong inflows into gold ETFs.
Central banks have been buying and geopolitical risks are rising. So, all of these factors are acting as a strong tailwind for gold.
Govindraj Ethiraj: Right. And how are you seeing the domestic market, Sugandha? I mean, we've sort of passed the festival season but there's wedding season, which of course comes every year.
But are you seeing any domestic trends apart from the global ones which you've been talking about so far?
Sugandha Sachdeva: Apart from the global gold ETFs, we have seen strong inflows into domestic ETFs as well. Besides this, there is going to be strong demand because we have a lot of beddings lined up this year. So, that is also likely to reignite gold buying.
And we have seen some correction also from the record highest prices. Did correct towards 73,300 all levels. So, that led to a lot of demand coming back in the market because a lot of investors or somebody who wanted to buy for their weddings, they were waiting on the sidelines.
And they have come back to buy gold for consumption purposes also. So, that is also providing a lot of flow to prices. So, a mixed bag of factors.
I think in terms of the price outlook, what I feel is that 7,800 mark is likely to act as a very stiff hurdle on the higher side. And after a huge surge that we have seen in gold prices for the last four quarters, I think this quarter we are going to see some more consolidation and some correction as well. But yes, we should be ready for a lot of volatility ahead for 2025 because after Trump resumes office in January, I think there is going to be a lot of volatility in gold prices after that.
Govindraj Ethiraj: What is the outlook looking like, Sugandha, beyond December and the next quarter or so?
Sugandha Sachdeva: So, gold prices have been in a persistent uptrend. Since 2016 onwards, we have seen a strong rally in gold prices barring 2021 wherein we saw some correction in prices. I think this trend is likely to continue at least for the first half of next year.
There are a lot of factors which are going to drive gold prices. There might be some brief corrective phase that we may see in December. But then from lower levels, we are again likely to see a lot of buying interest.
These rising geopolitical risks, the shift in US policy post elections and strong central bank buying as well as significant ETF inflows and the rising US debt levels, all of these factors are likely to act as a catalyst that could drive prices to new record highs in 2025. So, we believe that investors can add gold on small dips around 72,000 to 73,000 odd levels in a staggered manner. And for next year, we are expecting levels of close to $3,000 per ounce.
And in the domestic markets, we could see levels of around 84,000. So, I think gold should form a part of every portfolio. And it is, I think, adding gold to your portfolio leads to a lot of capital protection also, as we are seeing a lot of rising geopolitical risks currently.
And there's going to be an atmosphere of de-dollarization as well, because Trump is likely to follow America First policy. So, that could lead to decoupling of the US economy from the global economy. So, that is also likely to lead to a lot of pressure on dollar and could likely benefit gold prices in 2025.
Govindraj Ethiraj: Right. Yeah, that's interesting because even Goldman Sachs, for example, has been talking about $3,000 an ounce. So, are you saying that $3,000 an ounce roughly equals about 84,000 rupees at current conversion rates?
Sugandha Sachdeva: Kind of. But yes, if we are likely to see further depreciation in the Indian rupee, wherein it has already hit a record low of around 84.45, the equation could slightly change and there could be some divergence. But then largely, these are the levels which correspond to each other.
I think it's going to be an interesting mix of economic, geopolitical and monetary dynamics that are likely to influence investor behaviour and the trends for gold next year. But then for first half of next year, we are pretty positive on gold prices. After that, we might see some consolidation, but then this trend is likely to persist in 2025 first half.
Govindraj Ethiraj: Sugandha, thank you so much for joining me.
Sugandha Sachdeva: Thank you for having me.
Musk's China Bets
And before I go, there is of course that big conundrum, how does Tesla’s investments in China square off with its CEO Elon Musk’s bonhomie with Donald Trump who wants to impose 60% or more tariffs.
The precise answer I am quite sure will emerge soon but meanwhile, a WSJ report over the weekend points out that for Tesla, China is crucial.
Tesla’s Shanghai plant is the company’s biggest car factory, and half its cars globally were made there in the past four quarters.
During that period, Tesla sold more than 900,000 China-made vehicles, nearly one-third of which were shipped to Europe and other overseas markets.
We have mentioned in The Core Report that China was Tesla’s biggest factory but did not realise that half its global production comes from there
Tesla is awaiting Beijing’s final approval of its latest driver-assistance technology, which Tesla calls Full Self-Driving. Musk says the value of Tesla lies primarily in its plans for autonomous driving, and the company has said it expects approval in the first quarter of next year.
This of course seems more aimed at keeping the stock price afloat with futuristic visions rather than on ground sales. Though it's another story.
The WSJ says in 2018, Musk visited Shanghai, where Li Qiang then served as Communist Party secretary, to sign a deal for Tesla to build a $7 billion plant in the city—its first overseas plant.
Tesla was permitted to assume sole ownership of the factory, the first such case after decades in which China required foreign automakers to form joint ventures with local companies. Under Li’s watch, the Tesla project started production within a year after its groundbreaking.
With Tesla’s arrival, China’s EV market took off in 2020. Tesla’s moderately priced, made-in-China EVs ignited demand for electric cars among Chinese consumers. The EV supply chain developed quickly and contributed to the rise of domestic EV makers—to the point of threatening Tesla with competition these days.
