Indian Markets Stay Paused

Foreign Institutional Investors are driven among other factors by what is happening elsewhere in the world and that is not looking too encouraging for capital flows anywhere else in the world

13 May 2024 12:00 PM GMT
On Episode 291 of The Core Report, financial journalist Govindraj Ethiraj talks to Karthik Ganesan, director research coordination at the Council For Energy, Environment and Water (CEEW) as well as Reji K. Joseph, associate professor at the Institute for Studies in Industrial Development (ISID).

Our Top Reports For Today

  • (00:00) Stories Of The Day
  • (01:00) Indian markets stay paused, will they respond to global triggers this week?
  • (04:12) India is staring at a big power deficit this summer. Will it hit power generation in cities like Mumbai and Delhi?
  • (13:46) More countries join the semiconductor subsidy race, South Korea is set to join the party
  • (15:12) Tech giants are investing billions of dollars in Southeast Asia that India should be fighting to pull
  • (17:03) India’s worrying dependence on China’s dominance in pharmaceutical raw materials

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 On Pause

The stock markets are on pause mode. I mean of course they are moving but to bulls even a flat market is a bear market. Now the bets and speculation is around how will the markets behave on June 4 when the results of India’s 2024 general elections are announced ?

Of course it is still a way to go..and at least three effective weeks and as many trading days within but the tension is mounting.

There are not too many other signals to go by, when I say there aren’t, I mean of course there are, from US macro numbers to India macro numbers but nothing that can provide effective triggers.

So it will be supplied mostly from domestic investors and funds who are of course on a roll like never seen before.

The markets ended higher on Friday, with the Sensex closing at 72,664, up 260 points while the Nifty closed at 22,055, up 97 points.

But the markets logged their worst week in eight weeks or mid March

The volatility index or India VIX has now touched 18.47, a 19-month high. Volatility index reflects the fear or apprehension as manifested in futures positions investors are taking.

After all, foreign investors have already sold Rs 17,000 crore from Indian equities in the first 10 days of the month. This is after heavy buying in April and to some extent March as well. One reason clearly is that they are taking off some profits. By the way, several Indian fund managers, institutional and private, are saying the same thing.

FIIs are driven among other factors by what is happening elsewhere in the world and that is not looking too encouraging for capital flows anywhere else in the world. Remember, US interest rates are high and the interest rate cuts that should have happened by now have clearly not. Nor is it clear when it will start, except that it will be soon.

Having said all of that, global markets across Europe and America were strong last week, including London and Frankfurt which hit record highs.

The Dow Jones Industrial Average rose on Friday, wrapping an eighth consecutive winning session and registering its best week of 2024, CNBC reported.

The 30-stock index added 125.08 points, or 0.32%, to close at 39,512.84. The S&P was higher too though the Nasdaq was very marginally down on Friday.

For the Dow Jones, it was the best week since December and its fourth positive week in a row.

Elsewhere, oil was quoting at under $83, down again after crossing $84 last week.

Tensions are high in the middle east and the forces keeping oil prices low are also strong. The default position in recent months is lower prices as we have discussed here on The Core Report.

Power Special

Demand for power in India is rising. The fact that there are heat waves already slamming the country is not helping.

India is projecting its biggest power shortfall in 14 years in June after a slump in hydropower generation, Reuters is reporting and is racing to avoid outages by deferring planned plant maintenance and re-opening idled units.

The deficit also follows delays, a government source said, in the commissioning of 3.6 gigawatts (GW) of new coal-fired plants which had been targeted to be operational before March.

A peak shortage of 14 GW is forecast in June during nighttime hours, when solar capacity is offline, the Central Electricity Authority, the country's planning body for the power sector, told Reuters in a statement.

The gap is the widest since 2009-10, according to publicly available government data.

India's hydroelectricity output fell at the steepest pace in four decades in the year ended March 31, while renewable energy generation was flat. Hydro electricity output is obviously due to water levels and rains and we will come to that shortly.

Elsewhere, coal imports rose by 7.7 per cent to 268 million tonne (MT) in FY24 driven by softness in seaborne prices and likelihood of increase in power demand during summer.

Coal imports were 249 MT in FY23, the Business Standard reported adding imports were rising every month and stood around 24 million tonnes in March.

Domestic production of coal is also rising.

The all-India production of coal during 2023-24 was at 997 MT, growing around 12% over the previous year.

So where does this leave us in terms of power demand, how ready are we for peaks, including those induced by heatwaves.

Will the systems hold out to extreme and record demands.

I reached out to Karthik Ganesan, Director Research Coordination at The Council For Energy, Environment and Water or CEEW. I began by asking Karthik, who holds a bachelor and masters in civil engineering from IIT Madras a degree in public policy from the Lee Kuan Yew School of Public Policy, how we were projecting peak demand across India and in major cities like Mumbai and Delhi.


Semiconductor Race Expands

More countries are joining the semiconductor subsidies race. We spoke earlier of the United States offering tens of billions of dollars in subsidies including to companies like Intel and TSMC to set up manufacturing in the United States as they are already doing.

The context being that while India itself is offering around $10 billion of subsidies, we cannot afford a subsidy race beyond a point, acknowledging at the same time that semiconductors are a critical and sensitive item, including from a geopolitics point of view.

The latest to join in is South Korea which is preparing a program to provide more than $7.3 billion to strengthen its semiconductor industry, Bloomberg reported the South Korean finance minister saying.

Semiconductor manufacturer, just to reiterate, is as much a manufacturing story as it is of geopolitics.

The US government is pressing allies including South Korea to further tighten restrictions on China’s access to semiconductor technology. American officials also want South Korea to restrict the flow of equipment and technologies for making high-end logic and memory chips to China, Bloomberg News has reported.

Korea is already the world’s biggest memory chip producer and is investing $470 billion in a semiconductor “mega cluster” outside of Seoul as the US-China rivalry complicates supply chains.

Tech Investments Are Pouring Into South East Asia

Speaking of investments in semiconductors and electronics in general, a big chunk of investments are heading to southeast Asia too, many of which India should or ought to be competing for.

Long considered a tech hinterland, Southeast Asia is fast emerging as a centre of gravity for the industry, Bloomberg has said in a special report saying CEOs of Apple Inc., Microsoft Corp. and Nvidia Corp. are among the industry chieftains who’ve swung through the region in past months, committing billions of dollars in investment and holding forth with heads of state from Indonesia to Malaysia. Add Inc. which last week unveiled a $9 billion investment plan in Singapore.

For just data centres alone, the world’s biggest companies could spend some $60 billion over the next few years as data consumption shoots up in Southeast Asia’s 675 million population, many of them young.

The region’s moment has arrived as China turns more hostile to US firms and India remains tougher to navigate politically.

Tim Cook and Satya Nadella last month embarked on their biggest tours across Southeast Asia in years.

By 2028, Southeast Asia will become the second largest non-US source of data centre revenue in the world.

Among the places investments are coming up include southern Malaysia where Nvidia is already building a $4.3 billion data centre park.

Nvidia is also looking at Vietnam.

Why India’s Dependence On Pharmaceutical Raw Materials From China Is Not Going Down

India imports a substantial part of its bulk drugs or pharmaceutical raw material from China.

The Economic Times quoting a Bloomberg report says Aurobindo Pharma Ltd. gets about 55% of its raw materials for ingredients from China.

Aurobindo supplies the most generic drugs by volume to the US, and its $3.1 billion in 2023 revenue was second-highest among Indian drugmakers.

But that is one side of the story.

India is importing more bulk drugs from China in both value and volume terms, rising from 64 per cent and 62 per cent during FY14 to 71 per cent and 75 per cent during FY23, respectively.

Nothing has changed since Covid, the time where alarm bells had begun ringing furiously.

Apparently, national security Advisor Ajit Doval had warned in 2014 that Chinese dependence on APIs could be a national security threat.

A key reason is price.

Indian manufacturers are not just able to respond and the many Government schemes, including the production linked incentives or PLI schemes while they are working are yet not able to replicate the Chinese dominance in basic chemicals.

All of which India was once strong in, which is of course the irony of it all.

The Economic Times again says that amoxycillin, a hugely used penicillin derivative, was dumped by the Chinese at $9-10 per kg against the set international rate of $25-30 per kg.

I reached out to Reji K. Joseph is an Associate Professor at the Institute for Studies in Industrial Development (ISID) who has done considerable work in the area of pharmaceutical materials including recent articles on the efficacy of the PLI system in an industry which is dominated by small and medium enterprises.

I began by asking Dr Joseph, a PhD in economics, where we stood in terms of pharmaceutical raw materials including APIs,

Updated On: 13 May 2024 6:00 AM GMT
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