Our Top Reports For Today
- (00:00) Stories Of The Day
- (01:10) Indian markets close marginally up in a truncated week amidst an uncertain outlook
- (03:03) Oil prices rise to highest level in 8 weeks, could it go further.
- (04:55) How India could get capital from global fund pools beyond emerging markets.
- (16:24) India is restricting capital from flowing out but wants its citizens to go into war torn zones. Some lessons.
- (21:56) Tesla shares slide, alarm bells start ringing after Musk says Chinese electric vehicle majors can demolish companies like his
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 And Gold
Truncated market week amidst uncertain outlook
It was a truncated week with just three days of trading as opposed to the usual five.
One holiday was calendared being Republic Day today, the other was not and was abruptly announced late last week, something one should not make a habit of in a globally linked marketplace.
The markets were weak and somewhat directionless, under pressure from selling from both foreign institutional and domestic investors, with reports suggesting large redemptions in mutual funds driven in turn by recent new highs and maybe some wariness on whether the big run would continue.
Mutual fund (MF) investors pulled out over Rs 17,00 crore from systematic investment plan (SIP) accounts in December 2023, the highest since April 2021 and invested around Rs 6,500 crore.
December which seems like a long time ago had seen the Sensex and the Nifty rising close to 8%.
Back to yesterday, the benchmark BSE Sensex fell 360 points to end at 70,701. The Nifty50, on the other hand, settled around 21,353, down 101 points. The markets were lower during the day but swung back in the second half of trade.
And finally, the US economy's fourth-quarter growth beat forecasts growing 3.3% annualised against predictions of 2%, according to the government’s preliminary estimate out Thursday.
For all of 2023, the economy expanded 2.5%, thanks to rising personal spending, business investment and housing.
Meanwhile, the European Central Bank also kept interest rates on hold for a third straight meeting, sticking to its now stated position that cuts may still be some way off.
Oil Prices Surge Up
In the battle between supply and supply and between those who want to hold prices like the OPEC countries and those who want to earn more money, being the non-OPEC countries, the former won for now.
Oil rose to the highest level in eight weeks after US inventories fell far more than expected with US crude inventories fell by more than 9 million barrels last week, to hit the lowest level since October, Bloomberg reported
Brent crude is now closer to $81 a barrel. Remember that there is a war going in the middle east and oil tankers being fired upon in the Red Sea. Given all that, oil prices are still doing fine but precariously poised.
There is a China factor now with the Government hinting at more support for the economy which would obviously boost consumption and thus oil prices.
Citigroup Inc. warned that Brent could “pop” to $90 a barrel if the tensions spiral, although the bank cautioned that’s not its base-case outlook, Bloomberg said.
At $80 a barrel, India is still doing fine but every additional $1 of oil price going up adds $1 billion + to the oil bill and if the rupee gets weaker then there is a bigger problem.
Speaking of the rupee, it is back in the Rs 83 to Rs 83.50 range and currently around Rs 83.12, being the range we are seeing for some time now which would suggest by inference that this is a level the central bank is comfortable with.
The energy segment was supported by IndiaEnergyWeek to take place on February 6. Log onto www.indiaenergyweek.com for more details.
India Could Benefit From Larger Capital Pools
It is a fact that in Davos India does not have to sell the larger opportunity any more rather the specific opportunities and the mechanics of them.
The other thing that is emerging is that India could be fitting into global capital portfolios as opposed to just emerging market portfolios which is the traditional benchmark.
While this may not happen overnight, we are seeing new flows in debt and of course equities, though that is also linked to valuation levels and how expensive the market is at that point of time.
I put this question on how flows were looking overall to Mahesh Nandurkar, MD and Head of Research at stockbroking firm Jeffries in a panel on Equity Outlook for 2024 organised by Baroda BNP Paribas Mutual Fund in Mumbai the day before.
Will India Cut Gold Import Tariffs
From equities to gold.
The ministry of commerce has backed a long-standing demand from the jewellery industry to reduce import tariffs on gold bars, government and industry officials told Reuters, amid concern the duties were further harming the country's faltering jewellery exports.
There is some expectation that an announcement will come in the interim budget due on February 1 or next week.
The government earlier this week raised the import duty on gold and silver finds - hooks, clasps and other fittings used in making jewellery - to 15% from 11% to keep importers from bringing in gold classified as findings to save on taxes.
Lower costs would help the viability of India's large gold and diamond jewellery processing industry and help exports, the trade ministry official said.
In July 2022, India raised import duties on gold to 15%, a move which obviously triggered increased smuggling as subsequent data has shown as well.
Jewellery exports were dragged down by the resulting higher costs, industry officials told Reuters.
India's jewellery industry - which employs over 4.3 million and accounts for more than 10% of India's goods exports - saw a 16% fall in exports for April-December 2023 compared with the same period a year earlier, according to commerce ministry estimates.
Still, gold imports rose by more than 25% to nearly $36 billion during the same period reflecting strong local demand, government data showed.
The larger question is more philosophical. Should one have lower import duties and reduce incentives for smuggling and the like or keep them high on the belief that we will earn more from duties.
Recent history suggests raising duties, tariffs and barriers generally does not and has not worked for India, whether in gold or elsewhere.
The Sony Vs Zee Drama Claims Collateral Damage
Zee Entertainment has reportedly conveyed to Walt Disney it does not intend to move forward with a deal to pay around $1.4 billion for cricket TV rights it acquired from the U.S. firm, Reuters is reporting.
"The deal is off ... Zee said they are not in a position to pay," one of the sources told Reuters adding "Zee completely reneged on the rights."
Zee was to pay for the rights over time but it missed the first $200 million payment to Disney in recent weeks.
In August, Zee told stock exchanges it had signed a strategic licence agreement with Disney to take over certain International Cricket Council TV broadcast rights for four years starting 2024 from the U.S. firm, which continued to retain streaming rights.
Of People And Capital
In a globalised world, capital and goods move freely but people usually move in directions they are allowed to, by their home countries and by recipient countries.
India has been steadily tightening controls on capital flows outward, whether by raising tariffs on items like gold or imposing taxes, albeit reimbursable, on several categories of overseas spending including credit cards.
The Prime Minister has also asked repeatedly why Indians are marrying overseas when there are so many options in India. Presumably he was highlighting the cultural, spiritual aspect of marrying within the country but he was also obviously pointing to the fairly ostentatious weddings in several international destinations, not the backpacker types.
I am now hearing by the way from folks in the travel trade that several such weddings have been or being moved to India because a comment from the Prime Minister usually means that tax officials, for example, could take the cue to start watching more closely.
Be that as it may, the process and the cumbersomeness of lets say paying additional and presumptive taxes on already taxed income that you spend overseas, only because it is overseas is meant to act as a deterrent and early data is suggesting that it is.
In many ways, this is a swing back to the 1970s even if the absolute tariffs, protections and barrier levels are not the same.
Here is what is happening in China.
The WSJ is reporting that Chinese individual investors are desperate to shift their money out of the country and are, for example, buying funds that offer exposure to Japanese stocks at a 20% premium to what those stocks are worth.
Reuters is reporting that while crypto trading and mining has been banned in China since 2021, Chinese are piling onto them, including using bank cards issued by small rural commercial banks to buy cryptocurrencies through grey-market dealers, and capped each transaction at 50,000 yuan ($6,978) to escape scrutiny.
More and more Chinese investors are using creative ways to own bitcoin and other crypto assets that they believe are safer than investing in crumbling stock and property markets at home.
Chinese citizens are also using their $50,000 annual forex purchase quotas to move money into cryptocurrency accounts in the territory. Under Chinese rules, the money can only be used for purposes such as overseas travel or education.
Very similar to India except that India’s limit is $250,000 which was not so tightly monitored earlier but now is.
The general rule, as explained to me by legendary investor Jim Rogers and authors of bestselling travel-finance books like Investment Biker and Adventure Capitalist, the writing of which brought him to Mumbai as well, is that when you tighten capital controls, parallel markets take off and flourish, including grey markets.
There is no grey market for dollars as such or was not because we opened it up some years ago.
Now we are tightening outflows and the grey market premiums for US Dollars are rising. Maybe we will loosen up again soon given that many other macro economic factors are in our favour. Though at this point one can only hope.
While we are holding back capital, we want our people to go
In a development that can be best called bizarre, state governments in India are advertising jobs and positions overseas and acting as employment agents.
The big job task is in Israel where there is a fairly desperate need for agricultural workers.
Israel is looking to hire as many as 42,000 Indians to make up for a worker shortage worsened by its war on Gaza, Bloomberg reported.
Those hired will work mostly in construction at a salary of 137,000 rupees ($1650 approx.) per month plus benefits, according to news reports quoted by Bloomberg.
Thousands of people are obviously lining up and in freezing cold by the way for these jobs, fraught with risk. Though the risk factor in itself is not new, desperate job seeking Indians travel to the most dangerous parts of the world.
Now you could of course argue that remittances from Indians overseas are at an all time high, around $125 billion and workers who go out of India are obviously also contributing to India’s economy, which they are and they always have.
But working in war zones is not the same. In almost the same situation, we would have been airlifting our workers out, as we did just a few months ago.
And if you thought all are blue collar workers, you are wrong.
I once met a telecom industry veteran who had earlier worked with a state owned telecom company and had just returned after working with various warlords in Somalia.
He told me it was frightening but he took solace from the fact that all warlords apparently converged on the need for good telecom networks, even as they battled each other.
The thing was, he just did not look like someone who would land in a war zone for a job, albeit a well paying one.
This was some years ago but I don’t think the underlying sentiment has changed.
Nor has the job market improved so much, at least in the context of aspirations.
Tesla Brings All Down
Tesla shares fell in pre-market trade on Thursday, after the company reported earnings that missed expectations and warned of a slowdown in 2024.
Tesla’s automotive revenue, a closely-watched metric, totaled $21.6 billion in the fourth quarter of 2023, rising just 1% year-on-year, CNBC reported.
If investors were getting a little edgy, the following statement from Elon Musk surely did not help.
He said Chinese electric automakers will find “significant” success outside of China, even as his firm Tesla faces intense competition from these same companies.
“The Chinese car companies are the most competitive car companies in the world. So, I think they will have significant success outside of China depending on what kind of tariffs or trade barriers are established. Frankly, I think, if there are no trade barriers established, they will pretty much demolish most other companies in the world.”