Indian Stock Market’s Best Session In More Than 4 Years
The markets posted their best session in more than four years on Monday, surging nearly 4% in a sweeping relief rally
On Episode 579 of The Core Report, financial journalist Govindraj Ethiraj talks to Ambareesh Baliga, Veteran Market Expert as well as Abhishek Goenka, Founder and CEO at India Forex & Asset Management.
SHOW NOTES
(00:00) Stories of the Day
(00:50) Indian stock markets have their best sessions in more than 4 years
(03:17) Gold prices drop as its safe haven
(04:30) Where will the markets go from here?
(15:07) The dollar is strengthening once again, which trajectory will the Rupee take here on?
(23:07) India’s closed airports are open again for business
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 13th of May, and this is Govindraj Ethiraj headquartered and Broadcasting and streaming from a very clear Mumbai city, India's financial capital.
India's stock markets have their best sessions in more than four years.
Gold prices drop as its safe haven status recedes. Where will the markets go from here?
The dollar is strengthening once again. Which trajectory will the rupee take from here on? The answer might surprise you.
And India's closed airports are open once again for business.
The Stock Markets Zoom
The markets posted their best session in more than four years on Monday, surging nearly 4% in a sweeping relief rally after India's ceasefire agreement with Pakistan over the weekend. Some analysts that the core report spoke to said they were actually surprised with the extent of recovery in the markets. So they were expecting, of course, a jump in both the Sensex and the Nifty.
The Sensex and Nifty responded to that return to some normalcy for now on two counts. First, the India-Pakistan conflict, where we are seeing a ceasefire now. And second, the US and China striking a temporary trade deal, which saw America reduce its status from 145% to 30% for Chinese goods coming into America.
And this may not be the best case situation yet. And the markets are likely to stay volatile for some time. But directionally, this is a good thing for the markets, particularly Wall Street, which in some ways was also expecting it.
They're talking about the US-China trade deal. In India, the comfort that there will be no full-scale war for now has also brought back investors into the markets. And many of them had actually panicked in the last week, which is particularly Thursday and Friday.
The indices also closed with the highest gains in almost a year, with the Sensex jumping 2,975 points. That's almost 3,000 points, or 3.7% to close at 82,429. The Nifty 50 was up 916 points to 24,924, or close to 4% again.
In the broader markets, the BSE mid cap was also up about 3.8%, and the BSE small cap more than 4%. The Nifty IT index was up 6.5%, and that was in Monday's intraday trade, recording its sharpest intraday rally in over five years. And we'll come to why that happened shortly.
And on Wall Street, stocks rallied on Monday morning after the US and China agreed to temporarily slash tariffs following negotiations over the weekend in Switzerland. The Dow Jones was up more than 1,000 points, or 2.4%. The S&P 500 was also up about 2.5%, and the Nasdaq composite was up more than 3.5%, according to CNBC, which also quoted US Treasury Secretary Scott Besant saying that talks with China had been very productive, and both countries had agreed to cut reciprocal tariffs by 115% for 90 days. Earlier, stocks in Europe and Asia rallied after the terms of those US-China agreements were announced, with Europe's stocks 600 gaining about 1%, Germany's DAX hitting a one-year high, and Hong Kong shares jumping around 3%, according to CNBC.
Meanwhile, the opposite happened to gold prices. Gold dropped 3% to more than a one-week low on Monday after the United States and China announced that trade deal, which sent the dollar higher and made gold less attractive as a safe haven, which is usually the case. Spot gold was down about 3.3% to $3,215 an ounce on Monday afternoon, its lowest since May 1, and the dollar index jumped more than 1% against its rivals, making gold more expensive for other currency holders. Gold is expected to decline as the dollar appreciates and decreased geopolitical risk could hurt the haven demand. The yellow metal may decline to $3,200 in the near term, an analyst told Reuters. Traders are also looking at the US consumer price index data on Tuesday for fresh signals on the Federal Reserve's monetary policy moves.
Meanwhile, crude oil prices have now started rising, with Brent crude just under $66 a barrel. Both oil benchmarks rose about 4% last week after the trade deal with Britain, which increased investor optimism that tariffs might see a reduction or may be eased. The trade war between the US and China had pushed oil prices to their lowest in four years in early April, according to Reuters.
So, coming back to the stock markets in India, are they forming a new bottom and thus a new trajectory since we are now past the April 2nd and April 22nd milestones, the first being the US tariff announcements, which upended global markets, and the second being the terrorist attack on civilians in Kashmir, which led to India's retaliation and the near war-like situation over the weekend, followed by the ceasefire. So, what are the new triggers for the market?
I reached out to veteran market analyst Ambareesh Baliga and began by asking him where the markets were now positioned or poised in terms of reference points and if there were any new reference points.
INTERVIEW TRANSCRIPT
Ambareesh Baliga: First of all was because of the tariffs which Trump had introduced. And then as we were recovering from that, as it was becoming more and more clear that Trump would have to go in for understanding with the various countries, he cannot apply the tariff the way they are. And there was a 90-day sort of a window which was announced, because of which we saw the markets recovering.
So, on April 22nd, we had the Balgam attack. I mean, around that time, because of this attack, the markets fell. And then again, there was a sort of a hope that there wouldn't be any follow-up action happening.
But then when Operation Sindhu was announced, again, we had a correction, but it was not a very deep correction. In fact, on Nifty, I mean, a 400-point fall in about two days or three days isn't a huge fall. But yes, I mean, it was a correction after a decent move up.
But now, I mean, post this announcement of a ceasefire, and fortunately the ceasefire was announced over the weekend, we had one violation. And then after that, it was very clear that like Pakistan would have to possibly maintain that ceasefire. And because of which we have seen that huge rally on Monday, which is today.
And I expect that this move will hold on. I'm not saying that it will continue at the same pace. But yes, I mean, if it holds on also, it's extremely good for the markets.
Govindraj Ethiraj: But what's the trajectory now, Ambarish? If we were to now start looking back, I mean, you know, so we were going through a period of, let's say, uncertainty because of the economic issues, slowing earnings, slowing growth, momentum, and so on. The larger trajectory question and the subset of that is, what are the triggers that's really driving the market at this point or will drive the market once, let's say, the relief rally has settled down?
Ambareesh Baliga: See, what had happened about a month, month and a half back was the expectation from the analysts getting tapered down. So the expectation from the Q4 earnings wasn't really as high as what it was in the earlier quarters. So when the numbers came out, in fact, it was digested well by the markets.
And some of the sectors, we were pleasantly surprised on the positive side. So earnings overall, I would say, was positive compared to what we had seen in Q2 and Q3 earlier. And along with that, whatever other issues were there, for example, the tariff issue, which was there, which is getting sorted out to a very large extent.
And it is now seen that overall, post tariffs, India possibly could be in a better position overall. The treaty is getting signed with China too. But then it is expected that India would have an upper hand overall.
So that's another positive. If you look at the other macro numbers which have been coming out, that's been decently positive. You're talking of monsoons, which would be normal or better than normal.
So overall, whichever way you look at it, at all these new flows which are coming, it's been positive. So I don't see any reason as to why the market should correct in a big way from here. So if I look back, I would possibly say that 21,800-22,000 levels which you saw, possibly is the bottom for the market.
Govindraj Ethiraj: I guess the bottom is a good point to pose the question in the context of the top that we saw in September 2024. And would you say that what's the percentage which sort of when you say, okay, we've fallen up to this point, and this is from where we need to go back up? I don't know whether that has always worked out.
So I'm just curious.
Ambareesh Baliga: No, in fact, when the markets were falling, we were looking at levels of closer to about 22,000 levels to start buying. But then you can't say where the bottom is, unless you see a decent bounce back. And markets sustain at those higher levels, again, where they sustain at those higher levels, they need to be backed by data, they need to be backed by news flows.
And that's exactly what we're seeing today. And typically, from the bottom, if you have a 6% to 8% sort of a move up, and it holds on, then one can say, look back and say that possibly that's the bottom. So today, we are exactly in that position, that we have moved up decently well from the lower levels, I mean, close to about 8%, 9% from those levels.
And it is backed by data, it is backed by news.
Govindraj Ethiraj: Right. So I'm assuming the low level you're saying is about 22,000. And the peak that we saw in September was about 26,200.
And we're now at 24,900. So we're not very far from the peak. So in which case, would some of the other issues also apply to things like valuations?
That's one. Secondly, how is the market looking beyond the benchmark indices?
Ambareesh Baliga: No markets overall, I'm at this point of time looking decently valued. I mean, in case it goes up, possibly either 8-10% from here, which means again, we are talking of crossing earlier highs, then I would say that the markets would be getting expensive. I mean, if you had asked me the same question about three or four months back, I would have possibly said crossing the earlier highs this year would have been difficult.
But with the sort of a move, which we've already seen, it could be possible maybe more towards the value or post that. But then in case we see those levels before that, then I would again, get a bit cautious on the market.
Govindraj Ethiraj: Finally, within sectors, I mean, is there something different that's going to be driving or is driving things from here on in the new trajectory as we are seeing? Or will it be mostly the same?
Ambareesh Baliga: No, see, we saw defence again, bouncing back, but that I think was more sentimental than anything else. So I don't expect the defence sector to keep moving up from here on. I think more or less we have seen the peak with sort of skirmishes and the war which we saw in between.
So I don't see the defence stocks moving up sharply from here. I think it is going to be more of the old economy stocks which should do well because we are expecting the consumption to again move up from here on, at least in the next two to three quarters. So I would be positive on FNCG, I would be positive on white goods, I would be positive on auto ancillaries, and especially because the tariff issues are getting sorted out.
So auto ancillaries had corrected decently well. From the lower levels, you have bounced back, but still, I think there's a long way to go. Other than that, I would surely look at specialty chemicals, which have been my favourite for the last close to a year and a half.
I think we should see that performance going ahead over the next two to three quarters.
Govindraj Ethiraj: And IT saw a massive bounce back on Monday as well, because of a tariff deal between China and the US. Are you seeing any fresh triggers there? Or is it just a relief?
Ambareesh Baliga: No, there was a fear of a slowdown as far as IT is concerned because of the slowdown in the US. But now with all these deals getting signed off, I don't really see that fear of a slowdown in the US. So looking at that, it is positive for IT.
But can IT move up another 10-15% more from here in the near future? I mean, in case that happens, that would be more sentimental than being driven by numbers.
Govindraj Ethiraj: Ambareesh, thank you so much for joining me.
Ambareesh Baliga: Thank you, my pleasure always.
The US and China Strike A Deal
The United States and China will temporarily lower tariffs on each other's products according to a joint statement, which should obviously cool and is cooling trade tensions. Both countries have given themselves 90 days to find a longer-term way out, or so one hopes. We had an agreement that neither side wants to decouple, Treasury Secretary Scott Besant said, adding that they had a very robust and productive discussion on steps forward on fentanyl, and that talks might lead to purchasing agreements by China, according to Bloomberg.
Besant added that tariff reductions announced on Monday do not apply to sectoral duties imposed on all US trading partners and the tariffs applied on China during the first Trump administration remain in place. The US statement also said that the parties will establish a mechanism to continue discussions about economic and trade relations. The Chinese have said that they have always handled relations with the US based on the principles of mutual respect and are committed to the stable development of relations with the US, and adding that imposing pressure and threats are not the right way to deal with China.
Trade Representative Jameson Greer said that the US wants to have more balanced trade with China and that their Chinese counterparts clearly came to deal this week. The White House called the agreement a trade deal in an initial statement on Sunday, but it is still unclear what an acceptable goal is for both sides or how long it will take to get there, said Bloomberg. China had previously demanded that the US remove all tariffs it has imposed this year, which is incompatible with the US objective of reducing or ending the trade deficit, according to Bloomberg.
Now, while the broad announcement is there, reaching a detailed agreement will and can take time, as is happening in the case of India too. US Commerce Secretary Howard Lutnick on Saturday said that a trade deal with India could take time since there is a huge list of tariffs that has to be negotiated, and he said that ahead of India's chief negotiator visiting the US later this month. According to Howard Lutnick, India has been leaning in really hard.
He said that he would love doing a deal, and that is certainly a possibility, but there are 7000 tariff lines. It just takes time. It takes work, he told Bloomberg Podcasts.
Meanwhile, shares of pharmaceutical companies fell across the world after President Trump said he planned to order a cut in US prescription drug costs to bring them in line with other countries, prompting concerns that profits of pharmaceutical companies would take a hit. America pays the most in the world for medicines, or Americans do, fuelling innovation and driving the growth of that industry, according to Bloomberg. In India, two pharmaceutical stocks fell in a rising market, with 13 of 20 stocks on the Pharma Index falling, led by Sun Pharma's 4.6%, even as the Nifty gained 2.5%, according to Reuters. An analyst told Reuters that a price cut of prescription drugs by 50% or more would hurt the US formulations market more on the branded size due to immediate potential impact, while over the medium term it will also impact generics as it reduces the potential market size of new drugs.
The Dollar Is Strengthening
The US dollar rose about 1.1% against a basket of currencies to hit more than a one-month high. It was still down 2.3% from Trump's April 2 announcement of sweeping tariffs as the chaotic rollout of policies shook confidence in US assets, particularly Treasuries and the US dollar, according to Reuters. Back home, the rupee was holding strong.
I reached out to Abhishek Goenka, founder and CEO of India Forex and Asset Management, or IFA Global, and founder and CEO of Billions, and began by asking him how the rupee was likely to move given the dollar's strength and shifts in currencies once again post the China-US deal.
INTERVIEW TRANSCRIPT
Abhishek Goenka: Whether it's trade or anything else, defence etc. Somehow we are seeing that people are shunning the US dollar because somehow people feel that the US growth is going to come down, they're going to have recession and the probability of increase. They're going to cut rates further.
That's the reason the US dollar bared and started. Now, because of what's happening, the other Asian currencies, like you saw the news of Taiwan which you mentioned, there is one thought that a lot of countries were keeping their currencies artificially weak. Some of the countries were also called as manipulators in currencies.
So I think the message is very strong that you cannot keep your currency artificially weak. So I think some of the currencies which are getting very strong, despite the original nature of the currency which was weak, I think I could see that shift happening. There are no confirmed reports on that but that's the feeling I get.
At the same time in the case of India, Govind, I think a few of the things are working really well for India. One is of course as we all know that for India the most important factor is oil. And oil has been holding at $60 and which is adding a lot of money to our overall balance of Now, once RBI is inactive in the market and oil is at $60, if you can remember Covid, Covid when the oil went to $20-$25, from $77 to a dollar, a rupee came to $72 despite all the hue and cry in the market because oil was at $20.
So for us if oil is at $60 and it stays like that, the message is very clear that we hit a very solid BOP positive. And also plus the foreign institutional holding in equity markets is all time low. And today also we saw the markets moving 4% after tensions de-escalated between India and Pakistan and now the new story of US and China.
So I think the risk is back. Chinese currency has appreciated at $7.22 and I think in the NDF markets we can see the rupee also pretty strong. It's below 84.
A couple of days back it was 85-80. So I think the dollar bearer is likely to stay and currencies are going to get slightly stronger but I would like to insist on one thing that the dollar rupee is broadly a depreciating currency. So a 2% on this currency is warranted year on year so if a couple of years back we started at 83 and comfortably added 4% to it then I think this year we should average close to 86-87.
I still maintain that.
Govindraj Ethiraj: Got it. So you're saying that this trajectory would have continued whether or not the US and China have a new trade deal, fears of recession, at least that extent of recession go away, things return to some sort of normalcy on the trade front. You're saying that these trajectories will remain as they are and when I say these I mean the US dollar to INR.
Abhishek Goenka: After spending 20 years in the market one thing I have learned is that the interest rate differentials and inflation differentials prevail and for India that is still prevailing. So I think we can see a flat rupee for a year but in a span of 5 years if you see a compounding depreciation of 2-2.2% is warranted and that's the broad policy for us as a government. Now these short-term weaknesses in the US dollar can derail this depreciation for a few months but broadly that's going to hold.
So I think I don't see a very very strong rupee. I feel that rupee should not go below 83-83.5 but I think over that level the importer is going to be very very active. They're going to cover for 3-4-5 months but I don't see a very strong holding for a very long time. It has never happened in the past. It is most likely never going to happen till the time we have this current account deficit and also we have this broad inflation story which is relatively higher than America.
Govindraj Ethiraj: What are the other trends that you're seeing Abhishek as you look ahead? I mean one is of course the straight sort of USD to INR rate. I mean I take your point on the steady depreciation that we've been seeing for some time.
Are there any other trends or do you see any other factors that could affect either our forex reserves or the volatility in the market?
Abhishek Goenka: So we have spent a lot of foreign exchange reserves as we know. I mean we have used a lot in the last intervention when the rupee was going all the way to 88. And I think the vision is very clear that in terms of foreign exchange reserves we want to hit a trillion dollars.
And that's another reason if we start seeing a gush of inflow in Indian markets even though the valuations are little it's fairly priced and small and mid-cap as we all know it's very very highly priced. But the FII money has started coming in. Today in a few days you can see the large caps and the few selected FII favourites have been going up.
So if we see a liquidity rally because we see a sell-off in America because of valuations in America and also the tech fall that we recently saw. I'm a believer that America is very very fairly priced. It should fall down at least 15-20 percent. Then that part of that money can come to emerging markets including India.
And already you can see that money coming in if you see the total Vanguard world index is 10 percent plus whereas if you see America I think yesterday it was minus for this year. And the rest of the emerging markets in Asia are also moving up. So I think if that happens then two things can happen.
If oil stays at 60 we start saving at least 30-35-40 billion dollars extra. So every 10 dollars it gives us 15 billion so I think 20 dollars it gives us 30 billion plus since FII holding is very very low in Indian markets there's not much room to sell. So in that case if that money comes in then we get a double benefit.
So if we get the benefit from the capital account side and from the current account side both together then I think that 83 base can be broken for some time because then we see a gush of liquidity billions of dollars flowing in oil staying at 60 then it's a different game. Then we're looking at building up huge huge foreign exchange reserves and also our real pillage to be appreciated a little bit more. So that's a scenario which is a 10-15 percent probability.
If that happens obviously this gets broken. Otherwise I think if both don't happen in the same fashion then it's the same story.
Govindraj Ethiraj: Abhishek, thank you so much for joining me.
Airports Reopen
Monday morning saw the reopening of some 32 airports across northern and western parts of the country that were shut in the wake of mounting tensions between India and Pakistan. Both countries reached a ceasefire on Saturday. According to a notice issued by the airport authority of India all 32 airports were now open.
It said that airports are available for civil aircraft operations with immediate effect though it did recommend that travellers should check flight status directly with airlines and monitor their websites for regular updates. Some of the major airports included Ambala, Amritsar, Bhuj, Bikaner, Chandigarh, Hindon, Jaisalmer, Jammu, Jamnagar, Jodhpur, Leh, Ludhiana, Mundra, Porbandar, Rajkot, Shimla and Srinagar which were closed since the launch of operation Sindhu on May 7th forcing airlines to cancel hundreds of flights. Indigo which is India's largest carrier said that they will progressively commence operations on the previously closed routes and as services gradually return to normal there may be still a few delays and last minute adjustments and that they would appreciate yours that's the consumer or passengers patience and understanding during this period.
Meanwhile Prime Minister Narendra Modi on Monday evening saluted the brave armed forces, intelligence agencies and scientists for their role in operation Sindhu. He said that in the past few days we've seen the country's patience and I want to firstly salute the armed forces. He moaned about the Pehelkam terror attack saying it was the most barbaric face of terrorism and it was very painful for me and following the dastardly attack we granted full authority to the Indian armed forces to eliminate terrorists.
Today every terrorist and terror organisation understands the consequences of attempting to harm the dignity and pride of our daughters and sisters. He also said that our brave soldiers have shown unparalleled valour in achieving the objectives of operation Sindhu and that he dedicated it to every mother, sister and daughter. It's not just a name and it stands as a powerful symbol of the nation's collective emotions and resilience.
He also warned Pakistan saying that we've only paused our attack on Pakistan-based terrorist camps and military installations, we will assess Pakistan on its actions against terrorism and we will not differentiate between a terror-sympathising government and leaders of terrorists.
