India’s Mid Cap Index Hits Record High
We continue to look for signals that will suggest that the India US trade war is thawing
On Episode 728 of The Core Report, financial journalist Govindraj Ethiraj talks to Anand Kulkarni, Director at CRISIL Ratings.
SHOW NOTES
(00:00) Stories of the Day
(00:50) Valuation guru says he wants to move his money into cash and collectibles
(05:03) India’s mid cap index hits record high
(06:23) The green shoots in Agri export exemptions in the US
(07:18) Gold imports jump and drive up trade deficits but there is some good news too
(09:17) India is going on a cement expansion spree and rural India is powering it
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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 18th of November and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.
Our top stories and themes...
Valuation Guru says he wants to move his money into cash and collectibles.
India's mid-cap index hits a record high.
The green shoots in agri-export exemptions in the United States that just came in.
India's gold imports jump, drive up trade deficits, but there is some good news on exports too.
India is going on a cement expansion spree and rural India is powering it.
No Place To Hide
NYU Stern School of Business, Finance and Valuation Professor Aswath Damodaran last week said, and I'm quoting marketing professor at the same school, Scott Galloway saying this, that for the first time ever, Damodaran is thinking about moving his money into cash and collectibles. The reason, there is no place to hide in the stock market.
Now, Damodaran is someone I've interviewed in the past and I can say that coming from him, this is a somewhat surprising statement, considering also that he's a reigning guru of valuations. Goldman Sachs strategists said last week that U.S. equities will likely underperform global peers for the next decade. And they recommended that investors diversify beyond the U.S. with a tilt towards emerging markets.
And that's again from Scott Galloway. Now, this could, of course, be good news for India and maybe one of the triggers that will align with other predictions that foreign portfolio investments will pick up in 2026, as we discussed yesterday. Galloway points out that S&P 500's forward price-to-earnings ratio is 22x above its historical average of 17x.
The index has traded above 22x only twice since 1985, during the dot-com bubble and the COVID-19 pandemic, and the market fell sharply both times. Moreover, Galloway says that even traditionally boring defensive stocks look expensive. Staples like Walmart and Costco, which are matured low-margin businesses, are now trading at NVIDIA-level valuations.
I didn't know this one. And then, of course, he says, as we know, alternative investments are also at all-time highs. Gold is up more than 55% this year, which is its best yearly performance since 1979, and Bitcoin has touched a high of 126,251 in October and, of course, has fallen since.
Elsewhere, among other signals of stress in the form of observations came from India's economic advisor V. Anantha Nageshwaran on Monday, who said he was concerned that initial public offerings are becoming an exit vehicle for early investors despite a boom in share sales. Now, Nageshwaran has a fair amount of experience in capital markets, having worked for global investment banks earlier. Speaking at the CII Financing Summit in Mumbai, he said the trend was undermining the purpose of public markets.
He said that India's capital markets should evolve not just in scale but in purpose. He said that markets have grown impressively but IPOs have increasingly become exit vehicles for early investors rather than mechanisms for raising long-term capital, which undermines the spirit of public markets. He also cautioned against celebrating the wrong milestones, such as market capitalisation or the scale of derivatives trading, saying that these do not represent financial sophistication.
And focussing on these metrics, he said, risks diverting domestic savings away from productive investment, a point that we made at the core report as well. Business Standard quoted a PTI report saying that 55 Indian companies launched IPOs in the April to September period and raised about 65,000 crore rupees. Most were offer for sale issues by existing investors, with only a small portion comprising fresh share issuances that benefited the company directly.
So the point being that while capital markets are doing well right now, there are concerns everywhere, though for different reasons. To recap, in the West and Far East, it's about a potential AI bubble. In India, it's IPO exuberance and the fact that retail investors have become bigger venture capitalists than the venture capitalists themselves, though arguably that's been the case for many decades.
Speaking of West and East, India could emerge as a potential beneficiary and attract foreign investor flows, thanks to the global AI trade, said Alexander Redman, Chief Equity Strategist at CLSA, in a conversation with media folks, including Business Standard. According to him, India is still a market that does capture a lot of imagination for foreign investors because it's still one of the last two emerging markets where you can take advantage of a demographic dividend and positive urbanisation, credit growth, reform and productivity growth. Few other emerging markets can offer you the characteristics that India has, he says, and of course it's large, broad and scalable.
He acknowledged that India's investment appeal hasn't improved much over the last 12 to 18 months, though it's trading cheaper following the correction in this period. He said that people clearly did use India as a funding source for China in this period, that's 12 to 18 months, but that was because India had exhausted its own rally and was overdue for a negative adjustment. In the same vein, he said, you could argue that if money was looking to rotate out of China, it can find its way back into India.
And his point was that you could be in both markets at the same time. And that brings us to Monday, where the markets were up thanks to gains in public sector banks and consumer durables, but the show stealer was the mid caps, which hit a record high thanks mostly to an earnings turnaround in the September quarter results. The nifty mid cap 100 rose to 61,180, a record high.
The Sensex was up 388 points to 84,950. The nifty 50 was up 103 points to 26,013. Amongst the broader markets, the nifty mid cap 100, as we said, rose 0.73% to that all time high.
The nifty small cap was up 0.52%. The rupee was also stronger on Monday and ended a three session losing streak thanks to falling crude oil prices. The domestic currency was up 10 paise to 88 rupees 64 against the US dollar according to Bloomberg. The rupee has risen about 0.1% this month and has fallen now about 3.53% this year.
That still makes it amongst the worst performing Asian currencies. We also continue to look for signals that will suggest that the India US trade war is thawing. There's more trade data coming up in a moment.
But India has finalised its first structured contract to source liquefied petroleum gas from the United States. The oil marketing companies belonging to the government have concluded a one year agreement to import about 2.2 billion tonnes of LPG for the contract year 2026. Meanwhile, as we discussed yesterday as well, US President Trump has relaxed duties on tea spices and nearly 200 food and agricultural items to curb domestic inflation.
And Ajay Sahai, Director General of the Federation of Indian Export Organisations told Reuters that between two and a half to $3 billion of exports will benefit from these tariff exemptions. He said that the order opens space for premium speciality and value added products and exporters who shift towards higher value segments will be better protected from price pressures and can type rising consumer demand. And here's where the crystal ball gazing is happening.
Officials involved in trade and farm policy said that the exemptions are of course a positive signal for the US India trade talks that are ongoing. So while the headline tariff number of 50% is still awaiting a change or some development, there is of course some bottom shifting going on as we spoke of yesterday as well.
India's Exports Fall
India's exports fell about 11.8% or close to 12% to $34 billion in October according to data released by the Commerce Ministry. Imports, however, rose by about 16% to $76 billion and that brought the trade deficit to about $41.6 billion for the month of October. The big jump in exports came from a spike in gold and silver.
Gold alone went to about $14.7 billion in October compared to $4.9 billion in the same period last year. Remember prices of gold are up more than 55% so even if the amount of gold imported is not much more, though it is more, the value is what's making the difference. Exports to the United States also declined dropping to $6.3 billion in October from $6.9 billion a year earlier according to the government.
Now a note from the Global Trade Research Initiative based out of Delhi said the October trade data released on Monday brought good news amidst ongoing pressure from US tariffs. Now that number of $6.3 billion in October is a 14.5% rebound from the $5.5 or $5.5 billion in September and the first monthly rise since May despite now the 50% tariff. So October 2025 exports of $6.3 billion are 8.6% lower than the $6.9 billion recorded in October 24 but the month-on-month rise from September is a welcome improvement.
But despite this Indian shipments to the United States have dropped almost 28% between May and October and that's cost about $2.5 billion in monthly export value.
Rural Demand Powers India's Cement Expansion
India's cement industry is on the verge of a major capacity spike. Some 160 to 170 million tonnes of grinding capacity is expected to be added between 26 and 28 up sharply compared with the 95 million tonnes added in the last three years.
Now this is primarily fuelled by healthy demand outlook and high capacity utilisation according to a new report from rating agency Crisil which obviously also reflects the underlying economic activity. Crisil studied about 17 cement makers accounting for 85% of the 668 million tonnes of installed capacity as of March 31st 2025. Now cement has seen strong demand in the last three years with volumes clocking a compounded annual growth rate of nine and a half percent thanks to infrastructure and housing thanks to which capacity utilisation has risen to about 70 percent last year compared to about 65 percent which was the decadal average.
Importantly rural demand is playing a significant role in driving up overall cement consumption right now. Rural demand in absolute terms is around 32 percent and urban demand is around 24 percent. I reached out to Anand Kulkarni director at Crisil ratings and I began by asking him what was driving the capacity expansion and the trends that he saw ahead.
INTERVIEW TRANSCRIPT
Anand Kulkarni: The two main factors driving this cement capacity addition are healthy demand and lacked supply in the past. So let me break it down for you. Over the past few years, we've seen robust demand growth, primarily in sectors like infrastructure.
So cement volumes have increased at a CAGR of around 9.5% over the past three fiscals. So this was, as I said, largely driven by strong infrastructure growth in India after COVID and also traction in rural housing. So these two segments, infra and rural housing together account for around 65% of total cement demand in the country.
There are other areas like urban housing or industrial segments, those have also remained steady. So this is on the demand side. While on the other hand, the capacity addition has been relatively slower in the past three years.
So as a result, if you see the capacity utilizations for cement plants have inched up to a decadal high of around 70% in fiscal 2025. Now looking ahead, we expect the demand to continue to grow at a healthy CAGR of around 7.5 to 8.5%, which will add annual incremental demand of around 30 to 40 million tonnes. Consequently, we are seeing supply additions also expected to be sizable at around 160 to 170 million tonnes over 26 to 27.
This is 75% increase as compared to past three fiscals. Go ahead.
Govindraj Ethiraj: Right. So you've looked at about 85% of the market, which represents about 670 million tonnes, which I'm assuming is the most active. So my question is, how much of the capacity is replacement versus completely fresh or greenfield addition?
Anand Kulkarni: Right. A large part of it is a new capacity addition. It's not only greenfield, it includes a sizable part brownfield as well.
But the new capacity addition forms a large part and there are some efficiency improvement that is also going on.
Govindraj Ethiraj: So my question really is every year, how much cement do we actually consume versus how much do we produce right now as a country?
Anand Kulkarni: Let's say March 2025, if I give that number, the demand was around 470 million tonnes. That was the volume that we've sold. While overall capacity was around 670 million tonnes, that translates to a utilisation of around 70%.
Govindraj Ethiraj: If you were to now look at the demand side, you said there's a CAGR of about 9.5% every year in terms of growth. That figure is for demand, right? I mean, demand and offtake.
Anand Kulkarni: That's correct. So the past three years, CAGR has been 9.5%. Going forward, we expect it to be around 8%.
Govindraj Ethiraj: Right. And how would this period compare with, let's say, any other previous period in the last decade or before that you are familiar with?
Anand Kulkarni: It has been around mid-single digits. Past three years, number of 9.5% is slightly on a higher side. So that's when the demand was slightly on a higher side.
While the capacity addition grew at a CAGR of around 5, 5.5%. So there was a lag in the capacity addition that I was highlighting.
Govindraj Ethiraj: Could one say that basically a lot of this additional growth is being driven by the infrastructure that we've seen being added in the country?
Anand Kulkarni: Right. So a large part of demand comes from two major segments as I was highlighting. Infrastructure is one of the largest segments, and rural housing is the second one.
So infrastructure growth post-COVID, let's say specifically 2022-2023, was quite strong. That did add to a good amount of demand. Now, rural housing also is picking up.
We expect that to grow well because of the good monsoons and lower inflation limits.
Govindraj Ethiraj: And how does urban housing contrast with rural housing in terms of total demand levels and offtake?
Anand Kulkarni: Right. So urban housing, our expectation growth going forward is slightly moderate as compared to rural housing, but it is expected to be mid-single-digit growth for urban housing as well. But rural will obviously, our expectation is outpacing other segments.
And in absolute terms, you're saying rural is bigger right now than urban? Broadly, those are similar in terms of rural and urban housing. Infrastructure would be the largest.
Today, with the higher growth rate, rural will be higher than urban housing as a contribution. In absolute terms? In absolute terms, yes.
Govindraj Ethiraj: Right. Now, one of the things that you've also pointed out is that it's almost 120,000 crores of capital investment by these cement companies, and that too with not as much debt as perhaps we've seen traditionally or in the past. So does that mean that balance sheets are fundamentally much more healthy or people are raising equity?
Anand Kulkarni: That's correct. So what we are also seeing is the profits that they are generating are expected to be growing well. And hence, going forward, a large part of this CAPEX will also be funded by the operating cash flows that these companies will be generating.
Hence, our leverage matrices will not really be significantly lower. We expect net debt to be a bit tougher on 1.1 times, which is similar to past three years on an average that we've seen. Hence, financial positions are expected to be comfortable.
Govindraj Ethiraj: If you were to take any average size cement plant or cement company in your sample set, what is the kind of CAPEX that they would be putting in and how much would be debt and how much would be equity in very approximate terms?
Anand Kulkarni: The size is very different. I mean, if you compare, there are very large size capacities, there are medium size and very small size. So averages may not give you a right indication.
But as I said, if you add a debt to EBITDA, which is a right matrix going forward, that is expected to remain comfortable. 1.1 is a very comfortable number for a cement company, which is not expected to move. So it indicates that the debt I'm adding is not significantly higher than my EBITDA generation capacity.
And hence, we believe that is going to be comfortable.
Govindraj Ethiraj: So I mean, put differently, would you say that the balance sheets of cement companies are healthier than they've been in a long time? We believe so.
Anand Kulkarni: They are comfortably, healthily placed right now. And we don't see any deterioration over the near to medium term on these balance sheets. Right.
Govindraj Ethiraj: Anand, always a pleasure talking to you. Thank you so much for joining me.
Anand Kulkarni: Sure. Thank you.
New Airport
And finally even as we figure out how to get there in good time that is those of us who live on the western part of Mumbai Navi Mumbai airport will start commercial operations on the 25th of December 2025. Operations will kick off on the 25th of December with 23 scheduled daily departures which could be scaled up to 34 from February 2026. In the first month the Navi Mumbai international airport will operate for 12 hours starting at 8 a.m and will manage about 10 flight movements per hour during this period.
Interestingly or incidentally Mumbai airport set another record for the highest number of flight movements in a day crossing a thousand flight movements in 24 hours. That also makes it amongst the second or third busiest airports in the world with a single runway. The inaugural flight to arrive at the Navi Mumbai airport will be the Indigo flight 6E460 from Bangalore and it will touch down at 8 a.m according to the airport.
The Indigo flight once again 6E882 will depart for Hyderabad at 8 40 a.m making it the first outbound service from the new airport according to business standard. The airlines that will operate from the 25th are Indigo of course Akasa Air and Air India Express. Staying with aviation Air India said on Monday it will resume New Delhi China flight starting Feb 26 that's almost six years after flights were suspended as diplomatic bonhomie has resumed between the two countries. Air India is also planning to launch a Mumbai-Shanghai route next year, subject to regulatory approvals. The reinstatement of Air India services to Shanghai follows recent India-China diplomatic agreements that restored the air links paused in early 2020, Air India said.
