Is India Riding A Global Market Boom Or Trailing It?
Data from the US is showing labour market weakness, which is also leading investors to bet that the Federal Reserve has now more room to ease policy
On Episode 675 of The Core Report, financial journalist Govindraj Ethiraj talks to Ajay Srivastava, Founder at Global Trade Research Initiative as well as Gulam Zia, Executive Director at Knight Frank.
SHOW NOTES
(00:00) Stories of the day
(01:00) Is India riding a global market boom or trailing it?
(06:17) Welcome to a decade of dust as over 910 societies sign up for redeveloping their properties in Mumbai city.
(17:06) India’s non tariff barriers are almost machiavelian in design and implementation as many importers have found.
(28:32) Air India CEO reiterates nothing wrong with Ahmedabad plane or operations referring to preliminary report.
(29:28) Mahindra says it will issue advisory on impact of ethanol blended fuel as controversy continues to rage.
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 Friday, the 12th of September, and this is Govindraj Ethiraj, usually broadcasting and streaming weekdays from Mumbai, India's financial capital, but in transit right now…
And our top stories and themes.
Is India riding a global stock market boom or trading it?
Welcome to a decade of dust, as over 910 societies sign up for redeveloping their properties in Mumbai city.
India's non-tariff barriers are almost Machiavellian in design and implementation, as many importers are finding out.
Air India's CEO reiterates nothing wrong with Ahmedabad plane or operations, referring to a preliminary report of the crash in June.
And Mahindra, the automaker, says it will issue an advisory on the impact of ethanol blended fuel as the controversy continues to rage.
Markets
Is India riding the global stock market boom or trailing it? Well, it depends on how you see it.
Indian markets, or the sensex, are still below the peak of 85,836. That was hit on 26th September, but if you take it as year till date, that's September 11th, 2024, to now at 81,548, then the markets have barely moved, being at almost the same levels a whole year ago. Of course, if your start point is January 2025, then things look a little better, though only marginally.
But global markets are hitting all-time highs. The MSCI All-Country World Index, which tracks the performance of over 2,500 stocks from developed and emerging markets, has now hit record highs for four straight sessions, according to data from LSEG, reported by CNBC. The S&P 500, for instance, closed at a record for a second day on Wednesday.
Japan's Nikkei 225, South Korea's KOSPI, and Singapore's Straits Times Index have all hit all-time highs this week. Now, this is despite all the geopolitical and war risks and US tariff threats to growth in the United States as well as global. Analysts told CNBC that year-to-date performance has really been premised on still very robust economic growth, and more importantly, corporate earnings, and that is supporting equity market returns across the globe, not just in the US, but also Europe, Japan, and key markets in Asia, that's ex-Japan.
And then data from the US is also showing labour market weakness, which is also leading investors to bet that the Federal Reserve has now more room to ease policy. Back home, the Sensex was up, closing with gains of 123 points to 81,548 on Thursday. The Nifty 50 was up 32 points to close at 25,005.
That's 25,005, so above the 25,000 mark. On the broader indices, the Nifty Mid Cap 100 and Nifty Small Cap 100 indices were up 0.1% and 0.03%, so very, very marginally or almost flat. Now, back to Wall Street.
While you may or may not be an investor in Oracle stock, or you may be, it's quite amazing how the tech frenzy on Wall Street is creating new heroes and lifting old ones. Oracle shares were up by 43% on Wednesday after it said it won several billion-dollar contracts in its latest quarter. These wins revealed a bigger foothold in the booming AI race than was previously understood, according to the Wall Street Journal.
The database software company, Oracle, has about $455 billion in outstanding contract revenue it expects to collect for the latest quarter that ended on August 31st. Oracle has signed four multi-billion-dollar contracts with three different customers during the quarter, according to CEO Safra Katz, who spoke to analysts and investors. She said that it was an astonishing quarter and demand for Oracle cloud infrastructure continues to build.
Larry Ellison, the chairman and co-founder of Oracle, saw his wealth jump about 30% on Wednesday to briefly go past Elon Musk as the world's richest person. Shares of Oracle were up 43% on Wednesday and closed 36% higher at about $328 per share, the steepest rise for Oracle since 1992. So for that brief moment, Ellison became the world's richest person with a net worth of about 383 billion.
Musk is the richest with a net worth of 384 billion. And Ellison is now just behind by about a billion dollars, if that makes any difference. Mark Zuckerberg, just for those who want to know, is at third place with 264 billion.
Amazon's Jeff Bezos at 251 billion. And Alphabet co-founder Larry Page at $209 billion. Now Ellison, along with two partners, founded Oracle in 1977.
It went public in March 86, a day before Microsoft. Currently, he owns about 40% of the company. Interestingly, Oracle was one of the earlier multinationals in the tech space to enter India, having started operations in India in 1987, in a marketing arm in 1993, and its India Development Centre in 1994, which obviously makes it more than 30 years ago.
A Textile Hit
Home textile manufacturers could see a 5-10% decline in revenue apart from reduction in operating profitability, as the new 50% tariffs imposed by the United States have come into effect from the 27th of August. Home textile exports represent about 75% of the industry's revenue, according to an analysis of about 40 home textile companies done by rating agency Crisil, which represent about 40 to 45% of industry revenue. What is helping at least somewhat now is the front-loading of sales between April and August, and also limited capacities of competing nations like China, Pakistan, and Turkey, with lower tariffs in the product category supplied by China, and of course, Indian manufacturers who are moving to other geographies.
But the impact will be more pronounced for companies that generate more than half their revenue from the United States, says Crisil. And to offset all of this, Indian manufacturers would try to increase trade with the EU, that's the European Union, the United Kingdom, which accounted for about 13% of India's home textile exports last year.
The Redevelopment Frenzy
If you drive in and around Mumbai, you cannot but have noticed old buildings being torn down and new buildings coming up in their place. And if you live here like I do, quite likely you know people whose building societies are furiously, and quite obsessively, I might add, negotiating with builders for the best deal in a swanky new building or tower. A report from real estate consulting from Knight Frank India said that by 2030, the current society redevelopment projects in Mumbai region would add something like 44,000 new homes at a value of about 13,000 crores.
In all at this point, a total of 910 housing societies have signed development agreements since 2020, and that's unlocked about 327 acres of potential land area based on current FSI utilisation norms, that's floor space index, and average unit sizes across regions according to Knight Frank. Moreover, the report says an estimated 160,000 societies were over the age of 30 and thus eligible for redevelopment, or welcome to a near permanent state of reconstruction, dust and grime for the next few decades. Over 80% of registered agreements in 2020 were for plots below 0.5, or that's 0.49 acres, highlighting the operational challenges of land aggregation in a city like Mumbai or a dense city like Mumbai.
The report says in 2020, about 754 societies with a plot area of up to 0.49 acres have signed deals for redevelopment. Now, Knight Frank has identified some 1,300 projects. A majority of them are in the western suburbs of Mumbai, or more than 70% at about 940, central suburbs at about 240, central Mumbai at about 90, and south Mumbai at 30.
So if you're looking for a relatively dust-free existence, then south Mumbai is perhaps where you should be in and for the near future. Now, all of this says Knight Frank is purely a supply-side estimate and does not factor in launch velocity financing or phasing constraints. All of this could also generate about 6,500 crores of revenues on account of free sales from the society redeveloped in the next five years, and the government could earn goods and services tax of about 6,500 crores.
It's also worth remembering, particularly if you're one of those living in these societies, that it can take time, eight to 11 years from ideation to handover, which means the projects are exposed to shifting market cycles and policy changes. I spoke with Ghulam Zia, Senior Executive Director of Research at Knight Frank, and an author of this report, and I began by asking him how he was taking away the impact of these new developments.
INTERVIEW TRANSCRIPT
Gulam Zia: Yes, a few of them would have been in the last stage of handing over because what we are talking about are development agreements, which is the concrete stage from concept to actually getting into execution. So when a society signs a development agreement with any developer, this is registered. So this actually goes through the IGR process and we get that data from IGR records from the registration office records and that's what we are talking about.
So these are absolute solid evidence of transaction. So typically, when a DA is signed, after that, about four odd years is time for a project to get ready and keys to be distributed to the homeowners. So that's a typical cycle.
So when we are talking about these 910 odd numbers spread over the last six years, I'm sure at least 10 to 15% of them would have been completed and people would be actually moving in in those apartments.
Govindraj Ethiraj: Right. Okay. So this is a lot of land where you've talked about almost 327 acres and buildings across the city, many of them in suburban Mumbai and also now in South Mumbai.
What is the impact of this going to be on the existing infrastructure and or conversely, is existing infrastructure ready to take on these larger buildings or even towers in many cases?
Gulam Zia: Well, let me explain the spread of this is actually, as I said, it's going to be over five years, five odd years are we expecting these units to come out of the market. As I said, part of them would have come about out of those 44,000 units, even if I evenly spread it and expect an annual 10 odd thousand units will come in the market. Now, it's also important to understand that in a year, how many apartments are sold against this number we spoke about.
So typically, for the last three, four years, we've been watching in the island city because we're talking about MCGM, BMC limit, Mumbai Municipal Corporation limit. Within that, in a year, roughly annually 40 to 45,000 apartments are sold. I'm talking about developers selling their wares, developers selling their apartments.
So about 45 odd thousand apartments on an average are being sold, of which this is not even 10% is what I'm trying to talk about. A huge chunk is actually SRA. In the last two, three years, almost a half to one third of the entire sales of apartments I'm talking about are on the back of slum redevelopment. And as you also highlighted, this is equally spread.
So when I'm talking about, of course, the major chunk is in western and central suburbs, almost about two third of it is in western suburbs only. In terms of numbers, Borivali leads out of this; almost about 150 odd are done in Borivali itself. And mind you, these are very small projects.
If you look at the sizes, most of them are less than half an acre. In fact, barely about 100 to 120 are where you are looking at more than one acre of a project. So those are the larger ones.
But out of those 910, almost 90% are below an acre. And these are smaller ones, not adding more than on an average about a dozen new apartments in each of these projects. So that, in my view, would not have much of an impact on the existing infrastructure, actually.
Govindraj Ethiraj: Okay. But you're also saying in your report that there could be 160,000 societies, which are over 30 years old, and would be maybe or potentially on the way to redevelopment. So are you seeing a big rush in the coming months or years?
Gulam Zia: Well, to answer that, let me explain where we are today, in terms of society redevelopments. In the last couple of quarters, the race for finding the project for society redevelopment has heated up so much that lots of developers are competing with each other to lure in societies to let them enter into this mad rush. And because of which, the possibilities are on the brink right now.
So developers have promised huge incentives in terms of additional areas against the existing apartments and a huge corpus. Of course, rents etc. for the transit period is also to be included as a cost for the developer.
But let's understand for a developer, because a developer is not buying the land, the initial cash flows are much relaxed. So he is in a position, a developer is in a position to give a large number or to promise big numbers to the society. But the problem is all those promises are hinging on today's market realities where the prices, house prices have shot up so much in last 2-3 years that if you are making an excel sheet basis these prices, in next 2-3 years, if at all a property has to cool down in the cycle and all of us know that real estate is a cyclical business, so if we are already reaching a peak in a year or so, post that we shall see some correction. And during that correction, these excel sheets will be completely falling apart.
And that's the scare, that's what we are talking about, that we have reached a position where it is already almost on the peak of the cycle and due to which now answering your question, this 150 or 1000 hour basis, the MCGM data, apartment buildings which are more than 30 years old is what we picked up from there. So all of them first of all will come into the development frame. Reasons also are important to understand, buildings where existing structures have already used a large FSI, typically 1, 1.33 FSI is what ideally buildings of 30 years old would have used. But in South Mumbai, even 30 year old buildings were high rises, which means that they have used more than 1 FSI. And hence, the dearth of good projects in South Mumbai is even felt even now. So net net, the number 150,000 we are talking about will not straight away convert into redevelopment, society redevelopment.
Also because most of the projects in South Mumbai have one more large issue, which is Rent Control Act. So with all of those constraints, not all of those 150,000 numbers that we're talking about would come in the fray for redevelopment. Majority of them at least in South Mumbai will be affected by these problems.
But even otherwise, it's going to take a long time for them to be coming into the market for redevelopment.
Govindraj Ethiraj: As you've explained the rollout now, and as you say that this will take time, what is the impact of this exercise, which is the redevelopment and with each redevelopment, obviously comes additional capacity or additional supply. What is the impact of this likely to be on prices overall?
Gulam Zia: While overall market realities may look a little mixed up all over like Delhi is already going through a slowdown, Bangalore is showing cracks. Mumbai in stark contrast is a market where there is no slowdown in the transaction numbers. We are watching month on month numbers, even August transactions, August sales have been almost the same, barely about a percentage or two reduction compared to last August.
So when you're looking at BYOI numbers, July was exactly the same. June was better than last June. And overall, if you look at the first seven or eight odd months, eight months of the year to date kind of numbers, we are almost 10% higher than last year, same time.
So the point I'm trying to drive across in Mumbai, at least the slowdown hasn't come yet. It may come in time to come, but for now, we do see the sales numbers are not relenting, and are not slowing down. And hence, if I talk about this inventory coming in already, it is coming in for the last two, at least two odd years, because as I said, four years for the earliest, the 2020-2021 apartments redevelopment to come now in the market.
These numbers are not going to have much of a dent in the health of the market yet.
Govindraj Ethiraj: Got it. Gulam, thank you so much for joining me.
Gulam Zia: My pleasure, always.
Non-Tariff Barriers
One of America's biggest trade grouses against India has been non-tariff barriers, essentially mechanisms which curtail exports into India, not because of tariffs or import duty levels, but non-tariff, and these are mostly on quality grounds and somewhat opaque. The issue, as many observers, even within India have pointed out, is that the incidence of non-trade barriers has increased quite dramatically in recent years, suggesting a concerted effort across industry to prevent imports of various goods from coming in, and for various reasons. I sat down with Global Trade Research Initiative, or GTRI, founder Ajay Srivastava in Mumbai last week on the sidelines of Ilara India Dialogues 2025, and I asked him to explain how this worked, what has been happening, and also to walk us through an illustration that he used in a recent column in Business Standard involving steel imports into India.
INTERVIEW TRANSCRIPT
Ajay Srivastava: So about 10 years back, there was a thought that the whole world was controlling imports through quality control orders. So developed countries, even China, cut their tariffs, but they set up a very complicated quality control order regime, which means even if tariffs are say 2%, but if a quality control order is in place, you have to meet its requirement. One or two prominent examples are Japan, tariffs on cars are less than 5%, but they have elaborate sets of such regulations like quality control orders and many others, and because of those, they use those to not allow most of the imports.
So as a result, 90% of the cars on Japanese roads are Japanese, more than 85% of cars on South Korean roads are South Korean made only. So to the world, you can say, see my tariff measures are so low, but you regulate through QCOs and other such mechanisms, the imports the way you like.
Govindraj Ethiraj: Now let's come to India. So India now has QCOs on a whole range of products that we are importing. So where is the problem now and why are we again, I mean, why are we talking about it so much today?
Ajay Srivastava: So we have less than 50 QCOs till 2017. Then we passed the new BIS Act, which facilitated a quick issuance of QCOs. For example, in the European Union, if you have to issue a QCO, you have to do a long drawn analysis of possible future impacts.
We don't do that. We just do some quick homework and issue this. So after 2017, we have issued QCOs covering more than 500 products.
I think more than 300, 400 product QCOs are in line. So suddenly, we showed and people said BIS doesn't have enough infrastructure to even implement these. So focus is on controlling imports, which we feel should be controlled and controlled in a way, a lot of subjectivity is there.
Govindraj Ethiraj: Okay. So I'm going to come to the products which are most affected in a moment, but walk us through the process of how QCO works. So let's say I'm an importer in India, or if I'm an exporter sitting outside and I want to send a consignment of products of a certain product, or if I'm the brand itself, let's say handbags, and if I want to send a consignment of handbags to India, what would follow next?
Ajay Srivastava: If we look in the framework, then if you are exporting to India, about 98% of the products are free, which means you don't require any licensing by the government. You just pay the import duties, custom duties, whatever is the duty and bring it. But now after the coming of the QCOs, if your product attracts the QCO, then apart from paying the duty, you have to obtain a BIS certification.
And in most cases, that means the BIS inspector will come to your factory in the foreign country, wherever you're located.
Govindraj Ethiraj: At your cost.
Ajay Srivastava: At your cost, of course, you have to bear all the cost, and then they will certify, and then only you can export to India.
Govindraj Ethiraj: And that certification is really a substitute for an ISI stamp or the equivalent of that?
Ajay Srivastava: The certification is for a BIS stamp. They give your product that meets that BIS or equivalent standards to be supplied to India.
Govindraj Ethiraj: Got it. If you were to look at the mix of products, which are the products that are now facing, let's say, the maximum hit in terms of these QCO orders right now?
Ajay Srivastava: Currently, more than 20,000 MSMEs in the steel sector, steel user industry are crying. So two things are there. One, for example, in steel also, I talk about, say, stainless steel, or let's talk about the full steel sector.
So steel is of two types. One is normal run-of-the-mill alloy steel, which is used in bridge making and other factory making general. And second is specialised steel, non-alloy steel, where, sorry, non-alloy steel is general steel, and alloy steel is specialised steel.
For example, for automotive, for making aircraft parts, we need alloy steel. So our production is predominantly non-alloy steel, which is low-quality, low-value steel for general purposes. 93% of our production is non-alloy steel, 7% is alloy steel.
So we import a lot of alloy steel. And if I look at the data, then I say, if I look at our production and consumption, there is a gap in production and consumption, and we meet that gap by imports. So imports are mandatory.
10% to 15% imports are mandatory. What QCOs are doing is that, earlier, the companies who were using those specific alloy steels like CRGO and others, were importing directly as per the needs from the factories. Now QCOs have come.
So what is there? Suppose 10 suppliers are there. Now you're issuing QCO to only one supplier of that particular steel.
Then you have to go to that supplier. And it's possible, it has happened, one large Indian steel company can approach that supplier, you have to supply only through me. You cannot supply other small things.
Now this guy is a big guy in India. So that supplier will supply him. He is the only supplier with the QCO.
So this guy becomes the importer. So he is also a large steel manufacturer in India, and also the largest importer. So MSMEs have to go to this Indian guy to get this imported material, and he charges premiums on that.
Govindraj Ethiraj: Right, but how does he have the ability to issue the QCO or give the certification?
Ajay Srivastava: So QCO is always issued by the BIS. It's a government body which uses a QCO. And that's why we say that BIS may have its intelligence to choose one particular supplier over others.
But the net effect is that, that particular supplier, if there are 20 suppliers, you are giving to one or two only, and that particular supplier is choosing to supply to only one large Indian company, then it restricts the markets. And earlier, the imports were made directly by the user industry. Now they have to go through the Indian suppliers.
Govindraj Ethiraj: Okay, so let's come to the latest complication that you've written about. You've said that basically if I'm importing steel, earlier I needed to have a QCO for the person that I'm importing from, or the country that I'm importing from. But today, if that country in turn is importing raw materials or some component of its final product, then the importer in India needs to produce justification or certification from the raw material supplier as well.
So it's really A to B and B to C, C being us. But now even A's credentials have to be established.
Ajay Srivastava: Yes. So suppose we are importing flat steel, steel panels we import, and it's under quality control orders. So the factory, supposedly, is based in Indonesia, and is supplying the flat steel panels to India.
It has to obtain a QCO by the BIS. That's fine. So while giving authorisation of QCO to this Indonesian factory, BIS people go there and check everything.
They also check what raw material this factory is using. They are checking that also so that they ensure that raw material quality is also maintained. It's in the BIS manual to check all these things.
But again, now this new order says, Steel Ministry Order 13 June, it says that the Indonesian factory, if it's buying the raw material for making that flat panel scale, suppose they are buying from Thailand, then the Thai factory supplying this raw material to the Indonesian factory also needs BIS certifications. So two, three things are there. One, these guys already, when they went to inspect the Indonesian factory, they already checked everything that raw material is compliant.
So this is totally not understandable how this is happening. No other country follows such practices. This is just a non-tariff barrier.
The non-tariff barriers we are creating to hurt our ore industry. We have more than 20,000 steel users, and their supplies will be there. And the funny thing is that, you know, this order came on 13th June, and they say it will be implemented from 16th June.
So there was just one working day. In one working day, do you expect this to happen? The third country company to come to BIS, BIS travelling to them, giving certificates.
So this is all pre-thought. People talk about many things that the company with which somebody intended that they should supply, they already got the certification before issuance of these orders. But all those things, I mean, are not in the public domain, but it is not a normal business practice.
It hurts the industry. We have to know that India's large, about six, seven large steel mills, produce most of the steel, 60% of the steel. But we have a 20,000 plus steel user industry, their exports are more than $10 billion.
And by doing these things, their exports and domestic supply, everything is being hurt. Right.
Govindraj Ethiraj: And like steel, are there any other examples where there are these secondary QCO requirements?
Ajay Srivastava: Yes. Secondary QCO examples, I think it's in the case of viscose staple fibre. So it's not exactly secondary.
We say, if we are importing something, we have to ensure the quality of the final product. And we should not worry about the raw material. The final product should meet our specifications.
So viscose staple fibre or polyester staple fibre by implementing QCOs on this, we are hurting the raw material. We should ensure the quality of the final product which is being sold or which is reaching the consumers. So by this, applying QCOs on the raw material, these things are basically non-tariff barriers.
Govindraj Ethiraj: Right. So let me ask you a larger question to wrap up. So these QCOs have been mentioned by Donald Trump, maybe he's not used the word, but he's referred to them as non-tariff barriers.
It's been an issue for India even before Trump raised it. I mean, a lot of Indian consuming industries have been pointed out. What's your view on QCOs as a whole?
And are there areas that we could be removing them or diluting their impact at this point?
Ajay Srivastava: So QCOs are not bad in terms of definition. In most countries, they use them. And if you're using them to control imports to a certain extent, I don't mind doing it because in China and Europe, everybody does this.
But don't do things which hurt your own industry. Here, QCOs, what QCOs are doing is that you are deciding who will import, who will not import. So you're deciding even the company who is going to import by your QCO decision.
That should not happen. We have to treat all industries, big and small, with the same equal eye, equal objective. So at least in steel QCO, that's not being ensured.
Govindraj Ethiraj: Right. Mr. Srivastava, thank you so much for joining me.
Ajay Srivastava: Thank you.
The Air India Crash
Air India CEO Campbell Wilson reiterated on Wednesday a preliminary report of the June 2025 Air India crash in Ahmedabad, saying that it indicated there was nothing wrong with the aircraft, nothing wrong with the engines, and nothing wrong with the airline's operation. He also said that the airline has taken a significant safety pause to ensure that all their practices and procedures are fully embedded.
Wilson said Air India has embraced a new normal and stepped up safety focus following the crash of that aircraft in June, which was the deadliest aviation disaster in a decade. All but one of 242 people on board Air India flight 171 on the 12th of June were killed when that Boeing Dreamliner 787 bound for London from Ahmedabad crashed seconds after takeoff. Another 19 people were killed on the ground.
Wilson was speaking at the Airline Passenger Experience Association's conference and expo in Long Beach, California on Tuesday.
The E20 Controversy
Will ethanol blended fuel reduce the mileage in your car or two-wheeler and also harm the engine? Well, there is a furious debate raging, though it's now clearer that there will be some impact and surely it's not positive.
Some vehicles using 20% ethanol blended fuel could suffer from reduced mileage and acceleration, Reuters quoted a senior executive at Indian carmaker Mahindra and Mahindra speaking on Thursday. Mahindra is also apparently drafting an advisory on this E20 blended fuel, which should reach customers next week, according to the CEO of its automotive division when speaking at an industry body Conclave. E20 has become the only choice of fuel at something like 90,000 fuel stations across India, which has obviously led to complaints from motorists concerned about the impact on older vehicles.
There's also an interesting battle being waged on social media with those who are complaining and with a lot of people who seem to be supported by the ethanol lobby that are now saying that it's actually good for vehicles. Last month, the automakers group, the Society of Indian Automobile Manufacturers also said that using E20 fuel in older vehicles lowers mileage, but is not a safety risk. India's Union Road Transport and Highway Minister Nitin Gadkari a day ago blamed the petroleum lobby or rather what he called the petroleum lobby for fuelling concerns around the government's push for E20.
He defended it as both climate and cost friendly and noted that India spends billions each year on importing more polluting fossil fuels.
