Markets Claw Back After A Roller Coaster Ride
The question analysts are now posing is whether the markets have entered a fresh trajectory in terms of new baselines and new directions
On Episode 581 of The Core Report, financial journalist Govindraj Ethiraj talks to Indrani Bagchi, Chief Executive Officer at Ananta Centre as well as Garima Kapoor, Economist & Executive Vice President at Elara Securities (India).
SHOW NOTES
(00:00) The Take
(04:31) Markets claw back after a roller coaster ride
(05:29) Bank of America replaces Japan with India as top Asian stock pick
(07:27) Are India-US relations breaking down right now?
(13:58) Inflation is at a 6-year-low. What does that mean and can it sustain?
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 Thursday, the 15th of May, and this is Govindraj Ethiraj, headquartered and broadcasting as well as streaming from Mumbai, India's financial capital.
The Take
Two weeks ago, beautiful iPhones would all be made in the United States, and millions of jobs would be created stateside for phones and much more.
This week, it appears that dream is on pause. As is presumably the golden age these tariffs were supposed to herald in the United States, particularly for manufacturing. While there is no way to predict whether America's import tariffs on Chinese imports will reach 30 percent, at the present rate, after the latest deal, it does feel that it is unlikely to go higher.
Moreover, the consensus seems to be that most tariffs will eventually converge around 10 percent, which is also likely to be on the higher side. Because even a 10 percent tariff is four times of what it was earlier in the United States, so exporting into the U.S. will not be easy and will strain exporters, particularly industries working on thinner margins like in India and industries like apparel. But the problem is not the tariff rate.
It is about what it does to plans for businesses. Just in the United States, several companies have rushed to announce manufacturing plans in the United States. Global multinationals like Eli Lilly, Johnson & Johnson, Apple, Taiwan Semiconductor, TSMC, Novartis, and Roche all announced major investments in the U.S. after they tried to beat the Trump tariff trap. In February, President Trump warned drug makers in a private meeting that tariffs were coming and companies should hustle to move overseas manufacturing to the U.S., according to a Bloomberg report then. Arguably, the CEOs of those companies would have taken calculated bets when announcing their investments, wargaming a business case scenario, were the tariff threat to fade away or be watered down. But this is a capitulation they were surely not prepared for because in some ways they had little choice but to announce those plans at that time and perhaps pray that they would have time to see it through or not at all.
Compared to assembling phones, biopharma manufacture appears to have more value-add potential in the U.S., at least going by the investments. But we don't know. The problem is that the ideology of bringing manufacturing back to the U.S. has evidently been hijacked by the deal. The ideology was clear in its scope and definition. In a statement that must stand out for its remarkable lack of forward thinking, U.S. Commerce Secretary Howard Lutnick told CBS' Face the Nation a few weeks ago that there would be an army of millions and millions of people screwing in little, little screws to make iPhones in the U.S. as a result of those Trump trade deals. But if the deal could override the golden age promises of armies of millions screwing in little screws, it's not clear whether the ideology was ever in the reckoning.
Was it a part of Trump's part of the deal where a tariff threat would be used to negotiate better terms for the United States? If so, what happens to the citizens who are hoping to see scores of new factories and jobs humming away in their respective states and regions? Maybe those new shiny factories were in the consideration set.
Maybe they never were. The events of the last few months have been illustrative. For one, they tell us that there are some things in the manufacturing supply chain that are tough if not impossible at this stage to move around, especially to the west from the east.
Like smartphone assembly by giants like Apple who are already cutting side deals, another outcome of high tariff walls. Second, trade is a tricky subject, and its nuances are not understood by everyone. The idea that trade deals hammered out in distant lands can have catastrophic impact on businesses and livelihoods is only now sinking in.
Even the current deal with the UK and China that America has signed on will take months if not longer to detail out. India's own deal with the United States is yet to be formalised, though we heard promises of it coming in a week, and that was several weeks ago. The other lesson, as the Trump-friendly Wall Street Journal also reminds us, is that the markets have to be respected.
Whether it is financial markets including stocks and bonds or trade markets, all have rejected the Trumpian vision of tariffs making America great again, if indeed that was the vision. And the lessons from this non-stop self-induced economic roller coaster are for all countries to learn, and that it is not the millions who would tighten screws on iPhones, rather that the screws would tighten on them.
And that brings us to the top stories and themes for the day.
The stock markets claw back after a roller coaster ride.
Bank of America replaces Japan with India as its top Asian stock pick.
Are India-US relations breaking down right now, and what does that mean?
Inflation is at a six-year low. What does that mean, and can it sustain?
The Stock Markets Pull Back
The stock markets seed and sawed yesterday as bulls and bears played a tug-of-war through the day in keeping with a broadly positive undercurrent which is keeping up markets relatively. Including in somewhat stressful times recently, they did recover. The question analysts are now posing, of course, is whether the markets have entered a fresh trajectory in terms of new baselines and new directions.
Let's see. On Wednesday, markets took some cues from the latest retail inflation numbers and more on that shortly apart from a rally in metal and information technology stocks. India's retail inflation has slipped to 3.16% in April, the sixth consecutive month of decline. In a late-stage recovery, the Sensex rose about 182 points and closed at 81,330, and the Nifty 50 was up 88 points and closed at 24,666. The broader markets continue to do better, outperforming the benchmark indices for several days now. The BSE mid-cap was up about 1.2%, and the small-cap index was up about 1.6%. All of this gives you a sense on how funds are flowing back again and where. Meanwhile, India has replaced Japan as the fund manager's top Asian stock market pick, as the country is likely to benefit from supply chain shifts amidst global trade tensions, according to Bank of America Securities' latest monthly survey quoted by Bloomberg. In that fund manager survey, 42% said that they were overweight in India, followed by 39% for Japan and 6% for China, and Thailand fared the worst. A total of 109 panellists with $234 billion of assets responded to the survey's regional questions.
Bank of America strategists said that India emerges as the most favoured market perceived as a likely beneficiary of the supply chain realignments following the effects of tariffs. Moreover, in India, infrastructure and consumption continue to be the primary themes that investors are keenly monitoring. The tariff-driven volatility in global markets has driven investors to deem India as a relative haven given its heavier dependence on domestic consumption over exports, the report pointed out.
The rupee meanwhile continued to hold its gains, ending modestly higher on Wednesday as strong dollar demand from state-run and foreign banks eroded positive cues because of broader weakness in the dollar which in turn helped lift most Asian currencies. Like the stock markets, the rupee swung between gains and losses through Wednesday's session before ending at Rs. 85.27 against its previous close of Rs. 85.33, according to Reuters, which also pointed out that the dollar index was down 0.6% at 100.3 while most Asian currencies gained with the Korean one up and the offshore Chinese one was little changed at 7.2. Meanwhile, oil prices fell slightly on Wednesday after traders acknowledged a likely rise in U.S. crude inventories even as the Organisation of Petroleum Exporting Countries lowered its oil supply growth forecast for producers outside OPEC+.
Brent crude futures were down $0.75 to about $65.88, which means just under $66 a barrel.
All's Not Quiet On The Western Front
India on Tuesday pushed back against the U.S. President Donald Trump's offer to mediate on Kashmir and his claim that he used trade to prevent a nuclear war between India and Pakistan. Indian officials also denied that trade with the U.S. was used as a bargaining chip in the just concluded ceasefire between India and Pakistan, contradicting statements by President Trump that the U.S. offered to trade more with both countries if they stopped hostilities. Donald Trump said at the White House on Monday that I said, come on, we're going to do a lot of trade with you guys, let's stop it.
If you stop it, we're doing trade. If you don't stop it, we're not going to do any trade. Indian officials who asked not to be identified told Bloomberg that trade was never discussed with U.S. officials in a series of conversations in the lead up to the ceasefire with Pakistan and several details were shared. This is all a new stance and ties with India's retaliatory duties that were also announced yesterday and all of this changes the picture somewhat. Remember a few months ago India seemed to be going all out to make and keep the U.S. happy including Trump and by extension his confidant Elon Musk by offering concessions upon concessions to Tesla and its manufacturing plans for India as well as deals including effectively strong-arming, at least that's my interpretation, Reliance and Airtel to form marketing arrangements with Musk's Starlink satellite internet project.
I reached out to Indrani Bagchi, CEO of Ananta Aspen Centre and columnist with the Times of India on Diplomacy and External Affairs, on what had changed and also what lay ahead.
INTERVIEW TRANSCRIPT
Indrani Bagchi: I think there is a short-term irritation that India is sort of laying out because that 4.30 p.m tweet by Donald Trump on the 10th saying that, oh yeah, suddenly we've got a ceasefire was a shock to the Indian system. Nobody was expecting the announcement to come from them. The ceasefire or rather the pause or the suspension had been agreed upon by the two DGMOs at 3.30. We were told a very precise time of 3.35 but that had been agreed and they were going to announce it but to have the announcement coming from Washington was disquieting for the Indians. Subsequently, I think Trump hasn't really left that space and even last night he said in Riyadh, oh I think we can get India and Pakistan to go and have dinner together which is a bit odd and then he said gave that thing about the trade so the Indian system I think in a very very rare thing yesterday had to rebut all of what the president said in a formal briefing.
Govindraj Ethiraj: Right, so you're seeing all of this as linked. From the India side.
Indrani Bagchi: The retaliatory tariffs?
Govindraj Ethiraj: Yeah.
Indrani Bagchi: You know we didn't take any retaliatory tariffs against the Americans. We were told that out of the 19 chapters of the bilateral trade, the BTA that's being negotiated, about seven chapters were done but we also heard from people in the government that India apparently offered zero for zero on a number of sectors. The US actually said, oh no we want to keep 10% on some things.
So they resisted taking retaliatory tariffs in the hope that a bilateral trade agreement would be done soon. It is possible that they used this time to put the tariffs back on to them as a statement that they were not very happy with the US response both to the trade negotiations because there is a sense in India that the US is taking a little longer than necessary and this is a very rare situation and Govind you would know that better than anybody that India has always been the one dragging its feet and this time we were the one making the offers and sort of telling the Americans to go do this quickly and the Americans were dragging their feet.
Govindraj Ethiraj: That's interesting because Howard Lutnick did say that you know it is taking time which he said I think after having said that the deal would be closed quickly and he referred to those 7000 lines of tariffs which have to be negotiated through. So all these months maybe since Donald Trump was elected and maybe even to some extent in the run-up India has been fairly friendly and making more than expected overtures to Trump, to Elon Musk and so on. So this is obviously a reversal.
So is this reversal likely to stop with these few statements or what's your sense? How are you seeing things ahead?
Indrani Bagchi: My sense is you know people in Washington did not at least this administration do not have the people who have that sense of history or that sense of institutional memory about the sensitivities in India regarding an India-Pakistan conflict or hostilities. My sense is that it will right itself in Washington. They're not fundamentally opposed to India.
In fact they actually regard India as a very useful partner. So my sense is that they've taken several missteps on this one and they cannot backtrack because their president is continuing on the same track. Nobody as far as I have seen has opposed the president in the US system, at least this president in the US system.
So I think we'll have to write this out. I don't see this as a deal breaker in the relationship. I see this as a hurdle, as like a speed breaker rather than a deal breaker.
Govindraj Ethiraj: Right. Indrani, thank you so much for joining me.
Indrani Bagchi: Thank you. Thank you Govind. Thank you very much.
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Meanwhile in another geopolitically important event at least from the Indian perspective, India's cabinet has approved a new semiconductor plant, a joint venture between HCL Technologies and Taiwan's Foxconn, costing about $435 million according to the information minister who said this on Wednesday. The plant will be located near the Jewar Airport in the state of Uttar Pradesh and is designed for a capacity of 20,000 wafers per month and can produce 36 million display driver chips, the minister said at a cabinet briefing in New Delhi on Wednesday. The core report had argued several months ago that once hardware, though now software companies like HCL and Wipro ought to take the lead in chip manufacturing and were better positioned to do so than most other companies.
Decoding The Impact Of Lower Inflation
India's headline inflation has slowed to 3.16% year-on-year, the lowest since July 2019. A sequential decline in food inflation for six consecutive months has helped. All of this is of course increasing the clamour for interest rates to be cut faster than otherwise expected.
Consumer price inflation excluding food and beverages rose about 20 basis points in April to 4% year-on-year versus 3.8% in March 2025. So it's really vegetable prices that are keeping inflation low, which continue to decline for six months straight, though prices of fruits and oils and fats limited a further decline in food prices. In general, most food prices have remained low or lower.
So with inflation at these low levels, what does it mean for consumers as well as the economy in general? And what does that say about the entire macroeconomic data package? I reached out to Garima Kapoor, Executive Vice President and Economist at Elara Capital, and I began by asking her what the latest numbers meant.
INTERVIEW TRANSCRIPT
Garima Kapoor: This inflation trend will have two major implications. One, of course, is that it will give a greater room for interest rates to come down much quicker than what they have been in the last few years, number one. And number two, for a consumer who has been battered with elevated inflation, particularly on the food side, and more so for most part of last financial year, has been or had been seeing elevated interest rates, relatively very high real interest rates and very little pickup in terms of income and wages, this should sound good news.
So it's quite possible for an economy that is entering into a low interest phase and inflation, which is going lower on a more durable basis, could actually feed into a relatively better uptick in consumer demand than what everybody was factoring in, at least until six months prior to the current drop.
Govindraj Ethiraj: Right. So if that is indeed the case, would you say that macroeconomically speaking, we are in a very good place? Or are there other factors that are perhaps counterbalancing?
Garima Kapoor: No, from a macroeconomic standpoint, I think the fact that global commodity prices are turning benign. The tariff-led effect on the supply chain has got pushed ahead. The demand concerns are amplified and the output of oil continues to rise.
So global prices of crude, particularly where India is the largest importer, should be supportive. And more importantly, both the central bank and, let's say, the government, which was struggling to revive growth back, particularly to a handle of six and a half percent and above, this is probably the right time to be able to push the pedal. Because remember, the government has recently also given a tax break in terms of rebates.
So that, along with low inflation, low interest rate, all of these three combine at a perfect time to be able to revive consumer demand, which otherwise has been pretty soft in the economy for the last two years.
Govindraj Ethiraj: Right. One of the key contributors to high inflation, which you talked about last year as well, was obviously food prices, which in turn were being driven up and down by inclement weather, which included high temperatures, extreme weather events like rains, within rains, extreme weather events and so on. So can we then assume or could we take for granted the fact that we will continue to see these low interest rates and something may again not come and append it in future?
Garima Kapoor: See, from what we know is, when it comes to weather related uncertainties, it's very difficult to guess where we're headed, mainly because of the vagaries of monsoon, unseasonal rains, spike in temperatures, which are also unseasonal most of the time. But the recent checks on rural India that I have just concluded, tell me that the Ravi crop has been reasonably good compared to the last two seasons. There wasn't any damage to the crop because there wasn't a spike in temperature nor unseasonal rains.
Now, to expose this on the expectation that monsoon is also expected to be normal and arise early, then it also bodes well for the Kharif crop. So at least for the current financial year, for which the previous Ravi crop is important and the upcoming Kharif crop is important, it looks like the visibility is fairly there that you will not see an unruly spike in food prices. Also, I must mention here, the management of food prices in India, particularly because of persistent intervention of the government and the bad job of bounty that you've seen in Ravi, you are seeing food prices in India correct in the month of April, which is absolutely unusual and unseasonal.
Every April, for as far as you can go to the CPI, you will never see food prices deflate on a sequential basis. This pattern tells you that some things in terms of normalisation of weather patterns along with policy intervention to ensure adequate supply are now beginning to yield outcomes. So at least for the next 6 to 12 months, the visibility of food-related spikes should be much lower than what we've seen in the previous year.
Govindraj Ethiraj: And if I were to just drill down into that for a moment, into vegetables and potatoes, onions, tomatoes or tomatoes, onions, potatoes, top, do you feel that you can see some sense of visibility in consistent prices? Because these have been the problem vegetables in the past.
Garima Kapoor: These three will always stay a problem. It's difficult to assess the supply patterns for these three because there is a significant concentration of production of these three, particularly onion and tomatoes, which is only concentrated in five states of the country. So even if one state gets destabilised in terms of output, it will have an impact on prices.
So all it would need is a week of unseasonal rain. All it would need is probably a 15-day delay in the rainy season. So it's difficult to estimate.
But if I remove the variable component, the volatile component on vegetables and look at everything else, the pattern seems to be very benign, whether it's cereal, it's pulses or oilseeds, and a large part of it can be attributed to government's measures of restraining exports, ensuring duty-free imports, and then probably stocking limits that they have been putting. So safe to say that even if vegetable prices start to turn very volatile, unless they move to a level where they were like six months ago at 40-50% level, you're unlikely to see significant disruption in the pattern or trend of inflation. Right now at the negative 10%.
So we've seen a swift movement from a positive 43% to a negative 10% in the matter of six months. So that just explains how volatile they are.
Govindraj Ethiraj: And last question, so we've talked about vegetables. What about the other components that drive inflation down or up? I mean, are those looking steady in your outlook for the rest of the year?
Garima Kapoor: So exo-vegetables, from what we know as the output based on recent checks, the output of wheat has been comfortable. So you should not have any trouble there. The prices of pulses vertically continue to remain benign because of certain policy measures of the government.
Oilseeds, which saw a huge spike, mainly in the backdrop of the Russia-Ukraine war, which took about two years for us to normalise, are now in the normalisation zone. And the protein component basically, which is largely into eggs, meat and fish, are also not seeing any unruly spike. So safe to assume we probably are looking at a favourable outlook for food as a component, even outside vegetables.
Govindraj Ethiraj: Right. Garima, thank you so much for joining me.
Garima Kapoor: Thank you.
