Markets Dip Further as Q1 Results Start Rolling In
The tariff missiles are flying thick and fast now with figures ranging from 50% to 500% depending on the target and the rationale
On Episode 629 of The Core Report, financial journalist Govindraj Ethiraj talks to Priyanka Kishore, Director and Principal Economist at Asia Decoded.
SHOW NOTES
(00:00) Stories of the Day
(00:50) Markets dip further as Q1 results start rolling in
(05:19) Inflation could fall further to 2.5%
(05:55) Trump tariff range from 50% to 500%, labour intensive countries most hit
(14:24) The delay in releasing information on the Air India Ahmedabad crash has serious consequences
(18:11) Heat waves in Europe have killed over 2,300 people in last week's estimates
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 11th of July, and this is Govindraj Etiraj broadcasting and streaming. Weekdays from Mumbai, India's financial capital,
Our top stories and themes.
The stock markets dip further as Q1 results start rolling in.
The Trump tariff range is from 50 to 500 percent. Labour-intensive countries are some of the most hit.
Inflation could fall further to 2.5 percent.
The delay in releasing information on the Air India-Ahmedabad crash has serious consequences.
Heat waves in Europe have killed over 2,300 people in the last week, according to estimates.
The Tariff Missiles
Well, the tariff missiles are flying thick and fast now, with figures ranging from 50 to 500 percent, depending on the target and the rationale. For example, 50 percent of goods made in Brazil. Rationale is attacking U.S. tech companies and conducting a witch hunt against former President Jair Bolsonaro, facing prosecution for his alleged role in a plot to overturn the 2022 election.
That's in Brazil. India is facing a 500 percent tariff for importing crude oil from Russia, which, of course, it has been ever since sanctions against Russian oil kicked in, has also benefited with lower oil import bills, which have also benefited you and me, who have had to fill up gas at the pumps. Now, the markets are unable to process all of this beyond a point and can't compute these rapidly shifting goalposts and are now increasingly shagging off all of this.
A report in CNBC says it appears that investors have decided to approach Trump's tariffs by not responding at all, and they've shifted their focus away from tariff developments and instead rekindled their appetite for artificial intelligence. On Wednesday, traders bought up shares of NVIDIA, causing the company to become the first in the world to touch a market capitalization of $4 trillion. Other stocks that also rose were Microsoft, Alphabet, and meta platforms, says CNBC.
Back home, the indices fell further on Thursday as investors readied for Q1 earnings, the first one being TCS, or Tata Consultancy Services, which was released post-market close at 3.15pm, that's on Thursday, July 10th. In anticipation, IT stocks were under pressure during the day. The Sensex was down 345 points to 83,190, while the Nifty 50 was down 120 points to 25,355.
In the broader markets, the Nifty Mid Cap and Nifty Small Cap were down less, perhaps 0.3% and 0.3% too. Almost all the corporate action is really in raising funds or selling equity to raise funds, occasionally for balance sheets, but more often for exits. A fund manager told me a few weeks ago that is not necessarily a bad thing because 60 to 70% of funds raised for exits usually find their way back into the stock markets in some way.
Some 30% could well go into real estate as we've seen deals for apartments in Mumbai, the size of which, I'm talking about the deal size, which can only be termed as staggering. Since the markets and millions of investors are willing providers of these funds, well, who is anyone to complain? Speaking of fundraising, State Bank of India, the country's largest lender by assets, could sell as much as 25,000 crore rupees or close to $3 billion of shares to institutional investors as soon as next week in what could be the biggest deal of its kind, according to Bloomberg. Meanwhile, TCS reported lower than expected first quarter revenue on Thursday as clients remained cautious about discretionary spending amidst all that uncertainty around tariffs that we've been seeing since April.
Consolidated sales at TCS, which is also India's largest IT services company, rose about 1.3% to about 63,000 crore rupees or about $7.4 billion in the June quarter, according to Reuters, which also added that revenue is the main metric that analysts and market participants are looking at in Indian IT as most companies provide annual revenue growth forecasts. Net profits rose 6% for that three-month period to about 12,760 crore rupees. Analysts had expected a profit of 12,216 crore rupees as per data compiled by Reuters LSEG.
With all this ongoing US tariffs uncertainty, spending in the US has slowed down or deferred in some cases. TCS CEO K Krithivasan said that the continued global macroeconomic and geopolitical uncertainties have caused a demand contraction. Last month, Accenture, a big name that everyone looks at and looks to, also saw its stock prices fall almost 6% after it reported lower deal numbers in its quarterly results, something that we refer to here.
TCS's total order bookings were about $9.4 billion during the quarter. They were about $12 billion the previous one and about $8.3 billion in the year ago quarter. Other tech results are coming soon.
HCL tech will come next week and Infosys should come after that. Meanwhile, the rupee held more or less steady for another day. It's hovering basically between 85 and 86 rupees in the last two weeks, even as foreign portfolio flows are now slowing to muted and of course the markets are waiting for more cues from the trade front.
Reuters says the rupee settled at about 85 rupees 63 paise as opposed to 85 rupees 67 paise in the previous close.
Inflation Falls Further
An easing of food price rises and a high base could bring Indian inflation to a more than six-year low in June, according to a Reuters poll of economists.
Food prices, as we pointed out just yesterday, using the thali or plate example, have dropped sharply year on year, particularly thanks to falling prices of vegetables, including tomatoes, onions, and potatoes. So consumer inflation as measured by the annual change in the Consumer Price Index, or CPI, eased to about 2.5% in June from 2.82% in May, according to a survey of 50 economists between the 7th and the 10th of July conducted by Reuters.
The Latest In Tariffs
India is yet to get a letter from US President Donald Trump laying out what tariffs Indian exporters will face into the United States. Meanwhile, India and the United States are trying to negotiate and finalise a trade agreement. Commerce Department Special Secretary and the proposed deal's chief negotiator, Rajesh Agarwal, said in a report quoted in Business Standard.
He was speaking at a Confederation of Indian Industry event on Thursday. That's yesterday. He said that India is trying to negotiate and finalise a deal with the United States, and we are into negotiations reviewing the ASEAN trade deal.
And the idea is now we're also integrating in a big way with the major trading partners across the world and major economies. A team of officials headed by Agarwal may head to Washington or I guess back to Washington as early as next week to pick up discussions on the interim trade deal, as well as the first phase of the bilateral trade agreement that both sides want to finish by the autumn of 2025, said the Business Standard report. Now, the United States has extended the date of implementation of country-specific reciprocal tariffs by over three weeks to 1st of August, obviously giving room for further negotiations to happen if they do.
Meanwhile, a note by Singapore-based economist Priyanka Kishore has pointed out that Trump's tariffs as they stand disproportionately impact Asia's smaller economies and those with more labour-intensive exports to the US. For most, she says, these vulnerabilities overlap significantly, weakening their economic outlook. She quotes the example of Cambodia.
According to her, Trump's 36% reciprocal tariff would leave Cambodia significantly worse off despite a 13% or rather 13 percentage point reduction from the initially proposed level. Not only is the US the largest export market for the country, but also nearly 60% of its exports to the US are labour-intensive. Others in Asia face similar headwinds as Trump tariffs disproportionately hit smaller economies and those with labour-intensive exports.
So the solution obviously is a strong policy response to buffer domestic demand and the impending external shocks, she says. She also adds that in addition to negotiating with the US for tariff relief and pursuing expansionary macroeconomic policies, governments should focus on broader economic reforms to boost competitiveness, diversify export markets, and deepen regional trade. I spoke with Priyanka Kishore and also asked her how she was reading the current situation in the current tariff environment in and around the region, including for India.
INTERVIEW TRANSCRIPT
Priyanka Kishore: So, first of all, thanks for having me back. And honestly, I don't think much has changed since the 2nd April announcements of Liberation Day. Yes, so some countries are seeing lower rates.
Cambodia, for example, has seen a 13 percentage point reduction in the tariff level amounts. It's still 36%, very steep for a country which has outsized dependence on the US for its export market. And nearly 60% of its exports to the US are labour sensitive.
Look at Indonesia, the largest ASEAN economy, unchanged at 32%. Again, a large part of its exports to the US are labour intensive. So at least, you know, from Asia's perspective, far and wide, Japan, South Korea, all the letters that have gone out so far, Philippines actually seeing an increase in its tariff rate of 20%.
It doesn't look like things are any better for Asia than they were on 2nd April.
Govindraj Ethiraj: And therefore, should we all now reconcile to a blended rate of sorts, which could be obviously in double digits, but obviously will also differ, rather than now expecting that things can ever go back to what they were before April 2nd?
Priyanka Kishore: Yes, for sure. I don't think anybody should pin their hopes on things going back to before the 2nd April. In fact, you know, you should be erring on the side of caution because there's always the risk of higher sectoral tariffs coming in.
So for example, electronics are under exclusion right now. They're a major part of Asia's exports to the US, including in India, Vietnam, etc. And we don't know what kind of sectoral tariffs might come in.
For example, President Trump said that 200% tariffs might come in for pharmaceuticals a year or so down the line. So there's a high level of uncertainty and risk to tariffs, I would say, are on the upside.
Govindraj Ethiraj: And that's clearly a set of factors that are beyond anyone's control right now. So what are people doing, whether it's in businesses or as trading strategies, preparing for this world, as you see it?
Priyanka Kishore: So I think there's an interesting bifurcation, if I may say so. For example, markets seem to be a bit de-synthesised at this point to all the tariff announcements. As you say, they're coming fast and loose.
There's not much reasoning. And the US keeps pushing back the deadline. So now we have a deadline of 1st August.
And there's a sort of hope that the tariffs will never come in because of the repercussions that would have for the US itself in terms of higher inflation and growth down the line. Businesses, I would say, are not as complacent. They're quite panicked by the situation.
So if I look at, for example, the Vietnam deal, which is the only Asia deal we have so far, there are two parts to it. One is a 20% base rate for Vietnam. Extremely good.
I mean, coming down from 46% to 20% in the grand scheme of things right now. But then there's a clause of transshipments that, you know, 40% of the goods that are transshipped by countries to avoid higher tariffs, meaning China from your country will be tariffed at 40%. And businesses really don't know how this transshipment would be identified, what share of Vietnam's exports get impacted by 40%, as well as 20%.
So the uncertainty, it is definitely keeping them still. They are where they are. They're not making major expansion plans or movement plans.
And I also think that the export front loading that we have seen from the U.S. so far, that's going to ease off as inventory restocking comes down. And so I think the second half is looking quite bleak from a business perspective at this point of time.
Govindraj Ethiraj: Right. And are you seeing any shifts in the way trade is happening? Obviously, all of this is because a lot of trade is an export is U.S. bound and has been. But are you seeing any other shifts in the region or potential for shifts now that people are or as people are coming to terms with this new world?
Priyanka Kishore: So the first and foremost shift is, of course, China shipping more to Southeast Asia and also more to Europe for that matter, but primarily more to Southeast Asia. Some of it, of course, for domestic consumption in the region, but also, you know, transshipments to the U.S. of the illegal variety, not just the legal variety. That is something that has been going on.
It has gained traction. Now, the other theme which has now started gaining traction is, you know, identifying markets other than the U.S. to make your exports more resilient. So be it intra-regional trade in ASEAN, within ASEAN countries or between Asian countries or third party countries, the EU has become very prominent in terms of businesses looking at it.
But let's not kid ourselves. Right. The U.S. is the biggest source of final demand for this region. And any such shifts will take time to happen. So there's definitely, you know, rethinking and re-strategising, but any shifts are going to take more than 12 to 18 months.
Govindraj Ethiraj: Right. And if you were to look at economies, including India, I mean, India, for example, seems to be on a slightly good wicket on some macro aspects. How are you seeing economies in the region?
And is there anything that stands out for you at this point of time, which will be either from a resilience point of view or an adaptability point of view?
Priyanka Kishore: I think two things matter, right? How much are you reliant on outward industries versus, you know, local demand led industries, so domestic demand, and how much policy space you have to support your own growth from these external shocks. So as you rightly mentioned, India does look relatively better.
It could be that, you know, it loses its tariff advantage eventually when the deal comes out and both it and Vietnam end up at similar levels of 20% or so, then, you know, we do see a slowdown on those kinds of investments. But in the short term, anyway, FDI is on the back foot. So, you know, it's the domestic matters that become more important.
So the Philippines, India, even Indonesia, to a certain degree, I think they will be outperforming compared to the more open economies.
Govindraj Ethiraj: Right. Priyanka, thank you so much for joining me.
Priyanka Kishore: Thank you for having me, Govind. It's always a pleasure.
The Ring of Secrecy
The Aircraft Accident Investigation Bureau in the Government of India has been able to extract good data from the black boxes of Air India 171 which crashed in Ahmedabad last month.
Its officials told lawmakers on Wednesday during a parliamentary panel meeting on aviation according to a Reuters report. The plane's cockpit voice recorder and flight data recorder, as the black boxes are known, were recovered the day after the crash, one from a rooftop at the site on June the 13th and the other from debris on June the 16th. The preliminary report from the investigation into the crash could be made public today, according to Reuters reports and other reports.
The crash investigation had narrowed its focus to the movement of the plane's fuel control switches and also focused, at least partly, on engine thrust issues, something Reuters also reported last month and something that's been picked up by many aviation experts, particularly on social media. Now, while the report may come out today or soon, the fact is that the lack of a preliminary report or any interaction by authorities on this subject with the media has created a massive vacuum in the airline and aviation industry globally. From pilots flying 787s or, for that matter, all Boeing aircraft or could be all aircraft, to passengers, to engineers, to crew, to aircraft manufacturers, and essentially the entire aviation ecosystem is waiting for some insights with bated breath.
These insights would help aircraft manufacturers like Boeing, for example, in this case, take remedial steps if it involves aircraft or their engines or pilots for some pilot procedures or some other factor to do with ground handling or infrastructure. But the fact is that there is no knowledge at all and social media is having a field day, including circulating completely fake reports about all kinds of genuine-sounding reasons allegedly responsible for that crash. And the reasons why these sound genuine are simple.
They've happened in other aircraft and situations but are quite improbable, if not impossible here. But either way, we do not know. So the bottom line is that this is not the way to handle information flow after a disaster of this magnitude and definitely not in such a globally sensitive industry like aviation where people are flying all the time and at a time when there is such a large information vacuum into which conspiracy theories are pouring in by the minute.
NVIDIA At $4 Trillion
NVIDIA became the first company in history to reach a market value of $4 trillion, beating Apple and Microsoft in the process to that milestone in trading on Wednesday morning on the NASDAQ exchange. The AI chip giant has seen its fortunes surge in the last three years thanks to the rise of Generative Artificial Intelligence or Gen AI, an emerging technology that promises to revolutionise business and remake how humans interact with technology, according to the Wall Street Journal. NVIDIA is based in Santa Clara, California, and designs the chips known as Graphics Processing Units or GPUs that essentially power the AI industry.
NVIDIA, by the way, notched a $1 trillion closing valuation just two years ago. NVIDIA's $4 trillion market capitalisation is now the same as the 214 smallest companies in the S&P combined, according to Dow Jones Market Data, quoted by Wall Street Journal. Apple and Microsoft have come close.
Apple hit a $3.9 trillion market cap in late 2024, and Microsoft had a $3.7 trillion market capitalisation just last week. NVIDIA was founded by Taiwanese American engineer Jensen Wang in 1993 with an original focus of making personal computer game graphics better. In 2004, it set up its India Development Centre in Bangalore or just 10 years or 11 years after setting up in the United States and 21 years ago, which also gives you a sense, if in a somewhat abstract way, the role that India has played in NVIDIA's success and growth since inception.
Heatwaves in Europe
Around 2,300 people have died of heat-related causes across 12 European cities during the severe heatwave that ended last week, according to what is called a rapid scientific analysis published on Wednesday and reported by Reuters. The study targeted the 10 days ending the 2nd of July, during which large parts of Western Europe were hit with extreme heat, with temperatures crossing 40 degrees Celsius in countries like Spain and wildfires breaking out in France. Of the 2,300 people who are estimated to have died in this period, 1,500 were linked to climate change, which made the heatwave more severe, according to a study conducted by scientists at Imperial College London and the London School of Hygiene and Tropical Medicine.
Climate change has made it significantly hotter than it would have been, which in turn makes it a lot more dangerous, according to Ben Clark, a researcher at the Imperial College in London. The study covered 12 cities, including Barcelona, Madrid, London and Milan, where researchers said climate change had increased heatwave temperatures by up to 4 degrees Celsius. The researchers used epidemiological models and historical mortality data to estimate the death toll, which reflects deaths where heat was the underlying cause for mortality, including if exposure exacerbated pre-existing health conditions, according to that Reuters report.
Last month was Earth's third-hottest June on record, behind the same month in 24 and 23, according to a monthly bulletin put out by the European Union's Copernicus Climate Change Service. Western Europe overall has experienced its warmest June on record.
