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Markets Recover, Await Economic Data

US equity futures were steady to positive again overnight as most investors were holding back for fresh economic data and Federal Reserve signals on the timing and prospects of interest rate cuts in the US

By Govindraj Ethiraj
New Update
Markets Economic Data
On today’s episode, financial journalist Govindraj Ethiraj talks to ICICI Securities equity strategist Vinod Karki as well as TK Arun, senior economic journalist and columnist.

Our Top Reports For Today

  • (00:00) Stories Of The Day
  • (01:00) Markets recover, await economic data
  • (02:55) India’s financial regulators increasingly wary of market risks 
  • (05:15) How company promoters were the largest sellers of their holdings in the last year
  • (18:10) India’s purchasing power is low, how much so is the question
  • (26:38) Pharma MNCs are exiting the Indian market but increasing bets on Indian talent

NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.


Markets Struggle For Direction

The good news is that global markets are behaving similarly at this point, as they did in the past as well.

US equity futures were steady to positive again overnight as most investors were holding back for fresh economic data and Federal Reserve signals on the timing and prospects of interest rate cuts in the US which of course are most likely not happening in March as was fervently hoped and expected last month.

Now, people are pegging their hopes on cuts in June or after.

Back home, the stockmarkets were mostly steady for most of the trading session on Tuesday but picked up some steam towards the end of the trading day with the BSE Sensex gaining 305 points to settle at 73,095 level, while the Nifty50 closed 76 points higher at 22,198.

Tata Motors, which might IPO  its electric vehicles business separately going by reports led the markets. Tata Motors has an over 80% share of the passenger vehicle market in electric.

The listing could be worth over Rs 8000 crore and would be timed, depending on when it finally comes, with Hyundai Indias’s IPO, making it at least two car majors going public in near proximity. Though Hyundai’s IPO might be worth $3 billion and could be out before the end of the year.

We spoke of Asian Paints and Grasim yesterday and in somewhat similar vein, the auto sector too is seeing some big moves by old players, though with some variations of course, including the fact that for the Tatas, its electric business is housed differently while the parent has been around since 1945, more than 75 years, just like Asian Paints and Grasim.

I hereby declare it a 75 year itch.

Market Regulators Wary Of Market Risk

The broader theme is that the financial regulators whether the Reserve Bank of India and now the Securities and Exchange Board of India are increasingly wary of risk and over exposure in the markets, whether in the form of small loans or purchase of shares.

And sometimes arguably, it is the borrowing that is leading to the purchase of stocks, including many in the more conceptually high risk small cap zone. 

Reuters is reporting that Sebi has asked asset managers to give investors more information about the risks associated with their small and mid-cap funds. This could kick in by April.

Small and mid-sized funds have seen high inflows, causing concern among authorities about how they would hold up in the event of a sharp market selloff. The SEBI has also been reviewing stress tests conducted by such funds, sources have previously said.  

The funds are being asked to disclose how long it might take to accommodate large redemptions, what impact large outflows could have on the value of the portfolio and how much cash and liquid assets the fund holds to meet outflows, the people said.  

"Investment committees were always aware of liquidity challenges but investors were not. Once this information is available to them, they can compare each fund," said Harsha Upadhyaya, chief investment officer at Kotak Mutual Fund.  

The Association of Mutual Funds in India (AMFI), which is working with SEBI, is apparently proposing a standardised format for the disclosure of risks. 

Reuters adds that the Nifty small cap 250 index has risen 71% over the past 52 weeks while the Nifty mid cap 100 index has risen 64%. Contrast this with the Nifty50’s 28% rise which is of course not small or low either.  

Mutual funds tend to keep between 1% and 5% of their assets as cash as a prudent measure to meet outflows, according to public documents. There is, however, no minimum regulatory requirement. 

Promoters Are The Biggest Sellers of Stock Last Year 

Last year was an interesting year as it saw some pretty large swings inwards in terms of fund flows.

First the sales. Some $42 billion worth of stock was sold by promoters, foreign investors and individuals in the last calendar year says a new report from ICICI Securities.

This selling was balanced our countered by  foreign portfolio investors and mutual funds who pumped $21 billion each or $42 billion in all into Indian stocks to counterbalance a sell-off. 

Promoters led the sellers with 40 percent of the equity basket, other foreign investors 38 percent, and individual traders 16 percent. Insurance companies pitched in with 6 percent contribution.

Obviously, for every seller there must be a buyer and vice a versa but the proportion of promoters is high. 

In itself there is nothing unusual and promoters are known to sell during peaks, particularly those who have held shares for a long time, maybe several years or even decades.

The wealth effect that it generates is obviously a good market economy indicator because it incentivises entrepreneurship and good quality management based on performance.

The only concern is when promoters sell too much or more than what the market feels comfortable with.

The other interesting point is that Foreign Institutional Investor holding in India is now down to a decadal low of 16.3%, a trend we had discussed , once again via a ICICI Securities report a few months ago.

This obviously means that FPIs, unlike the previous almost three decades do not have the market moving capability anymore where their buying or selling would trigger all round and similar actions.

In 2024 so far, FPIs have been net sellers at $3.5 billion and DIIs have been net buyers at $5.6 billion of Indian stocks. 

There are several areas which FPIs are buying and selling which was seen through 2023 but changed somewhat in 2024.

For example, they sold financials in 2023 or substantially and have now flipped. Similarly, IT is seeing consistent buying.

But the one sector that is seeing fairly consistent selling by FPIs is FMCG and we will come to that momentarily.

I reached out to ICICI Securities equity strategist Vinod Karki and began by asking him what of these data points were the most significant last year and which of them did he see a continuation this year?

India’s Purchasing Power Over The Last Decade

One takeaway from the most recent  monthly per capita expenditure estimates or Household Consumption Expenditure Survey of the Government of India, released after more than a decade, is the relatively low purchasing power of most Indians.

Nearly four-fifths of Indians in rural areas consume less than Rs 4,500 worth of goods and services per month, that is, less than Rs 54,000 per year. 

The consumption of their urban counterparts is less than Rs 7,700 per month or Rs 92,400 per year.

Which means that while expenditure levels have gone up in the last decade or so and sharply, the actual numbers are not that high or what you may have expected.

The survey, not surprisingly has got several reactions of different kinds, it was released on Saturday evening or over the weekend and people are still processing and there is a more comprehensive report to come.

The larger question of course is how much better off Indians are today as compared to the past, the answer to that is they are better off and of course what or how are they consuming. For instance, as incomes have increased, there are clear shifts in kinds of food consumed or overall food expenditure giving away to discretionary spending.

I reached out to TK Arun, senior economic journalist and columnist and began by asking him how he was computing the latest numbers on household expenditure basis his most recent article in Moneycontrol.


Pharma Companies Are Pulling Out Of The Indian Market But Betting On Indian Talent

Bristol Myers Squibb has said it will expand its research and development presence in India and expects its newly inaugurated Hyderabad facility to become its largest unit outside the U.S. by 2025, Reuters reported

The $100-million facility, inaugurated by BMS CEO Christoper Boerner on Monday, is expected to employ over 1,500 employees and will be used to enhance its drug development through the use of digital technologies and artificial intelligence.

Bristol Myers also operates a research and development centre in Bengaluru in partnership with the Biocon Group's Syngene International.

The cancer-focused U.S. drugmaker is currently developing next-generation cell therapies for autoimmune diseases such as multiple sclerosis and plans to use AI technologies to accelerate the development, Boerner said.

BMS if of course not alone.

Pfizer opened a drug development center in Chennai in May 2022 and is the firm’s first drug development center in Asia with a focus on developing small molecules and innovative formulations for the global market.

Industry magazine Contract Pharma reported that in October 2022, Roche inaugurated the company's second state-of-the-art Global Analytics and Technology Center of Excellence (GATE) in Hyderabad.

Roche’s first GATE center is in Chennai and works on multiple  therapeutic areas.

AstraZeneca already has a Clinical Data and Insights (CDI) division in Bangalore which it said it would scale up, Contract Pharma reported.

Another global pharma firm to launch a R&D center in India was Merck KGaA which started an R&D Excellence Center in Bangalore in September 2022. 

A month later, Baxter Pharma's opened its  R&D center in Ahmedabad, with a focus on pharmaceutical product development.

Baxter has 25 global R&D centers and 4 in Asia Pacific, said Contract Pharma.

There are of course other examples but of course the timing is interesting, the strengthening or stepping up of R&D coincides with the MNCs existing from the marketplace for drugs.

Many pharmaceutical majors like Novartis and GSK have been in India for many decades and have only now started pulling out, although their R&D efforts are mostly intact or growing.

Novartis has been steadily upping its presence via its R&D support center and services in India at one of its three major global development sites in Hyderabad. Novartis has already spent $300 million in this center in the last five years.

Novartis is also setting up a manufacturing plant in India at around $50 million to make oral cancer medicines for the global market.

Elsewhere, Japan's Takeda Pharmaceutical said it will scale up production of its dengue vaccine through a partnership with Indian vaccines maker Biological E., the companies said on Tuesday.

These doses will be available for governments in endemic countries by 2030 as part of their national immunization programmes.

Biological E. will ramp up to a manufacturing capacity of 50 million doses a year, accelerating Takeda's efforts to produce 100 million doses per year within a decade, the companies said.