Markets Fail To Hold On To Gains, New Triggers In Earnings And Budget

• (00:00) Stories Of The Day
• (01:10) Markets fail to hold on to gains, New Triggers in earnings and budget
• (02:40) IMF Raises India Growth Projection to 6.5%, Still Below Indian Estimates.
• (03:42) Which part of Reliance Industries are investors actually buying into?
• (12:00) Oil prices are below $82 despite Saudi Arabia suspending capacity expansion.
• (15:37) Sony’s break up with Zee has lessons that are common to other corporate actions as well.
• (19:08) India’s poorest 20% households saw income levels shrink 16% from 2015-16 level says survey

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.

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A Too Good To Be True Rally Pauses And Reverses Gains

A 1,200 + point rally was almost too good to be believed.

Markets fell on Tuesday as there were no broader bullish indicators, at least domestic ones, though Wall Street closed on highs on Monday night.

The S&P 500 and the Dow Jones Industrial Average hit new highs yet again on Monday, their sixth record close of 2024.

Wall Street is now looking for signals from earnings, including of the big tech companies who have performed spectacularly in recent months.

Back home on Tuesday, the Sensex fell 802 points to end at 71,140 levels, while the Nifty50 fell 216 points to settle at 21,522.

Among companies Tata Motors has overtaken Maruti Suzuki as the most valuable company in Indian stock markets.

Now, Maruti is obviously much larger as a car company at 41% market share while Tata Motors has a 15% share in the domestic market.

But Tata Motors owns Jaguar Land Rover which has been doing well, as has been the domestic auto business, including EVs in which it is a market leader with over 70% of the market.

Tata Motors shares also hit a fresh 52-week high of Rs 886.30 on the BSE. The market cap of Tata Motors and Tata Motors Differential Voting Rights shares had crossed Maruti Suzuki.

IMF Raises India Growth Projections

Meanwhile, in macro news, the International Monetary Fund (IMF) has raised its 2024-25 GDP growth forecast for India by 20 basis points to 6.5 percent, although its projections are still behind that of Indian Government figures.

At 6.5 percent, the multilateral agency's revised growth forecast for next year is 20 basis points lower than its estimate of 6.7 percent for 2023-24.

Similarly, the Fund has also raised its growth forecast for 2025-26 by 20 basis points to 6.5 percent.

"Growth in India is projected to remain strong at 6.5 percent in both 2024 and 2025, with an upgrade from October of 0.2 percentage point for both years, reflecting resilience in domestic demand," the IMF said on January 30 in an update to its World Economic Outlook report.

Which Part Of Reliance Are You Buying In

Meanwhile on Monday, Reliance Industries hit a record high and also had one of its best days in the market in many years.

On Tuesday, the stock price receded somewhat but the fact is that the market’s attention is on Reliance. The stock has otherwise been moving between a somewhat fixed band for close to two years, till Monday that is.

If you track Reliance and its businesses very carefully then you might not discover anything new but if you don’t, it is always interesting to see what part of Reliance is interesting and to whom. Remember this is a textiles to petrochemicals to oil to telecom and retail or as it is broadly referred to as, an oil to chemicals company.

So which part of Reliance is driving the stock interest right, is it the fact that oil prices for refined products have gone up, remember Reliance is a big exporter, or is a larger play on retail and telecom. I reached out to Reliance tracker Sushil Choksey of Indus Equity Advisors and I of course began by asking him what powered Reliance on Monday before coming to what in his mind, lay ahead ?

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Oil Prices Fall Against Odds

And our energy segment.

Crude has fallen below $82 a barrel pointing to an increasing demand problem rather than a supply problem arising out of either production cuts or problems of transporting it through the Red Sea.

Meanwhile, Bloomberg is reporting that Saudi oil giant Saudi Aramco has abandoned a plan to boost its oil output capacity.

THe news agency also called this a surprise move which came after the world’s biggest oil exporter said in November that it was progressing “very well” with a multibillion-dollar project to boost capacity to 13 million barrels a day by 2027 as demand in China and India continues to grow.

Saudi Arabia currently has capacity for 12 million and is producing about 9 million a day, the lower production obviously aimed at managing prices in its favour.

Saudi Aramco is meanwhile expanding in natural gas, chemicals and renewables, Bloomberg said adding these businesses are likely to get a share of the money saved from the oil capacity expansion, a person familiar with the plans said.

Bloomberg Economics estimates that Saudi Arabia needs an oil price of $108 a barrel to balance its budget and meet domestic spending by the sovereign wealth fund.

Back home, India’s exports of low-sulphur diesel to Europe are poised to hit a fresh two-year low in January, after an unprecedented high last month, as Red Sea security risks drive up freight costs, Reuters is reporting.

Volumes have so far declined by roughly 80% month-on-month Reuters said quoting data from Kpler, LSEG and Vortexa.

Cargoes loading from India typically sail to Europe via the Bab-el-Mandeb strait, a route that has turned dangerous after Houthi rebels in Yemen started firing missiles at passing ships, in turn pushing up freight costs.

India-origin exports of aviation fuel to Europe, however, have remained steady with an open arbitrage window and stable demand, said Reuters adding that prompt jet fuel swap prices are trading at least $3 a barrel above diesel, equivalent to the additional freight cost premiums.

That was the energy segment, brought to you by IEW

Steel Imports Hit 5-year High

Elsewhere, India's steel imports touched a five-year high in the first nine months of the current financial year to December, turning the country into a net importer of finished steel, according to provisional government data seen by Reuters on Tuesday.

India imported 5.6 million metric tons of finished steel between April and December, up 26.4% from a year earlier, the data showed and is attributed to increased economic activity and a revamp of broader infrastructure.

India is the world's second-biggest crude steel producer and it rose 15% to a six-year high of 100 million metric tons during the period.

The domestic steel industry is not happy with the imports and has been calling for curbs on dumping.

The steel that is being imported did not necessarily go to L&T’s infrastructure projects, of course to draw that correlation may not be fair.

Larsen and Toubro reported third-quarter profit below estimates on Tuesday.

It is a fact that government spending on infrastructure is slowing down ahead of elections. The company reported a consolidated net profit of Rs 2,947 crore ($355 million) for the quarter ended Dec. 31, compared with analysts' estimate of Rs 3,304 crore rupees as per LSEG data, reported by Reuters.

Sony Scrapping Of $10 Billion Merger With Zee Has More Lessons

Sony scrapped the merger in part because Zee failed to meet some financial terms of the deal and come up with a plan to address them, according to a termination notice reviewed by Reuters.

Zee denied the allegations in a letter to Sony which also slapped a $90 million termination fee and accused the Japanese company of "bad faith" in calling off the merger.

Reuters says a Zee-Sony merger in India would have created a media powerhouse in the world's most populous nation with 90-plus channels across sports, entertainment and news.

Without getting the details, Sony’s concerns seem normal in the case of any such merger. The acquirer company would obviously want full indemnity in case any past case were to come back to haunt the new entity.

Remember, there was a Sebi investigation into fund diversion by the promoters of the company. The money obviously went from the company which is Zee and would thus have been the subject of some form of investigation or inquiry.

It is hard to imagine an acquirer ignoring the goings on of the last year or two from a regulatory aspect that is.

Even if that were not the case, Sony's notice said Zee apparently "failed to take commercially reasonable" efforts to meet some financial thresholds, including with regards to cash availability.

Elsewhere, education company Byju is now reportedly got board approval to raise around $200 million at a valuation of $250 million, which is 1% of its last fundraise of $22 billion, again according to reports.

So the issue is not the valuation but the number of federal cases pending against the company including for fund diversion by the Enforcement Directorate.

In November last year, the ED had said it had issued show cause notices to the company and its founder over alleged violation of ₹9,362.35 crore under Foreign Exchange Management Act, 1999. In April, the company’s offices were raided.

The point is not to presume whether Byju is guilty of anything except destroying private shareholder wealth which really is a problem for the investors and no one else but how any investor would increase his or her shareholding in a company still to extricate itself from the enforcement directorate cases.

Remember, all three board members in June last year resigned and walked or ran away from roughly $5 billion of their investments in the company. This in my mind has never happened because when investors put that kind of money, they stay on and fix things or at least try. So did the auditor, run away I mean.

Coming back to Zee, its shares have fallen about 30% since the deal collapsed and Sony, in its termination notice, as reported by Reuters said that Zee's cash position was 476 crore rupees ($57.26 million) as of Sept. 30, adding that was "much below the requirements" of the merger agreement.

So, what you are seeing in the Zee breakdown is the most public face of how deals collapse and a good insight into what could go wrong, even if in other cases, no one says it.

India’s Poor Are Worse Off than 8 Years Ago, Study

Here is the good news. Average household income in India has increased around 12% since the Covid pandemic-induced fall, with the poorest seeing an over 75% jump, a new survey has estimated.

Average annual household income increased to over Rs 3.6 lakh in 2022-23.

But for the poor it rose only to Rs 1,14,000 which in turn was 16% below the 2015-16 level of Rs 1,37,000, according to a survey by private economic think tank People Research on India's Consumer Economy (PRICE)

Post-pandemic, the poorest 20% households saw income levels shrink 52% from 2015-16 level, the survey said.

Income levels in what PRICE classifies as upper-middle and rich segments not only did not fall due to Covid, but actually increased — pointing out how lower income segments are more vulnerable to such shocks, the survey said.

The pandemic also resulted in the gap between the richest and the poorest 20% widening from 3.8 times in 2015-16 to 7 times during the last financial year.

Interestingly, household income in rural India has climbed 16.6% to over Rs 3.1 lakh annually, as against a 7% expansion in urban areas to a little under Rs 4.5 lakh.

There is much more to the survey which highlights the growing prosperity and the disparities and those most affected being in casual labour, petty traders (hawkers, street vendors), artisans, and domestic workers.

I spoke with PRICE MD and CEO Dr Rajesh Shukla, a well known researcher, applied statistician and author, including well known books, the Rise of India’s Middle Class and How India Earns, Spends and Saves: Unmasking the Real India.

I began by asking him to tell us about the broad survey and its composition.

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That’s it from me then, have a great day ahead.