Markets Face Macro Headwinds In Another Holiday Shortened Week

• (00:00) Stories Of The Day
• (01:00) Markets Face Macro Headwinds In Another Holiday Shortened Week.
• (05:14) Why India Struggles With Food Inflation, Understanding The Tools And Response
• (16:59) Oil Holding Above $91 Is Not So Good News.
• (17:57) Tata Companies Claim Records In Steel Production To Air Conditioners
• (19:25) How Indonesia’s Supply Of Macbook Pro And Michelin Tires Are Running Out After Attempts To Impose Restrictions Backfires.

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.

---

Macro Headwinds In Holiday Shortened Week

It's another holiday shortened week with markets closed on Thursday this week for Eid.

The markets have been strong as investors have looked for new themes, including focussing on stocks benefiting from what promises to be a searing summer. More on all of that later as well.

The earnings season also kicks off this week. 

But macro economic trends are likely to weigh on market sentiment, including of course oil prices which are now ruling around $91 a barrel, beyond the computations of many economists.

When I say computations, I mean those of India’s economic growth and more on that later too.

TCS will kick off results on April 12 or Friday at the end of the week. We should also be seeing inflation data and industrial production data on the same day.

So, the week itself will be more of anticipation than action, unless something else happens.

Last week, the markets hit an all-time high, being the BSE Sensex hitting 74,501 on April 4. During the week it was up around 597 points, less than 1%.

On Friday, Sensex closed at 74,248 up 20 points and the Nifty was broadly unchanged at 22,513. The midcap and small cap indices, not surprisingly, which is given the recent resurgence there, were strong.

There are other external interest rate triggers like the European Central Bank but nothing is going to change for at least a few months, which is quite evident, whether in the west or in India.

Meanwhile, FPIs have turned cautious as they pulled out Rs 325 crore from Indian equities in the first week of this month owing to relatively high valuations and the upcoming general elections.

The net outflow came after investments of Rs 35,000 crore in March and Rs 1,539 crore in February, data with the depositories showed.

There is some switching also happening to China as we have been reporting here though that may not be the reason for the falling investments.

Interest Rates & Food Inflation

Speaking of interest rates, the Reserve Bank of India (RBI) on Friday maintained a status quo on rates for the 7th consecutive time and said it remains watchful of the developing geopolitical situation that may trigger a further rise in crude oil prices.

Stay tuned to get a sense on how that could impact inflation.

After sustained moderation, cost-push pressures faced by firms are showing upward bias, said the RBI. And there is of course rising geopolitical tension including in the middle east and between Russia and Ukraine, which are specifically affected by oil production.

In an interesting and somewhat complex analogy involving elephants and forests, the RBI Governor said  “Two years ago, around this time, when CPI (consumer price index) inflation had peaked at 7.8 per cent in April 2022, the elep­hant in the room was inflation. 

Now he said, the elephant has now gone out for a walk and appears to be returning to the forest. We would like the elephant to return to the forest  and remain there on a durable basis,” said RBI Governor Shaktikanta Das. 

So what he means is he would like to inflate the elephant to return to a desirable level which is the forest. At least that is how I am reading it. 

But then if I got it wrong, then full credit to the Governor because their KRA is to confuse people as at least one Governor proudly told me in an interview some years ago.

I reached out to Crisil Chief Economist D K Joshi for a status check on the overall inflation environment also to ask about the link between interest rates and vegetable prices.

I started by asking him about what he took away from the RBI’s credit policy before moving on the macro questions.

---

Oil Prices Are Shooting

Brent crude prices have now increased close to 20% to hit the $91 mark, thanks to geopolitical risk and supply tightening.

Analysts are saying oil prices began to rise after the International Energy Agency (IEA) on March 14 increased its demand forecast and reduced its supply forecast. 

The Business Standard says a $10 per barrel rise in oil prices leads to a 40 to 60 basis point (bps) increase in CPI in India, which imports nearly 80 per cent of its annual crude oil needs. 

Bloomberg is reporting that oil is holding above the $90-a-barrel threshold thanks to what it calls a dramatic repricing of geopolitical risks.

Fears of a wider region conflict in the middle east are rising

Global benchmark Brent and US benchmark West Texas Intermediate both posted their sixth straight sessions of gains. 

Tata Companies Claim Records In Steel & Air Conditioners

Meanwhile, Tata companies are reporting record production and sales of various products.

Tata Steel India recorded its highest annual crude steel production at close to 21 million tonnes in 2023/24, up 4% on year.

Tata Steel production is spread across India, Netherlands and the UK. The Netherlands and the UK both produced close to 8 million tonnes of steel. 

And refrigeration company Voltas, also part of the Tata Group, said it sold over 2 million air conditioners in 2023-24, claiming these were the highest ever sales of ACs by any brand in a financial year in India.

That figure could obviously rise this year, thanks more to heat waves and hot days. 

Sales were up 72% in the March quarter and up 35% for the whole of last financial year, over the previous year, the company said on Sunday. 

Among other corporate news, Adani Group has reiterated its earlier announced target of expanding its solar energy and wind power capacity in Gujarat’s Kutch region to 30 GW from 2 GW currently.

Apart from 6 - 7 GW of similar projects elsewhere.

Adani has said it will invest some Rs 230,000 crore or Rs 2.3 trillion in these projects.

Indonesia’s Supply Of Macbook Pro Is Running Out

In August last year, India announced a licensing regime for imports of laptops and tablets. The larger objective was to force foreign laptop companies to manufacture locally or source locally.

The government subsequently walked back so many times and that if the policy were a person, the person would have tripped several times over.

Indonesia attempted something similar and it is backfiring too.

Companies Are warning that supplies of products including Apple Inc.’s MacBook Pro could start to run out as soon as the end of April, Bloomberg is reporting.

Other goods including Michelin tires and chemicals shipped from Europe may run out over the next few months because of the rule enforced from March 10 that’s seen as an attempt to curb imports of thousands of products, according to people familiar with the matter.

So the rationale behind Indonesia’s move is similar to India, which is to make global companies to set up production companies onshore. So far so good.

But Bloomberg says this has instead  pushed them to consider scaling back or cancelling plans to expand operations in Indonesia.

Now India is obviously a larger market but the pushback has been quite severe too, also because the policy pronouncements like in August last year came out of the blue.

The import hurdles have ignited furor among top executives at companies from Apple to Michelin and spurred business chambers from the US to South Korea to write letters to Indonesia’s President asking them to review the matter.

The complex rule effectively restricts imports of about 4,000 products, including finished goods such as laptops and raw materials like hazardous chemicals. 

To get import permits, companies must get a letter of recommendation from the Ministry of Industry, but the process is onerous — requiring firms to submit tenancy agreements and annual forecasts of items they intend to bring into the country, said the people.

Sound familiar?

Where Will Real Estate Go In 2024? 

Prices of everything are of course going up, stocks, gold, real estate, name it. Data for the first quarter of this calendar year or the last quarter of the last financial year continues to support this proposition.

Mumbai and Pune now account for over half of sales in the top 7 cities in India.

If you knew, then perhaps you would have bought in Hyderabad where real estate continues to fly off the shelves.

So what is the outlook ahead for real estate for the coming few months and the rest of the financial year, which segments are stronger than others ?

I reached out to Vivek Rathi, Director Research of real estate consulting firm Knight Frank and began by asking him about the underlying trends that he was seeing in the real estate market right now.