Markets Perk Up On Trade Signals
India's equity benchmarks rose for a third straight session on Wednesday, thanks to IT stocks
On Episode 724 of The Core Report, financial journalist Govindraj Ethiraj talks to Pooja Vijay Ramamurthi, Fellow at Centre for Social and Economic Progress (CSEP) as well as Madhavi Arora, Lead Economist at Emkay Global Financial Services.
SHOW NOTES
(00:00) The Take
(06:17) Markets perk up on trade signals
(07:02) Inflation hits record low, what does that mean?
(14:57) COP30 kicks off in Brazil. What’s at stake this time?
(23:58) International Energy Agency now says electric vehicle sales could slow down and fossil fuel consumption will rise, in a reversal of sorts
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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 13th of November and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital
The Take
On Tuesday, US President Donald Trump admitted in a media interview that the United States does not have enough skilled talent to meet its labour needs. You also have to bring in talent, he said.
A quick reminder, the US government is presently focused on keeping all kinds of labour out of the country, whether skilled or unskilled, legal and illegal. He told Fox News that you can't have certain talents and you have to, people have to learn. You can't take people off like an unemployment line and say, I'm going to put you into a factory, we're going to make missiles.
Elsewhere, Nalin Haile, the 24-year-old son of former US Ambassador to the United Nations Nikki Haile, told a British news outlet the job market has become increasingly difficult for young Americans. We don't just stop illegal immigration, said Haile, who has, by the way, Indian roots, I think we need to stop legal immigration. His fairly valid point is that his friends are struggling to find work despite their education.
He said that his friend group from high school all graduated great degrees from great schools. It's been a year and a half and not one of them has a job, not one. So I am angry at that, he said.
Moreover, he says, when you see a bunch of foreigners coming over here to take jobs that my friends wanted, they have every right to be pissed and I'm pissed for them. Looking back at the wild ride that began in April, the day Donald Trump announced the first reciprocal tariff announcements, you can see that some of the reasons that were proffered even make sense. For example, the need to bring jobs back to America from countries they fled to, notably China.
The strategy may not have failed, but it's not worked for sure. Even if it is, or will over time, it will not instantly address the angst the young Mr. Haile and his friends seem to be facing. Elsewhere, in the case of countries like India and Switzerland, Trump has put out conciliatory statements.
In the case of India, he said that with India now substantially reducing Russian oil imports, which India has not, by the way, at least as of October, the U.S. would be bringing the tariffs down. He said that we are making a deal with India much different than we had right now. They don't love me, but they will love us again.
We're getting a fair deal. I think we're pretty close to doing a deal that's good for everybody, the President said. Meanwhile, the U.S. and Switzerland, too, are close to signing a trade deal to lower tariffs of 39 percent that President Trump had put on the country in August.
According to multiple reports, CNBC reported the President saying on Monday that White House officials were working on a deal to get the tariffs a little lower. He said, that's the President said, we hit Switzerland very hard, but we want Switzerland to remain successful, and adding that the country had been a very good ally. Tariff on Swiss exports into the United States could be cut to 15 percent, which would be the same as what it is on EU, that's European Union exports to the United States.
Again, according to various media reports, citing sources close to the talks with Bloomberg saying a deal could be finalised within weeks. And then there was a China truce deal. The United States has halved fentanyl-linked tariffs on imports from China to 10 percent and extended for a year a truce that lowered the reciprocal tariff rate from 34 percent to 10 percent.
China's Ministry of Commerce has rolled back several export restrictions on critical minerals and rare earth materials to the United States, and these curbs, which were imposed in October, had targeted materials important or critical for military hardware, semiconductors, and other high-tech industries. Now, in each of these cases, while all countries involved have embarked on intense back-channel negotiations and kept up the pressure, China and India for sure have not conceded much on the front channel. India has credibly kept up the pressure, pointedly and openly rebutting President Trump on issues linked to Pakistan and stood its public ground so far on Russian oil and agriculture imports.
So, if I was in Trump's negotiating team, I would be pretty much exhausted and worn down by now. On the other hand, inflation is rising in the United States, despite all the efforts by the administration to dismiss it, and prices will rise further. In industries like apparel, which operate on roughly six-month order and export cycles, the real pressure will start now for both exporters in countries like India and importers in the United States.
Indian restaurants in New York, as an aside, have already hiked prices because of the higher tariffs they pay on produce imported from India, as a Bloomberg report pointed out a couple of days ago. So, will the U.S. administration give in and bring tariffs back to some reasonable level in the next month? Well, all signals are pointing in that direction. Pressure, as we said, has been building up from all sides.
That would include, additionally, corporations in America, which must include the likes of Walmart, Amazon, the auto industry, for example, and then the exporting countries like China and India, who are either doing their own arm-twisting or just holding their ground. And finally, and hopefully, the realisation that the tariff strategy is not really working and not quite achieving the objectives it was supposed to or even moving in that direction. And then the drubbing the Republicans have received in a spate of elections and then losing in New York.
Now, as elections go, a New York mayoral contest may be very small. As symbolism goes, it's right on the top. And a democratic socialist mayor, many of whose economic policies cause people like me to cringe, suggests that whatever the government is doing, it's not making the youth happier.
And I'm talking about the federal government in the United States. So Zoran Mamdani, the new New York mayor, is a tipping point of sorts. So to come back to tariffs, could they disappear and could we go back to the good old days? Not likely at all, and not soon.
But a healthy balance, a number at around 15%, which is what was always expected and hoped, will surely restore some sanity across the board and maybe even improve Republicans' electoral prospects ahead. And businesses all over the battle to prise themselves away from America's economic grip might slow down a little bit. But the world of trade will not be the same for a long time.
And that brings us to the top stories and themes of the day…
The stock markets perk up on those trade signals.
Inflation, it's a record low. What does that mean?
The International Energy Agency says electric vehicle sales could slow down and fossil fuel consumption could rise in a reversal of sorts.
COP30 kicks off in Brazil. What's at stake this time?
Optimism In The Markets
India's equity benchmarks rose for a third straight session on Wednesday, thanks to IT stocks, as optimism over a US trade deal rose and, of course, an expectation of a Federal Reserve rate cut next month. Analysts said sentiment was also boosted by the exit polls from the state of Bihar, which have predicted a win for the ruling alliance, that is the NDA and the party of Prime Minister Narendra Modi. The Sensex was up 595 points to close at 84,466 and the Nifty 50 was up 180 points to close at 25,875.
The broader indices were up too. The Nifty mid-cap 100 was up 0.79% higher. The small cap was up 0.8% higher.
Inflation Is Down
India's retail inflation, and this is big news, measured by the Consumer Price Index was down to 0.25% in October from 1.54% in September, according to data released by the Ministry of Statistics and Programme Implementation, or MOSPI, on Wednesday. So the drop in inflation in October was driven by sharp drops in food prices and the full impact of the lowered goods and services tax rates, which kicked in on September 22nd.
All of this could, of course, pave the way for a rate cut by the Reserve Bank in December. The economy, which grew at about 7.8% in the April to June period, is also seen slowing over the second half of this year. On September 3rd, the government announced a revamped GST structure, simplifying into two main slabs, a 5% and an 18%.
Most daily use items like dairy products or stationery went into the low of 5%, and all of that, like we said, kicked in on September 22nd. Now, 0.25% is a new record low. So what does that actually mean? I reached out to Madhavi Arora, Chief Economist at Emkay Global Financial Services, and I began by asking her what these lower inflation numbers meant and what could be the outcome of that.
INTERVIEW TRANSCRIPT
Madhavi Arora: This is series, I think, all-time low of 0.25%. This obviously, as you mentioned, partly reflects the GST effect, partly reflects the favourable base effect. And at the same time, we also saw some mild revision in the September data, which also reflects that probably, say, 20% of the GST cut was also captured in September. And when I'm looking at the October numbers in more detail, I've realised that some of the categories have yet not fully seen the GST benefit pass-on, especially in core inflation.
So core inflation is actually up 1.5% per month. Of course, the gold impact has been massive. Gold was up 13% last month.
Clearly, that has spilled over to the core inflation. But despite that, we were expecting that there will be offsets coming from GST, which is fully not translated, which also implies that maybe November month may also see, you know, benefit of GST cuts at the margin, which could also be very good for the November print. Of course, food inflation has been quite comfortable.
And we are entering a period where generally perishables would be comfortably lower. Vegetable inflation is seasonally very low in winter season. So you will see the comfort of food and non-food inflation play out.
In fact, the November month is also tracking sub-1% as of now, whatever high frequency data that we have for the last 11-12 days. And as I said, there could also be a remainder GST pass-through, which also will be felt. All in all, that is implied to the FY26 inflation is now tracking sub-2%.
There's a good risk that it would lead to a further undershoot of around 50-60 pips in RBI's FY26 inflation forecast, which is at 2.6%. Interestingly, you know, what we're really seeing here is that this is going to be the fifth time if RBI revises the inflation forecast for FY26 in a year. So I think since the time they come out with the FY26 inflation forecast, they have been only revising it downwards. So another big chunk of downward revision by the Reserve Bank and the December policy could also be a great support for a case in terms of December rate cut.
Govindraj Ethiraj: So the one outcome is clearly that it builds the case for a rate cut. Is there any other outcome since this is a record low that we're seeing? Or is this more optical than otherwise?
Madhavi Arora: So it is part optical, of course. GST effect has to be taken out from the actual inflation print for the policy making point. This is not something which is a natural adjustment in inflation.
It's basically a supply-side reform, which is implied that the tax incidence is going to be lower and thus inflation would be lower. So the RBI point of view, they have to remove the GST noise. Our estimates are that GST impact, if it gets fully passed on, could be as high as 100 bps plus.
If it's partially passed on, it's probably 60 bps disinflation owing to that. So it's very difficult to segregate the GST impact from the non-GST impacts on any, you know, micro-level CDs and CPI. But, you know, this has to be taken with a pinch of salt.
But that said, you know, we also have seen food inflation behaving much better than the expectations that has to be taken into account. You know, higher tax incidence also was something which was unwarranted. So to that extent, I think the lower inflation, even excluding GST, was looking to be very comfortable, much lower than the Reserve Bank estimate.
Without GST, actually, we were tracking a 2.5 plus inflation, which is the current RBI number, taking into account the GST impact. So the noise obviously is around 56-70 bps roughly is what I sense. Beyond that, I think, given that the inflation is now at as low as 0.2%, I think we are probably the lowest in Asia and one of the lowest in the world as far as inflation dynamics are concerned. That also pushes up the real rates to that extent. Technically speaking, it should be positive for FPI flows and fixed income, FPI positive for the rupee in a standard macro environment. Obviously, that may not play out.
But clearly, the real rates at this point in time are way too high for an economy which is still probably nearing the late cycle macro dynamics.
Govindraj Ethiraj: Right. It's an interesting point that we are perhaps one of the lowest interest inflation levels in the world. US is also at 3%. Let's wait for whenever their next figures come out.
The broader question, what is the flip side of low inflation at the levels that we are seeing? I mean, what else happens in an economy since we've never seen this before, or at least for a long time?
Madhavi Arora: Inflation is good for any economy of healthy inflation, which as per the Reserve Bank of India defined as around 4% plus minus 2% here and there. Clearly, a very low inflation would not incentivise, you know, the industries to actually produce because it leads to a much lower margin for them to that extent. Because it's a retail inflation, talking about the wholesale inflation.
So obviously, it incentivise producers at the cost of consumers. So very low inflation is pro-consumer and anti-producers. And a very high inflation is pro-producers and anti-consumers.
That's why inflation equilibrium is something which has to be kept in mind when you're looking at a more normal growth cycle. As you were mentioning, there's a lot of noise in inflation data. So I would rather look at, say, 2-year average inflation for me to ascertain the inflation dynamic, which I think is still somewhere close to a 3.5% to 4.5% on average. So next year, we're looking at inflation close to 4.1%. That'll be at 4.5%. If I take an average of 2 years, which is FY26 and FY27, inflation is still above 3.5%. So it's not as low as it looks. I think these are seasonal factors and favourable base effect, which makes it noisy. Last year, inflation was higher.
This year, it'll be lower. And next year, it'll be much higher because, you know, if the inflation is as low as 0.25%, next year, same period would have a base effect. So removing the base effect is important.
Momentum effect is what is more crucial. And there, I think, barring the GST effect, the momentum impact has been pretty stable. It's not a disturbing inflation dynamics.
But clearly, there is this inflation, which is also reflecting the fact that actual demand is much lower. So when inflation goes down way too much, especially core inflation, the demand side of the inflation, it also reflects that there is a much lower consumption demand otherwise. But yes, as you rightly said, if you have very low inflation in the world dynamics, on an average, it is anti-producers.
Govindraj Ethiraj: Last question. So food prices have also brought overall inflation down, or rather, lower food prices. And within that, vegetable prices have fallen another 27% after falling 21% the last month.
Could this last? And what's your reading?
Madhavi Arora: So as I said, food inflation enters, especially vegetable and fruit inflation enters a very good period between November till January. You know, the winter effect is very positive for vegetable prices. So we may see vegetable inflation on a month-on-month basis continuing to go down, barring the base effect.
There would be a sequential downfall that you will see in vegetable prices, which will reverse from February onwards.
Govindraj Ethiraj: Right. Madhavi, thank you so much for joining me.
Madhavi Arora: Thank you.
COP30
The world's biggest climate conference, COP30, has started off with representatives from more than 190 countries meeting in the Brazilian city of Belém for the next two weeks. The key area of focus is global warming and how to reduce it. COP30 is supposed to be the summit where countries really get down to details and more on that in a moment.
Now, the background to all of this is, of course, what you and I are seeing and experiencing in our daily lives, which is climate change. Last year was the hottest on record, and we're seeing hurricanes and fires and floods and, of course, extreme heat. In 1992, more than 150 countries signed a UN treaty to limit the rise of planet heating pollution.
COP, by the way, stands for Conference of the Parties, and the first one happened in Berlin in 1995, and countries have been meeting ever since. But the turning point, in many ways, was COP21 in Paris in 2015, where more than 190 countries approved the Paris Climate Agreement, where they pledged to limit global warming to 2 degrees Celsius above pre-industrial levels and preferably to 1.5 degrees. Countries then said that they would submit national climate plans every five years for keeping that 1.5 degree focus.
Now, where do we stand as we go into COP30, which began this week? I spoke with Pooja Vijayramamurthy, a fellow at the Centre for Social and Economic Progress in New Delhi. Pooja has a PhD in Science, Technology and Environmental Policy at the School of Public and International Affairs at Princeton University and has studied climate and energy transition policy, particularly focussing on the role that India can play in accelerating domestic and international action towards decarbonisation. And I began by asking her what was at stake as we went into COP30.
INTERVIEW TRANSCRIPT
Pooja Vijay Ramamurthi: So Corp 30 is already underway in Brazil right now and this Corp has been termed as the Implementation Corp. So what that means is now that we have a lot of frameworks that have been discussed over the couple of decades, how do we actually take this from policy to concrete implementation? You know, so how do we take this from policy and frameworks to actual on-the-ground actionable measures?
So I think that is the broader ambit of Corp. So under that, of course, one thing that always comes up and which has been a priority for India as well as we saw from Corp to 29 is the new climate finance goals which were announced last year. So given that these goals were announced, now how do you again concretely operationalise them?
What mechanisms are you going to use? What financial kind of instruments are you going to use to prioritise where this money goes? Another big thing that has been on the cards since Paris but hasn't really, you know, moved along is how are you going to kind of consolidate or understand your global goals on adaptation?
So this year, different countries were supposed to give in their national adaptation plans and so how do we track these? What kind of accounting measurements do we take? What metrics do we use to understand climate adaptation goals?
You know, so that's also going to come in. This is the first time that something called a global ethical stocktake is going to happen. So I guess because Brazil is situated in a country in the global south which has a lot of indigenous communities, so there's been a lot of understanding around ethics, what are the implications for the most vulnerable communities, something called ethical stocktake.
I think it's more moral obligations rather than actual accounting because last year was the actual stocktake where you do, accounting on which country's emissions and you know which hectares are they coming from. But this year it's going to be more of ethical angle. And then there are of course more technical issues like there's going to be some conversation about methane emissions, you know, coming to a deal on methane.
Considering that this COP is situated in the middle of the Amazon, Brazil is also trying to come up with a forest forever fund, you know, where countries pledge a specific fund just to kind of preserve rain forests. So I think these are some of the, you know, big things that are spoken about in this COP.
Govindraj Ethiraj: Right. What about the temperature change figure and whether that has any meaning this time around?
Pooja Vijay Ramamurthi: I think it's been seen since Paris that yes, the efforts which have taken underway are going to reduce emissions beyond the three degree goal, but are still nowhere close to reaching a 1.5. So, you know, and I do think that this COP was supposed to be one that again tried to reorient action so that countries, you know, reorient their policies in order to meet 1.5. But what we have seen is that many countries have not submitted their updated NDCs, including India.
So, you know, given that this is the current situation of NDCs, it seems very unclear whether that 1.5 target even holds any meaning. Now we're talking about 1.5 or 2 or 2.5. If 1.5 is an aspirational goal, it's still a goal worth having so that then we meet a lower goal. But I don't think the number itself at this moment, in my head, doesn't hold much credence, but it's more an aspirational goal.
Govindraj Ethiraj: The fact that the US is not present in the way it should be and taking leadership on some of these climate issues. So, what would that mean? Or what does it mean?
Or put differently, does it make any difference to countries like India?
Pooja Vijay Ramamurthi: No, because US also stepped out on Trump's first presidential term. The US stepped out and that didn't mean that climate action stopped. We saw globally, especially China, I mean, you know, the big elephant in the room is China, which has been the most aggressive climate player.
They continued, you know, manufacturing and supplying the world with green tech, but also taking aggressive moves in their own country to kind of decarbonise, right? So, I don't think just because US steps out, the whole, the rest of the world is going to slow down. And I don't think climate action within the US particularly would also stop because we even saw that even when Trump 1.0 was there, there was still a republican state like Texas, there was a lot of green energy, you know, being put because it just makes economic sense. It just now just makes more sense than using your old, your outdated thermal plants. But yes, it does kind of lower the geopolitical heft. As I said, you know, if you don't have major economies kind of backing the climate goals, then you are going to see the trend that I said of other countries not really submitting their NDCs or other global north countries really being reluctant to put their money into these funds.
So, I don't think the whole clean energy agenda or, you know, the whole decarbonisation agenda is going to get derailed. But I do see a little bit of maybe hesitancy or the aggression with which countries are going to implement their targets. So, I think it may slow down.
And I think finance between global north and south is going to become contentious with many countries in the west maybe being hesitant to put in as much money if the US is not on board.
Govindraj Ethiraj: You said is a critical part of the whole COP30, the new financial goals and obviously finding the resources for that. What else is stacked up from an India point of view?
Pooja Vijay Ramamurthi: I know we saw a very fiery speech given by Chandni Rehna last time about the climate finance goals and how, you know, that whatever was agreed upon was inadequate. India, since the first few has been the one putting forward this climate justice narrative, talking about how, you know, like historical emitters have to take more responsibility and kind of put the money and the tech transfer there. So, I think this will be a continued conversation.
But given that there is no dedicated climate finance event or agenda on, I think, you know, India can, of course, reiterate these rhetoric. But I think it's going to just be more political messaging, something that is actionable. But I think what is going to be on the agenda is seeing how India participates, as I said, in these newly created funds.
So, I think it's going to be an observer in the forest fund, which is being promoted. I think India is really, really going to push on climate adaptation strategies. So, I think it's going to kind of push for the agenda to move from just looking at the mitigation and kind of really focus on the vulnerable communities on rural livelihoods, on like, you know, the need to like protect and create mechanisms within the COP to actually focus on these community level initiatives.
I think that is something that India is going to continue. I think it's also going to continue to focus on technology transfer, like, you know, lowering barriers so that clean tech from around the world can be shared globally. And lastly, I think India is going to kind of also push back on some of these new protectionist measures which have been put in place, like, you know, the C-BAM by the US as well is taking a lot of protectionist measures.
So, I think India is going to kind of push back on that as well and say, you know, this should not be on the climate agenda. It's a global common good. And we need to kind of work together as opposed to, you know, protecting our trade interests in the name of climate change.
So, I think these are some of the big agenda items that are going to be there for India.
Govindraj Ethiraj: All right, Pooja, thank you so much for joining me.
Pooja Vijay Ramamurthi: Thanks a lot.
IEA On Fossil Fuels
Sticking to energy in more ways than one, a slower pace of electric vehicle adoption has caused the International Energy Agency, or IEA, to temper its stance on an imminent peak in oil demand and has said that global consumption will keep growing to the middle of the century, or 2050. While oil demand was set to plateau or fall this decade in all three scenarios the IEA had looked at last year, the latest report reintroduces a current policy scenario, or CPS, in which consumption rises 13 percent by 2050, according to Bloomberg. The revival of CPS after a five-year hiatus marks the latest revaluation of oil's long-term prospects by the agency and the wider energy industry, Bloomberg reported, which also added that the report on Wednesday is another shift in tone for the agency, which in September said billions of dollars need to be invested in new oil and gas supplies, having previously drawn criticism for saying that such investment was incompatible with climate goals.
In September, BP had pushed back on projections that consumption could top out as early as this year and forecasts from the Paris-headquartered IEA, which was set up in 1973 after the oil shock then, are used globally as a benchmark by governments and energy companies and oftentimes contrasted to the OPEC forecasts. OPEC, of course, is the Organisation of Petroleum Exporting Countries.
