Markets Plunge Suddenly By Over 990 Points
Indian markets took a sudden plunge on Thursday after tensions in the Middle East ratcheted up
On Episode 605 of The Core Report, financial journalist Govindraj Ethiraj talks to Aditi Nayar, Chief Economist and Head - Research & Outreach at ICRA, Safi Ahsan Rizvi, Advisor at National Disaster Management Authority as well as Captain Sam Thomas, President at ALPA India.
SHOW NOTES
(00:00) Stories of the Day
(01:48) Markets plunge suddenly by over 990 points
(03:30) Retail inflation drops to 6-year low of 2.82%
(12:00) Air India’s shocking disaster.
(20:09) Heat waves return to India as monsoon stalls. A check on preparedness.
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 13th of June and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital. Before we start, our thoughts and prayers are with all of those who lost their loved ones on the Air India flight from Ahmedabad to London on Thursday afternoon, as well as the many who are working and studying in the area near the airport where that aircraft went down. As air crashes go, this must be amongst the most tragic in recent times, in this case involving a larger and newer aircraft, the Boeing 787 Dreamliner on a non-stop flight from Ahmedabad to London Gatwick.
The Dreamliner entered service in October ‘11 and has actually never had a fatal accident. Boeing says there are more than 1,175 Dreamliner passenger aircraft in services, accounting for about 2,100 flights every day. As a financial journalist, I must also point out that it was noteworthy of Air India's CEO Campbell Wilson to put out a video message a little after 7 p.m. on Thursday evening expressing sorrow that the airline was working with authorities on all emergency response efforts. He said that this was a difficult day for all of them at Air India in that video message shared on social media. And more on that accident shortly.
And the top stories and themes.
The stock markets plunged suddenly by over 990 points on Thursday.
Retail inflation drops to a six-year low of 2.82%.
Air India's shocking disaster.
Heat waves return to India as monsoon stalls. A check on preparedness.
The Sudden Plunge
Indian markets took a sudden plunge on Thursday after tensions in the Middle East ratcheted up once again with fears of an Israeli strike on Iran even as tariff fears resurfaced. The BSE Sensex fell about 992 points in intraday trade and at the closing bell it was down about 823 points to 81,692 or 1% while the Nifty 50 was down 253 points to 24,888. In the broader markets, the Nifty mid-cap index was down 1.6%. The Nifty small-cap was down about 1.8%. Stock futures fell on Thursday morning as US President Donald Trump threatened settling of unilateral tariffs on trading partners in two weeks. This is stock futures on Wall Street with S&P futures and Nasdaq futures as well as Dow Jones futures all going down by between half and 1%. Boeing lost more than 7% in pre-market trading after the crash of that Air India Dreamliner 787. Wall Street continues to wait for more developments on trade especially between the United States and China as talks between the two countries have been at a focal point this week said CNBC which also quoted Trump saying that he would be willing to extend a July 8th deadline for finishing trade talks with countries before higher US tariffs take effect but those extensions may not be necessary. This was on Wednesday.
Inflation Drops
India's retail inflation has dropped to a six-year low of 2.82% in May, down from 3.16% in April thanks mostly to a slower increase in food prices according to government data. A Reuters poll had estimated inflation at 3% but other reports including one by Bank of Garuda Research which we quoted here on the core report had placed it below 3%. Food inflation which makes up nearly half the consumer price index basket was down to less than 1% in May from 1.78% in April. Vegetable prices also saw a sharp year-on-year decline of about 14% even more than the 11% seen in the previous month. Pulses were down about 8.2% which were also down the previous month. Rural India saw a fairly sharp fall in inflation coming down to about 2.6% and food inflation was down to about 0.9% from about 1.8% in the previous month. Urban India also saw a decline in inflation to about 3.07% from 3.36% in April. So how do we interpret these lower rates of inflation and what could it mean for overall prices and affordability as well as consumption? I reached out to Aditi Nayar, Chief Economist at ICRA and I began by asking her whether the latest print which were below estimates had surprised her.
INTERVIEW TRANSCRIPT
Aditi Nayar: See we have projected a CPI inflation to come in at 3% which is in line with the broad consensus that was there for this month and it's coming a little bit lower mainly because of food prices that have barely moved in month-on-month terms. Now see the base effect is very high and that's one reason why we're getting low YOY prints on the food side. But also what's missing this time around is the typical seasonal uptick that we find in prices of many food items as we approach the warmer weather and that's partly because we did have a few weeks of minor temperatures.
We also had the monsoon starting very early but then getting stalled after that which is something that we do need to keep in mind in terms of how we're projecting the overall outturn of the monsoon season.
Govindraj Ethiraj: Right so if you were to now look at the numbers you said food is something that's keeping everything down. Is there anything else that's standing out?
Aditi Nayar: Core inflation is still hovering above that 4% mark which is fine because you know ultimately we don't really have a target per se for core and food. The target is for overall inflation and the prints we have right now are far below that 4% mark. It's been a fairly good spell now of inflation which is quite low and I think it's going to last.
So we're looking at an even lower print for the current month for instance. And overall for this year the projection that we have the average for FY26 CPI inflation is 3.5% which is even lower than the 3.7% that the MPC has just put out.
Govindraj Ethiraj: Right so what are the other things or signals that we could look forward to when we see such low levels of inflation or have seen such low levels of inflation? I mean what else could happen or happens in the economy?
Aditi Nayar: So you know a few things to kind of just keep an eye on. One of course is how the monsoon progresses. What we don't like to see is episodes of very concentrated heavy rainfall either in urban areas or in rural areas that tends to be more disruptive and not very good for the standing crop especially when it's later in the monsoon season.
So earlier in the monsoon season heavy rainfall just goes into the groundwater and into the reservoir levels and that's kind of fine. And that's actually good for the crop that is yet to be planted. But after the planting is done you know typically we like the monsoon to be very normal.
We don't like it to be concentrated. That's one. Second of course now we really need to keep an eye on how the growth numbers pan out, high frequencies etc what cues we're getting for the very core domestic part of the economy.
Because of the global economy, there still remains a lot of uncertainty and a lot of flux. So let's leave that aside but for the core domestic high frequencies we need to really kind of get a sense of how things are progressing here on out.
Govindraj Ethiraj: So you know we are saying that if you were to take off the food on the outcome and monsoon as the trigger there's nothing that you're really expecting from this inflation number or these inflation numbers or can even expect going ahead.
Aditi Nayar: See we will get a spell where suddenly in a 15-day period the vegetable prices will shoot up. That's normally what happens in the summer and eventually we will catch up to what I call a normal summer price. It'll be a little billeted so it'll be steeper possibly than what it normally is.
We could end up with some sort of a vegetable price shock that is not unexpected unfortunately in the Indian context and again spells of heavy rainfall can be quite damaging for things like vegetables which are quite bearishable. So that's something obviously to keep an eye on. Now even if I build in a vegetable price shock it's taking my CPI inflation average to 3.7 percent which is where the MPC is at right now. Overall the numbers it's just looking like a set of very benign numbers all the way out till December and from December onwards as the favourable base sort of goes away then the numbers will look a little more normal in a sense.
Govindraj Ethiraj: Right so and how are you seeing this impacting consumption cost of living and so on? I mean from what you've said things have not really changed that much in recent months because it's only food that's going up and down or down in this case. So therefore is there any impact as you see on private consumption?
Aditi Nayar: So a couple of things see if we take the rural side first then a well distributed monsoon is generally associated with good outcomes for crops and in general for the rural economy and sentiment tends to improve which then helps you in terms of the rural consumption. On the other consumption side definitely we have a combination of factors that should be supportive for better consumption going ahead. We got the income tax cut, we got the reduction 100 basis points, repo cut which has already happened.
I haven't lost hope for one final rate cut but it will come in August. I don't think maybe it'll come through in October but even then 100 basis points is a lot. We started off in January thinking that the rate cut cycle would be 50 basis points so we've already got double of that and then at least hopefully we'll get inflation which will remain low for a slightly extended period of time. Now price levels are high no doubt but on top of that at least if you end up getting lower further inflation then that is something that could again help urban sentiment to recover in terms of consumption decisions.
Govindraj Ethiraj: Right and last question in terms of outlook I know you said that basically you're seeing similar inflation levels going ahead and maybe till the end of the calendar year but if you were to compare this with everything else or the other key macroeconomic signals including interest rates which you also referred to how do things look I mean is this an almost confluence of a lot of good news and could that lead to any other triggers in terms of investments and so on and what else do you infer from this?
Aditi Nayar: So I think the other big macro for the growth number we're at 6.2 percent for this year which is again lower than the MPCs forecast they're at six and a half percent where it's 6.2 percent and I think one area where I'm a little less optimistic is possibly private capacity sanction given the kind of turmoil and the kind of uncertainty that there is globally I think this is more to be one fallout in terms of what kind of private sector capacity expansion we should really expect to see in FY26.
Other than that an above normal monsoon isn't universally positive so things like electricity demand both from the average sector and household sector also even things like detailed footfalls can actually be negatively correlated with a heavy rainfall as can things like construction even national highway construction etc we do tend to see some sectors which take a beating during the monsoon months if the rains are high and then of course the positives of that get a little back-ended the better rural cash flows etc all of that will possibly lead to better consumption more in H2. So again there could be a differential impact in terms of the quarters in which you end up with better growth outcomes. On the twin deficits fiscal deficit broadly I think things are looking good on balance and current account deficit again we're looking at barely a number which is around one percent of GDP so very much in control.
Govindraj Ethiraj: Right Aditi, thank you so much for joining me.
Aditi Nayar: Thank you.
A Shocking Accident
Some 241 people and several on ground are believed to have died after an Air India B787 Dreamliner bound to London's Gatwick airport from Ahmedabad crashed moments after takeoff. There appears to be just one miracle survivor at this point. The aircraft with the tail sign of VT ANB and an operating code of AI 171 had 242 people on board and that comprised two pilots and 10 cabin crew.
The aircraft was under the command of two pilots with 8200 hours of experience and 1100 hours of experience. Air traffic control said the aircraft departed from Ahmedabad at 1339 Indian standard time that's about 1 40 p.m in the afternoon and it gave a mayday call to the air traffic control immediately after which no response was given by the aircraft to the calls made by air traffic control. It crashed directly on the BJ Medical College hostel mess in Meghani Nagar close by.
Air crashes like these obviously lead to tremendous anxiety amongst travelling passengers and the airline industry too. So how should we be interpreting this event and more importantly what should we be not interpreting or deducing from everything that we see around us including videos on social media. I reached out to Captain Sam Thomas, President of the Airline Pilots Association of India and an active pilot and I began by asking him what we should not be doing at this point.
INTERVIEW TRANSCRIPT
Captain Sam Thomas: Firstly any kind of speculation. We understand that the public at large would like to know exactly what has happened but we are constrained to let them know that unless we have the DFDR data it would be very difficult and often as we've seen when we think looking at a video clip and with a lot of people claiming to be expert trying to say that this is what has happened invariably that's the wrong kind of conclusion that you reach.
Secondly like you very rightly said there is post-traumatic stress disorder that sets in not just amongst the pilots the travelling passengers as well. Now what we need to assure them or rather we need to tell them the facts that just because a particular aeroplane or an airline has had an issue does not mean the entire airline is bad or a set of aeroplanes are bad. There have to be very measured attributes that come out which the manufacturer would say that I need to ground these aeroplanes only then there is an issue with that aeroplane or that airline per se.
Otherwise we just should wait for the authorities because it's not something that can be written off very easily. There would be the Boeing company that would be involved, there'll be the FAA, there would be the NTSB and probably the AAIB from India.
Govindraj Ethiraj: So if we were to sort of think of what are the areas where problems could happen so one is the aircraft itself which is to do with the manufacturer, the second is to do with the airline and that could be to do with maintenance, third could be to do with let's say the pre-conditions or conditions at that time which is more to do with weather and so on. Would I have covered all the aspects or are there other things that people should keep in mind?
Captain Sam Thomas: No, you've pretty much covered everything. The weather, now there is a limited amount that you can control the weather and be rest assured that if the weather is not good for flying no pilot will take off. The discretion lies with the pilot.
So it would be very difficult to find somebody who's going to do a take-off in weather that's inclement for flight. Having said that, these aeroplanes can handle weather very very easily. I mean what you think is bad weather might not be really anything at all and as far as technical checks are concerned, now that again is outside the purview of passengers and the engineering departments do a very very thorough job because we are an over-regulated society with respect to aircraft maintenance to a point where we can be not so viable commercially.
So what should not scare the passengers is sometimes you read things about in this particular aeroplane you didn't have the in-flight entertainment system working or the chair broke or the top. That is something that can happen to any airplane that does not affect safety in any but otherwise India aviation is generally very safe.
Govindraj Ethiraj: Right so from a pilot's perspective now obviously these are things that are going over your mind because things sometimes happen which have not happened before and thus open questions or raise questions about it could be to do with aircraft structural issues, it could be to do with some dramatic weather changes which let's say an aircraft is not able to respond to or some other aspect which could be to do with some cockpit pilot error or something.
So how do you see, I mean I know this question can come up every time there's an accident of this nature but how are you seeing it as a pilot right now?
Captain Sam Thomas: As a pilot I sympathise with the crew of this aeroplane because what is coming out within our groups or our peer groups is that he lost thrust on both the engines or both the engines were not developing power. In such a scenario no matter how good a pilot you are you have very very limited resources and it has happened at around 600 feet there is no way that an aeroplane of the stature of the 787 can make a 180 degree turn and come back to the airport he had no option but to go straight ahead. Now having said that we are all looking at certain things that Boeing has not been doing correctly or has been the news for the wrongest of reasons our thoughts are now going back into after that shock effect are going into can we take a re-look at what the whistleblowers at Boeing were speaking about.
Govindraj Ethiraj: Okay so you're saying that there could be something with the aircraft that may have been overlooked or may not have been paid sufficient attention which we should know.
Captain Sam Thomas: I guess not because we think it is that way it is because too many whistleblowers from Boeing have been coming out and saying that hey everything may not be as good as it sounds with the 787 programme and it's all over the net it's in the public domain that is something that we must give credence to at least post this particular incident.
Govindraj Ethiraj: So when you say give credence you mean what I mean again as a layperson how should I be thinking about it if I should.
Captain Sam Thomas: No just as a lay person it would be you know a good to know kind of thing but as a manufacturer or rather a customer buying these aeroplanes you know commercial reasons sometimes override if you get a great deal from Boeing and Airbus is its competitor so sometimes these deals are made based on commercial interest alone or rather overriding commercial interest. Now that this incident has happened we must take a look at what those people were saying at Boeing because Boeing has a history of this. The 737 maxes didn't cover themselves in glory either. So the other factor is that anytime there's an investigation it has to be completely transparent so that the public at large come to know exactly what the problem was and what risk mitigation factors have been included so as to avoid this the next time.
Govindraj Ethiraj: The right and last question in a way circling back once again is that if as a frequent flyer or another frequent lot of frequent flyers watch and listen to the core report any message to them from you as a pilot?
Captain Sam Thomas: Nothing to be worried about absolutely these unfortunate incidents do happen once in a while and I do not want to sound that I'm underplaying the incident it's a very tragic incident but this is what sometimes happens in aviation despite it being one of the safest mode of travel so I don't think this should make an overriding effect on your mind with regard to your travel on wide-body aeroplanes or any aeroplanes for that matter as good sir.
Govindraj Ethiraj: Captain Thomas, thank you so much for joining me.
Captain Sam Thomas: Most welcome.
Heat Waves Are Back
Most of Northern and northwestern India is experiencing heat waves at this point India has been preparing for these heat waves ever since they were forecasted in April and of course we've seen them in previous years too but unusually we saw an early onset of monsoons which subsequently stalled in recent days Delhi reeled under a brutal heat wave with actual temperatures crossing 45 degrees Celsius and the real feel or heat index going to about 51.9 degrees Celsius on Wednesday according to a PTI report the Indian meteorological department issued red alerts warning residents of extreme heat related health risks. I reached out to Safi Ahsan Rizvi a former police official and now advisor to the National Disaster Management Authority and I asked him how authorities were gearing up and had geared up for these unusual swings and also whether he saw any impact on agriculture and crops.
INTERVIEW TRANSCRIPT
Safi Ahsan Rizvi: There are two intertwined questions here about the heat wave coming back especially in north India and about the monsoon and you know there's talk about people are saying monsoon is delayed so I quickly mentioned on monsoon first and then heat so three months north India gets pure heat that three months is essentially April May and June this is because the sun is shining bright and fast there are no thunder showers and there is no monsoon so that's why there's hot and if the heat wave the heat days are it's a longish spell of three days four days then the discomfort is way higher that is why all the talk what happened this time was that compared to 23 and 24 23 24 massive El Ninos where the temperature difference between Darwin and Tahiti that's how the ENSO is calculated was two degrees Celsius now the two degree difference in temperature made the Pacific Ocean way warmer than the Indian Ocean hence the monsoon was fairly muted and the heat wave was there were no thunderstorms coming our way this year what has happened is that the difference between Tahiti and Darwin was just about half a degree so there's no El Nino ENSO is neutral the Indian Ocean dipole is neutral so hence a very good monsoon was expected now why is monsoon slightly delayed every year it moves in shifts and starts it's not always a steady move upwards so what happens is that trade winds bring it up across the Indian Ocean and Arabian Sea it hits western central and south India then it collects way more moisture over the Bay of Bengal and then it turns left at the Himalayas so the real monsoon that comes to the Ganges Plain is coming essentially from moistures in the Bay of Bengal so all models be the Indian or foreign IMD they are all saying that 100 plus is what is expected of the monsoons so the expected to come on time now what happened to the heat the thing is that the western disturbances and various thunder showers have come and gone because of the neutral IOD neutral El Nino this time in north and central India so no heat wave spell has gone beyond a day or two or two and a half days that is why you saw very cool summer in April and May but right now there is a lull there is the purvaya is not flowing from Bay of Bengal yet and neither are there any new depressions forming in Arabian Sea or the Bay of Bengal so the general thing is a bit muted as of right now today it could all change in another three days so as per IMD we still expect the monsoon to come in time we are lucky that in 25 the heat is not as intense as it was in 23 and 24 but yes there is discomfort right now and maybe for the next three four days for that all the systems that are in place are in place all the district magistrates have issued their advisories all central and state agencies have done that and school timings i'm sure have been delayed at the district i mean segregated at the district level the construction workers have been given their times off several new little insurance programmes on parametric heat wave have started so they must be those workers who are not working for that day if they have 40 45 or whatever the threshold is that threshold has been crossed they'll be getting their money from the insurance companies so things are on course but in a larger game the heat wave mitigation a fair number of funds is needed those are being provided by government of India just last year the GOI agreed to spend public funds on heat wave mitigation that has been allowed so this year some funds will be spent and heat action plans is what we've spoken last so heat action plans are continuing full-fledged we are trying our best to keep taking them to as many cities as we can so all that process is there now the problem that will come will be in June when the monsoons start hitting the Himalayas so that's when issues regards floods issues regards urban floods issues regards landslides will come up so our preparations are now moving towards a possibility of an excess monsoon and because of the predictions the early wave predictions from all organisations so what do we do for the landslides what do we do for the floods all that is being prepared
Govindraj Ethiraj: Right now is there any specific response planned or expected in the context of agriculture or crops and resilience?
Safi Ahsan Rizvi: Yes so in the heat situation the ministry of agriculture for crops and for livestock the ministry of animal husbandry these two ministries have full-fledged plans now the kind of initiation in the agricultural research the universities of climate resilient seeds that is a very big initiative there are lots of issues around it and a fair number of them have been resolved the scheme has been launched and over the years as you're very well aware at PUSA and at various other agricultural research institutes we've been putting out all kinds of climate resilient seeds which have been tried so that is one aspect of how they can deal with heat and how they can deal with excess rain so heat as you are very well aware that crops are very sensitive if they're required 24 to 30 in this period of their germination they don't get 24 to 30 then the yield drops 20 percent 40 percent 60 percent so there's a serious amount of study done in that and there's nothing you can do as of right now to do anything it's only a long-term process which was initiated several years ago and I can assure you it's in a fairly decent state of readiness to deal with heat and excess precipitation right
Govindraj Ethiraj: Mr. Rizvi thank you so much for joining me
Safi Ahsan Rizvi: Anytime thank you thank you
