Markets Set to Open Gap Up

The stock markets have been pricing a victory for the BJP for several months. The question is of valuations and how much appetite there is at these levels.

3 Jun 2024 12:30 AM GMT

On Episode 308 of The Core Report, financial journalist Govindraj Ethiraj talks to Mihir Vora, chief investment officer of the recently launched Trust Mutual Fund as well as Vivek Kumar, economist at Mumbai-based QuantEco Research.

Our Top Reports For Today


(00:00) Stories Of The Day

(01:48) Markets set to open gap up

(11:34) Oil prices fall to around $81 a barrel even as major oil producers extend supply cuts

(12:56) Rising commodity prices and impact of weather, major challenges before the new Government

(15:44) Electric vehicle sales declined in India in May, perhaps for the first time

(17:07) India’s GDP numbers surprised again but economists are now preferring to use Gross Value Added

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 & More

Before I come to markets for Monday June 3, which are set to open with a gap up and then land higher later.

Election results will become clearer or the final picture at least only after June 4, which is tomorrow.

Of course, the stock markets have been predicting, projecting and pricing a victory for the BJP for several months now. So the question is of course valuations and how much appetite there is at these levels. More on that shortly.

Just to recap last week. We saw record highs on Monday May 27 or last week at the same time with the BSE Sensex hitting a high of 76,010 but closing the week 2.5 per cent or 2,049 points, lower at 73,961 levels. Similarly, the NSE Nifty 50 hit an all-time high at 23,111, but closed the week with a loss of 2.7 percent, or 580 points, at 22,531.

That should give you a sense on where the market could go back between Monday and Tuesday before setting a fresh course .

The Nifty MidCap 150 and the Nifty SmallCap 250 indices were down more incidentally by 3 per cent and 2.3 per cent, respectively, from their record highs.

The market is being driven by sentiment which will give way to fresh policy moves by the Government and possibly signals that suggest fresh investments by businesses. More on that too shortly.

I reached out to Mihir Vora, CIO of the recently launched Trust Mutual Fund which closed its new fund offering for a flexi cap fund on April 19 and has already invested into the market.

I began by asking him how he was seeing the market mood picking up on the exit polls before asking him about the medium term outlook and what kinds of themes he was focussing on.

Oil Prices Fall, Even as Producers Extend Supply Cuts

In all the election excitement, one piece of good news is that oil prices are falling, now a shade above $81 a barrel.

This is obviously good news for India too and helps keep the overall outlook for inflation stable to low.

Meanwhile, OPEC has agreed to extend its oil supply cuts, delegates said, as the group continues its efforts to avert a global surplus and shore up prices, Bloomberg reported on Sunday.

The cuts from key members including Saudi Arabia and Russia, which total roughly 2 million barrels a day and were set to expire at the end of June, will continue until the end of 2024.

Those curbs were in addition to an earlier group-wide agreement capping crude output that runs until the end of this year.

OPEC ministers gathered on Sunday for a meeting to decide oil policy, with some attending in-person talks at the Ritz hotel in Riyadh and others participating online.

The voluntary cuts in production were broadly expected and were seen as a response to rising production from rivals like the United States.

While crude prices briefly soared above $90 a barrel in April as conflict in the Middle East threatened regional exports, they’ve since declined. Brent futures settled at $81.62 a barrel on May 31, a drop of 7.1% for the month.

Heat, Dust And Price Rises

India is seeing unprecedented heat waves and loss to life.

At least 33 people, including election officials on duty, died of suspected heat stroke in India's states of Bihar, Uttar Pradesh and Odisha on Friday, and the heatwave in the region is expected to continue until Saturday, authorities said.

Globally, 2024’s first four months were the warmest in 175 years, according to the National Centers for Environmental Information.

It is not surprising perhaps that India’s Prime Minister’s first meetings post the conclusion of the last phase of elections on June 1 are meetings linked to weather.

The first meeting was to review a post-cyclone situation in the east and north east and the other to review the heatwave situation, according to news wires.

But around the world and not just in India, it is going to get much worse.

Odds are growing that 2024 will become the hottest year in history as the Northern Hemisphere barrels into summer.

Prices for some of the world’s most vital commodities — natural gas, power and staple crops like wheat and soy — are climbing.

The world of shipping, already thrown into chaos from the Red Sea to the Panama Canal, is likely to be affected again by parched waterways.

The Rhine River — Europe’s busiest commercial waterway, which moves everything from diesel to coal inland from the giant port of Rotterdam in the Netherlands — has seen record-low water levels in recent years.

And the potential for destructive wildfires is increasing, Bloomberg is reporting.

Wild weather driven by climate change will affect the cost of energy, food and fuel.

Moreover, frequent natural disasters will affect everything including the cost of financing projects. Think Dubai Airport crippled by floods in April.

Last year, extreme weather and earthquakes inflicted global losses of $250 billion, according to Munich Re.

Some experts are predicting US natural gas prices could jump more than 50%, whole wheat and coffee markets are also expected to rally.

All this means is that the Government that takes charge in India in a few days will have to grapple with climate linked problems and challenges ahead of many others.

Moreover, we will have to work harder to build disaster resilience for all the major investments that are being rolled out, notably by the Government itself.

Electric Vehicle Sales Decline

It is perhaps noteworthy that as we speak of climate and climate responses, the one indicator that should be doing well is sales of electric vehicles.

But that is not happening.

India’s electric vehicle market saw sales decline for May 2024 compared to the same month last year.

Though there was a modest recovery compared to the previous month.

In May 2024, according to data from the Vahan portal of the Ministry of Road, Transport and Highways, total EV sales amounted to 123,107 units, a decrease from the 158,459 units recorded in May of the previous year, which also marked the peak sale of the calendar year.

However, despite the year-on-year (Y-o-Y) drop, May 2024 showed signs of improvement compared to the preceding month. The sales figure of 123,107 units in May represents an 8.8 per cent increase month-on-month (M-o-M), in contrast to the YoU decrease of 22.3 percent. In April, 113,092 units were sold.

Within electric vehicles, two-wheelers accounted for approximately 51.7 per cent of total sales, three-wheelers comprised roughly 42.5 per cent, passenger cars made up around 5.3 per cent, and buses represented about 0.2 per cent.

GDP Growth At 8.2%, GVA In Focus

And the economy is still growing, though by how much and where it needs closer inspection.

India's gross domestic product (GDP) beat estimates and grew by 8.2 per cent for the full year (FY24).

For the January-March quarter of fiscal 2023-24 (Q4FY24) GDP came in at 7.8 per cent, driven by strong growth in the manufacturing sector.

According to data released by the National Statistical Office (NSO) on Friday, May 31, the sector-wise analysis revealed that the real gross value added (GVA) grew at a rate of 7.2 per cent in 2023-24, compared to the 6.7 per cent growth observed in 2022-23.

All this took India’s economy to $3.5 trillion.

HSBC Research in a note said that while the 7.8% y-o-u, March quarter GDP growth print surprised once again on the upside; GVA on the other hand grew 6.3%, in line with our expectation.

The large difference between GDP and GVA growth, for a second quarter in a row, is explained by a fall in the subsidy bill; GVA is likely a better indicator of the growth momentum.

HSBC also says that GDP details show that private consumption remained on a weak footing. Government consumption was weak too, as is clear from the fiscal data showing that in the run up to the elections.

I reached out to Vivek Kumar, economist at Mumbai-based QuantEco Research and began by asking him to take us through the latest GDP and GVA numbers.

Among other macro news of relevance to you.

India will hike road toll charges across the country by 3-5% from Monday, officials said, after putting the annual increase on hold in April due to the country's general elections, Reuters reported, adding that toll charges are revised annually in line with inflation and highway operators put notices in local newspapers announcing hikes of 3% to 5% at nearly 1,100 toll plazas from Monday.

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