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Markets Search For Signals And Direction

Stock Markets moved down in the absence of any clear signals which by the way is likely to be the situation for some time. There are of course multiple other signals that markets are watching including in the United States.

By Govindraj Ethiraj
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Markets Signals
On today’s episode, financial journalist Govindraj Ethiraj talks to Sunil Nanda, a recognised industry expert in computer architecture and VLSI design (and who also started up the India Design Centre for NVidia in Bangalore in 2004) as well as Govind Iyer, board member at Infosys and chairman of Social Ventures Partners India.  

Our Top Reports For Today

  • (00:00) Stories Of The Day
  • (00:50) Markets search for signals and direction. What will they be?
  • (02:24) Oil prices are down again
  • (03:05) Two companies, both over 75 years old prepare for a fresh battle, in paints. 
  • (06:27) India’s Chip plans and why NVidia Chips are special.
  • (21:30) How Indian businesses have tens of thousands of crores of unspent money for social projects.

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.


Indian Indices Are Down

Stock Markets moved down in the absence of any clear signals which by the way is likely to be the situation for some time. There are of course multiple other signals that markets are watching including in the United States but the multiplicity of them makes index gazing equivalent to star gazing.

Meanwhile, the BSE Sensex closed 353 points lower at 72,790 while the Nifty50 closed at 22,122, down 91 points. One stock which had a tough day was Asian Paints and we will come to that in a moment in our companies news section which sometimes is also the stock of the day.

I referred to the multiplicity of signals.

Bloomberg reported that US equity futures signalled a pause for stocks around their record highs as investors geared up for a busy week of data, including the Federal Reserve’s preferred measure of inflation.

With earnings season now having mostly ended, third quarter for India and fourth quarter for the US, investors were likely to focus more on economic data, which in the US is the core personal consumption expenditures price index, an indicator closely watched by the Fed. 

Fourth-quarter US GDP numbers are due Wednesday.

Back home, a Reuters poll has said that India's economic growth may have moderated to 6.6% year-on-year in the October to December quarter as robust government spending slowed and growth in the agriculture sector remained muted.

Oil Falls Again, Now Near $81.

Every dollar that oil prices lose is good news for countries like India. Since India is more of a consuming country rather than an oil producing country like others.

Brent fell toward $81 a barrel. 

Oil has traded in a narrow band of about $3 a barrel for the past two weeks.

The cartel and its allies including Russia are widely expected to prolong their current cutbacks into the next quarter at their meeting early next month.

Though this move to manage production has not made any real difference to prices at least so far.

The Battle of The Paint Giants Begins

And here is our company news section.

It’s not often that the arrival of a newcomer shakes up the market and markets.

Except of course it depends on how you define a newcomer.

The Aditya Birla Group launched its paint brand Birla’s Opus paint launch, with a Rs 10,000 crore investment, 6 manufacturing plants, wide range and a Rs 10,000 crore revenue target in three years. By any stretch, for this product and market, this is ambitious and the Birla’s have been scaling up the size of this project even between the first announcement a few years ago and the launch last week.

But Grasim, the company which launched the paints business, was set up as a textile company in 1947, the year of India’s independence. It started more specifically as a linen and wool making company then.

Rival Asian Paints who we will come to was set up in 1942, just 5 years before. The difference of course is that Asian Paints has always been a paints company. So this is also an interesting story of core competence versus diversified.

So Round 1 has already begun in the stock markets.

Credit Lyonnais or CLSA has already downgraded key rival Asian Paints’ which has a 53% share of the overall paints market. The stock price fell further yesterday and down to a 10-month low.

Not all brokerages have followed suit. Goldman Sachs has held its neutral rating though its price target and its earnings per share estimate on the ground that Birla’s paint entry strategy was way more comprehensive than earlier assumed, according to Moneycontrol.

Macquarie has maintained its outperform on Asian Paints and the other players like Berger which has 19% and Kansai Nerolac which has around 12% could be affected more, particularly Berger Paints.

In general, a non venture funded big bang greenfield entry like this into a mature market place is rare. And interestingly enough, as I said, from two companies who have been around for more than 75 years.

There are similar examples from the past include Reliance and Jio entering and then re-entering telecom and onwards into media and entertainment. 

There are other examples of course but not that many. 

All of this makes it interesting to watch, not so much for what happens to the paints industry, am sure good things, but more to see how mature businesses like the Birla’s perform in new segments with the heft and clout of their legacy brand, including in construction materials like cement in this case.

And further, how older companies launch into newer areas, in itself a sign of India’s consumer market potential and who can potentially reap the benefits of it. Hint, not just venture funded companies.

And of course these are more consumer facing products which call for a fair degree of consumer connect and soft pull, something Asian Paints has defined quite well in the segment.

Of course driving all of this is the booming real estate sector which consumes some 70% of the paint produced in the country.

The real estate sector itself has seen late stage entry from older business houses like Mahindra and Godrej and more recently Raymond and most recently Birla, the same people who have launched Opus Paints. You can join the dots now!

India Gets Going On Chips, And AI Chips

After the initial hiccups of multi-billion dollar chip projects faltering at start, Bloomberg reports that the Government of India is looking at a fresh set of $21 billion of  semiconductor manufacturing proposals.

 Israel’s Tower Semiconductor Ltd. is proposing a $9 billion plant, while India’s Tata Group has put forward an $8 billion chip fabrication unit, the news agency reported.

The offer is that the government would bear half the cost of any approved projects, with an initial budget of $10 billion for the task. 

A joint venture between mining giant Vedanta Resources and Taiwan’s Foxconn Technology fell apart after they could not find a partner for chip design technology which was the biggest challenge.

US memory maker Micron Technology Inc. is setting up a $2.75 billion assembly and testing facility in Gujarat in the town of Dholera being developed as a prospective chipmaking hub.

The Tata conglomerate is expected to partner with Taiwan’s Powerchip Semiconductor Manufacturing Corp. for its project, though it has also held talks with United Microelectronics Corp., the people said. 

Both Tower and Tata’s facilities would produce so-called mature chips — using 40-nanometer or older technology — that are very widely used in consumer electronics, automobiles, defence systems and aircrafts, the people said.

Bloomberg says that Japan’s Renesas Electronics Corp. is also looking to forge a venture with Murugappa Group’s CG Power and Industrial Solutions Ltd. arm for a chip-packaging facility.

Speaking about chips and cutting edge chips, the world’s attention is obviously on NVidia whose stock has been shooting like a rocket with a market value around $2 trillion.

NVidia is a leader in graphics chips, which are built with hundreds of processing cores that perform multiple simultaneous threads of computation, modelling complex physics like shadows and reflections. 

Bloomberg says that Nvidia’s engineers realised in the early 2000s that they could retool graphics accelerators for other applications, by dividing tasks up into smaller lumps and then working on them at the same time. Just over a decade ago, AI researchers discovered that their work could finally be made practical by using this type of chip.

Nvidia controls about 80% of the market for accelerators in the AI data centres operated by Amazon.com Inc.’s AWS, Alphabet Inc.’s Google Cloud and Microsoft Corp.’s Azure. 

Not that these companies have not tried to build their own chips.

They have as have Advanced Micro Devices and Intel but its not matched up to NVidia yet.

Speaking about NVidia, I caught up with Sunil Nanda, who started up the India Design Centre for Nvidia in Bangalore in 2004 or 20 years ago and ran it for 5 years. 

The Centre now employs over 3,000 people, mostly engineers.

Nanda, has 6 technical patents and is a recognised industry expert in computer architecture and VLSI design and earlier founded a company that was acquired by Intel Corporation.

Nanda now runs a social incubator out of Pilani in Rajasthan, an outcome of his time spent at and as an alumni of the Birla Institute for Technology & Science or BITS Pilani, located in the same town.

I began by asking him quite simply why NVidia chips to whose designs he has contributed over the years were so different.


The importance of Corporate India’s Unspent CSR Funds

Indian company laws mandate that companies should spend 2% of the average net profits made during the preceding three years on Corporate Social Responsibility projects which are of course defined as is the eligibility in terms of size and turnover.

Broadly, according to the Hurun India report, around 300 companies spent around Rs 12,890 crore on CSR last year versus the prescribed limit of about Rs 13,420 crore.

The interesting point is the unspent CSR money which was over Rs 1,000 crore. Now the law says that you can give the unspent money to the PM Cares Fund or other prescribed funds.

The argument here however is that companies could be more active and proactive in the way they manage their funds and thus play a more active role in adding heft to their social contributions.

Also, because over time, the total CSR pool has crossed over Rs 100,000 crore and will increase with lets say Nifty 50 profit growth.

I spoke with Govind Iyer, board member at Infosys and chairman of Social Ventures Partners India, an organisation that works with organisations to create structured engagement with non profits, among others, across India.

I began by asking him to talk about why unspent CSR funds were an issue?