Markets Snap 4-Day Winning Streak
The stock markets snapped a four day winning run and closed lower as investors searched for fresh triggers
On Episode 620 of The Core Report, financial journalist Govindraj Ethiraj talks to Ajay Bagga, Market Expert.
SHOW NOTES
(00:00) Stories of the Day
(01:29) Markets snap a 4-day winning streak
(03:41) Is a flood of fresh funds swamping markets and distorting valuations
(18:49) The gold paradox between America and the rest of the world
(21:04) GST collections have doubled in last 5 years
(27:11) Global air cargo grows despite 11% drop in Asia to North America routes. Jet fuel prices down sharply
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 Tuesday, the 1st of July, and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital. Before we start, it's just that another month has passed and we are now in July. Among other things, the monsoons have covered all of India around nine days earlier than normal.
Summer solstice is over and days will get shorter as we go. Mumbai has perfect weather, some rains, cool breeze and occasional hot spells of sun, so it's a good time to visit. And of course, more relevant, the first quarter of the current financial year is also over, so in a week or so, the results will start to flow in, so we will watch out for that.
Meanwhile, our top stories and themes,
The stock market snap, a four-day winning streak,
Is a flood of fresh funds, swamping markets and distorting valuations?
The gold paradox between America and the rest of the world.
Global air cargo grows, so does passenger traffic. In cargo, despite 11% drop in Asia to North America routes and jet fuel prices are also down sharply.
And goods and services tax collections have now doubled in the last five years.
The Markets Take A Break
The stock market snapped a four-day winning run and closed lower as investors searched for fresh triggers. The Sensex was down 452 points to close at 83,606. And the Nifty 50 was down 120 points to 25,517.
The broader markets did better with the Nifty Mid Cap 100 and Nifty Small Cap 100 indices closing higher by about 0.7% and 0.5% respectively. So the rupee ended the month of June and quarter slightly lower, trailing most Asian peers thanks to muted portfolio inflows and also weighed down by India's external investment deficit according to Reuters, which also added that the rupee closed at Rs. 85.75 against the US dollar, which is down 0.3% on the day, that's Monday, and down slightly for both the month of June and the first quarter.
The rupee is now underperforming most Asian peers. While the Indian unit, as we've pointed out earlier as well, has not changed much in the year so far. The Asian peers like the Taiwanese dollar and the Korean won have risen about 13% and 8%, while the offshore Chinese won is up about 2%.
But the dollar index, and this is of course the important index to watch, is down over 10% on the year so far, thanks to concerns over US trade and fiscal policies and whether the Federal Reserve will remain truly independent. Remember that the bond markets and the currency, which is dollar in this case, are more reflecting the concerns over trade and other macro policies in the United States. Now, all of these factors, of course, have not really affected the stock markets, as we've now seen on several occasions and more on that shortly as well.
In India, foreign investors, according to Reuters, have been net negative for the April to June quarter at about $0.5 billion that has been pulled from both stocks and bonds. Macroeconomic numbers, India's industrial output slowed down to grow at 1.2% year-on-year in May. That's the slowest since August 2024.
Economists polled by Reuters had projected a growth of 2.4% and output grew about 2.7% year-on-year in April. So the reason attributed is the early onset of the monsoon, which weighed on mining activity and also reduced demand for electricity.
The Big Supply Push
As concerns go between trade and wars, there are enough to affect the market, apart from a host of other factors, and yet the markets are powering on, particularly on Wall Street and to some extent even Dalal Street. Now, let's take the Sandrin 500, which was at about $6,144 on 19th February. It hit a low of $4,982 on the 8th of April, just after the famous Rose Garden tariff announcements.
But on June 27th of Friday, they had crossed $6,173 and thus crossed the 19th February mark. And as things stand, are obviously set to rise further. While the tariff concerns still remain, and there is still some war risk in the air.
Indian markets are now at about $83,606, but they are up from $73,085 on the 3rd of March. So that's in about two and a half months. The peak of September 24th, 2024 of $85,386 is now in sniffing distance.
So just to recap that, we are currently at about $83,606. The peak or the last peak last year was $85,386. The question, of course, is what is driving all of this? I spoke with veteran market analyst Ajay Bagga and I began by asking him how he was reading the sheer strength and flows and in-market behaviour.
INTERVIEW TRANSCRIPT
Ajay Bagga: I think it goes back to 2008 and liquidity and then the COVID time, huge liquidity that central banks put in. So, it comes back to that, that there is a huge amount of liquidity. Second, the format of the markets have changed where retail investors have got access through their mobile phones, through their laptops to the markets very easily.
So, especially in the US, we have seen retail investors going on buying every dip. So, that money coming in. And third is, how do you look at the markets?
If you look at S&P 500 today, nearly 30% of its market cap is by the Magnificent 7. That is where most of the growth again this year has come in. If you see an equal weighted S&P 500, which weighs all the 500 stocks equally, that is still 4% below its last peak.
So, it's more a question of the artificial intelligence, the technology spends and the hope rally on them coming back. Now, have customers really made money? There is $33 trillion of international money invested in the US markets, both stocks and bonds.
About $15 trillion is stocks in that. The dollar having gone down more than 10% in the first six months means that all those investors are sitting on losses, unless they had taken out some dollar hedging, which normally is not done. Because it was US exceptionalism that we came into this year.
So, December reports were all talking about the US economy being exceptional, stock market being exceptional and dollar being exceptional. Now, we saw the economy giving a negative growth of 0.5%. We saw the dollar going down 10%. We saw the market gyrating.
And now after six months, it's given about 4.5% for the first six months, which is not really very great returns. And if you translate it into euro or yen, where most of the foreign funds would have come in, you have actually made negative returns. So, the situation on the ground might seem that it's all hunky-dory.
But if you just look one level below the surface, you realise there are tensions. There is a serious challenge to US exceptionalism. Tariffs, as you said, Govind, are an issue.
And probably next week, you will see 10% to 20% tariffs on most of the world coming in. Now, those have not had an impact so far. Because for the last three, four months, before the tariffs came in in April, for those last three, four months, there was a lot of front-loading of equipment coming into the US.
So, inventories were built up. And if you actually see the leading indicators for quarter two, what they are showing, they're showing de-inventorization. So, there is a minus 2.2% of inventory runoff in a huge economy like the US, because the inventory was warehoused. And then it has been sold over the last three months. So, you have not seen the tariff impact coming in. Tariff impacts will start showing up around August, September, not before that.
So, still interesting times ahead of us. But markets are tad bit complacent on the back of huge liquidity, on the back of retail participation, and on the way the indices are structured to be market cap-based rather than equal weight-based. So, the artificial intelligence and data centre, all these have really driven that growth.
Govindraj Ethiraj: Right. So, if you were to now look at Indian markets, while we are below our 24th to 26th September peak, 2024 that is, we're quite close to it. And while there are macro signals which are looking positive, and people are obviously factoring that in, valuation concerns remain the same.
And if anything, they're more heightened now, as in people are, you know, the earnings haven't really kept pace or are not seen to be keeping pace with valuation. So, how are you seeing that?
Ajay Bagga: We have a problem with valuations. There is a lot of positive for the Indian market on the macro side, on the fiscal side, on the monetary side. The policy has worked, and there is a lot of policy continuity.
So, Indian markets are attractive in terms of growth. They're not attractive in terms of valuation. And there, we are seeing a bit of money moving to China, to Hong Kong, to other markets which are not as pricey as the Indian market.
So, we have a valuation concern, and that is not going away, at least for the next two quarters. We will get a bump up in year-on-year earnings. Growth will go to double digit for the June quarter.
So, 15 days from now, you will start seeing good earnings. Because last year, earnings stalled. Right after the general election, we saw government expenditure from March till about September not happening.
And that stalled the economy for six months, right up to September. In December, we had a cautious realignment where earning growth started coming in. March was also tepid.
But now the base effect comes in. So, you will see 10 to 12% growth. But if you take a two-year, three-year horizon, then it's not much to write home about because last year was a washout year.
So, given that, we have lost nearly a year of earnings growth to justify our valuations. Valuations are high, and so it will be difficult to justify it to the marginal foreign capital coming into India. The domestic flows are very strong.
Domestic is really keeping it up, and that will continue. So, even in India, it's the retail-buy-the-dip mentality which is saving the day.
Govindraj Ethiraj: Right, and that was really my next question. So, you talked about the changing format of investing in the Western markets, and specifically Wall Street. And you've also now said that it's something similar in India.
We've seen record systematic investment plan investments even in the month of May into mutual funds. So, to what extent then can we say that this is a supply-driven market? And is there a way of putting a number or some way of tangibly assessing the state of the market as it is today?
Ajay Bagga: What are the worries? You know, because everybody gives you the rosy picture of macro policy, monetary, fiscal, growth, a diversified market, able to manage an Operation Sindoor and still hold its side up. So, all those things are there.
But what are the worries? One is the valuation, which we spoke about. The second big part is that getting the foreign dollar in, you will have to compete with underperformers like China, multiple-year underperformers like China, which are at very compelling valuations, but which might see growth coming back.
So, even today's data from China was not as bad as anticipated. They have a big issue on deflation, on their property market, and on the domestic consumption. But they are again spending on infrastructure, which is the boost that has taken them out of 2008 and 2020.
So, that playbook is again coming in. And you could see China competing for that marginal foreign dollar. The third thing we have to see is, where is the earnings growth coming?
Because big chunks of the market, IT, for example, we are expecting large-cap IT to be really challenged. Accenture earnings commentary gave you a good pointer to that. Big client deals are not happening as fast as they would have wanted.
And government spends are not coming in, especially for somebody like Accenture in the US, which had a $7 billion US government expenditure helping it. That will translate for our large-cap IT also. The mid-cap and small-cap IT will find a way around.
So, those are attractive. Those are early green shoots coming in. But that's a big part of our market.
Financials are doing very well. That's good. Manufacturing is an issue.
We have seen today's data also, manufacturing growth being very underwhelming. In fact, it's become so that we would be happy with a 2.5%, 2.7% growth in manufacturing. But services can't carry the entire economy.
We need to find a way to fix this manufacturing part for ourselves. So, out of the four pillars of the economy, if you may, household private consumption expenditure is okay because of rural strength, but urban strength is missing. And the 100 million affluents are really carrying most of the weight.
So, it's okay. It's not A+. You have government expenditure, which is doing very well.
And it's on infra as well. Private CapEx will not come when you're growing at 1.5%, 2% economy-wide on a manufacturing basis. You will get data centres.
You will get power plants. You will get transmission lines. You will get solar, things like that.
But those are done. And then once they are set up, very few jobs are there to run them. It's all automated.
Core manufacturing is not growing that fast. So, private CapEx is lacking. And the fourth is exports, which are getting challenged.
Services exports are still okay. There's a GCC boom, which will help the services exports, but goods exports. You're seeing that in diamonds.
You're seeing that in gems, jewellery. You're seeing that in a lot of other goods, that it's coming under a cloud. And there is intense competition post this Trump tariff that we'll have to watch out for.
So, those are some of the issues facing the economy. And then translate that into the markets going.
Govindraj Ethiraj: And last question. So, are you seeing, therefore, any hidden gems, either sectorally or company-wise? I mean, and one reason I asked this is we've been seeing HDFC Bank, for example, which was languishing for a long time, now suddenly again, hitting record highs.
So, do you see any shifts like that?
Ajay Bagga: Yeah, absolutely. I think banks are going to do well. Both private sector and public sector banks will do well.
Financials overall will do well. Be it NBFCs, be it AMCs, insurance companies, capital market-related plays, all those should do well. Infra plays will do well, especially the government infrastructure.
That should continue to do well. Autos, right now there's a temporary issue with the Chinese rare earths and stuff. And the growth is not there in the market.
So, we have to find a way out for the autos. That's a very big contributor to GDP, but I would stay away from that. So, I would say largely it's financials and a select pharma.
There is a lot of off-patenting happening in the US over the next two years. So, pharma will do well. Hospitals will do well.
Domestic tourism, hotels will do well. Telecom has turned a corner, but there are only two listed or half listed players that are available. So, you don't have much to invest there or one or two tower companies.
So, nothing much there. Cement is coming back. Cement, finally, we are seeing some daylight.
And this market would have been much better, Govind, if the $9 billion of promoter and foreign PE fund selling had not happened. So, that continuous promoter selling is putting a lot of supply into the market. A lot of IPOs and SME IPOs is not a worry.
The amounts are very small. So, it doesn't really impact the liquidity. But large IPOs are coming in and cashing out at these elevated price-earning ratios, elevated valuations.
That is holding the markets back. Normally, in nine months, we would have crossed the all-time highs back. We would have, because it's not been a very deep cycle.
It's not been a recession. It's not been an economic slowdown. We have still grown.
Nominally, we have grown at 9.5-10% as an economy. And corporate earnings have grown about 10-11%. So, by now, we should have crossed it.
It's this $9-10 billion of promoter and PE selling and the IPOs, which have taken out that partial liquidity, which is holding back the markets.
Govindraj Ethiraj: Ajay, thank you so much. It was a pleasure speaking with you.
Ajay Bagga: Thank you.
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He spoke of banks and financials. And a report from the Reserve Bank of India published on Monday says India's bank's gross bad loan ratio will remain close to multi-decade lows if economic growth holds steady as projected. The Reserve Bank of India has projected a forecast growth at 6.5% and 6.7% for the current financial year and the next one.
The gross bad loan ratio, which is the proportion of bad assets of a lender to total loans of 46 banks, was at 2.3% in March 2025 and is seen rising marginally to 2.5% by March 27, the Reserve Bank of India said in its financial stability report reported by Reuters.
The Interesting Gold Paradox
Americans who once bought up gold bars and coins are offloading the assets while Asians are continuing to buy them, a sure sign that investors on opposite sides of the world have different outlook on the global economy according to a Bloomberg report.
Profit taking in the United States is not surprising given that gold has now risen close to 60% since the beginning of 2024 to about $3,274 per ounce. Now, on the institutional side, Wall Street banks are divided whether the rally will continue, but Goldman Sachs at this point has reaffirmed a $4,000 an ounce forecast by next year. Morgan Stanley expects $3,800 by the end of the year.
Citigroup is the contrarian, projecting prices below $3,000 next year per ounce that is. Bloomberg also says that divergence suggests that U.S. residents are more at ease with U.S. President Donald Trump's tariffs, rising government debt, and geopolitical tensions, and so they're ready to cash in after gold's strong rally in the last two years. Retail investors are also bucking broader market trends in which more wealthy investors continue to aggressively buy the safe haven asset, as do sovereign funds and central banks, which of course includes countries like China and even India.
On the other hand, Asian gold buyers are focussing on bars and coins versus jewellery. Philip Newman, Managing Director at Research Consultancy Metals Focus, told Bloomberg that in the U.S., a lot of retail investors tend to be Republican-leaning, and whatever we say about the policy of tariffs, they like the idea of how Trump's doing, so from their point of view, there's less reason to buy gold. So, the demand for gold bars and coins has been falling for the past three years in North America and Western Europe, while rising everywhere in the world, with last year marking the biggest divergence on record in data going back to 2014, according to Metals Focus.
And that gap continued into the first quarter of 2025, thanks to a sell-off in the U.S. market. So, coming back to bars and coins, demand for them rose 3% in the Asia-Pacific region in the first quarter. The Chinese market saw a 12% year-on-year increase, according to latest World Gold Council data.
Countries like South Korea, Singapore, Malaysia, and Indonesia all posted gains of more than 30%, according to that Bloomberg report.
GST Numbers Doubled In Five Years
The latest numbers for goods and services tax will be released today, but the government has already said that the last financial year saw the total and highest-ever gross collections of about 22 trillion rupees, reflecting a year-on-year growth of 9.4%. Also, it said that gross GST collections have doubled in five years to reach an all-time high of 22 trillion, which is the same figure in the 2024-25 fiscal year, from about 11 trillion in 2021.
So, GST completes eight years on Monday. It was launched on the 1st of July 2017, and it subsumed about 17 local taxes and 13 cesses into a five-tier structure, which helped simplify the tax regime, according to a report in Business Standard. But of course, there are still miles to go.
Monthly GST collections had hit a record high of 2.37 trillion rupees in April 2025, that's 237,000 crores. In May 2025, it was lower at about 200,000 crores, or 2.01 trillion rupees. In eight years, the number of registered taxpayers under GST has risen from about 65 lakhs, that's 6.5 million, that's in 2017, to about 15 million today.
The Last Mile for Trade Talks
The July 9 deadline to strike a trade deal with the United States is fast approaching, and it's not quite clear what will go through and not in a India-US bilateral trade agreement. India's agriculture and dairy are big red lines in its ongoing trade negotiations with the United States, India's finance minister told the Financial Express in an interview published yesterday.
She said that agriculture and dairy have been amongst the very big red lines, where a high degree of caution has been exercised. The United States wants greater access to agricultural goods and ethanol, citing a significant trade balance, along with expanded market access for dairy, alcoholic beverages, automobiles, pharmaceuticals, and medical devices. On the other hand, India's auto, pharmaceutical, and small-scale firms are lobbying for a gradual opening of the protected sectors, according to a Reuters report.
An article by Siraj Hussain, former Agricultural Secretary of the Government of India, and Arun Raste, CEO and Managing Director of Exchange NCDX, published in Money Control, throws more light on where we are on both dairy and agriculture, the most, or potentially the most contentious points. First, the backdrop. India charges an average 37.7% tariff, or close to 38% tariff, on U.S. farm products, while the U.S. charges about 5.3% on India's exports to the U.S. Bilateral trade is about $8 billion, but there are substantial challenges in increasing U.S. agriculture products imported into India.
The Money Control article also argues that with exports to China going down, the U.S. is looking more for exports to India. For example, agriculture products. China has been a big market for the U.S. China imports large quantities of soybean, oil seeds, and grain.
Soybean is largely used for animal feed. But on the other hand, countries like Brazil have stepped up their soybean export to China, which have grown about 280% since 2010, while U.S. exports have remained flat. So, the U.S. has soybean, for which it wants alternate markets, but soybean in the U.S. is about 96% GM, or genetically modified herbicide tolerant.
So, from the Indian farmer's point of view, things are looking challenging. Last year, Indian soybean farmers realised, according to that Money Control article, just about Rs. 4,000 per quintal, while the minimum support price was Rs.
4,892 per quintal. If India lowers duty on U.S. soybean, the article argues, about 11 million Indian soybean farmers may see prices fall, which would further impoverish the already poor peasantry in rain-fed regions. India's soybean productivity has stagnated around one tonne per hectare for decades, and with increasing irrigation covered in research in seeds, India could raise its yield and produce more soybean to meet its requirement of oil and meal, argue Mr. Hussain and Mr. Raste.
So, import of genetically modified soybean may not be an ideal policy choice, but a better one would be to allow research for developing higher yielding soybean varieties by using GM or genetically modified technology, but that's obviously longer term. The other area of concern, as we've been discussing here, is the pressure the United States would, or is, exerting on India for dairy products. Indian regulations have been very clear that the source animal should not have been fed with feed produced from meat or bone meal.
The United States has consistently argued these restrictions are not consistent with commitments to the World Trade Organisation, and even in the India-Australia Economic Cooperation and Trade Agreement, or ECTA, which kicked off on December 29, 2022, India did not agree to liberalise import of dairy from Australia. On the other hand, there is not much possibility of importing liquid milk from the United States. We produce a lot of it ourselves, but high-value milk products consumed by smaller markets or sections of Indians, and possibly expatriates, does provide a window opportunity to the US for export of dairy products.
It is possible that India could agree to lower tariffs of such products, but on the other hand, similar tariffs have to be offered to Australia, and also in ongoing negotiations of Comprehensive Economic Cooperation Agreement, or CECA. So, what can India do? Well, India could offer lower tariffs on alcohol, almonds, avocados, olive oil, raisins, walnuts, alcohol, and wine. The other crop is maize.
India is importing maize, and also diverting maize in India for ethanol manufacture. It's quite possible that the United States would push for import of ethanol from the US, if maize itself cannot be imported, as US maize is, again, genetically modified. So, India and the US may sign an interim agreement, going by some of the other agreements that we've seen, for example, with the United Kingdom and China.
But the flip side, as the article points out, is that the EU, Australia, New Zealand, and other countries could demand similar tariffs in their negotiations with India. And another article, also in Money Control reports, that in a likely relief for Indian professionals in the United States and the broader non-resident Indian community, the updated draft of the One Big Beautiful Bill Act, OBBBA, has significantly reduced the proposed tax and remittances from 5% to 1%. That tax would have affected Indian workers in the US, especially those on temporary visas, like H-1B or H-2A, who frequently send money home to support families.
Traffic Is Up, Jet Fuel Costs Are Down, And There Are Clouds
The International Air Transport Association has released data for May 2025, showing that global air cargo markets are growing with some strength, though a granular look shows that some markets, like North America, are slowing down. Meanwhile, jet fuel prices in May 2025 were about 19% lower than the previous year, and 4.3% below the previous month.
IATA said that air cargo demand globally grew 2.2% in May. That is encouraging news, as there was almost 11% drop in traffic on the Asia to North America trade lane, which obviously highlighted the challenges of trade with the United States right now. IATA also points out that world industrial production has risen about 2.6% in April 2025, and air cargo volumes grew about 6.8% in the same period.
Meanwhile, the passenger sector also saw growth, though not everywhere. Total demand was up about 5% compared to May 2024. The May load factor was about 83.4%, and international demand rose about 6.7% compared to May 2024.
IATA says that air travel demand growth was uneven in May. Globally, the industry reported 5% growth, with Asia Pacific leading at 9.4%. The outlier was North America, which reported a 0.5% decline, led by a 1.7% fall in the U.S. domestic market. IATA also points out severe disruptions in the Middle East in late June remind us that geopolitical instability remains a challenge in some regions, as airlines maintain safe operations with minimal passenger inconvenience.
