Markets Steady Again
The markets closed higher on Wednesday, thanks somewhat to a rebound in Adani Group stocks
On Episode 444 of The Core Report, financial journalist Govindraj Ethiraj talks to Gaurang Shah, Head Investment Strategist at Geojit Financial Services.
(00:00) The Take: The Rich Getting Richer Is Not Helping
(05:38) Markets steady again
(06:31) Where are markets headed as the year ends?
(12:05) Cyber Scams cross Rs 11,000 crore this year
(13:29) Honda to launch electric two wheelers and the emergence of a multi fuel market
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 28th of November and this is Govindraj Ethiraj, headquartered and broadcasting and streaming from Mumbai, India’s financial capital.
The Take: The Rich Getting Richer Is Creating A Sustained Divergence In India’s Economy
India can’t rely on wealthy individuals to drive growth and expect the overall economy to improve, Viral Acharya, former deputy governor of the Reserve Bank of India (RBI), the country’s central bank, had said at a conference in September that I had the opportunity to attend.
“We can’t be pumping our growth through the rich and expect that the economy as a whole will do better,” he had said, adding that when the rich keep getting wealthier and wealthier, they have a savings problem.
Acharya, who is the CV Starr Professor of Economics in the Department of Finance at New York University’s Stern School of Business (NYU-Stern), had pointed out that as the rich get richer, they look for financial assets to invest in.
In the case of India, the rich can’t invest their money outside of their country very easily. “So, it has to chase the limited financial assets in the country and a lot of the prices in that space have gone up but it doesn't boost India's consumption,” Acharya had said.
The professor also touched upon the fact that rural consumption and investments had weakened after the Covid-19 pandemic.
Acharya was likely referring to the post pandemic spending surge that had already started to show early signs of slow down. The signs became more stark once the results of consumer product companies started to be released.
The latest HSBC Global Entrepreneurship Wealth Report 2024 reminded me of Acharya’s words.
Good News And Bad
The good news is that Indian entrepreneurs are generating wealth, including from stock sales in a booming stock market or from exits to venture capital investors. They have also generated wealth from businesses which have been lifted by the sheer consumer-led growth as well as public spending we saw accelerate in recent years.
But there’s a flip side.
Rich Indian entrepreneurs are using their wealth predominantly for investment in stocks, bonds and real estate, the HSBC's Wealth Report 2024 said. Their approach to wealth management is quite different from other markets, the report goes on to illustrate.
According to the report 82% of Indian entrepreneurs — those with at least $2 million worth of investable assets — prefer to invest in the above-mentioned asset classes, which is the highest percentage amongst business owners in ten international markets (at 51%).
Investment in other businesses (at 41%) and precious metals and stones (25%) are the other investment avenues for the wealthy Indian entrepreneurs, the report suggests.
The results, HSBC said, are based on a sample of 1,798 high-net worth business owners, with at least $2 million worth of investable assets, who chose to take part in the survey.
Here are some more insights on the spending spree India’s wealthy are on as compared to other countries.
Six out of 10 (61%) Indian wealthy business owners allocate personal wealth to real estate for their own use compared to one in two globally (51%). They are also more likely to spend money on luxury goods (56%), compared to a global average of 40% and luxury experiences (44%), compared to a global average of 35%.
While the Indian market remains an attractive place to do business for the nation’s entrepreneurs with 75% of them operating domestically, many of them are looking to move abroad.
Most of these individuals said their aim to grow their wealth was to improve their personal and family health and to ensure financial freedom. Enjoying a luxury lifestyle is cited by 44%, compared to a global average of 32%. However, they also have a strong sense of duty and nine out of ten (92%) agree that they take action to make a positive impact on society.
Nearly six out of ten (58%) say they are not currently thinking about or planning to exit their business, higher than the global average of 49%, and that figure increases to 72% for first generation entrepreneurs. More than four in ten (44%) are serial entrepreneurs, the second highest percentage in any of the markets surveyed.
A Sustained Divergence In The Economy
While the report is not a sweeping study of all wealth created and where it flowed, it does surely reinforce the point that there is a sustained divergence in the economy.
Since most wealth continues to go into stocks and bonds or back into them, it is keeping markets and domestic buying strong as is quite evident from the market movements in the last two months.
It also means that there is a mismatch between supply and good quality investment opportunities because they are mostly highly priced.
On the other hand, quarterly results of most consumer product companies are reflecting a stagnation of sorts in consumption if not slowdown.
This reinforces the fact that the wealth created is not directly flowing to the people who could actually spend it and thus drive up consumption and economic growth, something I have discussed in the past as well.
Real estate of course is seeing considerable investments, particularly in higher priced properties. This obviously has a trickle down effect into the construction industry and the over 71 million people who work in it, which is important because construction is the second largest employer in India.
This also accentuates another mismatch, that all those who are trying to buy homes to live in are not able to do so this time around as well. We have already seen a slowdown in affordable housing because people are unable to put down the money for loans.
Interestingly, more than half of the surveyed individuals said they were looking to move to other countries in the next 12 months and others are also looking to move their personal wealth outside the country.
Their biggest worries were corruption, inflation and taxation. In that perhaps, whether rich or not rich, there is unanimity in thought.
The top themes
Markets steady again
Where are markets headed as the year ends ?
Honda to launch electric two wheeler and the emergence of a multi fuel market
Cyber Scams cross Rs 11,000 crore this year.
Markets & More
The markets closed higher on Wednesday, thanks somewhat to a rebound in Adani Group stocks after its subsidiary, Adani Green, said that its key officials had not been charged with violations of the U.S. Foreign Corrupt Practices Act in last week's indictment.
Meanwhile, the benchmark indices, BSE Sensex and NSE Nifty50 were up, with the BSE Sensex closing up at 80,234.08, up 230.02 points.
Similarly, the NSE Nifty50 settled at 24,274.90, up 80.40 points or 0.33 per cent.
On Wall Street, The S&P 500
edged lower on Wednesday as traders await the release of the Federal Reserve’s favorite inflation gauge.
The broad market index shed 0.1%, and the Nasdaq Composite
lost 0.3%. The Dow Jones Industrial Average
rose 99 points, or 0.2%, putting the blue-chip average on pace for another record close.
How Are The Markets Behaving?
It might seem like an odd question to ask but the end of the year or close to it is usually a good time to look back at what trends have driven markets so far, what is different and what could change potentially, looking ahead, including in the way institutional investors both domestic and overseas could behave ?.
We have several conversations coming up. Last night, I spoke with Gaurang Shah, head, Investment strategist, Geojit Securities and began by asking him what trends he had been seeing until now.
INTERVIEW TRANSCRIPT
Gaurang Shah: I think what happened over the last maybe about a month and a half or a little bit more than that starting from October 1st, the sell side numbers coming in from the FI and the markets correcting a little bit over 10% and then we've seen some kind of stability coming to the market. And then I believe the Q2 earnings was not so exciting, there were disappointments and dark spots and I think that added to the rich valuation that the market was drawing to. Fast forward to current and the future outlook year-end December 24.
The sense is that point number one, large aggressive selling that was happening from the FIs has kind of withdrawn a little bit. I think yesterday or something there were buyers also. So the pressure on the markets to head much lower from here, that kind of a thought process can be put to rest because very soon possibly by 15th of December, you will see Christmas holiday and year-end starting for the FIs.
That could possibly bring down the volatility and the correction that we've been seeing. Could have some one-odd days of selling till that time, that cannot be ruled out. But more importantly, Govind, I think the market should stabilise a little bit.
Despite the fact that last week Friday, we had a 1900 point rally, followed up by Monday and then Tuesday, we had a little bit of choppiness. Today again, market was a little bit choppy. But even in this kind of a scenario, the India volatility index was at an elevated level.
It was at 16, it has settled at 14.5, if I'm not mistaken today. But it needs to come down for the stability to come into the market. So I think gradually by the time we see the year-end and say goodbye to 24, I think we should be in a position to recover quite a bit of lost ground.
One more thing, Govind, this late afternoon or something we heard some announcement that Israel is agreeing to ceasefire for the situation in the Middle East. This has also added to the sentiment. Don't know what shape and what form it will take.
And I hope if they stick to the words that they are saying, then there could be some kind of more sanity in the markets.
Govindraj Ethiraj: I'm going to come to sectors and how that looks. But before that, if you were to contrast this period, which is the end of the calendar year with previous years, would you say it's somewhat different, dramatically different?
Gaurang Shah: So it is a little bit different because what is disappointed, Govind, was the Q2 earnings. Let me say this also, it's not like third and the fourth quarter is going to be a disaster. Whatever the verbatim that has been given by some of the leading companies, which formed the Sensex and the Nifty, that commentary is quite promising.
And the commentary also says that recovery will come through. So on the earnings front, I think third and fourth quarter deliverance will do well. If you have to compare this time and possibly a year last or maybe before, and of course, the FI is selling because we had not seen a number like 1,40,000 crore, correct me if I'm wrong, Govind, from the FIs, whatever we've seen.
And I think the similar match was there from the domestic institution, which was a good point, Govind. So this is a bright spot that I would want to draw in a scenario when FIs have sold maybe more than a lakh and a 40,000 crore, domestic guys have bought, and I think the liquidity is plenty with the domestic guys. So this is a little bit different than what we've seen in the past time.
And one more thing, retail investors put in record number of SIP in the October month, while the FIs sold a large chunk of their investments.
Govindraj Ethiraj: It's a strong retail supply continues. Now on sectors, is there anything that stands out again as we head into end of calendar 24 in terms of either performance or outperformance and the opposite as well?
Gaurang Shah: In terms of performance, Govind, positive on IT, pharma, thanks to whatever has happened in the United States in form of the 47th President taking his chair very soon and being sworn in. I think IT, pharma should be in the spotlight for all the good reason. Banking and finance, I think they should do well.
Power and cap goods engineering, Govind, we feel that these two sectors will also do well. And one sector that I think will possibly tend to recover the lost ground that we've seen in the last six, eight months is the defence sector. I think valuations have now come to an attractive level from a long-term investment point of view.
Govindraj Ethiraj: So when you say they've recovered lost ground, you're saying that their businesses are still intact. It's only the valuation perception that perhaps may be inflated and now it's sort of correcting.
Gaurang Shah: You absolutely spot on, Govind. I think if you look at the order book given for the second quarter of most of the defence-related companies, I think they stand much better than what they were at Q1. And whatever we have listened into and read into the order book that these defence companies got, I think this particular sector is positioning itself for a long-term growth story.
Govindraj Ethiraj: Gaurang, thank you so much for joining me.
Gaurang Shah: Thank you, Govind. I wish you all the very best. Thank you so much.
Cyber Scams
As payment systems get more ubiquitous and multi-layered, cyber frauds are increasing.
India saw losses of Rs 11,333 crore due to cyber fraud during the first nine months of 2024, according to data from the Indian Cyber Crime Coordination Centre (I4C) under the Ministry of Home Affairs (MHA).
Stock trading scams emerged as the biggest culprit, with 228,094 complaints filed, incurring losses of Rs 4,636 crore.
Investment scams followed closely, with Rs 3,216 crore lost across 100,360 complaints. Another Rs 1,616 crore was siphoned off through “digital arrest” frauds involving 63,481 complaints, according to a report by The Indian Express.
Some 1.2 million complaints of cyber fraud were registered in 2024 alone.
Alarmingly, 45 per cent of these cases originated from Southeast Asian nations such as Cambodia, Myanmar, and Laos.
Since 2021, some 3 million complaints have been logged, accounting for losses totalling Rs 27,914 crore.
Honda Enters Electric Scooters And Focusses On Trust
India’s second largest two-wheeler maker Honda Motorcycle has announced an electric scooter that will hit the markets on January 1.
HMSI is the last major, established two-wheeler player to enter the 2W market. TVS Motor, Bajaj Auto, and Hero Motocorp are already the top players in the e-scooter market.
Interestingly, it has positioned itself as a product you can trust, not surprisingly given the harm done by other self-propogated brands who did not seem to or seem to have a real service network to back its product sales.
“The most important point is trust… because there are a lot of pain points currently for the electric vehicle (EV) customer in the market. They are not really happy with the kind of products that are available,” the company’s head of sales and marketing told reporters after HMSI unveiled its first two e-scooters — swappable battery-run Activa E and fixed battery-run QC1 — in Bengaluru.
Honda has 6,000 sales and service touchpoints across India, over 1,000 are main dealerships, which will be the first ones to be upgraded to handle EV sales and services, the company said.
HMSI also said that while the 2W market’s growth has slowed down a bit recently, the long-term outlook for it continues to remain positive. However, he clarified that EVs are just one of the pathways to India achieving carbon neutrality as other vehicles, which run on biofuels or CNG, will also play a significant role.
Which is of course interesting, because Bajaj’s CNG two wheeler, Freedom 125 is also doing well.
Analysts were projecting CNG volumes for Bajaj to be significant. They expect such sales in FY25 to hit 240,000, accounting for 6 per cent of its domestic two-wheeler sales.
In FY26 this could go up to 21 per cent with the company selling over 700,000 CNG bikes.
There are two takeaways from this.
First, the mature players are winning back and growing market share, because they are backed by a good and dependable service network in India which is critical and vehicles cannot be sold like throw away mobile phones.
Second, the battle of the fuels.
While electric is one way to go, it looks likely that manufacturers with the ability to offer hybrid variations might score.
This is something that pure electric vehicle manufacturers may not be ready for or it will take them time to adapt.
Electric vehicles are inherently simpler to manufacture and/or can be imported and assembled quite easily as has been the case in the past too.
Not so much with two wheelers or other vehicles with multiple fuel systems, including lets say CNG.
Remember, hybrid cars are now selling faster than electric cars right now.
The two wheeler market is poised for interesting times and much welcome consolidation as well and of course better products and servicing capability for customers.
SANOFI
French pharmaceutical giant Sanofi on Wednesday opened a 800 million Singapore dollar ($595 million) “evolutive vaccine facility,” or EVF, in Singapore — the only such facility the company has outside of France.
This plant, known as Modulus, can switch between making different vaccines or treatments in a matter of days, compared to several weeks or months in more conventional facilities. It is also able to be adapted to manufacture up to four vaccines or biopharmaceuticals simultaneously.
The facility will contribute about 200 jobs to the city-state, including bioprocess engineers, automation specialists and data analysts, and will be fully operational by mid-2026.
Sanofi said in a release that the facility holds the potential to significantly bolster pandemic preparedness.
“By establishing the groundwork for crucial production modules now, Modulus can ensure a swift and targeted response to any future health needs, including potential pandemics,” the company said.
