Markets Struggle To Make Up Their Mind
The markets could not make up their mind as they oscillated between different states of mind and sentiment
On Episode 653 of The Core Report, financial journalist Govindraj Ethiraj talks to Gaurang Shah, Senior VP at Geojit Financial Services. We also feature an excerpt from our Interview with Abhijit Pegu, co-founder of LW3, as part of our Build On Blockchain Series.
SHOW NOTES
(00:00) Stories of the Day
(00:50) Markets struggle to make up their mind
(10:24) Inflation is now 1.55% and food inflation is now deflation
(13:19) Decoding 25% tariff impact on companies earnings
(16:54) How blockchain helps track down batteries for EVs
(22:30) Bangalore, Chennai lead global airport rankings in on time departures for July
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 Wednesday, the 13th of August, and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital,
Our top stories and themes.
The markets struggle to make up their mind, but what is driving their direction?
Inflation is now 1.55%, and food inflation is now actually deflation.
Decoding the 25% tariff impact on companies' earnings via CRISIL.
How blockchain helps track down batteries for electric vehicles.
And Bangalore and Chennai lead global airport rankings in on-time departures for July.
The Markets Compute Multiple Inputs
So the stock markets could not make up their mind as they oscillated between different states of mind and sentiment from some form of apprehension on what could happen when the United States President, Donald Trump, and President of Russia, Vladimir Putin, meet in Alaska later this week. And on the other hand, a 90-day truce on US-China, which obviously was good news, at least for now. Now, all of this cannot be easy to compute for investors sitting here, since the elements are too many, too complex, and quite far away.
Nevertheless, the markets were clearly in the positive for parts of the day, and then closed firmly in the negative. Inflation numbers, the lowest since 2017, or an eight-year low, came out after the market closed, but how that could help right now is not very clear, but more on that shortly. The Sensex and Nifty were lower today, pulled down by consumer goods, realty, and financial stocks during the day.
As we said, the benchmarks alternated between green, red, and finally red. The Sensex closed down 368 points to 80,235, and the Nifty 50 was down 97 points to 24,487. The broader indices were mixed.
The Nifty mid-cap was down 0.2% lower. The small cap was down 0.04 higher. Elsewhere, in an illustration on how bullish markets are overall, and seemingly not paying much heed to what's happening around us, Japan's Nikkei 225 hit a record high following that US-China trade truce.
As is increasingly the case in recent months, the relief following the threats of, well, mostly tariffs, seems to provide a greater push to the markets upwards than the situation before the tariffs were announced. So the relief in some ways is of greater impact than the situation before the event actually happened. Now, stocks fell on Monday in Wall Street, or on Wall Street, as traders were getting ready for US inflation reports that are out later this week, and largely ignored a positive development in the tariff saga according to CNBC.
The Dow Jones Industrial Average was down 200 points on Monday, and so were all the other major indices, including the S&P 500 and the Nasdaq. The US Consumer Price Index, which is to be released on Tuesday overnight, and the Producer Price Index, which is out on Thursday, will be important and critical in shaping the outlook for direction of interstates, particularly for the Federal Reserve's September meeting, according to CNBC. Now, to what extent all these numbers will be believed by Wall Street is something we have to see, given that the US government just fired and replaced the head of the Bureau of Labour Statistics for putting out data points the government did not like.
So it would seem, logically, that whatever set of numbers that now emerge would be numbers that the government would like, or is it not? Anyway, let's see. Back home, I reached out to Gaurang Shah, Senior Vice President of Jiojit Financial Services, and I asked him how the market was decoding the current environment as it moved between apprehension and optimism and perhaps a mix of all. Inflation hits a fresh low.
INTERVIEW TRANSCRIPT
Gaurang Shah: These are uncertain times. There is still a lot of clarity that we need to have with respect to eventually what is going to be the shape, size, terms of the trade agreement that would be entered into as and when it is entered into with the United States by India. Large part of the negativity or what President Trump has to say, unfortunately, you know, every morning he gets up and he says something and he tweets something new and he signs a new executive order.
So I think markets have learned to live with this. But yes, there is, I would use the term, though I don't like to use this term, Govind, cautious optimism. There are pockets that one can look at minus the sectors which are directly affected with what is happening in the global arena.
So you have a lot of domestic related themes, not saying that they will be completely insulated from the shocks. There will be some correction, but that correction would be limited in terms of correction vis-a-vis the sectors which are directly connected with the international business.
Govindraj Ethiraj: So let me ask you a question which sort of maybe if you can pull back or relate to history. You know, when you have so many signals which are so different in origin and source and in impact, how does one compute when you're actively in a market like this or at a time like this?
Gaurang Shah: Firstly, I think when we at our end don't have clarity, I think it's very difficult for us to meet up with clients and convince them in terms of what the investment philosophy should be. Having said that, I will just compare it with a very recent episode. It had nothing to do directly with what is happening right now with respect to tariffs.
Because of this tariff thing, I think if you and I recollect, I think it has happened after a very very long time. Many many years back, I think it was the first and the second nuclear experiment that India did and then there were a lot of sanctions etc. But I won't go deep into that.
I think if you just touch upon 2020 COVID time, though not connecting these two directly, we recovered quite smartly and COVID happened after 100 years. We had not seen, none of us who are right now witnessing COVID or one virus had experienced it before. So if we could come out of that kind of a situation unscratched and in a much healthier, much more smarter, in a much more matured way COVID, then I think this also will be a thing of the past.
But Mr. Trump needs to stop the rhetoric, he needs to stop tweeting every morning, he needs to stop threatening countries, to be very honest. You can't be inviting some general in your homeland and he'll speak anything out of his hat and you don't have to say anything about it. So I think our government is mature enough, Prime Minister and his entire team.
They are lying low, they have not said much. I think that's a matured way to go. And more importantly, just to answer your question, I think the recent Amphib data that came out, 42,400 crores, correct me if I'm wrong, in terms of equity flows, that speaks for itself.
At ground level, Govind and I interact with people because we conduct a lot of investor awareness programmes. The maturity, Govind, has gone to the next level of a small retail investor. So that's something big that we can take home.
Govindraj Ethiraj: Right, and I was going to come to that. I mean, supply clearly, as per the latest Amphib data, is at record levels into mutual funds. Okay, maturity is one way of looking at it.
The other is, of course, there are really no other options to invest. But either way, the flow is coming into the market. So to what extent is the flow itself creating the floor that is keeping the market so strong?
Gaurang Shah: Again, you know, reflecting back from 1st Jan till about, say, May, end of June, FIs did what they did from last October 24 to December 31st, December 24. We know the numbers. And from 1st Jan 2025 till about the end of May or mid of June, that number was bigger than what they sold last year from October to December 31st, 24th.
So despite that kind of a selling, correct me if I'm wrong, I think on the index level, Sensex Nifty, about 17 or 18% from the all-time highs to the low of maybe some, of course, about 21,800. And from the high of 26,277 on the Nifty spot. So this was supportive in terms of the liquidity power that the domestic institution had.
And that was all thanks to the retail investors. They didn't get scared like earlier times. They continued.
They did not pull out, go in and they continued allocating a larger sum to the direct investment or via mutual fund slips or lump sum investment. The only scare right now is people are wondering that if this is a prolonged standoff between India and US, then how does it shape? Because every time he comes and says, for example, today I heard he's extended a 90-day window again with China on 25th or 27th August, whenever the date is, if he again says and says, no, I'm extending and we are trying to talk.
So that uncertainty, Govind is something that the market doesn't like. I would love to have certainty as far as these tariff related policies are concerned from the US, especially from the President of the United States of America.
Govindraj Ethiraj: Right. And back in the domestic market. So what sectors are you liking right now?
Or is there anything standing out for you, particularly at this point?
Gaurang Shah: You know, we have just seen, almost just seen curtains down for the first quarter of this new financial year, barring some few companies which may be out tomorrow day after, and then it'll be the end of season for the first quarter of this new financial year. If I have to take home some positives, though, I mean, there was not too much excitement on the first quarter earnings, Govind to be very honest, but yeah, there were some green shoots that were visible. So and all that was related to the domestic consumption, discretionary, non-discretionary, coming back to FMCG, two parts, discretionary and non-discretionary that did relatively well.
Our sense at Jiojit Govind is that from the third quarter, October, November, December 25, I think the actual push to consumption will come in. We have tax benefits, zero tax to 12.7 lakhs. We have good monsoons.
Semi-urban rural India demand will pick up once the crop is out in the market to get sold. And the direct cash transfer benefits enhance the spendable income of folks in semi-urban rural India. Cement has done well.
Capgoods engineering is doing well along with that defence. And of course, you know, Govind, banking and finance. I think these are some five or six sectors that excite me to a certain extent.
Govindraj Ethiraj: Right. Gaurang, always a pleasure speaking with you. Thank you so much for joining me.
Gaurang Shah: Thank you, Govind. All the best. Thank you so much for having me.
Inflation Hits Fresh Low
India's retail inflation, measured by the Consumer Price Index, has fallen to 1.55% in July, falling from 2.1% in June, according to data released Tuesday evening. Now, this marks the ninth straight month of easing prices, and this also means that inflation is now well below the Reserve Bank of India's mandated 2% to 6% target range. It's also an eight-year low and the lowest reading since June 2017, according to the Ministry of Statistics and Programme Implementation of the Government of India.
The data suggested that food prices were down and core categories were largely stable. The decline was also driven by a favourable base effect and broad-based easing across categories like transport and communication, vegetables, education, eggs, cereals, sugar, and pulses. Food inflation is, however, actually deflation because food inflation is now at minus 1.76% for July, that is from minus 1.01% a month earlier.
So, it's been on the negative side for two months now and still falling. Now, this is the steepest fall since January 2019 with rural and urban food inflation at minus 1.7 and minus 1.9% respectively.
Elsewhere, net direct tax collections have fallen about 3.9 or close to 4% to 6.6 trillion rupees so far this fiscal, thanks mostly to higher refunds, according to government data, once again released on Tuesday.
Direct taxes include taxes on income paid by companies, individuals like you and me, and by professionals and other entities. Net corporate tax collections stood at about 2.3 trillion rupees, while non-corporate tax, which includes individuals, Hindu, undivided families, and firms was at about 4 trillion rupees. Speaking of taxes, the finance ministry on Tuesday notified a corrigendum to the income tax bill on a count of interest to be charged on short payment of advanced tax by a taxpayer.
The corrigendum, which provides for a 3% interest on short payment of advanced tax, aligns the clause with existing provisions in the Income Tax Act 1961. We, of course, now have an Income Tax Act 2025. Taxpayers having a tax liability of 10,000 rupees or more have to pay advanced taxes in four installments, June 15th, September 15th, December 15th, and March 15th.
So, the point about this is also to, of course, tell you that you have to pay advanced tax and you have no choice in the matter. So, taxes cannot be just paid at the end of the year, but have to be paid consistently through the year in anticipation of what you think you'll earn or an additional income that you might be receiving. So, that's the important point here.
Trump Tariffs
So, here's a slightly detailed breakdown. The imposition of the 25% tariff on import of goods from India into the United States will have a significant impact on the earnings of companies in sectors like diamond polishing, shrimps, home textiles, and carpets, according to a report from rating agency Crisil. The additional 25%, if it comes into effect on August 27th, as a penalty for importing crude oil, will make India's exports to the U.S. unviable for other sectors as well, like ready-made garments, chemicals, agrochemicals, capital goods, and solar panel manufacturing.
The extent of impact will vary depending on exposure, ability to pass on incremental costs to customers, and relative tariff disadvantage versus competing nations, says that report. A potential second-order impact, including a slowdown in U.S. demand and disparate tariffs across nations that could alter trade dynamics globally is also something that has to be watched closely. On the other hand, Crisil says that some balance sheets are strong, potential bilateral trade agreements with other countries, and the possibility of support from the Indian government, which has already been indicated and hinted at, should help mitigate some of that impact.
To pick up a few specific sectors, for diamond polishers, U.S. exports are about 25% of total revenue last fiscal, and the tariffs will obviously put much pressure on the already modest operating margins of the sector due to reduced fixed-cost coverage and the onus on bearing the higher tariff cost, as retailers in the U.S. have shown limited inclination to take on the burden, says that report, which will further put pressure on working capital cycles, which will elongate as inventory moves slowly and customers stretch payment cycles. This, of course, could apply to many more industries. For shrimps, we've been talking to the All India Seafood Exporters Association.
The U.S. accounts for 48% of revenue, and with applicable reciprocal tariffs, countervailing duty, and anti-dumping duties in place already, India is one of the highest-taxed major shrimp exporters to the U.S. Home textiles and carpets are both significant export-orientated sectors, with exports accounting for 70% to 75%, and 65% to 70% of total sales. The U.S. accounts for 60% of exports of home textiles and 50% of exports for carpets. So very broadly, while there is some tariff advantage currently in contrast to China, which is the next largest exporter to the U.S., the reciprocal tariffs will lead to a material decline in revenue and profits for both these sectors, given the limited ability to pass on the higher cost, thanks to the discretionary nature of these products, says that Crisil Report.
Now, other sectors like ready-made garments, agrochemicals, speciality chemicals, capital goods, the impact of the 25% reciprocal tariff is likely to be more manageable, considering moderate exposure to the U.S., that's 55% to 20% of overall revenue, and limited tariff disadvantage that could allow companies to partly pass on the impact to customers. Now, just to remind you, sectors like pharmaceuticals and smartphones have carved out or rather have opt-outs right now. They're not exposed to any tariffs or rather they are exempt from tariffs, but looking at it from here, we really don't know when the swinging axe will fall next and on whom.
Tariffs for other sectors like steel, aluminium, and certain automotive components remain unchanged. Of course, the imposition of tariffs on multiple countries does pose a risk that competing nations will redirect their sales to other countries, including India, and that we're already seeing early reports of, which could obviously impact the earnings of domestic companies in sectors like steel, chemicals, and agrochemicals until global demand and supply rebalance, says that Crisil report.
Building on Blockchain
Welcome to Build on Blockchain, supported by Algorand, where we're joined today by Abhijit Pego, co-founder of LW3. Abhijit has a background that spans technology. He's also worked in the mining industry and problem solving across industries.
He saw firsthand the challenge of traceability and applied it to batteries in electric vehicles, which obviously will be changed, interchanged, and exchanged. Pego is also working on a mission to create digital product passports, giving every product a verifiable identity and thus hoping to restore customer trust, protecting, of course, brand revenues, and also trying to create new benchmarks for authenticity and sustainability. I reached out to him and I began by asking him what made him focus on traceability as a problem or a business problem to solve.
INTERVIEW TRANSCRIPT
Govindraj Ethiraj: So tell us about where the problem is in the supply chain? And how does your solution address that?
Abhijit Pegu: Yeah, thank you for asking this question. Because fundamentally, if you see, a lithium atom is indestructible. So what that means is, I mean, going to basic first principles thinking.
So what that means is, you can use the lithium atom an infinite number of times, right? So that's where the interesting thing happens. Once we recycle lithium, the recycled lithium and virgin lithium are both the same, right? So, but then again, there is the global scenario where we have some realistic things happening like the amount of virgin lithium is limited, right?
And it's understood now that the producers of lithium will not be able to keep up with the demand for the lithium going and having this, including nickel, cobalt and other critical minerals for the coming decade or so. So that has led to the thought of circularity, right? Like using lithium again and again.
And for that, we need to recycle the end of life batteries and bring it back, give it a second life, or, you know, if possible, put the recycled lithium in or nickel or cobalt into a new battery. But then the catch is, how do we keep a track of all these batteries, which are circulating in huge numbers, which are repurposed, replaced, refurbished and recycled. And now, if you see the, on the other hand, blockchain technology brings two things, primarily, very different, very fundamental, and unique from Web2 technologies, right?
And that is one, proof of ownership. Every Bitcoin that has been, you know, in the market since 2009 has been, you can track it, actually. And second, store of value, right?
Digital stores of value, like, for example, Bitcoin now are almost more than $100,000. And so these two features, when we think about fundamentally and attach to a valuable component like an electric battery, which is the most valuable component in a vehicle or in an electric vehicle, right? That costs close to 30 to 40% of the vehicle itself, because it doesn't have an engine.
It has just the battery, which gives all the juice. And it has fewer moving parts. So the idea is to start tracking the batteries, and then create a wedge, and then start tracking the other parts that goes into the vehicle, like the electronic systems, the gearboxes, the powertrain, so that we can achieve net zero goals by 2050 under the Paris climate, and contribute to a circular economy.
Like today, it's only, it's quite linear, actually, trust me. So yeah, so in short, I think I took a little longer than I should.
Govindraj Ethiraj: Right. Abhijit, so when you started this company, you said that, you know, you came from a mining background, that you worked in consulting, and you felt that this was a problem to be solved and which you're now obviously addressing in a concrete way with a product and so on.
Is there any other, you know, allied problem that you feel you've discovered in doing so? Which again, I mean, there are two parts to this. One is it could be unique to India, again, to come back to that question.
And second, of course, it could be a global kind of challenge.
Abhijit Pegu: Yeah, we started with traceability, to be honest. And traceability means like provenance and tracking any product from its upstream, midstream, downstream of its value chain. But in that journey, because we have to explore blockchain, what we discovered is that the supply chain itself has not been reinvented or has not been updated with technology.
So we have discovered that financial engineering can be incorporated or integrated with the supply chain through the use of blockchain. So that presents a very, I think there are a lot of articles on this, and it can really bring a supply chain 2.0 revolution, where the supply chain is smart, the supply chain is financially smart.
Govindraj Ethiraj: Right, right, right. It's been lovely talking to you, Abhijit. And I wish you all the best for your venture.
Abhijit Pegu: Thank you so much for having me here.
The Best On-Time Performances
Bangalore and Chennai have topped the large airport ranking in the world for best on-time performance with about 92 and 87% approximately each, according to Sirium data. Large airports are between 25 to 40 million passengers per year, and the measure is of actual gate departure, says Sirium.
And among airlines, Indigo had the best on-time performance in July in Asia with 87%. That's measured over 62,000 flights and ahead of Thai Air Asia and Philippine Airlines, even though Singapore Airlines is not in the top three.
