Middle East Tensions Spike With Iran Firing Missiles Into Israel

• (00:00) Stories Of The Day
• (00:50) Middle East Tensions Spike With Iran Firing Missiles Into Israel, Markets Brace For Correction.
• (03:57) Gold Prices Jump Again As War Risk Premiums Rise On Commodities
• (11:44) Government Invokes Emergency Clause To Activate Underutilised Gas-Based Power Plants
• (13:48) How GST Numbers Demonstrate The Lag Effect Of Reforms Even As They Tell Us More Than What We Know About The Economy

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.

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Markets Set To Be Weak & Subdued On Middle East Tensions

So before we come to Monday, Friday was a down day for the stock markets, with the Sensex falling 793 points to 74,244 and the NSE Nifty falling 234 points to 22519. Thursday was closed for Eid.

The reason it was so was mostly to do with the fact that inflation was higher in the United States than expected which in turn meant possible interest rate cuts have been pushed  now. 

While on the other hand, wholesale inflation data in the US was more palatable, the net effect was negative.

There was some concern about a changed tax regime for investors coming in via Mauritius but it appears that there is no date yet for ratification. The changes would mean that you will need to show that you are actually doing business in Mauritius to claim tax benefits as opposed to the largely postbox version of companies incorporated in Mauritius routing money into India right now. That is very simply put but hopefully should do for now.

Looking ahead, we have another holiday shortened week with Wednesday being a trading holiday for Ram Navami.

The overhang is obviously the tensions in the middle east which have risen to fresh levels after Iran let loose a barrage of missiles towards Israel which appeared more to demonstrate it would not sit quiet after its embassy in Syria was bombed by Israel.

Gold and oil will be watched closely and obviously gold matters more in the shorter term because it's something you could buy or sell here as opposed to oil, a rise in the prices of which will affect you, but only much later if so. And we will come to gold shortly.

Several results are expected including earnings from Infosys, Wipro and Bajaj Auto. 

Speaking of earnings, TCS reported its January-March quarterly earnings on Friday and reported a 9% growth in net profit at Rs 12,434 crore in the fourth quarter of FY24.

Interestingly, this was apparently more thanks to strong domestic business rather than international which is under pressure for all IT services companies. 

For the full year and it is good to know these numbers, TCS net profit surged 9% to Rs 45,908 crore, while the revenue went up to Rs 2,40,893 crore from Rs 2,25,458 crore a year ago.

Meanwhile, retail inflation was down to a 5 month low of 4.85% in March thanks to food prices cooling down while industrial production increased to a 4-month high of 5.7%.

There is no clear trend that emerges in all of this and has been a long expected line, at least broadly.

The only trend that does emerge is that we are likely to be driven more by external triggers for some time now, or maybe till election results are out in June at which point the market might align itself to fresh targets.

War Risk Premiums, The New Factor To Factor In

Speaking of triggers, the middle east is clearly poised for confrontation and war, even if world powers convince everyone to stand down or take a step back.

War risk premium is a term I did not hear much until late last year but that too was occasional but now it crops up every other day and alarmingly so.

Take the case of gold which is up by 29 percent since early October and by 18 percent since mid-February.

Moneycontrol quoted a report from Brokerage HSBC saying, "Escalating geopolitical risks significantly bolster gold as hot and cold conflicts, and a record number of elections this year, keep the risk thermometer high. Trade risks associated with geopolitical risks are also gold positive."

On the other hand, central banks have been buying gold steadily as we have been pointing out in The Core Report, led mostly by China and then other countries as well, including India.

This has gathered momentum in the last two years and gold buying is rising, possibly to also switch from US Dollars or be less exposed to it.

HSBC says the precious metal is also reliable in emergencies, and in terms of national emergency or conflict when national currencies may not be redeemable, gold can be mobilised.

This of course sounds quite logical and practical except that it does not exactly leave a pleasant sensation behind given that it reflects a very grim outlook of what could happen in the world and the global economy in the coming days or months.

I reached out to Jigar Pandit, Head of Commodity and Currency at Sharekhan By BNP Paribas and began by asking him how he was seeing the events of the weekend unfold in the context of gold prices and gold demand.

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Speaking of war risk, Air India has temporarily suspended Delhi-Tel Aviv flights. 

Air India operates four weekly flights between the Indian capital and the Israeli city. It had resumed flights just last month after a 5-month break, following in turn the Hamas terror attack on Israel on October 7. suspension of flights to and from Tel Aviv dates back to October 7, 2023 last  year.

India Is Gearing For Power Shortages

It's not just demand for gold which is rising. Demand for power is also set to rise sharply this summer against increased heat waves which we could see.

We have already heard of cities like Delhi gearing up for a peak power demand in June and July of around 8,000 to 8,200 MW.

The last peak in Delhi was 7,695 in 2022 and it dropped a little in 2023.

Now back to 2024, the nation at large is staring at power shortages.

There will be higher energy costs as well and we will come to that at another point.

Reuters is now reporting that the Government has invoked an emergency clause to activate underutilised gas-based power plants.

India has asked companies to operate underutilised gas-based power plants in May and June, and extend operations of imported coal-based plants until Oct. 15 to meet anticipated high demand for electricity, according to two government orders, Reuters has seen.

India saw an 8% rise in electricity consumption in the financial year that ended last month.

This is the first time apparently this emergency clause mandating companies to operate underutilised gas-based power plants by importing the fuel has been invoked.

India has about 24 gigawatts of gas-based power plants that have been idling or underused for decades due to lack of fuel. Power stations will be informed two weeks in advance about the requirements so they can import gas, the order says and reported by Reuters.

"Gas-based power plants are required to meet the anticipated surge in power consumption in summer months," the order says.

Torrent  and NTPC  are among the big gas-based power station companies.

In another order, seen by Reuters on Saturday, the government invoked an emergency clause directing companies such as Tata Power  and Adani Power (ADAN.NS)- which are operating imported coal-fired plants with a capacity of nearly 16 gigawatts - to continue operations.

The plants were initially allowed to operate until June 30.

GST Collection Numbers, What They Tell Us?

A key puzzle most economists and businesses with consumer facing products and services are always trying to solve is the extent of private consumption and private consumption behaviour in India.

One set of numbers suggest private consumption is subdued but goods and service tax collection numbers suggest that it is strong. Which one to believe?

A new exploratory report by rating agency Crisil sums it up by saying that private consumption is the biggest demand driver for the Indian economy and understanding how it stacks up across states is helpful for the corporate sector as well as for policymakers. 

Crisil has analysed GST data for 17 states that account for 95% of total GST collection. Which in itself should say something. There are 28 states in all and of course 7 union territories.

Maharashtra leads with a 20% GST collection for all India followed by Karnataka. 

There are more insights but the key one perhaps is the fact that GST numbers in themselves, 8 years after the tax kicked in, reflect the lag effect of reforms.

I spoke with Crisil chief economist D K Joshi and began by asking him what GST data was telling us, at a broad level, what all it captures and then, what can we take away? And What are the key trends over the last 8 years if visible?