Rich Valuations Put Pressure On Markets Again
The stock markets once again saw sharp swings as investors were caught between rich valuations and continued global uncertainty around Trump's tariffs
On Episode 598 of The Core Report, financial journalist Govindraj Ethiraj talks to Nikhil Dhaka, Vice President, Primus Partners. We also feature an excerpt from our upcoming interview with Nigel Pont from our Build On Blockchain series.
SHOW NOTES
(00:00) Stories of the Day
(01:09) Rich valuations put pressure on markets again
(04:09) Oil prices are climbing once again, crossing $65 a barrel
(05:50) OECD says US growth will slow to 1.6% from 2.8% the previous year
(07:34) India Inc’s expenditure and interest costs are muted, suggesting further belt tightening
(08:27) Why China’s clamp down on rare earth exports is causing panic waves world over, including in India
(17:46) And how technology is enabling humanitarian cash transfers in Afghanistan and Syria
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].
—
Good morning, it's Wednesday, the 4th of June, and this is Govindraj Ethiraj broadcasting and streaming from Mumbai, India's financial capital.
The top stories and themes, rich valuations put pressure on markets once again.
The OECD says U.S. growth will slow to 1.6% from 2.8% the previous year.
Oil prices are climbing once again, crossing $65 a barrel.
Why China's clampdown on rare earth exports is causing panic waves world over, including in India.
India Inc.'s expenditure and interest costs are muted in the last quarter, suggesting further belt tightening.
How technology is enabling humanitarian cash transfers in Afghanistan and Syria.
And finally, 2025 is going to be a good year for the aviation industry despite all the tariff tensions.
Sharp Swings On Tuesday
The stock markets once again saw sharp swings as investors were caught between rich valuations and continued global uncertainty around Donald Trump's state tariffs. The BSE Sensex swung in a 1,200 point range and finally closed at 80,737, down 636 points. The NSE Nifty 50 was down 174 points to 24,543.
The broader mid-cap and small-cap indices were up in the early part of the trading day, but then lost their gains, and the Nifty mid-cap index was down about 0.4%, while the Nifty small-cap index was higher by about 0.1, so barely higher. So here's some interesting context and also in some ways encapsulates what we've been saying in the last few days. A note from the usually circumspect Kotak Institutional Equities pointed out that the Indian market seems to be stuck between the harsh realities of stiff valuations, domestic growth issues, and global macroeconomic headwinds, and two, the hopes of recovery in the economy and earnings.
It also adds that the fourth quarter results did not provide much comfort about an imminent recovery. The fourth quarter, that's Jan to March, net profits and earnings before interest tax and depreciation of the Nifty 50 index increased 3.7%, and it says that 3.8% above expectations due to State Bank of India's strong performance, and 9.2%, that's 0.9% below expectations. That's for EBITDA.
So where does that leave us? Kotak Institution says valuations are expensive across sectors and stocks. There are domestic growth headwinds across consumption, investment, and outsourcing sectors, and global growth and inflation challenges, all of which will likely act as headwinds for the Indian market.
In particular, they say they find valuations across sectors and stocks, with the exception of banking, financial services, and a few names, to be extremely rich in the context of low volume growth and ongoing and potential disruptions. It also says that there are a few positives for the Indian economy from lower interest rates and low commodity prices, which can boost government and or household savings, and of course, bring the cost of living down. But that is not enough.
It says for a strong recovery in the economy because of continued challenges to consumption, demand from inadequate creation of good quality jobs, and a slowdown in investment demand, likely flat government capital expenditure, weaker residential real estate sales, and no signs of recovery in private capex, and three, or finally, headwinds to exports outsourcing from an uncertain global environment and global growth slowdown. So all of this is obviously reflecting in-company performance. Kotak says the modest fourth quarter operating performance of most sectors and companies and muted commentary from management preclude a strong recovery in credit consumption or investment demand in the near term.
So this, of course, is a fundamental view, as it reflects what the state of affairs is when it comes to company balance sheets or their profit and loss accounts. On the other hand, stock prices could start moving if there were a sudden jump in foreign portfolio flows, for instance, or a sudden easing in trade tensions, which we, of course, don't know about, or some phenomenon linked to more capital moving away from the United States.
Gold Prices Fall
Gold prices fell on Tuesday after touching a four-week high earlier in the session as a rebound in the dollar and profit-taking added pressure. Spot gold fell to about $3,356 an ounce in noon trade after hitting its highest since May 8th earlier in the session, according to Reuters. The rupee, meanwhile, closed lower on Tuesday, and analysts told Reuters that the underlying bias continues to be for a gradual appreciation to 85 rupees per dollar amidst persistent dollar weakness and easing headwinds.
So the rupee closed at 85 rupees 59 paise against 85 rupees 38 paise in the previous session. The dollar index is steadily recovering, but brokerages like Morgan Stanley are saying it will fall over the next year. And finally, oil, which we've not referred to for a few days, prices have started rising again, thanks in some part to increased geopolitical tensions across Russia, Ukraine, and Iran.
Crude also rose on Monday after the Organisation of Petroleum Exporting Countries, or OPEC+, kept its July output high at about 411,000 barrels a day, the same as earlier months, according to Reuters, adding that Brent crude futures gained about 58 cents to about $65.21 a barrel. So basically, it's crossed $65.
U.S. Economy To Slow
The Organisation of Economic Cooperation and Development, or OECD, on Tuesday said that U.S. economic growth will slow to 1.6% in 2025, down from 2.8% the previous year. The Paris-headquartered organisation indicated that growth will further worsen to 1.5% in 2026, according to a report compiled by Business Standard. The slowdown can be attributed to increased tariff rates, OECD said in its Economic Outlook 2025.
The report highlights that Trump's policies have raised average U.S. tariff rates from about 2.5% to about 15.4%, the highest since 1938. Trump has imposed 10% tariffs on imports from all countries, 25% additionally on steel and aluminium and auto products. Last week, he said that he would double the tariff on steel and aluminium to 50% to protect domestic industry, and that has created its own problems.
The OECD said that around 10% of the consumer basket in the United States is imported directly or indirectly before taking into account food and energy, and it's likely that most of the impact of tariff increases will be borne by consumers and businesses. So all of this is going to affect global growth as well, with the OECD projecting that world economic growth will drop to 2.9% in 2025 and 2026, and this is a decline from a growth of 3.3% last year. Remember, we're talking about the globe or the world at large, and 3.4% in 2023. So obviously, countries like China will slow, in this case from 5% in 2024 to 4.7% in 2025 and 4.3% in 2026. India, however, is seen as delivering steady growth at about 6.3% in 2025, up from 6.2% in 2024. A look at corporate performance.
Bank of Baroda's research analysis of fourth quarter 2425 results has shown that aggregate net sales growth of a sample of 1,893 companies was at about 5.4% versus 8.6% in the same period last year, while net profits rose by 7.6%. It also pointed out that expenditure and interest costs remain muted, leading to an improvement in debt serviceability of companies, which could mean that companies are tightening their belts further. BOB research also says that sales are moderating in a few large sectors, like oil and gas, textiles, and iron and steel, which weighed on the aggregate sample, though they also say that this appears to be a one-off phenomenon and not a structural issue.
Similarly, the banking and financial services segment also saw a slowdown after a strong run last year, which could be associated or linked with a slowdown in growth of credit.
The Rare Earth Dilemma
The Indian automotive industry is sending a high-level delegation to China, mostly this week, to tackle mounting concerns around delayed imports of rare earth magnets, according to a report in the Economic Times. The delay stems from China's new export restrictions on rare earth materials, which kicked in for the 4th of April. Those regulations were primarily aimed at the United States, but have led to procedural hurdles, causing shipment bottlenecks around, including for Indian manufacturers, according to that report.
So, several shipments of rare earth magnets, vital components which are used in electric motors and other automotive parts, are apparently idling at Chinese ports. All this could mean that electric vehicle makers will start seeing production being affected as soon as in weeks in India, which also highlights the fragile nature of supply chains. I reached out to Nikhil Dhaka, Vice President, Public Policy at consulting firm, Primus Partners, and someone who consults on and tracks this space closely.
And I began by asking him to first define rare earths and its primary applications.
INTERVIEW TRANSCRIPT
Nikhil Dhaka: Around 17 elements are there which constitute rare earth elements. There are various applications where they are used. Wind turbines, which is what we see right now in India, may be amongst the top two, three, amongst the highest consumption being in wind turbines.
Then there is consumer electronics, as of now, mobile phones and others. And when it comes to magnets, we are talking about permanent magnets. Even the fridge magnet that we see or the strap of our porches is a permanent magnet.
So the usage is huge when it comes to electric vehicles. Overall motors could be related to any part, could be wipers, could be other traction motors, not just for electric vehicles. So the usage is huge.
And there are other, you can say, industrial motors. So majorly related to motors, the entire usage. And 92% or 93% of the magnet production is done by China throughout the world.
And having said that, it's not that rare earths are not present in India. We have the fifth largest rare earth reserves in the world right now. Across the coastal region of Odisha, Telangana, Andhra, some part of Karnataka, and maybe in other states as well, but majorly these states in the form of monazite.
So the entire process is for, if we have to have our EV ambitions in place, if we have to, let's say by 2047 or by 2070, we have to be 70% achieved.
Govindraj Ethiraj: Yeah, we're saying 30% in five years from about 4% right now.
Nikhil Dhaka: So by 2030, let's say we are saying 30%. So magnetism is a critical component. We right now do not produce any.
We are dependent on China, Vietnam, Japan, but most of the countries are dependent on China for that. So there would be three aspects, upstream, midstream, downstream. Upstream is mining of rare earth, which is a difficult process.
Right now, it was a substance under the defence, Baba Atomic Research Centre, and these kinds of institutes, we need to have permission from them to mine these. So that is one. And it's not an easy process when you have to separate, because if you mine, all the rare earths would be combined together.
So to get neodymium, boron, and Fe, and the FeB, the process is tedious. It is overall not so environmentally friendly. That's why right now, maybe other countries are not doing it.
But having said that, countries like the US, Japan, and Germany have this technology. They were doing it earlier. They had earlier manufacturing plants in this particular space.
Govindraj Ethiraj: Right, and when we import this, so magnets would be in what form? Is it like small blocks of metal-like pieces, or?
Nikhil Dhaka: We get them in the final form, which we use in electric motors. So it's not that we get them in the powdered form or any other form. So we get them in the final form, the downstream aspect of it.
As I was explaining, the mining is the first step upstream, then the separation comes, then the mixing with metal alloys and everything. And the final is the end-use application. We get it entirely through China, the final end-use application.
We get the final products, the magnet.
Govindraj Ethiraj: So which means that the motors for these electric vehicles are being made here, unlike batteries, let's say, which we are importing to a large extent. So motors are being made in India for cars or turbines, for wind turbines and so on.
Nikhil Dhaka: Yes, they are made in India. There are various companies who are doing it, but we import magnets from China and other countries, maybe somewhere.
Govindraj Ethiraj: And if I were to just take a quick international detour, when other companies elsewhere, including in America, are talking about problems in rare earth imports, what they're referring to is mostly magnets in their end-use form coming from China.
Nikhil Dhaka: In terms of electric vehicles, yes, but there are other applications of rare earths. Then again, it might be, let's say, in Africa. So there are many mines, many countries are doing it, but China has that in particular, they have gone ahead with that strategy in working with those countries for other rare earth elements as well.
So right now, the current crisis, as you asked, is because China has set an embargo that these magnets can't be used for any other usage, let's say, other than electric vehicles or wind turbines, because there are huge applications in the defence sector as well. So all these companies, when they are representing or maybe sending a delegation to China as ECMA and CM, so the proposals that they have sent are the same, that the usage would be for electric vehicles and for their own use, not for any other purpose.
Govindraj Ethiraj: Right. So does India have a specific problem right now in sourcing some of these rare earths or magnets for our use, including electric vehicle production?
Nikhil Dhaka: So currently, most of our magnet usage is for two-wheelers. When it comes to electric vehicles, 90% of them are two-wheelers, and a particular two-wheeler, the entire number, let's say, we are producing around 13, 1.3 million or 1.2 million electric vehicles in a year, around 1 million are two-wheelers. And overall, in a particular motor in a two-wheeler, around 600 grams of magnets are used.
Currently, maybe 600 to 700 tonnes is the usage when it comes to two-wheelers. So the capacity for most of the firms which are now operating in this space is around one to two months, or max three months, which they have. And it's been a month since this China restriction came, and maybe they can sustain this for another one or two months.
That would be their capacity right now to produce. So we need to get more supplies from China within the next two months, most of these firms would need to.
Govindraj Ethiraj: Right, but if we are using only electric vehicles or motors for electric vehicles, and most of which, as you said, are two-wheelers, so why is that a challenge? Because this is not for defence applications, right?
Nikhil Dhaka: Yes, it is not for defence applications, but so much going around the world and so many global scenarios, different things are happening right now, and China is an important player, so that's why this embargo, this restriction came into place.
Govindraj Ethiraj: Fair enough, but it is affecting India, is my question.
Nikhil Dhaka: Yes, it might affect India in the near-term future, if we are not able to solve this problem.
Govindraj Ethiraj: Got it. Last question, so are we mining any rare earths in India right now? I know that you said we are not doing as much as we could, but are we doing any mining right now?
Nikhil Dhaka: Yes, we have an entity called IREL, India Rare Earths Limited. They are doing it. In fact, they have MOUs with a related company to Toyota, Toyota Komatsu, I guess.
I just need to check the name. And they are doing it, but we are, let's say, at a pilot stage right now. If we need to move ahead in this particular space, we need technology transfers.
We need technology. We need to maybe set a target of a few pilots, involve the private sector, maybe set a target of 1,000 tonnes by next four years. But then it requires strategic push, what we are doing for the semiconductor sector, or maybe what we are doing for the batteries.
So it requires a similar strategic push. So magnets or motors are more of commodities, which these companies have been till now following the practise that they have been following. But yes, within these times, if these restrictions come into place, then we face a problem.
So we have a critical mineral mission by the Ministry of Mines, and this is something which can be included as well in that.
Govindraj Ethiraj: Got it. Nikhil, thank you so much for joining me.
Nikhil Dhaka: Thanks a lot for having me here today.
—
As Nikhil mentioned, the Government of India launched the National Critical Mineral Mission in 2025 to establish a robust framework for self-reliance in the critical mineral sector. Under this mission, the Geological Survey of India has been tasked with conducting 1,200 exploration projects in the next five years. A committee formed by the Ministry of Mines about three years ago identified 30 critical minerals with 24 included in what is known as Part D of Schedule 1 of the Mines and Minerals Development and Regulation Act 1957.
And this inclusion of 24 critical minerals in that schedule means that the central government now has the exclusive authority to auction mining leases and composite licenses for those specific minerals. It also recommended setting up a centre of excellence on critical minerals to update the mineral list and guide strategy, all of which is good news, but I guess has to move very fast given where things are.
Build On Blockchain
Welcome back to Build on Blockchain where we explore how emerging technologies are reshaping access infrastructure and opportunity, particularly in the financial inclusion space.
Last week, we talked about how blockchain was impacting real world systems from parametric insurance for farmers to remittances that could cut fees from 5% to about 1%. We also discussed a powerful use case, Hisapay, a digital cash-based transfer platform that was founded in Afghanistan, which enables vulnerable communities to have their own digital accounts to cash out directly, giving them the ability to pay bills, buy food and control their finances. I caught up with Nigel Pond who worked on that project in Afghanistan, which has now expanded into Syria, and he works at the intersection of blockchain and humanitarian cash transfer.
INTERVIEW TRANSCRIPT
Govindraj Ethiraj: Nigel, thank you so much for joining me. Before we talk about Hisapay and how it's been driving the FinTech revolution in Afghanistan and Syria, and we talk about digital payments and the role of algorithms within that, tell me a little bit about yourself. How did you end up in FinTech and on this venture?
Nigel Pont: Yeah, so I'm a lifelong humanitarian. I started out doing various types of humanitarian work back in 93 in Afghanistan during the civil war in Afghanistan and I spent until about 2020, 2021, I was working in the humanitarian space directly for various nonprofit organisations. But back in about 2017, I'd got into, started to get into crypto a little bit, exploring how it might be applied.
And I'd got really fixated on how particularly stable coins could transform how aid got delivered in these really complex jurisdictions with really bad digital infrastructure, really bad payments infrastructure, really bad international payments infrastructure. So when I started looking for something else to do, I bumped into Sanzar Karkar, the founder of Hisapay and this was just after the Taliban took over Afghanistan in the autumn of 2021. So we worked to build Hisapay, that's how I got into it.
And now about three years later, we're the leading mobile payments platform in Afghanistan.
Govindraj Ethiraj: Right, tell us about how it works. India has a fairly evolved FinTech ecosystem, including for small payments, which is linked to the existing transaction system, which goes through the banking system or existing transaction architecture, which sort of sits on the banking system. So earlier, if I wanted to make a payment to someone, I wrote out a check in someone's name and I deposited it in my bank account and it got transferred to that person.
Fast forward today, I can do all of that through my mobile phone, through what we call UPI or Unified Payments System. So how does this work in the context of Hisapay?
Nigel Pont: Yeah, so, well, firstly, as you say, India is light years ahead of where Afghanistan or Syria are in terms of digital payments. So for your listeners, this will be like a trip to the distant past. So Afghanistan has never had digital payments infrastructure that works and nothing that's worked interoperably.
So there have been a number of mobile money providers dating back about 15 years now, but the switch never worked particularly well in Afghanistan and there was very little trust in digital money, a very cash-based society. And so the way it historically worked would just be sort of people would push payments to a certain number of recipients down one MNO's wallet and they would cash out in some remote location and that was it, halas. So the way that we've managed to get things going now is a combination of the switch working better than it used to, but still not great.
And then a lot of direct integrations. So we're integrated directly from Hisapay with all the MNO's, all the major banks and the major utility providers in the country with direct integrations there. So we have about 600,000 wallets nationwide right now and we process about five million transactions a year, about $500 million a year in the last 12 months.
So obviously not massive, but in the context of digital payments in Afghanistan, a huge leap forward from where we were a few years ago. Now every wallet on Hisapay is built on the Algorand blockchain. So every wallet is an account on Algorand and it's a custodial network.
So we hold the public and the private keys for the users and users can interact with their account in a number of ways. So at one end of the spectrum, we've got an app for iOS and Android, which works how anybody would expect a good mobile payments app to work. Then in the middle, we've got a USSD solution, which works with all but one of the MNO's and then at the very sort of bottom end of the spectrum for those without phones or where there's really bad internet connectivity, we have a very simple QR code card.
It's not a chip, it's not a mag stripe, it's just a basic QR code card, which allows people to interact with their account with somebody else who's got the app on their phone with an agent or merchant. So we've got a good solution that works pretty well across Afghanistan. We have branches in every province, but what we're struggling with and I'd appreciate any lessons we can take from India on this is to build trust in the system.
Like people who are very focused on cash. There isn't much of a desire to keep balances in wallets. So what we're seeing is that we have a lot of activity in the system where people, there's a problem that we can solve for them immediately.
So we see people buy e-money to pay electricity bills, for example. So sometimes up to 300,000 electric bills a month are paid through Hisad Pay, but people buy the e-money, they pay that bill and then they go back to a zero balance. And so we see that across a spectrum of use cases.
And so that's the situation that we're in now that we've built enough trust so that people are willing to solve specific use cases for aid payments, utility bill payments, airtime top-ups, some domestic remittances, payroll, et cetera. We see some people keeping a wallet balance, but the majority of people wanna cash out pretty quickly because there's still limited trust in the system.
Govindraj Ethiraj: Right, and when you transfer to, suppose I had an e-wallet and I wanted to load it up, would I transfer from my bank account or do I need to have a bank account to do that?
Nigel Pont: So you don't need to have a bank account. You can go to, you know, you can set up a wallet for free. That's easy to do.
And then you can either buy e-money from an agent or you can connect it to your bank account if you want, or you can, you know, go to one of our branches and buy e-money.
Govindraj Ethiraj: Right, so there are transactions, I mean, once the money is loaded into the wallet and let's say if it's a peer-to-peer transaction, then the banking system does not come into the picture. Is that right?
Nigel Pont: Correct, the banking system is not involved. So we're licensed as an EMI in Afghanistan. And so the transactions are peer-to-peer.
Like all EMIs would, we have a trust account with matching fiat sort of e-money circulating in the system. The one difference for us is that because our ledger is the Algorand blockchain, we mint what is essentially a sort of Afghan e-money stable token on the Algorand blockchain, the Hesab Afghani. And, you know, that's fully reserved with our trust account, but that's the sort of the coin of the realm.
So if you're making a peer-to-peer transfer, it's going from my account on the blockchain to your account on the blockchain.
Govindraj Ethiraj: So tell us a little more about how the blockchain system itself works and how that linkage is created between my wallet and the central blockchain repository, if that's the correct term, and then how the transactions are triggered and how it actually lands up into my account or vice versa.
Nigel Pont: Yeah, so I mean, it's pretty straightforward in that when we create an account for you, you know, we generate both a public and a private key for your account. Your public key, anybody can see. It's sort of like your email address.
And the private key, which is used to authorise a transaction, we keep encrypted in the background. And then when you look to approve a transaction with your PIN, we unlock that securely in the background and use it on-chain to sign the transaction on your behalf. That's basically it.
Funds, tokens will move from your accounts to another account. And then we have then on a central level all those integrations I was talking about. So that happens centrally, but then there are wallets assigned by us that we control, on-chain wallets, that are assigned to each of these different, you know, be it a government utility or an MNO for airtime purchases, and we settle things instantly there.
And, you know, this was one of the big things for us when sort of deciding which blockchain to use, because obviously we needed, you know, for microtransactions, we needed something that was very fast, very reliable, always on, never down, et cetera. So we, you know, we reviewed a lot of the L1 and some of the L2 chains as well. And ultimately we landed on Algorand just because of the way it performs very, very reliably, very fast, very cheaply.
And, you know, it's ideal. Maybe it's not the sort of the sexiest thing in the world, but in terms of reliability and performance for real-world applications, it was the best. And we, you know, we haven't had a single problem with it since we started using it.
---
That segment was part of our special coverage built on blockchain brought to you by Algorand. Catch the full interview soon on the Core's YouTube channel, Spotify, or wherever you get your podcasts.
Aviation
The global economy may be looking at an uncertain 2025, thanks to all those trade tensions and geopolitical conflicts, but one area which is still looking good and hoping that it will pan out well is aviation.
The International Air Transport Association, or IATA, says the aviation industry's profitability is expected to improve in 2025, despite a slowdown in global GDP, or gross domestic product, as we just talked about. And in a report released on Monday, remember the annual general meeting is going on in Delhi, or was going on in Delhi, the IATA said revenue operating profits and net profits for the industry are expected to increase from 2024, although some of those were lower than projections made in December. For example, net profits for the industry are projected at about $36 billion for 2025, up from about $32 billion in 2024.
Total revenues for the industry are projected to hit a record high of $979 billion. That's a little more than 1% higher than the previous year, but down from the trillion dollars in the previous forecast, but only marginally, as you can see. The IATA says that the better results are because of lower jet fuel costs and greater efficiency, but more importantly, it expects that passenger load factors will reach an all-time high in 2025, with a full-year average of 84%, as fleet expansion and modernisation remains challenging amid supply chain failures in the aerospace sector, according to a report filed by CNBC.
