Sensex Up 1,200 Points In Sudden Jump
Indian markets rose to their highest level since October on Thursday
On Episode 582 of The Core Report, financial journalist Govindraj Ethiraj talks to Anand Kulkarni, Director at Crisil Ratings.
SHOW NOTES
(00:00) Stories of the Day
(01:00) Indian stocks hit 7-month high since October, Sensex up 1,200 points in sudden jump.
(02:48) Oil prices slide sharply as the US and Iran engage with each other.
(04:20) Trump tells Apple to pause manufacturing in India
(08:00) India has offered zero tariffs, says Trump, India denies, once again
(08:55) Rural India’s telecom consumption is rising sharply even as urban slows down. What does that mean?
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 Friday, the 16th of May and this is Govindraj Ethiraj, headquartered in Broadcasting as well as streaming from Mumbai, India's financial capital.
Our top stories.
Indian stocks hit a seven-month high since October. The Sensex is up 1200 points in a sudden jump.
Oil prices slide sharply as the United States and Iran engage with each other.
Rural India's telecom consumption is rising sharply even as urban development slows down. What does that mean?
Trump tells Apple to pause manufacturing in India after it said that it was moving all its China exports meant for the US to India.
India has offered zero tariffs, says Trump. India denies, once again.
The Markets Are Inching Up
Indian markets rose to their highest level since October on Thursday with the expiry of weekly options on the NEC Nifty 50 index and also seeing some very large unusual swings through the day. Now, while a tug-of-war between the bulls is par for the course on most days these days, Thursday was unusual even by these new standards. And then Trump appears to have saved the day for the bulls after issuing a statement that India has offered zero tariffs on US exports to India in a trade deal, which is, of course, quite unclear in itself because there is no way India would offer zero tariffs on all products, particularly since many products would not be allowed in at all, like in dairy and agriculture.
More on that coming up. But the markets liked that cue and swung suddenly upwards because the statement signalled an imminent end to the tariff wars, at least for India. The Nifty 50 was up about 1.6% to 25,062, and that was the highest closing since October 14th. Otherwise, stocks have started off on fresh trajectories, as analysts have been telling us, following that ceasefire with Pakistan. Bloomberg reports that signs of stabilising earnings downgrades and renewed buying by global funds are driving up stocks, and the Nifty is now, of course, 5% away, or a little less than that from its September record being the record high for both the Sensex and the Nifty. As we also mentioned yesterday, India has replaced Japan as the top pick of fund managers in Asia because it's seen as benefiting from supply chain shifts amidst these global trade tensions, according to a Bank of America Securities report.
The Sensex was up 1,200 points and closed at 82,530. The Nifty 50 was up 1.6%, as we said, and closed at 25,062, or up 395 points. The broader markets did well too.
The Nifty mid-cap 100 and the Nifty small-cap 100 were up about 0.7% and 0.5% respectively.
Oil Prices Slide
Oil prices fell sharply on Thursday on expectations that the United States and Iran may soon reach a deal over Iran's nuclear programme. And the prospect of this deal is to have a major impact on oil markets.
Brent crude futures were down close to 4% at $63.67 a barrel, which is under $64 a barrel, while US West Texas intermediate futures were down at $60.64. Basically, both were down about 4%. Speaking in Doha in Qatar during his Middle East trip, President Donald Trump said the United States was getting close to securing a nuclear deal with Iran and we are in very serious negotiations with Iran for long-term peace, CNBC quoted him saying. His comments came shortly after a top advisor to Iran's Supreme Leader told NBC News that the OPEC producer was ready to sign a nuclear deal with certain conditions in exchange for lifting of economic sanctions, which of course have been there for a very long time.
Of course, the impact of a potential Iran deal could be mitigated by OPEC Plus, that's the Organisation of Petroleum Exporting Countries Plus, rolling back its plan to release oil back to the market faster than originally planned, according to analysts. The OPEC Plus alliance had recently surprised the energy markets by raising supply in recent months because it was not expected because prices would come down or it would lead to prices coming down. In early May, they had said that they would increase output by another 400,000 barrels plus per day in June.
No more Apple manufacturing in India
In a move that's bound to lead to several business leaders in America and Asia to tear their hair out, US President Donald Trump has asked Apple CEO Tim Cook not to manufacture in India, even though India has offered the United States a no-tariff deal. The development is significant as it comes amidst these ongoing tensions between India and the US over Trump's claim that he mediated a ceasefire between India and Pakistan, something India has quite publicly and evidently expressed displeasure towards and something we discussed in yesterday's episode as well. Trump said that he had a little problem with Tim Cook yesterday, referring to his conversation with Apple CEO in Qatar, and he also said that he is building all over India.
I don't want you building in India. India can take care of itself, he said. Trump also referred to an earlier talk with Tim Cook after the US-China tariff talk in Geneva, where he praised Apple's decision to expand manufacturing within the United States.
Trump also said on Thursday that India has proposed zero tariffs on American goods as part of efforts to strike a new trade agreement with Washington. The move, which we pointed out earlier, led to the market spiking on Dalal Street. Trump claimed that India was willing to literally charge us no tariff on US exports, though he did not elaborate on the terms or sectors covered.
He said that India has offered a deal where they're basically willing to literally charge us no tariff. They are the highest and now they're saying no tariff, he said, while commenting on Apple's investment in India. Now, earlier, Apple had said that it would move all its iPhone manufacturing for the United States from China to India, which obviously means a major shift in manufacturing plans and investments.
So how all of that will move, given the latest statements by Trump, or you might call it threats, would be interesting to see. But like I said, a lot of people are going to be tearing their hair out. From an India point of view, Business Standard reported that India was looking to narrow the average tariff differential with the United States to under 4% from nearly 13%.
The core report has also been arguing that India needs to bring down some of its tariffs. It's nothing to do with the trade war. But this is that India is more protected and more protected than it should be as compared to many other markets or more competitive markets.
Meanwhile, in keeping with the new language and tone that India is adopting towards the United States, External Affairs Minister S.J. Shankar on Thursday said trade negotiations between India and the US are still a work in progress and no final agreement has been reached. He cautioned reporters that they should not jump to conclusions about the status of the deal. He said that between India, the US trade talks have been going on, negotiations have been going on, the team is going at this point, which is referring to the Commerce Ministry team, which is on its way.
And he also said that any trade deal has to be mutually beneficial and has to work for both countries. Until that is done, any judgement on it would be premature, he said. His remarks came literally hours after President Trump speaking in Doha during the second leg of his three-nation West Asia Tour claimed that India had made that significant offer.
Now, S.J. Shankar's statement is a contrast to the past where there would have been mostly no statement. The US meddling in the India-Pakistan conflict is seen as a cause for India's current stance, which is obviously to express displeasure more than once. There are several reports on what India has offered and India is offering, but there are 7,000 or maybe more line items to be discussed.
And there are areas in dairy and agriculture, for example, which are a no-go as far as India is concerned. So, the best thing, or at least my general sense would be to wait for the final outcome, which should be on or before July 9th, which is the end of that 90-day period of pause. Remember, Washington unveiled sweeping tariffs on the 2nd of April, with India being hit with additional duties of 26%, which was brought down to 10%, and that's where we are right now.
America's big wins in Qatar
The White House said that President Donald Trump had secured deals totalling more than $243 billion, with Qatar laying the groundwork for a bigger $1.2 trillion economic pledge with Qatar, according to Bloomberg. The announcement came on the second leg of Trump's travels through the Middle East, a day after he talked about his $600 billion in investments by Saudi Arabia in U.S. manufacturing products and services. Bloomberg said that Trump has focused much of his energy on this trip in securing investment dollars while praising Gulf states for seeking a deeper partnership with the United States.
The White House announced that Qatar Airways has signed a $96 billion plan to acquire as many as 210 Boeing 787 Dreamliners and 777X aircraft, and this apparently is the largest ever wide-body order and the largest ever for 787s.
How Rural India Telecom Consumption Is Rising
There is an interesting shift in how and where India's 1.1 billion mobile phone users are stepping up their consumption. This has macroeconomic ramifications as well, since it also plays to the theme of rising rural consumption in India right now.
A new report by Crisil, the rating agency, says increasing internet adoption and data consumption by rural subscribers are emerging as structural drivers for growth in average revenue per user, or ARPU, of Indian telecom companies. In the four years ended December 31, 2024, internet penetration in rural India went from 59% to 78%, which outpaced the urban areas, which went from 77% to 90%. Internet penetration in rural areas is expected to further increase by about four to five percent by the end of this fiscal year, that's March 31, 2026.
All of this is helped by continued adoption of online communication, digital payments, as well as increasing usage of social media, content streaming services, and e-commerce. Another factor to point out, as we will hear shortly, is that in rural India, the mobile phone is the primary communication device, unlike maybe in urban India, or at least in cities where you have, or rather would switch between, Wi-Fi and mobile phone connectivity. Despite being more price sensitive, the rural internet user base has stayed resilient over the past year, including during the tariff hikes in mid-2024, reflecting the high dependence of rural users on mobile internet, says Crisil report.
I spoke with Anand Kulkarni, Director of Crisil Ratings and author of the report, and I began by asking him what was driving these shifts and what lay beyond it.
INTERVIEW TRANSCRIPT
Anand Kulkarni: If we talk about the key reasons for this growth, there are demand side drivers and then there are supply side drivers. So the demand side, the primary drivers will be a significant amount of data that the rural users are consuming these days. Now these are for essential services like online communication, that is your chat, video calling, as well as digital payments, and then there are other entertainment related drivers, such as consuming social media content or streaming services, e-commerce.
So these are the demand side drivers, those are strengthening over a period. Now coming to the supply side drivers, this is being facilitated at two levels. The first is telcos, who are suppliers, they are expanding their network coverage and offering competitively priced data plans.
The telcos are also incurring targeted expansion in rural areas by buying more spectrum and expanding their 4G rural network coverages as well. They are also offering bundled content driven plans in these regions which are also fuelling higher engagement and spend. The second level of the supply side is the availability of more affordable smartphones.
Now just as an example, the cheapest 5G enabled device now costs less than 10,000 rupees, vis-a-vis let's say it used to be 15 to 20,000 a few years ago. Now in the context of these two drivers, as rural users shift from their voice plan or a 2G plan to a 4G or buy higher priced data packs as their consumption grows, the average revenue per user will increase. Second part is also the uptrading that we are seeing in rural areas, that is driven by the fact that mobile phones many a times serve as the primary getaway for rural users, vis-a-vis metro users when you have a Wi-Fi at home and hence data consumption also in rural areas is showing stronger growth over past few years.
So these are few drivers of this growth.
Govindraj Ethiraj: Right, that's interesting and I guess the logical next question is this: in contrast to urban areas, is urban slowing down therefore in terms of growth numbers and are there any contrasting points between the two?
Anand Kulkarni: So let me put it in a context, it is rather than a slowdown, it is more of saturation that is happening in urban vis-a-vis opportunities that probably is available in rural areas. If I put it in numbers, urban markets today have higher internet subscribers because the penetration is high, already reaching 90% as of December 2024 data, but they are showing signs of some saturation because the penetration already is high. On the other hand, despite growing very well, the rural penetration today stands at around 78%.
So that is the difference that is there. Further, most of the urban users are already on high-speed data plans. The revenue growth for telcos in urban areas now will either come from uptrading those of those plans which are already on high-speed data or the ability of telcos to monetise their 5G services which are more prevalent in urban areas.
In contrast, the rural areas are still in expansion phase both in terms of the internet subscriber addition as well as higher data usage which makes the ARPU growth structurally stronger for rural areas vis-a-vis the urban areas growing.
Govindraj Ethiraj: What did you say the contrasting urban penetration in India was right now?
Anand Kulkarni: What penetration in India is around 90% that is internet subscriber penetration out of wireless.
Govindraj Ethiraj: So the difference between rural and urban is not much, would that be a fair statement 78% to 90%?
Anand Kulkarni: Right, but I think if you look at the past data, let's say rural it has been growing at let's say around 3-4% per year the penetration number. So it still has decent headroom to catch up with what can be the urban number which will take a couple of years more and that gives the growth opportunities.
Govindraj Ethiraj: Right, and are there any insights in terms of value and while you're saying that the revenue per user is growing, what is the average revenue per user in rural versus urban and really what's the value proposition including as seen by the telecom companies?
Anand Kulkarni: Right, so the companies don't report rural versus urban average revenue per user. Overall, it has been growing at a good secular rate. Last year, there was a driver of Terrifiq as well.
This year, since the Terrifiq related residual impact could be minimal, it will be more of an organic growth. So for the overall sector, we believe the RPU will grow by 20-25 rupees this fiscal and it will reach around 225 kinds of numbers that we are seeing. Rural versus urban, the data consumption if I give you that number, let's say metro has grown by a CAGR of 7-8% in terms of data consumption while circuit B and circle C that's how they report and which constitute around 70% of India's rural population.
That has grown by around 13.5-14% in terms of data consumption.
Govindraj Ethiraj: Are you able to link some of these shifts in terms of the way people are consuming even for the demand reasons that you outlined with the larger macroeconomic story including in rural?
Anand Kulkarni: So for this story Govind, the shift is largely driven by the opportunities which are more focused on the sector that is the penetration opportunity and infrastructure improvement, especially let's say the 4G rollout opportunity is still available in rural areas or smartphones as we discussed. The macroeconomic factors do influence such as rising rural incomes or direct benefit transfers that are available, government subsidies or for that matter even increased digital literacy. So the macroeconomic factors do catalyse but the core of this growth will come from the sector specific opportunities.
Govindraj Ethiraj: Right and what's the outlook overall I mean as you look ahead in the next area for the rest of the year, I mean I know you're projecting higher growth but are there any other trends within that or shifts that you're seeing?
Anand Kulkarni: I think the outlook certainly is positive especially for rural Arupugur. We believe that this also helps telcos plan their investments better because after the 5G rollout related investments that they've done over the past few years, now they are also in a mode to calibrate some of their investments. So what they're doing is they're targeting in a much focused manner which gives them an opportunity to show that targeted growth.
Our sense is that will also help the profiles of the telcos, their return matrices should improve with this targeted investment and incremental ARPUs that they're coming. We have shown that the return on capital is an important matrix for this capital heavy industry that is going to grow to around 12% this fiscal from a 10% last year. So that is the incremental delta which will add to their bottom line because of this growth.
Govindraj Ethiraj: Right and last question. So how are you seeing this period with the higher rural contribution helping telcos and their balance sheets as an industry?
Anand Kulkarni: Right, so if you look at the industry anyway it was on a trend when they were after the 5G heavy CAPEX that they've done. They were overall in a mode where they would want to calibrate their CAPEX, use their cash to make their balance sheets leaner and that probably will help them structurally with incremental ARPU which is more organic in nature. I think that gives them the opportunity to sweat the current investments and the assets that are already put in place much better.
That helps them generate more free cash flows which can be used to make their balance sheets even lighter. So I think this structurally helps the telecom providers much better.
Govindraj Ethiraj: Anand, pleasure speaking with you. Thank you so much for joining me.
Anand Kulkarni: Thank you.
