Short Trading Week Could See Markets Hold Back
Dalal Street is focussed on the interest rate decisions of the Bank of Japan and European Central Bank, along with the US GDP data now as triggers because the shocks from the Indian Q3 results seem to have mostly now abated
Our Top Reports For Today
- (00:00) Stories Of The Day
- (02:40) Short trading week could see markets hold back. What triggers should one track?
- (04:35) Global tech giant stocks bounce back. What a strong US market means.
- (07:00) Indian banks’ struggle for more low cost deposits while consumer product companies see sales slowing down.
- (09:11) Electric vehicle sales in the US are slowing down, could it plateau in India too?
- (14:08) India’s Quantum Computing Mission is off the block. A Sneak Preview.
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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Finding the Next Market Triggers
Before I start, 2024 has already kicked off as a year of extreme weather, winter storms in the United States and extreme heat waves in Australia with temperatures over 45 C and bushfires predicted.
Earth’s average surface temperature in 2023 was the warmest on record, according to an analysis by NASA.
Global temperatures last year were around 2.1 degrees Fahrenheit (1.2 degrees Celsius) above the average for NASA’s baseline period (1951-1980), scientists from NASA’s Goddard Institute for Space Studies (GISS) in New York reported.
This obviously means that America is consuming more energy and fuel in trying to stay warm and countries like Australia will do the same to keep things cooler.
Speaking of energy, Reliance Industries (RIL) earnings from oil-to-chemicals (O2C) division are poised to remain volatile and range-bound, a top company executive and analysts said, according to a report in Business Standard.
The oil-to-telecom conglomerate on Friday reported a 9.3 per cent year-on-year (Y-o-Y) increase in its consolidated net profit for the quarter ended December 2023.
This was tempered by weakness in the energy segment, which offset steady profit growth in RIL’s retail and telecom businesses.
RIL’s management noted that while the refining margins environment looks favourable, the downstream remain under pressure.
The O2C business comprises RIL’s refining, petrochemicals, and fuel retailing business divisions.
The Core’s Energy coverage is supported by India Energy Week, to take place on February 6. Log onto www.indiaenergyweek.com for more details.
The global equity markets are soaring through, hitting all time highs, with tech stocks leading the fray.
Before we go there, let's look at India where stocks ended lower in a special trading session on Saturday.
The blue-chip Nifty 50 ended down 0.23% to 21,571.80, while the S&P BSE Sensex fell 0.4% to 71,423.65.
Markets are shut on Monday because of a late declared public holiday.
With Friday also shut because of Republic Day, this is a shortened trading week in India and might see lower trading activity.
Domestic triggers are largely in the form of Q3 results which are not looking very good, at least from the street’s point of view.
Banks are unable to raise cheaper deposits and consumer product giants like Hindustan Unilever are seeing sales slow down and thus profits.
The broader consumer market is not growing and nor are companies able to increase prices.
Dalal Street is focussed on the interest rate decisions of the BoJ (Bank of Japan) and ECB (European Central Bank), along with the US GDP data now as triggers because the shocks from the Indian Q3 results seem to have mostly now abated.
The good news, as market triggers go, is that the S&P 500 closed at an all-time high on Friday of 4,839.81.
The Dow Jones which set its own record at the end of last year, added 395.19 points. The smaller, more tech-focused Nasdaq-100 gained 1.95% to also hit a record high.
The S&P 500’s gain has to be seen in the context of near 20% loss in 2022, gaining 24% in 2023.
The tech sector gained 2.35% on Friday and more than 4% during the trading week, making it the S&P 500′s best-performing sector week to date.
The tech sector doing well in the US does not really affect the tech sector in India, at least I would not draw that correlation since Indian IT services companies get their business mostly from non-tech companies in the western markets like banks, retail or telecom companies.
But a strong US market will keep sentiment strong across and wash over to India as well.
But that in turn will depend on factors like interest rates in the US, if they are low, then more capital will flow into equities and conversely if they stay high, then money will not flow into equities at the same intensity.
Meanwhile, Meta’s stock price has fully rebounded, rising almost 2% Friday to close at $383.45, setting a new record.
The rally, following an almost 200% jump last year, follows CEO Mark Zuckerberg’s major cost-cutting initiatives in 2023 , CNBC reported.
Meta’s previous high was in September 2021 at $382.18, right around the peak of the tech bull market.
However, Meta’s market cap is still below its record because the company has been buying back tens of billions of dollars in stock, reducing the number of shares outstanding. In September 2021, its market cap was near $1.1 trillion. Currently, it’s below $1 trillion.
Investors are increasingly bullish on the company’s position in the booming artificial intelligence market.
Zuckerberg said last week in an Instagram Reels posting that Meta will have 350,000 Nvidia H100 graphics cards by the end of the year along with “almost 600k H100 equivalents of compute if you include other GPUs.”
That suggests the company is spending billions of dollars to help support its AI ambitions, CNBC reported.
More on the ultimate in computing, ie, quantum computing, coming up shortly.
Indian Bank’s Deposit Hunt
If you are like me, you do not keep money in the bank account except for essential, predictable purchases every month and of course EMIs and the like.
The rest goes immediately to a mutual fund or similar.
So many of us are using banks mostly as a very temporary and quick parking slot in the beginning of the month to move funds around.
This is of course not new but the trend is getting more pronounced and banks are suffering as they struggle to find deposits and that too at the costs that are quite frankly non inflation beating, to put it mildly.
To pick up on ICICI Bank. ICICI’s Net interest margins, a measure of how lenders make on every loan sold, shrank to 4.43% in the three months ended Dec. 31, from 4.53% in the previous quarter, Bloomberg reported.
So, India’s banks are facing challenges in mobilising low-cost deposits to fuel a high demand for credit and thus profitability.
As many financial market veterans are pointing out, Indians are moving from being savers to being investors which means they would rather put money into stocks or market linked instruments where returns are higher and they can have a hope of beating inflation.
Of course, the market veterans I have been referring to have been hoping for this phenomenon for several decades.
Now that it is here, the signs are not very good.
On the other hand, while earnings at Indian banks have swelled in recent quarters on surging demand for credit, the Reserve Bank of India has begun warning of a potential buildup of risks because unsecured lending is rising almost twice as fast as overall credit.
While banks, being run by good and talented people will find ways of becoming more profitable, including of course through other kinds of income, this is a larger problem for now.
The slowdown in deposit growth that is.
EV Push Back
I asked a friend and automobile journalist which EV car to buy if I would buy one. His answer; hold on, it’s like buying the iPhone 5 when there is a iPhon15 in the market. Except that there is no iPhone 15 in the EV market now. We are presumably waiting for it.
For various reasons, I am holding on for now though in my own apartment complex, several people own EVs and there are charging stations as well. So no real fear of running out of juice unless they drive far and away. And yet.
In India, the market is growing, so let’s move to the US for a moment.
Ford Motor said last week that it’s slashing production of its F-150 Lightning truck amid flagging demand. The F-150 was launched in May 2021.
The electric pickup has been plagued with defects that have required recalls. It sold a mere 24,165 Lightnings last year and lost roughly $36,000 on each EV in the third quarter, the WSJ reported.
Hertz announced to much fanfare in Oct 2021, that it planned to buy 100,000 Teslas.
The share prices of both companies popped, and Tesla’s market capitalization surged past $1 trillion, exceeding the valuations of nearly all traditional automakers combined.
Over the next year, Hertz announced plans to buy up to 65,000 Polestars and 175,000 electric vehicles from General Motors
Guess what, now Hertz announced a week before that it would sell roughly a third of its global EV fleet and use the proceeds to buy gasoline-powered cars.
The cited reasons: weak demand for EVs and high repair costs.
The general impression is that electric vehicles have low maintenance costs. Apparently, as the WSJ is reporting, the opposite is true for Hertz.
Even minor accidents can require batteries to be replaced, which can cost $20,000. Many EV parts aren’t readily available, so cars have to sit in the shop for weeks, says the WSJ.
Back home, electric two-wheeler scooters owners have faced a host of problems, some of it to do with a lack of effective communication on how to use a battery operated vehicle.
Hint, if you keep revving up like a petrol engine vehicle, or too much load, the battery will lose its efficacy..as can charging methods, there is some method to battery charging, as my colleague Jessica Jani reported in The Core week before.
Back in the US, Americans don’t want to plan trips around the locations of electric-vehicle charging stations—often to discover later that the chargers are broken.
Nor do they want to download multiple apps to charge at different stations, or worry about their battery range degrading in cold temperatures.
The app problem is identical in India too by the way.
A Deloitte Global Automotive Consumer Survey last week found that 67% of U.S. consumers said they would prefer an internal-combustion engine for their next vehicle purchase. Only 6% said they favoured a battery-powered EV—down from 8% last year.
India’s EV market grew 50% in 2023 though 95% of that is driven by two wheelers and three wheelers, used for transport of people and goods.
Electric car sales are only 5% at this point.
So the question obviously is will India EV sales also hit a plateau of sorts as it evidently is in the United States.
It’s tough to say but our reporting suggests that the discontent around two wheelers is still spreading and an equilibrium of sorts will have to be reached before sales pick up again.
Electric has had a fair share of early adapters in India across categories. While more users come in and at what pace, in 2024. Or, like my friend says, will people wait for the iPhone 15 which isn’t there.
Watch this space.
India’s Quantum Mission Goes On The Road
India approved the National Quantum Mission (NQM) in April last year at a total cost of Rs.6003 for the next 7 years.
The objective of the mission is to seed, nurture and scale up scientific and industrial R&D and create a vibrant & innovative ecosystem in Quantum Technology (QT) and is being driven by the Department of Science and Technology.
Quantum computers have many applications but none of them are likely to be found in someone’s basement.
For example, the National Quantum Mission will focus on developing magnetometers with high sensitivity in atomic systems and Atomic Clocks for precision timing, communications, and navigation.
The first meeting of the Mission Governing Board of the National Quantum Mission was held last week under the chairmanship of Ajay Chowdhry, founder member of HCL Computers.
So what is the mission about and how will quantum computing play out in India ?
I reached out to Ajay Chowdhury and began by asking him to first define quantum computing for us and then tell us about what the mission was hoping to accomplish.
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Meanwhile, the calls for pre-proposals for setting up thematic quantum computing hubs have opened over the weekend and will close on 21 March 2024.
Details at onlinedst.gov.in
From Quantum Computing to Cricket.
Indian conglomerate Tata Group has bagged the title sponsorship of the Indian Premier League (IPL) for 2024-28 for a "record-breaking" $300 million, the league organisers said on Saturday.
IPL has become the world's richest T20 tournament with an estimated brand value of $8.4 billion, Reuters reported.
The IPL has been a cash cow for the Indian cricket board (BCCI) with the 10-team league's 2023-27 media rights fetching $6.2 billion.
