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Stock Markets Set To Continue Solid Run On Election Results

Back home, the markets will welcome the BJP’s win in the states of Madhya Pradesh where it has returned and Rajasthan and Chattisgarh where it has defeated the incumbent

By Govindraj Ethiraj
New Update
Stock Markets
On today’s episode, financial journalist Govindraj Ethiraj brings you the latest headlines in business and manufacturing. We also feature an excerpt from the recent weekend edition interview featuring Jyoti Mayal, President of the Travel Agents Association of India. 

Our Top Reports For Today

  • (00:00) Stories Of The Day
  • (01:00) Stock Markets look set to continue solid run on election results, global equities surge
  • (06:18) Private consumption will drive India’s economy but it has to free itself of loans first
  • (10:44) Hybrid cars are overtaking EV sales in India and elsewhere
  • (15:37) Indians are spending more overseas, including through longer stays but the Government is wary

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.


Markets, Looking Back And Forward

The markets had a good week last week. 

A better than expected GDP number pumped the markets with the Nifty50 hitting a record high of 20,268, up 135 points on Friday while the Sensex rose 493 points to close at 67,481.

The last week has been good overall with the Sensex rising 1,383 points and BSE's market-cap topping the historic $4 trillion-mark for the first time, something we broke down in some detail last week.  In the meanwhile, the market capitalisation of NSE listed companies (the overall sample differs) has subsequently crossed $4 trillion on Friday.

Did you know which are the top three companies by market capitalisation or value? Well, they are Reliance Industries Limited, Tata Consultancy Services and HDFC Bank.

Anyway, November was a good  month for the Nifty, which rose 5.5 per cent, the most since July 2022.

The story goes beyond India and is worth viewing in this context. There is the Indian context of elections of course and I will come to it in a moment.

World over, markets have been on steroids or close to it. 

November was the best month for Wall Street since 2008, sums up a report in Bloomberg.

Moreover, volatility has fallen to pre-pandemic lows and a Goldman Sachs Group Inc. gauge of global risk appetite has hit near the highest level in two years.

Back home, the markets will welcome the BJP’s win in the states of Madhya Pradesh where it has returned and Rajasthan and Chattisgarh where it has defeated the incumbent. It lost in the state of Telangana to Congress.

The wins reflect continuity for the markets which have been trying to read the tea leaves on public sentiment ahead of the general elections in May next year.

It is of course well understood that legislative or state election outcomes may not define or represent voting patterns at the national level.

Nevertheless, for the markets which were looking for a temperature check, this is a timely and useful input.

But the market that continues to fascinate me is oil. 

So the news is that OPEC agreed to extend its production cuts, by around 1 million barrels a day, additional that is.

The reason it is cutting production is because of a fall in crude prices and projections of more surplus next year.

Obviously, oil producing countries want to earn more from the crude they produce and sell and keep prices high, or try, by maintaining prices at higher levels.

The details are not so relevant as is the outcome, which is that oil prices have fallen further in response to the likelihood of a further cut in supply when in theory it should have gone up.

Except that it is what a normal day looks like in the oil market. 

Brent crude incidentally is now quoting just around $79 a barrel after hitting $84.38 just four days ago on Thursday.

To put the prices in context, Brent was at its yearly high of $94.36 on September 27. 

The Hamas attack on Israel happened on October 7 and while the war and the subsequent middle east tensions pushed oil back above $90 momentarily, it has not touched the September peak.  

A quick recap on currency. The rupee has undoubtedly performed well this year against most major currencies in the world, actually it has been among the best performers, despite a bad year last year as we discussed on Friday.

However, it has not gained in the last month even as the dollar has weakened.

INR is amongst a handful of currencies which were unable to capitalise on the dollar’s decline, a report from BOB Research says, adding that it ended the month flat, with a marginal decline of ~1 paisa. 

However while it touched a record-low several times during the month, volatility in the rupee is also near multi-year lows. The annualised daily volatility in INR has fallen steadily from ~5% in Jan’23 to just about 1% in Nov’23.

The rupee’s weakness is a little worrying because of the lack of explanations for it because all the trend-data is actually positive, like a softer dollar, lower oil prices, reversal in FPI outflows, easing domestic inflation amidst strong domestic growth momentum, according to BOB research which concludes that the rupee’s underperformance can be explained by a strong demand of dollars by importers in the last few weeks.  So the projection is a range of 83-83.5/$ for the next fortnight.

What Happens When The Loans That Fuelled Consumption Have To Be Returned

We spoke of the unexpectedly high GDP numbers that came in on Thursday for the second quarter which is from July to September at 7.6%.

There are lots of useful analyses which have subsequently emerged, as would have been expected.

For one, the consensus seems to be that this is unlikely to be repeated in the subsequent quarter.

Crisil chief economist DK Joshi says they expect growth to slow in the second half due to a deepening global slowdown and the lagged impact of domestic rate hikes manifesting fully through the second half of this fiscal.

That’s the broader picture around which most economists appear to be aligned.

But a little more on the numbers themselves and I will liberally quote from columnist T N Ninan of Business Standard.

In a column titled Handle with care, India’s latest GDP numbers flatter but don’t deceive he asks him to pick the sectoral number that principally supports that upbeat total: Manufacturing sector growth which grew 13.9 per cent over a year earlier, unusual in itself and well above the growth rates for other sectors.

It so happens that the corresponding quarter a year earlier had (again, unusually) seen the manufacturing sector shrink by 3.8 per cent, thereby creating a low base as the comparison point for this year. Combine the numbers for the latest quarter and the corresponding number a year earlier and you get (13.9 – 3.8 =) 10.1 per cent growth, or an average of 5 per cent for each of those quarters. 

So the first warning when looking at GDP numbers should be, he says: Watch out for the outlier sectors.

ICICI Securities economists in their note acknowledge the same, that a lower manufacturing base helped the number shoot but add that the low base will continue to be helpful in the third quarter as well as the year earlier saw manufacturing contract 1.4%.

It is not clear to me how a weak base is helpful except in purely numerical terms.

Anyway, the interesting poser from T N Ninan’s column is the optimism and pessimism in outlook. 

According to him, the  reason for optimism is that private investment is yet to kick in to the full extent of the economy’s potential. 

The reason for scepticism lies in the fact that while even the GDP numbers as reported show below-par growth in private consumption, even that has been fuelled by a boom in personal loans, which cannot last. Consumers who have stoked up on debt will be spending subsequent quarters paying down that debt, not indulging in further consumption. 

Sustained lack of pace in consumption growth would act as a drag on GDP numbers, and inhibit investment, he says.

The personal debt is something we have focussed on more from the outstandings or how they are rising and the strain on the system. Not so much how what would be affected as repayment kicks in.

We had shared last week that NBFCs have roughly Rs 350,000 crore worth of personal loans outstanding, which in itself 12-14% of total book around Rs 27 lakh crore.

So 88% is secured with homes and cars and so on. This is of course NBFCs only and not banks.

But the point is that all loans, whether secure or not, have to be repaid. And the banking system having the comfort of asset recovery is in itself not a sign of economic health or more specifically the quality of private consumption.

The forthcoming quarters will thus be illustrative. Remember, the RBI increased risk weightages, for loans and credit cards which means higher cost down the line.

Hybrid Versus Electric

Last month, Toyota Motor chairman AKio Toyodo when asked about the challenge from electric vehicles including the lull in US demand said the  industry was coming to recognize that there isn’t a single answer to reducing carbon emissions.

“People are finally seeing reality,” Toyoda said, speaking in his capacity as the head of the Japan Automobile Manufacturers Association and as quoted by the WSJ. 

Toyoda, who stepped down this year as Toyota chief executive after nearly 14 years on the job, has long said the auto industry should hedge its bets by continuing to invest in hybrid gasoline-electric cars and other options beyond just electric vehicles. 

It appears now that Toyota has been barking up the right tree so to speak.

Most US automakers including Tesla and Ford have warned about a sudden slowdown in consumer demand for EVs.

Toyota’s hybrid and EV offerings are now growing.

But interestingly, India is mirroring this trend, perhaps not surprisingly at all.

An insightful report by Sharmishta Mukherjee in the Economic Times points out that hybrid cars are rapidly gaining popularity in India overtaking battery electric vehicle sales for three straight months this financial year.

New car buyers are gunning for a few hybrids, like the Maruti Suzuki Grand Vitara, Toyota Urban Cruiser Hyryder, Honda City and Toyota Innova Hycross. 

Sales of strong hybrid vehicles totalled 24,062 units in the three months to November, compared to 21,445 electric vehicles sold in the same period. This, despite the availability of a larger number of electric cars currently - 16 EVs compared to 4 strong hybrids, says the ET.

The reasons are fairly logical. The lack of charging infrastructure is a hurdle as is range anxiety, in India and elsewhere. And they are relatively cheaper than EVs.

The ET sums up that hybrid cars are 20-30% pricier compared to conventional petrol cars, but deliver 35-40% higher fuel efficiency.

I think Toyota’s determination to hold their view against vociferous public opinion on fossil fuel alternates is worth noting. 

Not many companies or CEOs have had the guts to take a what would appear to be a pro fossil fuel stance, even if it is a hybrid one, pun intended.

If hybrid prices come down, remember duties on them are higher at over 40% as opposed to electric at 5%, then the battle could become exciting. Not that it isn’t even right now.

No Specific Subsidies For Tesla

Speaking of electric cars, a report by the PTI has quoted a Government official saying India will never provide company or enterprise-specific incentives in the electric vehicle sector, a top government official, in the context of a push  from American electric carmaker Tesla for special sops to set up its factory in the country.

The sops would mostly mean lower tariffs on imports of fully built models which have not been given to anyone.

If the government has to consider providing incentives then it will only be for all EV makers and entrants who want to come to India, the official said. 

Which is of course logical but the narrative, possibly in the way it was reported, seemed to suggest that Tesla might be able to wrangle some concessions exclusively even if only for a limited period, given the Indian government’s desperation to get them to set up shop here.

Tesla should of course be welcomed as we have discussed in the past but Tesla cars are unlikely to come in at a price point - going by available reports - that would make it a mass product or even close. Think beyond Rs 20 lakh, going by estimates.

More importantly, foreign and Indian manufacturers who have invested deeply in the Indian market in recent decades cannot and should not be discriminated against or even made to feel that there could be a chance of that. 

Quite likely, nothing happened so all is well but I do believe that while Tesla is obviously the most premium and desired badge in electric globally right now, there is nothing to say it will enjoy similar success in India as and when it arrives.

The iPhone to Tesla comparison I feel is limited. For reasons I will get into another time.


And finally, India’s outbound tourism sector is booming with some 70 million Indians travelling this year for tourism and other purposes.

Indians are also spending more, staying longer overseas since fares are high and also booking tickets closer to dates of departure.

They are also heading to new destinations like Azerbaijan, Kazakhstan and of course Vietnam. The new destinations are an outcome of the travel and tourism trade doing the groundwork as well as of course subsequently airlines launching direct and more direct flights.

But the Government appears to be concerned by the increased spending as evidenced by its imposition of a tax collected at source on overseas spends.

I reached out to Jyoti Mayal, President of the nearly 75 year old Travel Agents Association of India on The Core Report Weekend Edition and began by asking her how she was seeing the tax imposition as well as the Prime Minister Modi’s suggestion that Indians should do their big marriages in India rather than outside.