On today’s episode, financial journalist Govindraj Ethiraj talks to Atul Chaturvedi, Chairman of Sri Renuka Sugars and President of the Asian Palm Oil Alliance as well as Dr. Raj Vaidya, Immediate past Chairperson, IPA Community Pharmacy Division.
- <00:51> India’s Exports Are Falling Sharply And So Are Countries Across Asia
- <03:49> Low edible oil prices are keeping inflation down
- <15:41> Streetside pharmacies are fighting online upstarts, what could be outcome?
- <28:06> And how Wall Street’s rally is getting broader, even GE is back
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.
Good morning, it’s Monday the 17th of July and I’m Govindraj Ethiraj coming to you from Mumbai.
Our Top Reports For Today
- India’s Exports Are Falling Sharply And So Are Countries Across Asia
- How low edible oil prices are keeping inflation down
- Streetside pharmacies are fighting online upstarts, what could be the outcome?
- And how Wall Street’s rally is getting broader, even GE is back.
India’s exports are crashing.
June export numbers saw an alarming decline of 22% at $33 billion, compared to last year June’s number of $42 billion.
It would perhaps be less worrying if India was the only country to lose out, counter intuitively speaking because it could suggest an aberration. The problem is that across Asia, export numbers are falling, as are import numbers from major importers like the United States.
Value of goods shipped overseas from China too fell 12% to $285 billion as compared to last June, the figure coming from China’s General Administration of Customs said Wednesday, the biggest decline since early 2020. China’s exports are about 9 times at this point that of India.
The Wall Street Journal is reporting that exports from Taiwan fell 23% in June compared with a year earlier, while Vietnamese exports were down 11%. Exports from South Korea were down 6%, according to official figures compiled by data provider CEIC.
The WSJ attributes this to Western consumers quitting spending so much on electronics, home improvements and other consumer goods after splurging during the pandemic. Instead, they have chosen to spend more of their income on eating out, travelling and other services.
Economists don’t expect a revival in trade until later in the year, assuming recession in the U.S. and other major economies is mild.
One segment that has taken a hit in India is automobiles exports which for the quarter or three months ended June 23 was down 28% at 1.02 million ended June 30, 2023 versus 1.42 million in the same quarter last year.
The Society of Indian Automobile Manufacturers official told news agencies that all vehicle segments saw a drop in exports in the first quarter, as there has been a devaluation of currencies in many destinations of exports, like Africa.
India’s biggest auto exporter is Maruti Suzuki with around 62,857 units in the June quarter, followed by Hyundai Motor India which shipped 35,100 units in the first quarter and Kia India which came third at 22,511 units. Hyundai and Kia being siblings you could say a Japanese and Korean company comprise the lion's share of Indian auto exports.
Two-wheeler exports declined 31 per cent to 0.79 million units in the April-June period from 1.14 million units in the year-ago period.
All this by the way will be top of the mind for central bankers and finance ministers from the G20 or group of 20 countries who will gather right in India in Gandhinagar.
It would be interesting to see what emerges out of these discussions for India and the world.
INFLATION AND EDIBLE OIL
India's retail or consumer price index (CPI) inflation rose for the first time in five months to 4.81% in June 2023 versus 4.31% in May 2023. Last June, it was at 7%.
One reason why it went up was because of a surge in vegetable prices.
We also spoke in last week’s Core Report of rising prices of pulses like urad dal and tur dal which saw an inflation of 10.5%.
Crisil Chief Economist D K Joshi pointed out that in the past 5 months, the inflation rate of pulses had nearly doubled and they are a staple food item and an important source of protein for a vast majority of India’s population.
So very broadly, food prices are driving up inflation. They included pulses which I just mentioned and cereals which went up 12.7%.
On the other hand, prices of oils and fats were down, yes down, 18.1%.
This impact is actually quite significant as if you were to exclude it, as per the figures I could source, inflation would have been 5.8% and thus back in the danger zone.
There is no reason of course to exclude something but it is indeed interesting that while prices of most commodities are rising, there are some which are going down and in this case oils which are an equally critical component of any Indian household.
Interestingly, as recently as early last year, prices of edible oils were skyrocketing globally and have reversed course to fall sharply, as evidenced by what consumers are seeing in India as well.
One reason for prices staying low is because imports of edible oils are rising sharply, up 39% to hit 1.3 million tonnes in June, compared to June last year.
A little more than half of edible oil consumption in India is met by imports, roughly 56% as of year before of which palm oil or palmolein as you may have heard of contributes a further half or 54%.
So what is keeping edible oil prices down and thus inflation down for Indian consumers. What are the constituents of our edible oil imports? And more importantly how long could prices stay down and what is the outlook like.
To discuss this, I reached out to Atul Chaturvedi, Chairman of Sri Renuka Sugars and President of the Asian Palm Oil Alliance.
So there you are, edible oil prices are low and likely to stay a little low for some time at least.
Meanwhile, other prices that have fallen but possibly escaping your notice if you have not been venturing out in the rains are domestic air fares.
On the busiest sector in India, which is Mumbai to Delhi and back, fares for an economy ticket booked roughly 24 hours ahead (which is usually a good gauge of what demand is like) is between Rs 4,200 and Rs 4,500. So that means you could get a round trip ticket for around Rs 10,000 for a 1-day trip or even the same day.
I am not referring to the 2 am flights by the way.
Roughly a month ago, one way tickets on most airlines were touching Rs 10,000 or a round ticket between Rs 16,000 and Rs 20,000.
On the Mumbai - Bangalore sector, fares seemed to have crashed even more, though I am going by rough memory. Tickets are now available in and around 24 hours for a same day round or next day return for even less than Rs 5,000.
If you get choosy it will go up a little of course. But once again, this is way lower than a couple of months ago when round tickets were going at Rs 15,000 - Rs 18,000 at the very least.
Remember that GoAir, an airline with around 60 aircraft is still not flying and we are at existing capacity though with higher loads.
Meanwhile, on international air fares, if you are bound for south east Asia, fares are pretty competitive and low. Let’s say around Rs 25,000 round trip or less from Mumbai or Delhi to Dubai or Singapore in the next week. Or for that matter Ho Chi Minh city where most people seem to be headed nowadays.
If you are thinking further west bound than Dubai, my suggestion is to go rob a bank.
ONLINE PHARMA VS OFFLINE PHARMA
A few weeks ago, news emerged that an online pharmacy PharmEasy, was set to raise fresh money, around Rs 2,400 crore, at a valuation that was 90% down from its peak of $5.5 billion in October 21, or less than 2 years.
The company was backed by the usual line up of venture capital investors ranging from Temasek and TPG Growth to Prosus and even Nandan Nilekani’s Fundamentum Partnership. It raised $1.1 billion according to reports.
In June 2021, it even bought ThyrocareTechnologies, a profitable medical diagnostics chain run by A Velumani, a fiesty and unusually candid scientist turned entrepreneur.
This was also peak Covid if you remember at a time when the diagnostics sector was looking particularly good though most diagnostics companies say business has picked up after too, possibly because more people are generally aware of their medical environments or just plain scared.
PharmEasy appears to have done what all firms do with venture money have done in recent years - which is to buy other companies, in this case, distributors, supply chain software and assorted services all of which kept investors happy and the pink press buzzing. In reality, nothing went anywhere because there never existed the bandwidth or more importantly the business model to sustain it. Remember Byjus. As was the case with most of the overfunded venture ecosystem, there was money in excess and almost nothing of everything else, including patience to actually build a business.
Be that as it may, I have used some of the online pharmacies. And let me tell you of some of my experiences
To their credit, they have been fast, the interfaces slick and the choice of medicines and pharmaceutical products vast. In some cases, stuff that I ordered would arrive in hours.
And then things started changing. First, the number of drugs that needed a prescription steadily started rising. The process of uploading prescriptions was as smooth as I guess could be but was a pain. And then someone would call from some other state or city, introduce themselves as a doctor and then ask about the prescription and for what medicines you needed.
And then I needed more medicines to deal with some health situations. And then ecommerce did not make sense at all. Because it was cumbersome and delayed. The 100,000 medicine stock and 22,000 pincodes delivery promise is of zero relevance to me.
All the pharmacists in the neighbourhood would have 99% of the medicines I wanted on most days because that as I have discovered intuitively over the years is what we are consuming and is of course a deeper reflection of our health and disease profile which the pharmaceutical supply chain to local pharmacies keeps stocked up.
So back online, it is useful to buy allied products like oral care or some other health related supplements and the like. But for pure drugs and medicines, I for sure am not seeing a benefit and am pretty sure most are not.
There are other issues like margins and consumption patterns…
Meanwhile, post Covid, the pharmacies in our area have started delivering within a few hours too, they would ask for prescriptions where needed but surely not for almost every medicine which the ecommerce sites have almost absurdly begun to. And then they too started offering some discounts, with some discretion but yes.
By the way, I realise the verification of a prescription is a good thing but that is not a problem statement for the consumer, it is for the regulator. By the way, if you live in a metro city, like Mumbai or Bangalore, I am guessing you can count at least 3-4 pharmacies within 10 minutes walking distance of your residence.
It is possible that pharmacies like Apollo are leaning off their offline and retail store networks and also the real and verifiable diagnostics and tests they offer in their hospitals network. By the way, I would be wary of a Rs 1,000 - or thereabouts - test that checks everything from lipid profiles to vitamins to diabetes and more.
On pure online pharmacies, I am really wondering whether there was a business model ever or a real consumer need.
The same could of course apply to many, many more ventures including in edtech. Where, after acquiring a dozen ventures, you could become a different company and that ipso facto becomes the reason for existence and everyone including, of course the investors, lives with it and justifies it furiously in retrospect. Because apart from money there was little else to start with.
Now, the offline pharmacies have had a tough time in the last couple of years. Because the onslaught of online has obviously affected their business and had them running scared. It is likely that even now, their business has been hit more harder in some parts of the country or within cities than others.
Nevertheless, they seem to have banded together in some way and are exploring how they can become of greater relevance to the consumer.
To get a sense from a pharmacists perspective, I spoke to Dr Raj Vaidya, Immediate past Chairperson, IPA Community pharmacy division.
Meanwhile, the Wall Street Journal has an interesting report just out which says that in the US the line between e-commerce sales and in-person shopping is blurring as more shoppers place orders online and then go pick up their goods rather than wait for a delivery van to reach their home.
Retailers have added the service known as buy-online, pickup-in-store partly to restrain the fulfilment costs that can cut into profit margins.
Costs associated with home delivery are equivalent to 10% to 15% of an e-commerce brand’s sales, versus 2% to 3% when a truck delivers goods to stores, the WSJ says, quoting Deutsche Bank Research.
“The last mile of e-comm is expensive. So having that curbside capability, where the vast majority of our orders get shipped from store or get fulfilled from store, that last-mile cost has come down significantly compared to where 2019 used to be,” an official from Dick’s Sporting Goods, said at a Bank of America consumer and retail conference in March.
Indian markets have been hitting new highs at almost every session now even as investment banks are warning that valuations are stretched at these levels.
The BSE Sensex on Friday hit a new 66,160, and eventually ended with a gain of 502 points at 66,061. The NSE Nifty50 hit a new high at 19,595, and finished 151 points higher at 19,565.
Meanwhile, over at Wall Street, the stock market rally which used to be more of a tech rally is no longer just a big-tech rally, points out the Wall Street Journal.
A few months ago, it was all about the seven largest tech companies that drove pretty much all of the stock markets 2023 gains. These included of course, Apple, Microsoft and Nvidia all riding on a massive AI surge
Stocks like Apple, Microsoft and Nvidia have propelled the S&P 500 into a new bull market. The tech behemoths have been called the “Magnificent Seven.” The others are Alphabet, Meta, and Tesla and Amazon.
The Seven have been driving most of the gains in the last few years but their contribution in some ways is a given now.
What is new is the expanded profile.
More than 140 stocks in the index have hit fresh 52-week highs since the end of May, such as Lowe’s and General Electric, says the WSJ. All 11 sectors of the S&P 500 have climbed during that period, pushing the index up more than 17% for the year.
It would now take wiping out the gains of the top 50 stocks in the S&P 500—including Visa, McDonald’s and FedEx—to negate the index’s rally this year, according to S&P Dow Jones Indices data as of Wednesday.
GE is a bit of a turnaround stock incidentally. It was given up on by many in recent years even as its top deck saw considerable turmoil. The company has strengthened its bottom line and likely its profile as well. Its total shareholder return as per one commentary over three years, that includes dividends, was 162%.
Back home GE’s Aerospace arm you may recall tied up with HAL for transfer of technology (ToT) to co-produce F414 engines in India for the LCA Tejas MK-2. The deal was announced during Prime Minister Modi’s visit to the US last month.
That’s it from me for today. I do wish you a wonderful week ahead. Do let me know any subjects or topics that you would like to see covered here.
You can reach me on [email protected] or on LinkedIn and Twitter.
Have a great day !