The $5 Trillion Mark Finally Arrives

On Tuesday, it was a largely flat trading day with the BSE Sensex ending at 73,953, down 53 points, while the Nifty50 was at 22,529, up 27 points

22 May 2024 12:30 AM GMT

On Episode 298 of The Core Report, financial journalist Govindraj Ethiraj talks to Tejas Gandhi, Secretary of The Federation of Indian Spice Stakeholders (FISS) as well as Arun Anandagiri, co-founder and group editor at Taxsutra.

Our Top Reports For Today

(00:00) Stories Of The Day

(01:19) The $5 trillion mark finally arrives, what’s next?

(02:53) The tug of war between institutional and retail investors

(06:44) Oil imports from Russia hit 9-month high, government wants public and private refiners to gang up for better prices

(08:23) India is holding on steel import tariffs even as several Latin American nations have hiked tariffs to fend off cheap Chinese exports

(10:05) India’s spice exports controversy, why is it dragging on?

(19:35) Heatwaves are rising and so are the threats to lives and livelihood

(21:06) Dubai Airport is set for over 90 million passengers this year

(21:48) An exit poll by independent journalists highlights jobs and income as key issues in their voting decision

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.


The $5 trillion Mark Is Here

Frontline and index stocks continued to trade narrowly as election fever continued to grip the stock markets.

The broader market continued to expand, taking the combined market capitalisation over the $5 trillion mark for the first time.

Institutional investors are ringing alarm bells again and more on that in a moment.

On Tuesday, it was a largely flat trading day with the BSE Sensex ending at 73,953, down 53 points, while the Nifty50 was at 22,529, up 27 points. So another day of divergence between the two and another sign of the tug of war going on in the market.

The market capitalization of all the companies listed on the BSE hit $5 trillion-mark intraday and stood at $4.97 trillion (Rs 414 trillion) at close.

If you have been listening to The Core Report, we have been predicting this figure would arrive, though it seems to have come a little later than sooner.

Not surprisingly, the $5 trillion target was boosted by a spike in the mid and small caps with the BSE MidCap index added 0.34 percent though the BSE SmallCap index fell 0.18 per cent.

Of this $5 trillion, some $1 trillion has come in less than six months and the journey started on 29 November 2023, the Economic Times has said.

The next benchmark is obviously the all time highs for the indices.

The Tug Of War

There is a tug of war going on in the markets, between retail investors who are actually just staying put versus the institutional investors who are sounding the alarm bells.

Kotak Institutional Equities in a note has cautioned that the valuations of numerous Indian companies are unsustainable.

The domestic brokerage highlighted that 104 companies are trading at over 50 times PE, while nine companies are trading above 100 times PE.

A company with a 100 times PE would need 83,000 times earnings in the 100th year to justify its current multiple. Many of these high PE companies are in traditional sectors and could face significant disruption risks, Kotak said in a note reported by Moneycontrol.

Kotak has also observed a disconnection between valuation methodologies and fundamentals, making high multiples acceptable despite the underlying parameters' outrageous implications.

Even excluding young companies and industries, the number of high PE companies remains elevated.

"Companies will require sharper and higher growth rates over a shorter period to justify very high P/Es. A 100X P/E company, which may be in the growth phase over the next 40 years, will need to report an earnings CAGR of 20% over the next 20 years and 9% CAGR over the subsequent 20. If the industry’s growth phase were to be shortened by 20 years, required growth rates will be even higher. Even if we assume stable market structure and stable profitability, the particular sector will then require becoming 200X in the first scenario and 30X in the second one. Only a few sunrise sectors may pass this small test," Kotak said in its latest note.

All this is of course Latin and Greek to any investor who mostly has no clue or wants to have a clue on whether a stock price should reflect some fundamentals or whether there is such a thing called fundamentals.

Goldman On Volatility

On a somewhat related note Goldman Sachs has said that stock investors are bracing for a spike in market volatility, and upcoming events such as Nvidia Corp.’s earnings report can exacerbate any moves.

The reference here is mostly to US markets though trends can mirror themselves quite quickly across the world and in India.

Bloomberg reported the bank’s measure of risk appetite hit the highest since 2021 last week, driven by optimism around economic growth and monetary policy, but momentum has slowed, the team led by Andrea Ferrario wrote in a note dated May 20.

Data from Citigroup Inc. showed a rise in bullish positioning levels in S&P 500 and Nasdaq 100 contracts last week. The S&P 500 is now “almost exclusively one-sided,” but “profit levels are only beginning to develop, which limits positioning risks,” a Citigroup strategist wrote in a note reported by Bloomberg.

The strategists point to CBOE Volatility Index options data that signal higher demand for hedges against sudden market declines, at a time when the gauge has dropped to historically low levels.

“This suggests markets are pricing less risk of a sustained drawdown from here, but are worried about temporary spikes in volatility,” Ferrario said. “With high market concentration, idiosyncratic events can also matter,” he added, pointing to Nvidia’s earnings report due Wednesday as an example.

Oil Prices Stay Soft, India And Russia At Play

Oil prices were lower on Tuesday, with investors now betting on continued U.S. inflation and higher interest rates which could keep consumer and industrial demand down.

Brent crude futures fell 57 cents to $83.14 a barrel.

India's Russian oil imports have now risen to a nine-month high in April after shipments on non-sanctioned tankers operated by Russia's largest shipping company Sovcomflot resumed, tanker data obtained from shipping and trade sources showed, according to Reuters.

Refiners in India had briefly stopped importing Russian oil in tankers belonging to Sovcomflot after the company's ships, along with its 14 tankers, were designated by Washington in February as being in breach of Western sanctions, in place since Russia’s invasion of Ukraine two years ago.

India, the world's third-biggest oil importer and consumer, is the top client for Russian seaborne oil.

Interestingly, the Government of India has also asked both the state-run oil refiners and privately owned Reliance Industries Ltd. to jointly negotiate a long-term supply deal with Russia, Bloomberg is reporting.

The government apparently wants India’s refiners to lock in at least a third of their contracted supply from Russia at a fixed discount to contain volatility in prices. The appeal to join forces was informal, Bloomberg reported.

This would be interesting to see how it plays out if it does because Reliance is not likely to share information on transactions, present and potential with state oil refiners since they all compete in the market.

More Countries Hike Tariffs Against Chinese Steel

Indian steel manufacturers are crying out for more tariffs against Chinese steel ever since the United States hiked tariffs and good chunks of that production are now seeking newer or more traditional markets.

Last week, the Indian Steel Association which represents most large Indian steel companies said they were worried about a surge in shipments from China after the United States imposes steep tariffs on Chinese steel.

The Government in India is of course caught between keeping steelmakers happy and feeding the massive appetite created by the infrastructure investments that it is leading.

It now appears that other countries are hiking tariffs.

Bloomberg is reporting that Mexico, Chile and Brazil have hiked — and in some cases more than doubled — duties on steel products from China over the past several weeks. Colombia may be about to follow suit.

This is interesting because China has become the biggest buyer of raw materials from the region and a major investor.

At the same time, Latin America has given China another market to sell its goods as it faces stiff US and European tariffs.

China sends nearly 10 million tons of steel a year, valued at $8.5 billion, to Latin America — a huge jump from a mere 80,500 tons in 2000, according to regional steel association Alacero.

A flood of Chinese imports threatens to put Latin American steel producers out of business and risk a combined 1.4 million jobs, Bloomberg said.

Countries like Chile among others have benefited from two way trade with China, including exporting raw lithium for battery components.

But the tide is turning.

Spice Exports, The Real Story

The Federation of Indian Spice Stakeholders (FISS) has said India's spice export may decline nearly 40 per cent this year if the issue of ethylene oxide or EtO contamination in spices meant for exports is not addressed at the earliest.

There are different levels of Ethylene oxide for different countries but the present controversy got triggered after Hong Kong and Singapore banned the sale of popular brands MDH and Everest after detecting carcinogenic chemical ethylene oxide in their products, leading to a mandatory recall from shelves.

India's spice exports totalled USD 4.75 billion, accounting for 12 per cent share of global spice exports.

I reached out to Tejas Gandhi, Secretary of FISS, which represents some 600 spice traders, exports and farmers across India and based in Unjha, the biggest spice trading market in India and located in Mehsana district, some 100 km north of Ahmedabad.

I began by asking him to give us a status update on the situation right now, an explanation on why this had become a problem and if he was seeing normalcy in the coming months.


Heatwaves Are On

Elections are still on and more on that shortly.

Meanwhile, India has issued its highest weather alerts and warned of hotter conditions ahead as deadly heat is sweeping many parts of India’s north, Bloomberg reported.

The heatstroke risk is very high in Delhi, Rajasthan, Punjab, Uttar Pradesh and Haryana, and people should avoid spending time outside, according to a bulletin from the India Meteorological Department that carried the so-called red alerts.

India’s highest recorded temperature on Monday was 47.4C (117F) at Najafgarh in Delhi, according to the bureau.

The weather has been 5C hotter than normal in several parts of the nation and the heat is expected to continue in the northwest and central region over the next four days, it said.

The world posted its 11th consecutive month of record-breaking heat in April as climate change leads to more extreme weather across the globe.

Elsewhere, the weather bureau also predicted heavy rainfall in Kerala, Karnataka and Tamil Nadu, advising fishermen not to venture into the Bay of Bengal.

Temperatures climbed to record highs in some areas of Thailand and the Philippines last month, while heat waves hit parts of major coffee grower Vietnam, sending prices of the robusta variety to a 45-year high, Bloomberg reported.

Dubai Record Air Traffic

Dubai International Airport has posted its busiest quarter in history this year, receiving over 23 million passengers — a 8.4% rise in the first quarter compared to the same period last year, the company said in a statement, reported by Reuters.

He told CNBC that they were on the road to 91 million passengers going by the end of 2024 and for 2024.

Meanwhile Dubai Airports’ CEO is bullish on the future and expects passenger traffic to surge to a record this year and top 100 million by 2027.

This was partly due to increased destination offers by flagship carrier Emirates and its sister low-cost airline Flydubai, it added.

How Are Maharashtra’s Voters Voting?

A sample of over 2,000 people surveyed by a group of volunteer journalists led by Arun Anandagiri, founder of Taxsutra says that in many cases, people’s financial positions have either worsened or the same. This may or may not determine voting choices but is an input.

The poll asked people what their main economic issues were and also if their financial position had improved, worsened or the same in the last five years.

The poll was conducted at exit points in rural and urban Maharashtra including Mumbai.

I spoke with Arun Anandgiri to give us more details.

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