The Markets Ride On Macro Bliss
In the markets, equity benchmark indices ended higher for the fourth straight trading session
On Episode 658 of The Core Report, financial journalist Govindraj Ethiraj talks to Indrani Bagchi, CEO at Ananta Aspen Centre as well as Chandrima Chatterjee, Secretary General at the Confederation of Indian Textile Industry (CITI).
SHOW NOTES
(00:00) Stories of the Day
(01:27) The markets ride on macro bliss and expectations of a solution to Russian oil.
(04:12) India-China relations appear to be on a mend. What is driving it and will it last?
(10:50) India has cut a 11% import duty on cotton. Will it really help?
(19:53) Solar energy has a problem of plenty. What it means.
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 Wednesday the 20th of August and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital. Speaking of which, Mumbai has been reeling under very heavy rainfall in the last few days, particularly Tuesday and Monday. Tuesday saw some 200 millimetres of rainfall in just 11 hours, according to several reports, with 300 millimetres of rainfall in 24 hours to Tuesday morning.
Life was disrupted and quite badly, flights were diverted, aircraft had to go around and there is still a red alert in not just Mumbai but many parts of Maharashtra for heavy to extremely heavy rainfall. And of course, many offices were shut and schools and colleges were also closed and exams were postponed. So it's a tough week and the second half of August.
And now our top stories and themes.
The stock markets are riding on macro bliss and expectations of a solution to Russian oil.
India-China relations appear to be on a mend. What is driving it and will it last?
India has cut 11% import duty on cotton. Will that really help?
And solar energy has a lot of problems. What does that mean?
Markets Continue To Rise
A sense of macro bliss continues to drive Indian markets upward, even as it picks up small queues from different places, including the visit of China's foreign minister to India right now, even as tariff tensions with the United States continue, but with some hints of a thaw there. More on the China minister's visit coming up. A meeting between Ukraine President Volodymyr Zelensky and several European leaders with US President Donald Trump at the White House on Monday went quite well, if only in comparison to Zelensky's previous visit five months ago to the White House, which was a disaster.
It is not clear whether Russia will agree to whatever was discussed in the meeting and signals already suggest they will not come around that easily. From an India perspective, it's not provided, that is, the meeting has not provided any real clues on what will happen to the 25% additional tariff that could be imposed from August 27th on India for buying oil from Russia, unless there was a quiet agreement between Russia and the United States at Alaska last week between US President Donald Trump and Russian President Vladimir Putin on allowing Russia to continue to sell oil to its big customers, which is China and India, without secondary sanctions. Now, in the markets, which are riding on a strong tailwind, equity benchmark indices ended higher for the fourth straight trading session, thanks to strong gains in heavyweights like reliance industries and auto stocks, which are still rising because of a potential reduction in prices, thanks to lower goods and services tax, which is around the corner.
The Sensex was up 371 points to 81,644, and it has now risen about 1,409 points in the last four trading sessions. The NSE Nifty 50 was 104 points higher at 24,981, though it did cross 25,000 during the day. Analysts are still saying that they will still look for signals on how earnings will behave in coming months, and most of this obviously seems to be more of a sentimental correction and in response to what could be happening on the US-Russia front.
The rupee also saw its biggest rise in over a month on Tuesday, over optimism that the US may ease its stance on those 25% tariffs. The rupee is tending to 86 rupees 95 paise, up about 0.4%, against the dollar that is, versus Monday's close of 87 rupees 35 paise. So we are now at 86 rupees 95 paise.
All of this data is from Reuters.
The Presiding Word Is Thaw
India-China relations appear to be on a mend. China has reportedly conveyed that it has lifted curbs on export of fertilisers, rare earth magnets, and minerals, as well as tunnel boring machines, or TBMs, as they're called, to India.
The three key questions from India from China, when External Affairs Minister S.J. Shankar met his counterpart Wang Yi last month, according to the Economic Times and agencies. Now, Chinese Foreign Minister Wang Yi is visiting India for the 24th round of border talks, days before Prime Minister Modi travels to China for the summit of the Shanghai Cooperation Organisation. India had underlined its concerns with China, as those fertiliser curbs had affected the availability of diammonium phosphate, or DAP, in the Rabi season.
Similarly, the lack of tunnel boring machines are affecting key infrastructure projects in India, including, of course, projects in and around the city of Mumbai. I reached out to Indrani Bagchi, CEO of the Anantha Aspen Centre, and also a columnist on foreign affairs, and I began by asking her for her reading on the latest visit by the Chinese Foreign Minister, and also how the United States would view this revived bonhomie.
INTERVIEW TRANSCRIPT
Indrani Bagchi: First thing is, we got a much more cordial reception this time than we did the last time. So you can see that change is in the air. The foreign minister met him yesterday.
The foreign minister, I think, if I'm not completely mistaken, is going to spend the next couple of days in Moscow, which basically tells you how strategic autonomy is playing out, let's put it this way.
Govindraj Ethiraj: Okay, so what's our thinking and approach to this new equation with China, given all the history, which I will not get into right now?
Indrani Bagchi: See, Wang Yi, who is the foreign minister from China, but he's also the special representative for the border issues. He held his meeting with NSA, who is our special guy, because the work on the border continues. We've just had a disengagement, which was in October last year.
But we haven't had a de-escalation. So which means everybody is still on high alert. And as we know, it's one of the toughest geographies and one of the toughest terrains in the world.
On the foreign policy front, everybody is very clear about why we are where we are. I mean, we know that the Chinese will continue to support the Pakistanis and do stuff with them. They were an active participant in the Aspen Doodh conflict.
Nobody forgets. The Chinese and Indian are two civilisations, and they're so old that nobody forgets anything. So the Chinese don't forget either.
And they don't forget that we are given a change of circumstances, we may go right back to being friends with the Americans. So that's something that is in the realm of the transactional politics that we see in the world today. But yes, I'll tell you what our interests are.
And I think that's something that the Chinese may agree to, which is, you know, the Chinese have blocked rare earth magnets like they have for the rest of the world. That's impacting our auto sector, that's impacting our renewable energy sector.
Govindraj Ethiraj: So the latest news is that through sources that they're going to open up?
Indrani Bagchi: They might be, yes. And the tunnel boring machines for that the Shinkansen isn't taking off. The speciality fertilisers.
I mean, at another level, you'll have to ask yourself that if you're such a big agricultural power, how is it that you are still importing fertilisers from China? But that's a conversation which India should be having with itself. That apart, these are in some ways, confidence building measures.
I think we are definitely going to allow them to do more in terms of joint ventures with Indian companies. So Chinese FDI has never been high, even in the best of times, Chinese FDI has never been high. But joint ventures, I think, are not.
See, remember, Press Note 3 is not off the books. So vetting the ultimate beneficiary in investment decisions will continue. Except that I think we'll be a little more, shall we say, lenient on the issue.
Govindraj Ethiraj: And you feel that this is likely to continue for some time? I mean, because it's all looking like we are transactionally dealing with each other.
Indrani Bagchi: Yes. The state of global politics as we find them today, people are no longer shy about being seen to be transactional. There used to be that fig leaf of nice words.
I think, you know, everybody's playing to their own strengths. I mean, the Chinese, too, need India as a market. They need India to be on their side.
Even if it is notional, you will see some stuff on bricks. No matter how close we get to how friendly we get to the Chinese, we will not support de-dollarization in the bricks. That's, I think, definitely a line too far for us.
That apart, we'll, I think, make more space for China than we did before.
Govindraj Ethiraj: Okay. And last question. So how is the US, as things stand, and again, from your vantage point, likely to treat this new bonhomie?
Indrani Bagchi: I don't know how the US would even react. They just renewed their trade truce with China for another 90 days. Trump is taking a cut from Nvidia and AMD, selling the H20 chips to China.
He's taking a 15% cut. It is another matter that the Chinese government has put out a regulation asking their companies to not buy Nvidia chips anymore. But, I mean, Trump is taking a cut out of that.
He's cozying up to Putin. Where will he get in telling India what to do about China? How can he?
I mean, the entire Russia issue itself was so trumped up. I'm sorry to use that bad pun, but there is no connection to reality. So it's a narrative that they are just breeding, which makes no sense.
But they're doing it. And of course, as I have said earlier on your show, it's personal. And until that personal issue gets resolved between the PM and Trump, this will continue.
Govindraj Ethiraj: Indrani, thank you so much for joining me.
Indrani Bagchi: Thank you, Govind.
Dire Times for India's Textile Industry
The government of India, late Monday, scrapped 11% duty on import of cotton.
The duty had been imposed in February 2022 at the time of the union budget, and interestingly had been appealed by the American cotton exporting industry even last year. Nevertheless, the temporary reduction of duties, it's only till 30th September, could benefit U.S. cotton growers and also help India's apparel sector, which faces tariffs of nearly 60% on shipments to the United States from later this month. So it's 50% plus 10%.
The United States is India's biggest market for garment exports, and the Confederation of Indian Textile Industry, among other bodies, have been saying that orders are now paused or cancelled as countries like Bangladesh and Vietnam are more competitive with their duty levels of 20% and China, which is at 30%. The largest beneficiary of the duty-free import will be the U.S., as it's the second largest supplier to India, according to Ajay Srivastava, founder of the Global Trade Research Initiative, a New Delhi-based think tank, who also is a regular guest on The Core Report, and he was speaking to Reuters, and he also said that India already allows duty-free cotton imports from Australia within a quota. Cotton imports for last year were at about $1.2 billion, and that was almost double of the year before.
So the question, of course, is that will this 11% reduction make a difference to the textile industry, and where so, if so, and what else is it looking for to help better prepare for the tariff onslaught? I spoke with Chandrima Chatterjee, Secretary General of the Confederation of Indian Textile Industry, and I began by asking her to give us a sense on the impact of these latest duty cuts.
INTERVIEW TRANSCRIPT
Chandrima Chatterjee: Yesterday's announcement to reduce this is of course an extremely welcome move, if not very tangible results, but there are other implications of this. Why is that firstly the industry had been asking for this for a quite a long time. That's mainly because we felt that the import duty not only impacted the import cost, but also the domestic cost as the domestic cotton availability was at an import price parity level.
So there we feel that there will be overall more stability and downward pressure on the cotton prices prevailing in India. But of course the constraint is that it's a very short window. 30th September means that new shipments, new orders will not get impacted.
This is as of now only impacting already placed orders which are in transit. So let's talk about those orders. Those orders of course will have a good impact and the impact as a percentage of an FOP will depend whether it's in the yarn or the fabric or the garment that this imported cotton is being used.
So of course it will have more impact at the yarn stage and a little limited impact on the garment stage. So to your earlier discussion about whether this impacts the tariff situation in the US, data wise no it doesn't because we are today faced with the tariff differential of 25 to 50 percent whatever the final scenario will be. And here you are talking of a 11 percent on an input for an export of garment which of course will be 10-15 percent of the total FOP value.
So to that extent the impact of this on the US bound exports in the next one or two months will be limited but I'll come back to my first part of the answer which is that it will have a generally good impact on overall cotton cost prevailing in India.
Govindraj Ethiraj: In terms of trade negotiations, would this be a positive step because this is something that American cotton exporters were asking the Indian government to do, which is to bring down imports.
Chandrima Chatterjee: Yeah yeah it should augur well for those negotiations but the only thing is since the considerations for this was more to do with some domestic scenario and in fact it is also even the window that has been given is recognising the domestic cotton arrival and market position. In fact, September is because from October a new cotton season comes and so there will be a better supply of cotton in the market is why this window was put. So to that extent there is no direct linkage but yes it should because if tomorrow this gets extended or this is used by industry I'm sure logically all US bound exports will prefer US cotton and to that extent their interest in the Indian market will be fulfilled to some extent.
Govindraj Ethiraj: Got it. Okay now if I were to ask you a slightly broader question in terms of inputs into the making of textiles which goes to making of garments let's say what's the rough split between cotton and man-made fibres?
Chandrima Chatterjee: 65 to 70 percent is cotton and the balance is MMF or MMF based blends.
Govindraj Ethiraj: Okay so if we were to look at let's say reducing input costs further so cotton as you said seems to be more situational and tactical at this point and in any case we were at a lower level even two years ago or three years ago where does that leave man-made fibre? I mean what is the kind of duty level that we have right now and what could be optimum to ensure that the cost of raw material is reduced for your members?
Chandrima Chatterjee: Man-made fibre of course has a different complexity there your fibre is at 18 percent and you know the downstream your value-added segment is at five percent so there is a huge inversion there and then our request always has been that there should be uniformity so that there is no GST accumulation and hence no blockage of working capital so if that also gets addressed which we are hearing a bit it will of course improve a more fibre balanced product basket.
Govindraj Ethiraj: Right okay last question Chandrima so we've talked about import duties both on cotton as well as on man-made fibre so what else is it that you're looking at which you feel could move the needle in terms of trying to address this 25 percent tariff challenge particularly for obviously for US exports and if that 25 goes to 50 then I guess it's a different story but even at 25 percent what else can the government or others do to make the industry more competitive at this point?
Chandrima Chatterjee: So you're correct that if the tariff remains 25 then we of course have a different reaction and if it's 50 then it's a completely different reaction so if it is 25 then of course we are looking at meeting a relative tariff disadvantage of 5 to 10 percent which would of course mean some policy support in terms of a support specifically for that market we are talking of some market linked incentive kind of a thing and of course in looking more deeper into the product basket because the price sensitivity will be a little lower in higher value products and we are now looking at technical textile and a little higher value products there of course we have been talking of others policy support be it something like an employment linked incentive we are talking of a higher rod tap so these are some of the policy support we are talking to meet the 5 to 10 percent tariff differential but if it is 50 percent then we are of course looking at market diversification much more seriously firstly we recognise then that Europe is a better market because even at the present level the differential there is only 9.6 percent which one can meet better and of course you're looking at a little deeper engagement in Latin America, Japan, Korea so you know in the last consultation with the minister this was only discussed that you know we need to more actively work with our embassies in these countries to have a deeper penetration in these markets in case we completely lose the US market because of 50 percent tariff.
Govindraj Ethiraj: Chandrima, thank you very much for joining me.
Chandrima Chatterjee: Thank you.
The Solar Problem Of Plenty
India is curtailing solar output during periods of low demand to keep the power grid stable and to ease congestion in power lines as green energy supply rises, according to an exclusive report on Reuters, quoting the Ministry of New and Renewable Energy, or MNRE.
Government data shows the usage data of solar capacity fell to about 21.4% in May and 19.5% in June. The MNRE told Reuters that some of it was due to lower irradiance, adding that it exceeded capacity utilisation of a 21-25% range from February to June. Now, capacity utilisation in solar is around that percent, which is 21-25%.
It also said that congestion in power lines due to some new plants coming into operation ahead of schedule and delayed transmission projects have also forced power output curbs, which is also called curtailment. India's renewable power developers are increasingly languishing without supply contracts as demand for power supply slows, the Reuters report says. It also adds that the National Solar Federation of India, NSEFI, in a July 24 letter to the government said that solar power producers in Rajasthan, which is actually the top green power-producing state, were also facing sustained curtailments, which had risen to 48% of output during peak generation hours.
NSEFI, by the way, includes companies like Adani, Stata, Amazon Web Services, and other investment companies. While Rajasthan is the worst affected, according to that Reuters report, other major green energy producers like Tamil Nadu, Gujarat, and Maharashtra are also curbing output. Data from the Tamil Nadu Renewable Energy Producers Association showed that solar output was 10% lower than forecast in the quarter ended June, according to that Reuters report.
Intel Inside
Intel has been in the news of late for, among other things, financial problems and its CEO coming under fire from US President Donald Trump, no less. But all of that seems to be behind us, and Intel is now getting a $2 billion capital injection from the SoftBank Group, in what seems to be a surprise vote of confidence for the chipmaker. The equity investment was announced by SoftBank on Monday and is a lifeline for Intel, which has struggled to compete after years of blunders that left it with virtually no foothold in the booming AI chip industry, according to Reuters.
This investment will make SoftBank a top 10 shareholder in Intel and also add to SoftBank's ambitious bet on semiconductor and AI assets that includes the $500 billion Stargate US data centre project, according to Reuters once again. The US government is also considering a stake in Intel, according to other reports. Analysts told Reuters that SoftBank's investment helps, but it is not what is going to move the dial for Intel.
