The Markets Slip Further On Weakening Cues And Outflows
The market slipped further as they lost more traction and searched for signals, with the rupee taking a strong hit as well
On Episode 752 of The Core Report, financial journalist Govindraj Ethiraj talks to Ajay Srivastava, Founder of the Global Trade Research Initiative (GTRI) as well as Ajay Kedia, Director, Kedia Advisory.
SHOW NOTES
(01:57) The markets slip further on weakening cues and outflows.
(02:26) The rupee hits fresh lows on absence of trade deal.
(05:49) Why is Mexico hitting India with tariffs and a look at Indian exports 10-month high.
(14:08) Copper prices are hitting records as metal traders shift focus, assessing the impact.
(19:57) And the nuts and bolts of how GCCs are coming up in India.
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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 feedback@thecore.in.
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Good morning, it's Tuesday, the 16th of December and this is Govind Rajyathiraj broadcasting and streaming weekdays from Mumbai, India's financial capital. Before we start, it's already a month of never-ending misery for India's air travellers this December and we're only halfway through. Hundreds of flights were cancelled or delayed on Monday as dense fog blanketed India's northern regions.
Delhi's Indira Gandhi International Airport was the worst hit with more than 250 delays, about 35% of scheduled flights according to Flightradar24. Indigo, which has more than 60% of the market, scrapped over 100 flights and Air India cancelled more than 35 take-offs, citing poor visibility. Some Akasa Air flights were also impacted, Bloomberg reported.
December 15th was the first day of the winter fog season, which by the way, the same season wreaked havoc last year as well. Fog-induced delays and cancellations are not new, but the current rounds of disruptions, which will continue in some shape or form, obviously come on the heels of mass cancellations at Indigo thanks to pilot shortages. As always, the big question is how well airlines are prepared to address these expected delays, and more importantly, how effectively they keep you and me informed of them.
Meanwhile, stay safe, stay warm, and here's hoping your travels are smooth.
And that brings us to the top stories…
The stock market slipped further on weakening queues and outflows.
The rupee hits fresh lows in the absence of a trade deal.
Why is Mexico hitting India with tariffs and a look at Indian exports hitting a 10-month high?
And copper prices are hitting records as metal traders shift focus, assessing the impact of that
And the nuts and bolts of how Global Capability Centres, or GCCs, are coming up in India.
Slipping Further
The market slipped further as they lost more traction and searched for signals, with the rupee taking a strong hit as well.
On Monday, the markets recovered from earlier losses but ended weaker as sentiment was tepid and outflows continued at a steady clip. The Sensex was down 54 points to 85,213 and the NSE Nifty 50 was down 19 points to 26,027. In the broader markets, the Nifty mid-cap was down 0.1%, Nifty small-cap index was up 0.2%. But the rupee continued to reflect the anxieties on the cross-border capital flows front, dropping to a record low for the third consecutive session and past the Rs.
90 mark. It fell to Rs. 90.78, extending its year-to-date decline to about 6% and ending the session slightly higher at Rs.
90.73 compared with Rs. 90.41 in the previous session, according to Reuters, who also quoted traders saying that the gradual depreciation of the currency is likely to persist in the absence of that trade deal with the United States and more on that coming up. India's merchandise exports to the US, which is India's largest export market, were up 21% year-on-year in November, meanwhile, and more on that coming up as well.
Foreign investors have net sold over 18 billion of stocks this year so far, which is on track to be the worst yearly outflow on record, according to Reuters, and even a weaker dollar is not helping, which itself is down more than 9% in the year against a basket of major currencies.
Trade Deficit
India's trade deficit in November was down to $24.5 billion as compared to $31.9 billion during the same period last year. Data shared by the Ministry of Commerce and Industry says India's imports declined about 2% year-on-year at $62 billion, while exports rose about $23 billion to $38 billion, rising to its highest level in the last 10 years.
India's Commerce Secretary told media that the key drivers for export growth include sectors like electronics, engineering goods, drugs, jewellery and gems, and pharmaceuticals. Gold imports fell 60% in November. Apart from gold, there was a decline in imports of petroleum products, vegetable and coal, according to government data quoted by Reuters.
Exports to the US, interestingly, saw a 22% year-on-year growth at about $6.9 or close to $7 billion, and in October, this figure was $6.3 billion, that is, exports to the United States. And more on that, or rather all of that and trade, coming up soon.
The India Energy Week Segment
Somewhere in the world, there is a war or actions close to it, and that, in turn, is continuing to affect prices in both directions.
Venezuela's oil exports have fallen sharply since the United States seized a tanker earlier last week and imposed fresh sanctions on shipping companies and vessels doing business with Venezuela, according to shipping data, documents, and maritime sources quoted by Reuters, which is also reporting that the US plans to intercept more ships carrying Venezuelan oil following this week's tanker seizure, putting pressure, or rather increasing pressure, on President Nicolás Maduro. On Monday, oil prices were mostly steady as investors balanced supply disruptions linked to these tensions, that's the US-Venezuela all happening in Americas, with oversupply concerns and the likelihood of a potential Russia-Ukraine peace deal. Brent crude futures were at about $61.20, up slightly, and US West Texas Intermediate crude was at about $57.59.
A Mexican Diet
India is proposing a preferential trade deal with Mexico in an effort to soften the impact of planned tariffs that could affect about $2 billion of Indian exports, according to India's Trade Secretary, who spoke to Reuters. Technical discussions on such a deal are underway following an online meeting between India and the Mexican side, according to Reuters.
Again, on Wednesday, Mexico's Senate approved tariff hikes starting next month of up to 50% on imports from several countries, including India, a move which is interpreted as aiming to appease the United States ahead of the review of a regional trade agreement next year and more on that in a moment. India exported goods worth about $5.7 billion to Mexico in 2024. Imports stood at about $3 billion.
The main exports are vehicles, auto parts, base metals, and textiles. And estimates suggest exports totalling $2 billion in value in sectors like auto parts, textiles, steel, and iron could be affected. So what is the backdrop to the Mexico tariff imposition and who does it hit most? And where are we on the U.S.-India bilateral trade agreement? And finally, why are exports picking up? I caught up with Ajay Srivastava, founder of the Delhi-based Global Trade Research Initiative, and I began by asking us to walk through the Mexican import position.
INTERVIEW TRANSCRIPT
Ajay Srivastava: This is not clear why they are imposing the tariff, but analysts all over the world, including US or Mexico, they are saying that Mr. Trump is pressing Mexico for a revision of their FTA called US-Mexico-Canada FTA. So he feels that this FTA gives a lot of leverage to Mexico to use imported goods in Mexico and process them and export to US. So he wants, by taking these he wants to probably convey to Mr. Trump that's not the case. And he is putting high barriers on imports from countries like China, and India and some other countries. So it's basically just a signalling to the US. But that's what is being talked right now.
Govindraj Ethiraj: The exports from India, and you've put out a note over the weekend, which breaks it down, including electronics and auto components and so on. Are these going to Mexico to be consumed as a primary product or good? Or is it really feeding into something else?
Ajay Srivastava: So two things are there. Half of all exports like motorcycles or small cars, they are going to be consumed in Mexico. And they don't have anything to do with this US and Mexico Tesla.
So they will be hurt. And other parts, like basically auto components, they are going to Mexico and they fit into the automobiles being manufactured in Mexico or exports to the US. But the thing which everybody around the world seems to be missing is this.
If you're importing any country, India, US, Mexico or Europe, if you're importing something and doing a value addition on that product, and then exporting that product, then you can import without tariffs. India also, there's a scheme called advanced authorisation. If I'm importing auto parts, making a motorcycle, exporting to the US or China, then I can import these auto parts without payment of any tariff.
So this Mexican whole game plan to impress the US with high tariff will not work, because the US thought that a lot of Chinese investments are happening in Mexico. And so China is investing in Mexico. They are importing a lot of penultimate stage Chinese goods into Mexico from China, doing some valuation, exporting to the US under USMCA at zero tariffs.
US is not happy with that. But this raising of tariffs by Mexico on Indian goods, Chinese goods will not work in this direction, because anything which you import will be at zero tariff if you're using it as an export product, for making an export product. I think Mexico has taken this decision without considering the full implications.
They may soon realise that China angle will not Right.
Govindraj Ethiraj: And in amongst the sectors, you've of course talked about auto components taking the hardest hit and followed by electronics, machinery, metals. And the point that you've also made is that pharmaceuticals is largely spared. So that again, seems to align with the US.
Ajay Srivastava: Because the tariffs which Mexico is putting, it varies from 5% to 50%. For example, this auto component, maybe 30 to 50% same with automobiles, but pharma it's 5 to 15%. So it's less tariff compared to highest tariff on automobiles.
So we say it's largely spared.
Govindraj Ethiraj: Right. Let me bring it to the US India bilateral trade agreement or BTA, which is still hanging fire. Two parts of the question.
First is the US has already started reducing rates in some areas like agriculture imports, largely to keep farmers happy. And of course, consumers also, you know, paying less for in their monthly bills. So what's your sense?
I mean, between the exemptions that are slowly coming and where we are today, how is the export basket looking?
Ajay Srivastava: Now that agriculture exemptions are not going to help India much, less than half billion dollars of our exports were getting benefits out of this. Today, about 55 to 60% of Indian exports, mostly labour intensive goods, they still pay 50% plus MFN tariff, that is 60 to 65% tariffs. So they will be heard.
40% exports from India are of smartphones, petroleum products, pharmaceuticals, drugs, etc. They accept no tariffs in the US and their exports is rising. That's why you see this monthly export figure to the US from May onwards, it's coming down.
June was less than May. July was less than June. August was less than July.
September was less than August. But from September, it bottomed out. September was the first month when 50% tariff was imposed.
So October, November exports should have fallen further. But October exports are higher than September exports and November data announced today only. It's higher than October data.
So exports, it seemed to have bottomed out in September. And since details are not available, I can only guess that maybe export of tariff exempt items like smartphones or pharmaceuticals or petroleum products have risen to the US. Because the rest, we talked to the exporters and they're all trying.
Govindraj Ethiraj: Yeah, the figure that's been released on Monday is $38 billion of exports, that's up 23%, which is also its highest level in 10 years. So that seems substantial. And now to come to the BTA, which we referred to earlier.
So what's your sense? I mean, we are obviously now middle of December, doesn't look like anything could happen now in coming weeks in this month in this year. How do you think we are poised?
Ajay Srivastava: So officially, nothing has been shared so far from any side. The only thing official we have is the USTR Mr. Jameson Greer's briefing to the US Senate three or four days back. And he says that India is tough nut to crack, but the type of offer we got from India is the better we got from other countries.
That scares me, in fact, because countries like Malaysia, they compromise on their sovereignty. So I'm sure Mr. Jameson must be wrong, because India will never do that. But we get the sense that India has already offered them opening in all the industrial products.
In agricultural products, we offer them opening in say, almonds and avocados and some of the fruits. We have problems with the GM products or the core agricultural products like wheat and rice. That's where the things are stuck.
But I think beyond trade deal, they also want many other things. For example, they want our data loss to be diluted, free flow of data. They want us to allow US eCommerce firms inventory model to operate in India, nor if there are restrictions on that.
So many non-trade issues are there which they wanted. They want us to buy more petroleum. They want us to buy more military.
Non-trade things are there. And we get the picture that negotiators from both the sides, they have come to an agreement for at least three times. This may be wrong also, but that's what we hear.
It's three times and everything is at the table of the top man in US. And whenever pleases him, the deal will be announced.
Govindraj Ethiraj: When you say three times, you would mean?
Ajay Srivastava: Negotiators, they were talking about certain things and both the sides, they agreed. Now it's okay. Indian offer is good for the US.
US offer is good for India. They agreed for these things. It's all political now.
Govindraj Ethiraj: Right. Ajay Shrivastava, thank you so much for joining me.
Ajay Srivastava: Thank you. Thank you.
Copper Times
Copper is closing in on the $12,000 a tonne mark as expectations of soaring demand from data centres that power AI and tight supplies collide with shortages outside the United States, Reuters reported on Monday. So copper prices are up about 35% this year and heading for their largest gain since 2009 thanks to mining disruptions and stockpiling in the U.S. On Friday, they were at about $11,952 a tonne. Now, copper wiring is vital to power grids that feed data centres, electric vehicles, and of course, all infrastructure needed for energy and energy transition.
Analysts told Reuters that investors who want a broad basket of AI interests will also buy into financial products which include hard assets that feed into data centres and buy copper-related assets like exchange-traded funds. Canada's Sprott Asset Management has launched the world's first physically-backed exchange-traded copper fund that was about a year and a half ago. And the fund, which holds nearly 10,000 tonnes of physical copper, has risen about 46% this year.
I reached out to commodity analyst Ajay Kedia and began by asking him what was driving up commodity prices in the context of copper. And then we also touched upon gold and silver. But back to copper, why was it rising? And what was the impact or the likely impact on the Indian market?
INTERVIEW TRANSCRIPT
Ajay Kedia: So definitely we have seen this rally from bullion now it shifted to base metal and as we know that the supply we have already seen there was a supply concern from indonesia get buried mines and that has added the fuel from the supply side but from the demand side we have seen a tremendous change over like a demand from data centre demand from evs that has supported copper prices up till last year we have seen the demand was not picking up because industrial production number cbi number was not favourable but as we have entered in quarter three and four slowly and steadily things have been revival so i think majorly first of all the supply side concerns secondly the demand renewed demand that has supported the copper prices and that is why we have seen prices on lme is quite good holding about 11,500 on lme
Govindraj Ethiraj: right and you said that attention is shifting from gold to copper so you're saying the same people who are really trading in gold or trading up gold are now switching to copper
Ajay Kedia: so what we can say there are two aspects one is the from the consumption point of view and one is the financial point of view so coming on the financial point of view yes because whatever the value we have seen in other asset class or let's say for gold and silver now they are fetching a new opportunity and i think base metal is getting a good attraction among the financial player after there was a statement from one of the leading company that copper is a new we have seen attractions are more in copper secondly the consumption side here we have already seen the economical data set from us china was not at all picking up but in last few months things have been slowly and steadily picking up now data set are supporting supply side has been under concern manufacturing things are being economies are more focused on that so i think financial and consumption both are now line up and that is why the result is with us
Govindraj Ethiraj: and i'm going to come to gold and silver in a second and how are you seeing the impact of these high prices of copper which is up more than 35 percent this year already in india or on india i think from
Ajay Kedia: the investment and consumption point of view first of all still we expect the step taken by the each and every central bank to support the economy to start the consumption i think 30 percent is normal we may see a further jump because the demand is now picking up like in january there will be chinese new year before that we see the order books are getting picked up so i think industrial demand has been there as of now coming on the physical side i have spoken with many companies they are saying that new orders have been there from the data set new demand from ev production and all are been there with the demand and supply or we can say demand and the price is totally matching
Govindraj Ethiraj: Right now so there is no as such pinch we have seen up till now and the overall supply of copper is constrained or is there enough copper available globally right now right now
Ajay Kedia: right now we can say copper supply has been there but already we have seen gets very and many chilly mines have been under utmost stress because of labour concern or we can say environmental concern generally in the winter china curtail down the production in order to save the product environment this type of things have been there because of the prices are getting support but we have enough copper right now but demand at most we have started now because of this mismatch we have seen prices has moved up
Govindraj Ethiraj: right and let's come back to gold since we contrasted that with copper earlier so gold seems to be again picking up steam though it's yet to or almost touching its all-time high once again so what's driving gold once again or rather this time and silver as well
Ajay Kedia: so i think nothing has been changed for gold right now we are very close to last time high which was around let's say 43 88 it's closer to that only but reasons this time is totally different we are approaching all-time high in comics and here we have seen december month we have came out us has came out with a 0.25 rate cut and possible rate cut of 4 26 and 27 also that makes gold as an attractive bet also dollar index has came down central bank numbers are quite aggressive in buying particularly from china where 13 month consecutive buying was been there etf in the month of october we have seen some pullback but now strong etf inflows safe even buying central bank all this factor has again supported gold and maybe by this year and we may see prices crossing 4400 level or beyond that in international
Govindraj Ethiraj: right ajay thank you so much for joining me
GCCs
Global MNCs are accelerating their efforts to set up GCCs in India despite all other constraints on the goods and trades front. There are close to 1,800 GCCs and the projection is they could hit over 2,400 in about four years time. So it's a few global capability centres now coming up every week.
And the phenomenon seems to be accelerating. So what's caused this acceleration and the shift? I asked Paul Jeruchimowicz, the Senior Managing Director and GCC Practise Lead at Accenture.
INTERVIEW TRANSCRIPT
Paul Jeruchimowitz: Yeah, I think the role that technology plays in reinventing all value chains or business processes or functions is one driver. We're still talking about how companies are adjusting their operating model and talent strategy after the pandemic, even though it was only four or five years ago, companies are still or learned lessons that proximity is not required in all the spaces where they thought it once was. And so now in places where that are more core to the business, like we've discussed, commercial, supply, R&D, technology, innovation, there was a previous thought that proximity was required.
We've proven that it's not. And so now you have the combination of AI-first processes powered by technology, proof that proximity is not required in all the spaces where we thought it once was, and then a requirement to really shift the talent in the companies that we're working with from somebody that might've been a deep functional expert, a deep accountant who understands accounting rules, now to somebody that has this AI-first that knows enough about accounting that they're not going to create a controls issue. So that's a different talent base that's required. And when you look to these talent-rich locations, India being one, and the degree of which STEM graduates, STEM education, focus of that talent production, this is a market to get that talent at scale, wherein some of the geographies where they operate, they can get a half dozen or a dozen really genius data scientists or thought leaders around AI and reinvention of processes with AI.
In a market like this one, we're talking 500 or 1,000. So a much different scale in terms of talent generation and access and availability.
Govindraj Ethiraj: So you talked about proximity, and that's obviously a cultural factor about the desire to hold things close, and particularly research and development, and more so, I'm guessing, in life sciences companies. But where would you say, from your vantage point, again, are most large companies in this journey of moving to, let's say, a greater degree of, let's say, decentralisation, the ability to set up a global capability centre, the ability to pass on or let go, so to speak?
Paul Jeruchimowitz: Increasing adoption and understanding usually starts with coming to see what's possible. There's also triggers in certain industries where there's one leader that others then want to learn from and follow, and it's been a great environment of sharing and showing. I think also the governance model and the ownership model and the interaction model and the way that culture plays into it is also an increasingly important level of leadership that you see in the GCC.
And so a shift from what might have been a decade ago or some time ago about service provision and a service provider mindset with SLAs and KPIs, that's kind of behind us, now to saying instead, how can we have full accountability and ownership in the global capability centre around a product or a product owner set? Now you have leaders in the global capability centre that are thought partners and peers to the C-suite or maybe the C-suite minus one as one global team. It's a connection to a global team.
It's another office in a network. Just like you might open an R&D centre in some other part of the world, this is just another one of those R&D centres. So that's really changed in terms of the collaboration.
And then another that we might get into is the cultural immersion. For a long time, we focused on how do we create the corporate headquarter culture here in the GCC. Well, now there's the reverse cultural immersion of saying in the GCC, we've created this environment where technology and data and process experts and ecosystem partners are working together and actually in a more collaborative way than you'll find back at global headquarters that still operate perhaps in functionally siloed ways.
And so we actually want the GCC to teach ways of working and cultural collaboration back to headquarters. So it's not a one-way cultural immersion, but rather a two-way cultural immersion.
London Property
For years, Britain's young professionals have faced a dilemma.
The best job opportunities are in a city that also has some of the world's highest house prices. At the peak in 2017, an apartment in London costed more than 12 times the median annual employee earnings. Now, properties are still expensive, but Bloomberg says there's a glimmer of hope for young Brits.
And taking a first step on London's housing ladder is not as daunting as it once was. So an analysis says that apartment prices are now below nine times their annual earnings, which is the most affordable level in 12 years, according to Bloomberg's analysis of land registry and official earnings data. And in real terms, flats in the capital are 22% cheaper than a decade ago.
Now, what that really means for you and me, particularly for those of us who live in cities like Mumbai, I'm not clear. But for those who are heading to London or preparing to or considering buying property there, this is just a friendly alert.
