The Stock Markets Rise On Macro News
Despite the somewhat mixed cues, the stockmarkets were up on some fresh macro news
On Episode 591 of The Core Report, financial journalist Govindraj Ethiraj talks to Vijai Mantri, Co-Founder & Chief Investment Strategist at JRL Money as well as Shankkar Aiyar, veteran economic journalist and author.
SHOW NOTES
(00:00) Stories of the Day
(00:50) The stock markets rise on macro news, tariff relief
(01:50) JP Morgan gives a thumbs up to emerging markets including India against developed markets
(14:58) Mumbai sets once in a century record for rains in May as city reels
(17:11) Why do India’s urban centres collapse every year during heavy rains
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 Tuesday, the 27th of May and this is Govindraj Ethiraj, headquartered in Broadcasting and Streaming from a totally rained out Mumbai, India's financial capital.
The stock markets rise on macro news and tariff reliefs.
J.P. Morgan gives a thumbs up to emerging markets including India against developed markets.
Mumbai sets a once in a century record for rains in May as it reels under heavy rainfall.
Why do India's urban centres collapse every year during heavy rains?
The Markets Stay Strong
Despite the somewhat mixed cues, the stock markets were up on some fresh macro news, tariff fears easing after ratcheting up all in a weekend and the Reserve Bank of India, that's India's central bank's record dividend transfer to the government of India, which analysts say reflects sound fiscal consolidation. And the Trump shock and awe tactic appears to work for the markets. Inject fear, markets fall and then offer a carrot at which point the markets heave a huge sigh of relief and bounce back.
The latest development is of course that there is a pause in the 50% tariff on EU's imports into the US and specifically stocks were up on Monday following a strong show on Friday. Last week, the Nifty 50 crossed the psychological barrier or target of 25,000. The Sensex closed at 82,176 that was up 455 points and the NSE Nifty 50 was up 148 points to close at 25,001.
In the broader markets, the Nifty mid-cap 100 and the Nifty small-cap 100 were up 0.67% and 0.37%. Elsewhere, after Morgan Stanley, it's the turn of JP Morgan to put out a bullish report on India but there is a difference here. JP Morgan has turned bullish on emerging market equities as a whole and moved them to an overweight rating. So the argument is interesting because of the contrast that's being offered to developed markets.
JP Morgan says that emerging markets had four years of weak performance versus developed markets lagging cumulatively by about 40% since 2021 and JP Morgan says that they've now upgraded their emerging markets versus developed market stance from underweight to neutral and now moving it further up to overweight. According to JP Morgan, within emerging markets their strategy team continues to prefer markets with high domestic exposures or rather higher domestic exposures that includes India, Philippines, Brazil, Greece, Poland, and the United Arab Emirates with strong bottom-up idiosyncratic catalysts like Chile and Korea according to those analysts quoted in a report in Business Standard. Emerging market valuations according to that note appear attractive at 12.4x forward price to earnings versus developed markets at 19.1x while global investor positioning to emerging markets are low, in particular to China, says JP Morgan. Coming to India, JP Morgan says it is trade insulated and is a safe haven amidst the trade war 2.0 besides being cyclically well positioned. It also says that the ongoing recovery in rural demand, reduced taxes coming into effect from April and easing monetary policy regime, declining inflation, normal monsoons, actually make good monsoons and soft commodity prices, bodes well for 2025-26 earnings. It is also likely to see the highest 2025 GDP that's gross domestic product growth in the JPM global universe according to that note.
It also expects and here's again the globally important part, the US dollar to stay soft this year which could help emerging markets. According to them, emerging markets have historically traded inversely to the dollar and the big question is whether the last 15 years downtrend in emerging markets and the strong US dollar could be ending. Emerging markets generally underperformed developed markets since 2010 during which the US dollar was strengthening, this is according to data.
So emerging markets tend to do better against the backdrop of a weaker dollar and vice versa and in that respect if the US dollar shows more sustained weakness that could help emerging market trade according to the JP Morgan analysts. So the point is that the US dollar is weak right now for a multitude of reasons and does not look like it's going to get stronger anytime soon at least going by forex analysts that we've been talking to. So that's another input for you if you're trying to contrast it with emerging market performance versus developed market performance.
So that's the region-wise view. How are things looking from inside out in the context of company performance demand and incomes driving demand in India that is. I spoke with Vijay Mantri who has a slightly contrarian view of some of the recent viewpoints on income growth or as some people said stagnation.
I also asked him how he saw the latest quarterly results which in turn depends on how companies are actually performing including consumer facing. Vijay Mantri is a co-founder and chief investment strategist at Mumbai based JRL Money and I began by asking him about the latest results.
INTERVIEW TRANSCRIPT
Vijai Mantri: So I think the results were not surprising at all. To many analysts it looks surprising but very honestly to us it never looked surprising because we looked at data of various macro data and the government spending and what was happening on private capex. We were looking at those data and we're also looking at what happened after Trump came in and then there was a lot of uncertainty.
So there's a phase and then we had this India Pakistan definitely the results are before that. But I think the Trump effect is much more severe on the decision making at the corporate level and as well as the consumer level. So I think we are not at all disappointed.
I advised a couple of companies and we were looking at the volume and the analyst said that the volumes are down and if you talk to anybody in the company they know the volumes are down. So it is more to do with sentiment than I think the real thing and sentiments are people are holding back perhaps a little bit of consumption. People are holding back particularly at the corporate level a little bit on going for a major capex.
Govindraj Ethiraj: When you talk about volumes can you give us an example of a sector where those volumes were affected because people held back spending.
Vijai Mantri: So I work more on the fintech side. So we were looking at some broking businesses where volume has actually come down significantly compared to what we witnessed over the last three or four years. It could be people are making money one way and then post September 2024 it became very difficult to make money.
So that could be the one region then semi-regulation could be another region. So there's a one segment of the market where we witnessed that yes there has been a complete slowdown as far as volumes are concerned on stock exchanges and we have witnessed a little bit of stoppages of SIPs particularly in the month of March 2025.
Govindraj Ethiraj: Okay so if I were to look at how consumers are spending in areas like consumer products. Would you say that the current slowdown is because they are not spending or is it because their incomes are stagnant and that's something that you've been arguing as well about.
Vijai Mantri: I don't think income is stagnant. Sometimes what happens when we look at the average numbers and try to extrapolate from there the stories becomes very challenging. But I think consumption is moving somewhere else.
It is no longer the FMCGs who are the frontline guidance for what is happening at urban level or certain companies what is happening at the rural level. The consumption basket is moving. The pattern of consumption is completely moving.
So if you look at Fred Kotler's book on marketing there are four P in the product. Product, promotion, place and price. Now the place which was the distribution has completely moved from physical distribution to your palm.
And there I don't think the FMCG company had the kind of sway they had on the physical distribution. So yes consumption is happening but perhaps it's happening on tourism. It is happening on jewellery.
It is happening on medical products. It is happening on eating outs. These are the various verticals where we see consumption happening and perhaps electronic mobile phones are one of them.
Govindraj Ethiraj: You've also argued that let's say that there is really no stagnation in middle class income and that the conclusion to that extent is not accurate. So why is that? Because there are others who say that the middle class, at least if you were to look at the five lakh rupee income, has not really grown.
Vijai Mantri: We were talking about the Marcellus report which has been quoted by Financial Times and in that they compared the middle class income level from 2013 to 2023 and they concluded that in a 10 year period the middle class income grew by 0.4% only. These data in my opinion I want to say whether it's incompetence or wrong conclusion because what has happened that they have taken let's look at what base they took. They took income tax data as the base and they segregated people below five lakh into lower income, five lakh to one crore into middle income and above one crore into higher income.
Now the first question is that how can you be a group where the income level from five lakh to one crore is 20 times.
Govindraj Ethiraj: But isn't that the standard accepted definition even today?
Vijai Mantri: Not at all because how do you define a middle class? The middle class generally takes four times bigger than your national per capita income. So that number is 10 lakh.
You can't have like five lakh to 25 lakh but five lakh to one crore is a 20 time gap. This is the one part. The second part is very interesting in this report.
In 2013 people who are filing income tax written above one crore was 0.1%. Now that has moved to 0.3% so there's a three-time growth in that cohort. Now from where these people have come? These people have come from mostly and almost everybody would have come from the middle income group.
Second thing within the middle income group the total number of people was 55 lakhs. Now that number has become 3 crore 98 lakhs. So from where this 3.43 crore people came in?
These were the people who perhaps were outside the income bracket completely or majority of them were below five lakh. So when you look at these data, if you just look at the same 55 lakh people who filed income tax returns in 2013 and compared their income then you would have seen at least double digit income growth. But when your base is increased from 55 lakh to 3.98 it is six to seven times the growth in number itself. And because of that the lower middle class was 81%. Now the lower middle class become 54. The middle class which was 19% has become 46%.
So instead of saying that the middle income level has grown up the report concluded that the middle income has been squeezed out which I think is a little bit of taking too much liberty with data.
Govindraj Ethiraj: To your point that you know we've gone from 5.5 million to 39 million taxpayers. Now let me ask the question from a company and markets point of view. Is this so what your earlier point was that yes people are holding back and at this point are not really spending.
So would you say then that if we were to look ahead people who are in this cohort of earners or higher earners will spend if let's say other conditions change.
Vijai Mantri: I think it will be a little while before animal spirits come back to the economy. That's one part and because of war and the kind of geopolitical risk that is running through. The second I think more importantly we need to look at what happened to the pay commission if whenever a report comes out and what data and what kind of increases this do that will increase the consumption pattern substantially.
Third is what the private capex is going to do on whether they are going to add capacities because that will lead to more income generation in the hands of people. Right now one of the biggest employers is the IT industry and we are not getting very good vibes from the IT industry about the new hiring and the increase they are going to give to people. So this is one part but the second interesting part is related to that. Today we do not see any asset category which is cheap or undervalued or below average but be it silver, gold, real estate, debt or equity.
We don't see any segment of the market being undervalued today. So the only way the market will perform is based on the earning growth. So we'll see at least one or two quarters of earning growth challenges.
Govindraj Ethiraj: So if you were to look ahead then at this that is starting June and onwards into the next quarter. So if you're saying that almost all segments are valued well or maybe even touching over valuation then what would be your strategy at this point of time?
Vijai Mantri: So the only good part I look at is the monsoon and if the monsoon does well and the rain is even out then definitely the consumption rural economy will uplift everybody and we believe that in the next one or two quarters most dust will settle down on the tariff matter. If that happens then India will be a very significant beneficiary of that. So in my opinion till then look at consumption and not only don't restrict yourself to FMCG.
We see an interesting opportunity in the BFSI space and we also see pharmaceuticals because of the 163 billion dollar total pharma industry US total export is only 30 billion dollar and there again we don't see the kind of cloud people see. We believe after some time the cloud will settle down and you will see a much better earning growth, maybe one or two, maybe two or three quarters from now. So there's a phase where investors need to look at accumulation not at generating return.
Govindraj Ethiraj: Vijay, thank you so much for speaking with me.
Vijai Mantri: My pleasure.
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Meanwhile the back and forth on EU tariffs has sent commodity prices falling and rising gold prices fell on Monday after US President Donald Trump reversed course on his threat to impose a 50 percent tariff on goods from the European Union from June 1st and thus reducing demand for gold which is a safe haven asset. Spot gold was down to about 3329 dollars an ounce on Monday morning. Elsewhere oil prices were flat after the same extension of deadline on trade talks easing concerns about US tariffs on the block that could hit fuel demand.
Brent crude futures were around 64.70 cents a barrel according to Reuters.
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It was a tough Monday morning for many Mumbai cars with heavy rainfall with the South Mumbai Observatory in Colaba recording about 135 mm or millimetres of rainfall till 8.30 a.m on Monday according to the Indian Meteorological Department or IMD. Records from the BMC or Brihanna Mumbai Municipal Corporation show that between midnight and 11 a.m on Monday several parts of South Mumbai received over 200 millimetres of rain. On Monday afternoon the IMD upgraded its forecast bulletin to a red alert for Mumbai, Thane, Raigad and Ratnagiri which will remain in place till this morning. IMD records show that at 295 mm the Colaba observatory has recorded the highest rainfall during the month of May shattering the previous record of 279.4 millimetres recorded in May 1918 or 107 years ago. So the monsoon has of course arrived early in Mumbai marking its earliest onset in more than 70 years according to the IMD.
Usually the monsoon arrives around June 11th so we are on May 27th. The city witnessed heavy rainfall, widespread water logging and disruptions in transport and flights. The much anticipated underground metro line Aqua line 3 saw flooding at its recently inaugurated Worli underground metro station.
More on rains and Indian city preparedness coming up. Early rains however are not necessarily good news for the economy. We discussed a few days ago that they already affected summer sales for companies selling everything from air conditioners and refrigerators to beverages.
According to multiple reports air conditioner sales fell about 20% nationally in April according to a report in the Economic Times. On the other hand early rains also affect crops and cropping and could lead to supply disruptions. It does appear at this point that onion crops have been affected in Maharashtra at this point since unseasonal rains have been lashing crop growing regions for more than two weeks now.
Prices of vegetables like tomatoes have already risen and could rise further. The larger context is that inflation has been falling thanks particularly to falling food and vegetable prices having touched about 3.16 percent in April. What we are seeing now could send inflation up again apart from other challenges.
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The monsoon has made landfall as we've already talked about and the record rains in Mumbai city like before several cities including Mumbai were flooded yesterday as the record rains caught everyone off guard. Veteran economic journalist Shankar Iyer wrote in a new Indian Express column that was published just a day before Mumbai's tryst with these new records. In it he pointed out that urban India hosts about 150 Lok Sabha constituencies, is home to nearly 550 million citizens, one in three in a 1.4 billion population. Cities occupying three percent of the land area contribute 60 percent of the GDP. They are critical enablers of economic dynamism be it production or consumption of goods, provision of services and a large share of employment. Urban India also contributes the bulk of taxes be it indirect taxes in the form of goods and services taxes or in income tax receipts and yet urban India faces a flood of woes and a drought, says Iyer.
I reached out to ask him why this happens every year and whether there were any lessons we could take away this year given that we've seen all kinds of new records being set.
INTERVIEW TRANSCRIPT
Shankkar Aiyar: I had timed this piece following the pre-monsoon floods and I knew this sort of nightmare would follow. Every time you have an episode or an event in any of the cities the perfect alibi presented by the authorities is that this was a record rainfall. History of data Govind is supposed to inform planners on what is to be provided.
It is not supposed to act as an alibi. Now today's rainfall in Mumbai is somewhere around 10 centimetres. The famous July rainfall which people in Mumbai remember was 94 centimetres.
So that was nine times but it felt to a lot of Mumbai people today that this was like that and it was a huge rainfall. Every time you have a higher rainfall or every time you have a record rainfall ideally the city's planners should get together and say okay these are the spots. Now you have technology and geospatial technology is available.
You can map which areas are getting flooded and then draw plans to provide drainage there. The problem in India is that development plans are sort of 20-25 years behind schedule and I'm sure that the Bombay Municipal Corporation is functioning without an active development plan. It is also functioning without an active elected body.
For the last four years Bombay and Pune have had no elected representatives. So this is roughly the scenario we are operating on. On a larger scale India's urbanisation is that famous story of the private sector finding land, constructing buildings for residents or for offices and then the government and the authorities follow and apply lipstick on the pig because the infrastructure when it is retrofitted is never right, never enough.
I mean to make this point clear, a planned city, why do we need a planned city? Why do we never read floods in Chandigarh? That is because it is a planned city.
They provided for it. In the early era Lutyens Delhi would rarely get flooded till of course everybody got together and fixed the planning there and I mean you know Lutyens Delhi is now as prone to flooding like any other city. There are parts of old Gandhinagar which never get flooded because they were planned for.
Old New Bombay never gets flooded or at least in my recollection it didn't get flooded at least in the Charles Coria design parts because they had planned for the drainage. I live in Pune and on the main road that I live in there is not a single building that is connected to an active sewage or drainage plan.
Govindraj Ethiraj: You've also argued that you know there are funds and there are enough funds across the country. If those funds were to be put to good use then we perhaps may not face this problem. So where is the gap between the existence of those funds and the execution of projects which could alleviate some of these problems?
Shankkar Aiyar: In 2014 the BJP came up with this great plan to have 100 new cities and then it got substituted by a smart city programme which was really a dumb programme because it is not addressing or it has after nine years not addressed many of the problems that urban India faces. Here's what I think is the issue. Between the politicians and the bureaucrats they decide what is to be addressed and that is always a shiny headline grabbing transformation.
So you will hear a lot about metros, you will hear a lot about flyovers, you will hear a lot about coastal roads and stuff like that. Now of course the flooding of the Worli metro famously called aqua line sort of exposes that story a bit but the entire smart cities mission has scarcely any mention of flooding or drainage because this is not going to get them headlines. The second part of it is that even when they created another programme called Amrut, you know they constructed 1400 kilometers of drainage across 500 cities.
Average it out to know how much improvement must have arrived. The principal problem is when development projects are cleared, when developers come and say okay I'm going to put this society here, you either have an existing drainage system that they need to plug in or you compel them to provide the drainage. Neither of this happens.
So the building comes up, they sort of put up the usual stuff and wherever possible there is a drainage system but that's not connected to any city-wide system and much of the money is spent on shiny stuff. So you never get an idea of what it is spent on because the details are so fuzzy and when you find out you realise that the miniscule part of the money has gone into the most important part. I mean you can build all the metros, all the roads, all the flyovers but you can't have drainage.
I mean India is the only city in the world probably where a flyover gets flooded.
Govindraj Ethiraj: So there are no immediate solutions I get that but if you were to take one or two lessons away from the latest round of flooding because the fact that rains have arrived in the manner they've arrived and at the time at which they've arrived which is obviously early and all kinds of records have been broken, it should propel us to do something. So what could be the one or two things that we at least take away from this into the next year as a country of so many urban centres?
Shankkar Aiyar: We have technology now. So we have a programme for tracking geospatial data and use of geospatial data thanks to ISRO's launch of so many satellites. That programme is headed by Shrikant Shastri, a classmate of mine and he's working with agriculturists, town planners.
So here's what I would think that the governments would do. They should get the geospatial data on each episode of flooding, find out where to map the flood plains, where the water is getting logged, and why it's getting logged. Obviously all these cities have the maps and plans and then find out how it can be redressed or how that area can be decongested.
The second part of what they need to do is to, you know, the story of repurposing old cities is gone. I mean you can't repurpose a city that is bulging out of place. You have to build new cities and new cities, I mean you know China has done it, Korea has done it, even Egypt has done it.
So if you have to build new cities you take adjacent areas, create a smart city, create the demonstration effect, then work for, you know, revival of the old cities. There's also a part that needs to be played by the centre and the states is by actually transferring form, function, funds to the municipal bodies. Then municipal bodies need to be accountable.
In India, for instance, in Mumbai, all the elected representatives have to come together on at least some common minimum programme and say, okay this is not what we're going to allow. I suspect that's a conversation that has never happened but we always hope as Voltaire said, we hope we never live, we live in the hope of living.
Govindraj Ethiraj: Shankkar, thank you so much for joining me.
Shankkar Aiyar: Thank you, Govind.
