Uncertain Markets Brace For Fresh IPO Supply
The markets, not surprisingly, are weaker and will now be hit with a fresh round of liquidity-draining initial public offers
On Episode 640 of The Core Report, financial journalist Govindraj Ethiraj talks to Pallavi Bakhru, Partner and India-UK Corridor Leader at Grant Thornton Bharat.
SHOW NOTES
(00:00) The Take
(05:00) Uncertain markets brace for fresh IPO supply
(06:49) TCS is downsizing, to reduce 2% of its workforce.
(08:35) India and the UK have a trade deal. What does it mean beyond cheaper scotch
(18:12) The US Federal Aviation Administration says no mechanical issue with Boeing 787 fuel switches
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 Monday, the 28th of July, and this is Govindraj Ethiraj, broadcasting and streaming weekdays from Mumbai, India's financial capital, but in transit right now for a few more days. So our episodes will be slightly shorter, but hopefully sweeter.
The Take
At seven feet, six inches, Yao Ming is one of the tallest and most famous basketball players in the world. He played for the Houston Rockets from 2002 to 2011 and was an eight-time National Basketball Association star in the United States, and he's Chinese. A well-known China affairs researcher remarked the other day that China is like Yao Ming.
It looks like a giant and can be intimidating, but is actually gentle and soft-spoken, unlike many basketball players, particularly in the United States. Of course, bringing the giant too hard and the response might not be so gentle, and that was the researcher's point. Not everyone would agree with this characterisation, of course, but it echoes sentiments I've heard before.
Last week, India made several moves demonstrating a desire to embrace this gentle giant. The government approved a joint venture between Delhi-based Dixon Technologies and Chinese electronics company Shanghai Longchair Technology. The partnership would create a new entity in India with Dixon holding a 74% stake, Longchair holding 26% through its Singapore arm.
And the new venture will manufacture something that we all need, a range of electronic devices, including smartphones, tablets, smartwatches, and automotive electronics. Now, Longchair also supplies brands like Samsung, Vivo, Xiaomi, and Oppo, and the joint venture ought to boost domestic electronics manufacturing. Now, last week also saw the lifting of restrictions on Chinese nationals applying for tourist visas to India.
Another thaw, seemingly again, in India-China relations, which had deteriorated sharply following the border clashes in 2020 or five years ago. Now, there have been other steps announced between India and China in recent weeks in terms of mutual exchanges and so on, but we will, of course, have to see how and where that goes. Now, the Longchair joint venture is an interesting development because it suggests that China seems to be now comfortable with its electronics majors or companies partnering with Indian companies to manufacture, which may primarily serve the domestic market for now, but could also be exported.
Now, this did not appear to be the case even a few weeks ago after Foxconn pulled out engineers working at its iPhone factories in India, mostly in and around Chennai, slowing down Apple's efforts to build alternative manufacturing bases. More than 300 Chinese workers had apparently left and mostly support staff from Taiwan remained in India, according to a Bloomberg report, which also said that this affected training of local staff, which was critical, and the operation of some machinery. The same report said that earlier this year, China had verbally encouraged regulatory agencies and local governments to curb technology transfers and equipment exports to India in an effort to prevent companies from shifting manufacturing elsewhere.
The joint venture between Dixon and Longchair, which would arguably require blessings from both sides and the lifting of tourist visa restrictions, suggests that relations are better this week, which of course is the point. The highly unpredictable nature of geopolitics over the past year has made doing business more challenging. Indian businesses, for example, have been actively lobbying the government to ease off on China for several months now.
Some of that effort may have contributed to the thaw that we're seeing. The question is, will it last? Now, that might be the hope, but there is no guarantee, especially since there is no clear starting point to return to. It's not just China.
The United States wants India firmly in its corner against China or else face the consequences, and the U.S. position on India's recent border conflict with Pakistan is illustrative. Meanwhile, the August 1st deadline set unilaterally by the United States for signing tariff deals is fast approaching. Progress has been made by all accounts and on all sides, but it's not clear how close we are to a functioning agreement, which once again highlights the point that a business deal struck today in seemingly good times could unravel or be forced to unravel quite literally tomorrow.
It is no surprise that businesses across the world want governments to be more accommodative when it comes to trade and business in general. Whether they will succeed or to what extent remains to be seen. It does appear that some individual businesses with stronger lobbying power are cutting side deals even in the United States, and that's not a healthy sign.
Back to India, there is still some distance to cover. Direct flights, for example, between India and China are yet to resume, and TikTok continues to be banned, but I'm not sure anyone is complaining about that.
And that brings us to our top stories and themes.
Uncertain markets braze for fresh IPO supply.
TCS is downsizing to reduce 2% of its workforce or almost 12,000 employees.
India and the United Kingdom have a trade deal, but what does that mean beyond cheaper scotch?
And the U.S. Federal Aviation Administration says there is no mechanical issue with Boeing 787 fuel switches, at least at this point.
Markets Brace For Fresh Supply
The markets, not surprisingly, are weaker and will now be hit with a fresh round of liquidity-draining initial public offers. Back to last week, the markets closed at a one-month low on Friday, also marking their longest weekly losing streak so far in 2025, according to Reuters.
Now, the reasons are broadly known and range from tariff uncertainty to weak earnings. And this is, of course, the opposite, by the way, of what's happening on Wall Street, where benchmarks are hitting record highs day after day, tariffs or no tariffs. On Friday, the Sensex was down 721 points to 81,463, and the NEC Nifty 50 was down 225 points to 24,837.
This was the fourth consecutive weekly decline for the benchmarks. In the broader markets, the Nifty mid-cap index was down 1.6%, the small cap was down about 2%. According to Reuters, 11 of the 16 major sectors declined for the week, with IT, oil and gas, and consumer goods leading the fray, with weak earnings, of course, continuing to be in focus.
Meanwhile, get ready for a supply shock. Some 14 new offers with a combined fundraising target of over 7,000 crore rupees, or just under a billion dollars, including the National Securities Depository Limited IPO, will hit the market this week. The rupee is also on a downslide, falling to a one-month low on Friday and logged its third straight weekly decline.
So, foreign investors have been sellers in India in 9 of 10 previous trading sessions, and that is, of course, putting pressure. The rupee closed at Rs 86.51 against the US dollar on Friday, down about 0.4% for the week, and had hit a low of Rs 86.62, the weakest level since June 23, according to Reuters. The dollar index is, I guess, broadly steady, about up 0.2% to 97.7, and Asian currencies, however, were weaker.
TCS Downsizes
Data Consultancy Services, or TCS, has said it will lay off about 2% of its workforce, or 12,260 people, as it focusses on becoming a more agile firm in an era of AI-led business transformation, according to reports on Sunday. Now, that number is small in contrast to its workforce of a little over 600,000 people, but that reversal in trend is significant since it does suggest a move from slowing down on hiring, which we saw in the last year, to now actively reducing its workforce size.
Now, this is a reflection of the business uncertainty we've been referring to and seeing, but also the impact of artificial intelligence, particularly on entry-level jobs in IT. TCS has embarked on a journey named Project Fluidity, under which it's looking to put senior managers or consultants on the bench if their performance is deemed unsatisfactory by their superiors, according to a Business Standard report. Now, this obviously is referring to senior managers or consultants and not entry-level jobs, and perhaps that suggests how there is risk across various levels in the organisation.
The company said in a statement that TCS is on a journey to become future-ready, and that includes strategic initiatives on multiple fronts, including investing in new tech areas, entering new markets, and deploying AI at scale for clients, and creating next-generation infrastructure.
A New India-UK Trade Deal
India and the UK have a trade deal that's taken about 15 rounds of negotiations over three years. India will, among other things, cut duties on imported British vehicles, which could technically increase competition here.
Indian farmers could access the UK's roughly $37 billion agriculture market, and exporters will benefit from zero tariffs on goods, including textiles, furniture, gems, footwear, machinery, auto parts, and chemicals. The General Secretary of the Tirupur Exporters Association, representing Aperol Manufacturers, told Reuters that with zero tariffs, India's garment exports to the UK could double in three years. Ajay Srivastava, founder of the Global Trade Research Initiative and a former trade negotiator, and also a frequent guest on The Core Report, told Reuters that this is a policy shift, especially as India has long used high tariffs to protect domestic manufacturers.
India has also seemingly stuck to its red lines in the deal, making no concessions on agricultural items such as apples and walnuts or dairy products, including cheese and whey. The US deal, which is of course still under negotiation, also has similar red lines from the India side on agriculture and dairy products. This is also India's first comprehensive trade pact with a European country, and from the UK side is apparently one of the most ambitious since it left the European Union.
Bilateral trade between the two countries stands at nearly $56 billion, and that agreement, or rather this agreement, is expected to double the figure in five years. I spoke with Pallavi Bakaru, partner at consulting firm Grand Thornton Bharat and leader of its India-UK corridor practice, and I began by asking her if the time taken to construct this deal was normal.
INTERVIEW TRANSCRIPT
Pallavi Bakhru: There are a couple of reasons, you know, why this has taken long. FTAs, for one, are not easy to negotiate because, you know, there are sensitive issues when it comes to reducing trade barriers. And while it sounds very easy to say that, you know, you can cut tariffs and, you know, create greater market access, but there's a lot of sensitivities domestically for both countries when they're trying to negotiate these things.
But I think we also need to be cognisant of the fact that, you know, the UK went through a couple of changes of governments while this was being negotiated. So, you know, every time there's a change of guard, a new set of people come in, the negotiations have to, in some ways, begin again. And also it's the magnitude of what they've been wanting to cover.
So, I mean, India has traditionally had FTAs with, you know, usually the ASEAN countries. I mean, you'll hear a lot about the FTA that you had with Thailand. We've also got one with, you know, Australia and Japan.
But we've never negotiated anything of the magnitude that we're looking at now with the UK in terms of people, you know, the diversity of the products and the level of market access that we want to give to each other. So it's also been unique in the sense, it's being considered as one of the best FTAs that's been negotiated with any of the Western countries. It's been in the making for a while.
Govindraj Ethiraj: So it's a long list and it spans products, services, including stuff like whisky and so on, which is incoming. What would you say are the two or three things that stand out for you or stand out the most in terms of impact economically or otherwise?
Pallavi Bakhru: I think one thing that would probably stand out for me is the focus on MSMEs. Interestingly, MSMEs contribute like 30% of our GDP and contribute to 45% of our exports. And MSMEs again are a big backbone of the UK economy as well.
So if you look at the list of things where India is going to get access to the UK, you know, it's stuff like leather goods, handicrafts, textiles, gems and jewellery. So I think that's a great initiative on the part of both the countries to create more access for the MSMEs on either side. So I think that's going to be a big one because I mean, if you look at it from an India perspective, these are labour intensive industries.
And, you know, if you can get them greater market access, you're making them more competitive by, you know, giving them an opportunity to compete at a global level. And as we've seen in the past, every time we've opened up our markets, our industry has only sort of risen to the occasion and become better and more competitive. So I think it will be MSMEs.
The second interesting highlight of these FTAs, the accent of a lot of software issues like climate, sustainability, circular economy, a lot to do with gender, you know, promoting women-led enterprises and startups. There is stuff on anti-corruption, which again, you know, is very, very encouraging. And I think, you know, if you can bring that kind of transparency within our trade facilitation ecosystem, I think it will be a huge leg up for us.
So I would imagine these two would probably be the two significant differentiators.
Govindraj Ethiraj: Right. So when you say MSMEs, how do you describe that? So for example, let's say in areas like apparel or gems and jewellery, these are MSMEs mostly who are exporting to the UK and of course other countries as well.
So what's the distinction here?
Pallavi Bakhru: So it's the same MSMEs. It's not going to be a separate set of MSMEs. Now, if you remember in the last budget, the government had also enhanced the limits for being considered an MSME.
You know, there were certain thresholds, like for micro it was two and a half crores, for small it was 25, and for medium 125 crores. And this was a very significant move. The idea was because, you know, people want to be MSMEs because there are a lot of benefits available to MSMEs.
But by the same token, you don't want them to not be competitive, not have the best practices, or have access to technology because of being too small. So the thresholds were raised through the Income Tax Act. And now by giving them greater market access, you know, you, I mean, there's just so much you can do domestically.
I mean, we know we have a good amount of consumption that's available for them because of the population that we are. But there's a lot of reliance on exports as far as MSMEs are concerned. And a lot of the world is becoming very inward looking, you know, currently, the way the environment is.
So I think it's a great step to open up a market for the MSMEs, which are very labour intensive. And as I said, they're a significant contributor to our GDP.
Govindraj Ethiraj: Right. So if you were to look at what's incoming, what is the timeline that you're seeing in terms of the duty reductions and so on? I mean, it says, I mean, I see the statement says it's immediate, but what is immediate?
And some of it is really over 10 years. So what could be the, from a consumer point of view, what is the realistic impact that I could see?
Pallavi Bakhru: So really, I mean, you know, if I pick the three main areas from the UK accessing the India market, one of course is whisky and gin, which created a lot of excitement, you know, among some of the connoisseurs of single malt. But really what they're saying is it'll go down from 150% to 75% right away. And it'll eventually go down to 40% over a 10 year period.
Now, you know, when the final print comes, we know how that gradual reduction is going to happen. Similarly, on the automotive side of things, they're saying that it's going to go down from 110% to 10%. But again, over a period of time, and there's also a nice subtext, which says subject to quota lines.
This is very interesting. And I will make a comment that, you know, quite often, whether FTAs succeed or don't succeed is also a function of non-tariff barriers. And, you know, there are things like quota lines and things like those.
So it needs to be seen, except cosmetics and toiletries, where there's a 22% tariff right now. They're saying that's going to come down to zero immediately.
Govindraj Ethiraj: So quick one on that. So when we say immediate, does it mean immediate, like in the month of August, or is it going to go through other cabinet approvals and so on?
Pallavi Bakhru: Absolutely. Absolutely. So the way it works is from the India end, it needs the approval of the union cabinet, which has already happened.
But from the UK end, it actually needs a parliament approval, which means both the House of Lords and the House of Commons have to approve the bill. So that's going to take time. The estimate is anything towards the end of the year or early part of 2026 is when this will become effective.
So it's still some time away. People are not going to get cheaper tomorrow or anytime soon. It's towards the end of the year or maybe, you know, early part of next year, depending on how it goes with them.
As I said, the process is more long-drawn at their end than ours.
Govindraj Ethiraj: Right. Last question. So we've got negotiations going on with the United States as well.
There's an August 1st deadline hanging, which is obviously next week. I mean, is this a template of any form that can inform or give us an insight into what the India-US deal could be? Or maybe there's no connection at all and it's really the US which is deciding many of those things.
Pallavi Bakhru: It's difficult to comment, Govind. But, you know, I think one, looking at it from the outside, I mean, I'm not privy to any of the inside conversations, but from the outside, there are two things that stand out. I think one is it puts us in a comfortable position having signed such a large FTA with a country as significant as the UK.
But having said that, you know, one can't overlook the fact that our trade with the US is far larger than that with the UK. I mean, just to put some numbers there, our trade with the UK is around $56 billion. And with the US, it's $118 billion.
The numbers we're talking about are very different, but, you know, that's one negotiation which I think is going to be largely driven by one personality. So it's very difficult to say where it's eventually going to land. But I think just having negotiated one would put us in a good space.
Like all negotiations do, you know, when you have one success, it just puts you in a better place to negotiate the second one.
Govindraj Ethiraj: Right, right. Pallavi, thank you so much for joining me.
Pallavi Bakhru: Pleasure, pleasure. Thanks so much, Govind.
The Fuel Switch Conundrum
More than a month has passed since the Ahmedabad air crash, and there are no technical advisories on the components that could have led to that crash, being those fuel switches that have been much discussed. Without getting into further interpretations on whether the crash was caused by manual intervention or a technical failure, it would appear that Boeing is walking a tightrope, particularly if it were to be established later that there was a technical flaw and it did not put out advisories to all airlines, which clearly it has not. Earlier this month, both the Federal Aviation Administration, or FAA, of the United States and Boeing privately issued notifications saying that the fuel switch locks on Boeing planes were safe.
The head of the FAA said on Thursday that the fatal crash of that Air India Boeing 787 does not appear to have been caused by a mechanical issue or inadvertent movement of the fuel control unit or switches. Brian Bedford, the FAA administrator, told Reuters on the sidelines of an airshow in Wisconsin in the United States that they could say with a high level of confidence it does not appear to be a mechanical issue with the Boeing fuel control unit. He also said that FAA employees had taken the units out, tested them, and had inspectors get on aircraft and review them.
He said that they feel comfortable that this is not an issue with inadvertent manipulation of fuel control. The crash in Ahmedabad killed 241 of the 242 people on board. There was one miraculous survivor and 19 on the ground also died.
And this is believed to have been triggered by the shutting down of fuel control switches of the Boeing 787 just moments after its takeoff. Air India said last week that it completed precautionary inspections of the fuel control switch locking mechanism on all Boeing 787 and 737 aircraft with no issues detected. A preliminary report from India's Aircraft Accident Investigation Bureau or AAIB, which has been criticised quite sharply earlier this month, said that the switches had almost simultaneously flipped from run to cut off shortly after takeoff causing the engines to lose power.
