US Markets Roil after Negative GDP Growth
The Indian markets were mostly range-bound on Wednesday as investors remained on the sidelines ahead of a market holiday
On Episode 570 of The Core Report, financial journalist Govindraj Ethiraj takes you through the biggest stories in business and manufacturing.
SHOW NOTES
(00:00) The Take
(07:33) US markets roil after negative GDP growth
(09:51) GST collections hit all time high in April
(11:38) Oil is back around $60 a barrel
(14:17) Investors are now selling US corporate bonds
(15:56) Two Indian companies including Adani scrap ambitious chip manufacturing plans
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 Friday, the 2nd of May, and this is Govindraj Ethiraj, headquartered in Broadcasting, as well as streaming from Mumbai, India's financial capital.
The Take: It's A Tough Road Ahead For Business Leaders, Entrepreneurs, And CEOs
Jeff Immelt, former CEO of GE, or General Electric, and the man who succeeded Jack Welch, told me in an interview some years ago that it was not a CEO's job to try and stargaze on how countries would evolve their policies or industrial policies.
I think business people spend too much time worrying about the government and cajoling the government. Our job is to be the reactor to whatever is happening and be good at it, he told me. Immelt's words ring true for any business leader, including in India today, for two new reasons.
Business leaders are usually used to grappling with maybe one or two significant variables at any point of time. One is always the marketplace and the competitive forces driving it. The other is a company's internal teams, finances, overall gearing, including state of infrastructure, technology, and plant and machinery where applicable.
Now, there are two more elements in the mix, which in some ways have overshadowed the above two. Tariffs are obviously one. CEOs are now saying that they are unable to provide guidance on upcoming financial results as the factors in their control are not so much in their control.
Take examples like Mercedes-Benz, Stellantis, General Motors, Delta Airlines, Snap or Snapchat, and American Airlines, amongst many more, who've all said that they are unable to provide guidance, a critical input in normal times for analysts and the street in general. The second is artificial intelligence. The pressure to bring in AI to drive business efficiency and competitiveness is rising in intensity almost by the day.
Companies in information technology, whether product or services, are already saying they can do more with less. Microsoft CEO Satya Nadella said on Wednesday that almost 30% of the code in his company is now written by artificial intelligence. C.
Vijay Kumar, CEO of IT services, major HCL Infotech, told me in an interview a few weeks ago that the industry had to transition from an input-centric model to an outcome-centric model, which means the whole idea of equating people with revenue growth is obviously not tenable anymore or is less tenable. But more businesses are now being forced to explore the use of AI within their businesses, and no business seems to be exempt. Clinical trials, patent filings, and drug research and development in pharmaceutical companies is gathering speed because of AI.
Consumer product companies are using it to make distribution systems more efficient, and that's just one example. The Economist magazine pointed out last week that from ports like Rotterdam and power companies to steel manufacturers and mining companies, AI is driving efficiencies in traditional businesses like never before. Rotterdam port uses AI software to analyse several dozen factors tracking vessels, port emissions, and estimated arrival times.
Software has helped Shell, an oil giant, reduce idle time affecting departures of barges and bulk shipments across all ports by 20%, the Economist reported. AI is a fast-moving technology that can alter competitive landscapes quite dramatically as we're beginning to see and will see more of. But this is still something business leaders and boards are in a better position to proactively respond to, including the big challenge of galvanising their internal teams for change.
But the external threat of tariffs is not easy to respond to and many businesses, small and large, have or are expressing helplessness, mostly because of the suddenness of it all. If you go by Wall Street or the large street, it's evident that the markets are breathing sighs of relief for every minor concession that President Donald Trump makes, like the latest one for automotive manufacturers, even as there is collective hope that the problem will somehow disappear. This is also evident in how Indian manufacturers have been reacting in parts to the 90-day pause in tariffs, or by pointing out that the tariffs India will face will be lower compared to China and Vietnam, and that obviously leaves India at a comparative advantage to export to the United States.
Now, at a macro level, we also rightly take some comfort from the fact that India is more of a domestic economy and thus more protected from tariff tantrums. But here is where the big challenge lies. Should companies hope for return to normalcy or move forward that there will be no normalcy anymore?
Just like AI is forcing a new internal normal, tariffs are forcing a new external normal, one in which there is no guarantee of price protection or market access like before. Also, that the past logic of market stability does not hold when political imperatives are shifting so dramatically where the United States can declare friends and foes as economic enemies overnight. Could it happen elsewhere too, and could it get worse?
The US has responded with protection and a seeming thrust towards local manufacture, seeming because the arguments in favour are not clear to most at this point. Now, there is nothing to say that there will not be similar waves of political response to domestic politics in other markets and countries. Will business leaders have to think of only local manufacture with market proximity?
And if so, will it make sense everywhere? If not, how do they plan ahead? Will old business models and industries hold true?
China is effectively facing a trade embargo given the levels of duties it is facing for exports into the United States. At these levels, does it even make sense for Chinese companies to manufacture toys or other home goods for export or move out of these sectors like toy making altogether? One way to see it is that the capacities for many of these export-led industries only came up or scaled up in the last 20 years or so.
Maybe the economic argument for their continuance is weakening. This is the question facing CEOs and entrepreneurs. For example, the Adani Group has paused discussions with Israel's Tauer Semiconductor for its $10 billion chip project following an internal evaluation by the Indian Group.
Among other problems, it's not clear what is the demand or the market for these chips, which hopefully would have included overseas exports as well. Zoho, an Indian software company, has also suspended a year-long pursuit of a $700 million plan to expand into chip manufacturing. Zoho apparently struggled to find the right technology partner required to advise it on complex chip-making processes, sources told Reuters.
And more on that in a moment. Many large businesses who had a grounding, for example, in industries like textiles, including some of India's largest conglomerates from Tata's to Birla's to Reliance, mostly got out of it or went up the value chain, or it's now a very small part of their overall business. Business leaders and entrepreneurs have to face and are facing a similar reckoning now, in which they have to decide what to drop and discard forever, like the Adani Group perhaps has discarded chip-making, at least for now.
And, of course, focus on a new future. There was something else that Imel said to me, and this was in 2019, that's before COVID, by the way. He said that, I think businesses just have to be more flexible, they have to be adaptable and local, or more local than they were before.
He said that we have to know that people are counting jobs, whether you're in India or the United States or China or Europe, people care about where the work gets done and we need to be facile around that. So we've gone from an era where business people didn't have to worry about where work got done to an era where business people have to care about where work gets done. It's not a bad thing or a good thing, it's just what it is.
And that brings us to the top stories and themes.
Indian markets are range-bound.
On Wednesday, U.S. GDP takes a big hit.
Global investors are now selling U.S. corporate bonds.
Oil is back to around $60 a barrel.
Two Indian companies, including Adani, scrap ambitious ship manufacturing plans.
And GST collections hit an all-time high in April.
The Markets Are Range-Bound
The Indian markets were mostly range-bound on Wednesday as investors remained on the sidelines ahead of a market holiday that was Thursday. That's May 1st and Maharashtra Day. Speaking of holidays, the next market holiday is in August on India's Republic Day, so that's a while away.
On Wednesday, the Sensex was down 46 points to 80,242, while the NSE Nifty 50 was down just two points at 24,334, hence the term range-bound. In the broader markets, the Nifty Small Cap 100 and the Nifty Mid Cap 100 were both down between about 1.5% and a little under 1%. The Nifty Realty Index was amongst the biggest gainers on Wednesday, followed by the Pharma Index, which also gained about half a percent.
Meanwhile, gold prices are now down nearly 2% to a two-week low on Thursday, thanks to signs of easing trade tensions, which boosted risk appetite and reduced gold's appeal, while a stronger U.S. dollar also weighed on prices, says Reuters, adding that spot gold was down to about $3,222 an ounce. That's on May 1st afternoon. The dollar index is also up at about 0.3%. Meanwhile, a spate of solid corporate earnings pushed U.S. stocks higher in overnight trading, which led to major indices being on track for an eighth straight advance, and most of the losses suffered after the tariff announcements on April 2nd are now almost wiped out. Contracts on the S&P 500 were up on Thursday morning, while Nasdaq futures and Dow Jones futures were also up. But the economic news was not good. The U.S. economy has contracted in the first three months of 2025, thanks to a massive import surge as the country stocked up GDP, which is a sum of all the goods and services produced from January to March, fell at a 0.3% annualised pace, which means it was negative 0.3%, according to a Commerce Department report, and this was the first quarter of negative growth since Q1 of 2022, according to CNBC. And the interesting thing is that economists surveyed by Dow Jones were expecting a gain of 0.4% after GDP rose by about 2.4% in the fourth quarter of 2024. That's a year ago.
GST Collections Hit A Record
India's GST collections, or goods and services tax collections, rose about 12.5% annually to an all-time high of 237,000 crore rupees, or 2.37 lakh crore rupees in April, according to data released on Thursday. The April 2024 GST number was 210,000 crore rupees, or 2.1 lakh crore rupees, which was the second highest since the rollout of GST on the 1st of July, 2017. The GST figure for March 2025 was 1.96 lakh crore rupees, or 196,000 crore rupees. GST revenue from domestic transactions were up about 11%, while revenue from imported goods, that's your customs duty mostly, was up about 21%. India car sales are looking weak. Three of India's top four car makers reported weak sales to dealers in April, according to data on Thursday reported by Reuters.
Maruti Suzuki, the market leader, saw a 0.6% year-on-year increase, while Hyundai Motors and Tata Motors saw a 12% roughly, and a 5% roughly decline. Mahindra and Mahindra was the only big gainer, reporting a close to 28% in monthly sales, thanks to strong demand for its XUV3X0 model and its Thar sports utility vehicle. Now, these four companies represent roughly 80% of the market, which saw about 4.3 million car sales last year. India's auto sector represents about 7% of GDP, and India's GDP is largely projected to be going below 6.5% for 2024-2025, which is lower than the 9.2% in the previous year.
Oil Prices Fall
Oil prices fell on Thursday, after Saudi Arabia, the world's largest crude exporter, said it could raise production, along with data showing a contraction in the US economy, the world's top oil consumer. Brent crude futures went down to below $60 a barrel on Thursday, and are quoting around $60 a barrel right now. A UBS analyst told Reuters that the oil market remains concerned about weakening oil demand growth over the coming months due to trade tensions, as well as a faster unwinding of OPEC Plus production cuts.
Sources also told Reuters that Saudi Arabia is telling allies and industry experts that it is unwilling to prop up the oil market with supply cuts and can manage a prolonged period of low prices. That last line, which is that it can manage a prolonged period of low prices, is quite telling. Several OPEC Plus members will suggest the group accelerates output hikes in June for a second consecutive month, other sources have said.
All of this, of course, has to be seen in the additional context of the fact that the US economy has contracted for the first time in three years. A Reuters poll also suggested that Trump's tariffs have made it probable that the global economy will slip into a recession this year. Kepler, the analytics firm whose analysts also appear on the core report, has lowered its 2025 global oil demand growth forecast from 800,000 barrels per day to 640,000 barrels per day.
Airline costs will rise. Oil prices may fall and have fallen already, and that's welcome news for countries like India, but for airlines like Air India and Indigo, the closure of Pakistan's airspace is going to be a problem. Reuters is reporting that Air India expects to face around $600 million in additional costs if a ban from Pakistan's airspace lasts for a year and has asked the government to compensate it for that hit in the form of a subsidy.
A letter seen by Reuters says, Indian airlines are now looking at higher fuel costs and also longer journey times, which means more crew support after Pakistan shut its airspace. Air India has a 26.5% market share in India, flies to Europe, the United States, and Canada, and crosses Pakistan's airspace in that process, particularly flights going out of New Delhi and the northern part of India. Air India also operates more long-haul routes than Indigo and also has larger aircraft.
Reuters quoted data from Sirium, which said that Air India, Indigo, and Air India Express had roughly 1,200 flights combined from New Delhi scheduled for Europe, the Middle East, and North America in April.
U.S. Corporate Bonds Are Now Under Stress
European and Asian money managers are losing some of their appetite for lending to U.S. companies as trade wars heat up in a sign that's worrying for corporate America, according to Bloomberg. Investors outside the U.S. have turned into net sellers of corporate debt in the first half of April after the tariff tantrum started. Now, that's according to data tracking direct flows compiled by Goldman Sachs strategists and quoted by Bloomberg.
The selling also comes after OECD investors made record purchases of U.S. corporate debt in 2024, though official data shows the demand slowing in February, according to Citigroup. Around 30% of U.S. corporate bonds are owned by foreign investors, according to economists at Polar Global Management, and if those buyers continue pulling back and U.S. money managers don't step in to make up the difference, risk premiums on debt will have to widen, a credit strategist at TD Securities told Bloomberg. They also said that some of the rhetoric out of Washington towards foreigners and the fact that the U.S. imposed massive tariffs on all countries and that alone can lead to a decision to maybe not put all your eggs in one basket. Bloomberg also said that investors do have global mandates, which means they would continue to buy U.S. corporate debt, even if they pared back. But for now, many investors appear to be on the fence about the U.S. corporate bond market, and it's very hard to invest in this environment, a Goldman Sachs analyst said, and what will matter for the next two or three months is really assessing the magnitude of the damage that was done to the economy from this significant dose of uncertainty, which means the damage is already done and the effects of that will continue to be seen for some time.
Adani Pulls Out Of Chip Making
Possibly there are several reasons, but you cannot ignore the fact that Trump's tariff moves have created uncertainty for businesses and projects across the world. We've already been hearing statements from various analysts about how Indian companies are holding back even more on capital expansion.
And here's the latest. Indian conglomerate Adani has paused discussions with Israel's Tava Sememiconductor for a $10 billion chip project as it did not make strategic and commercial sense for the group, Reuters story is saying. The state of Maharashtra in September had announced approval for Adani and Tava to set up a facility to produce 80,000 wafers a month and create 5,000 jobs.
The Adani group had previously said the project was being evaluated, but talks with Tava have now been put on hold after their internal evaluation apparently found there was still uncertainty about how much demand, especially in India, the business can generate. It was more of a strategic decision and the group evaluated and decided, let's wait, sources told Reuters, adding that it could resume, but at a later stage. Meanwhile, another Indian software firm Zoho also suspended its one-year-long pursuit of a $700 million plan to expand into chip manufacturing.
Its co-founder said, confirming a Reuters report, and Zoho apparently struggled to find the right technology partner required to advise on complex chip-making processes, one source familiar with the matter told Reuters. Though between the two, Adani would have definitely been a more serious contender, given the fact that it has large infrastructure and plant and machinery expertise and processes. Though between the two, Adani would have been a more serious contender, given the fact that it is a large manufacturing conglomerate with large manufacturing plants, including in areas like cement, in many parts of the country.
NVIDIA Says China Is Not Behind
NVIDIA's CEO, Jensen Wang, said on Wednesday that China is not behind in artificial intelligence and that Huawei is one of the most formidable technology companies in the world. While speaking to reporters at a technology conference in Washington, D.C., he also said the gap between China and the United States is minimal. Huawei is currently developing its own AI chip for the Chinese market, and Wang said the company, that's Huawei, has made enormous progress in the last few years.
The United States has implemented more restrictions on shipping NVIDIA chips to China, particularly H20 chips, without proper licensing. NVIDIA is also the world's leading maker of GPUs, which are in high demand because they can be used to speed up AI networks. NVIDIA has argued that restricting chip sales to China and other countries threatens U.S. technology leadership, and presumably there's a lesson in all of this too.
The Indian markets were mostly range-bound on Wednesday as investors remained on the sidelines ahead of a market holiday
