Why Indian Markets Are Recovering Now
Most economies in the world are on actually a fairly strong footing as are company results, contrary to expectations
On Episode 722 of The Core Report, financial journalist Govindraj Ethiraj talks to Ajay Srivastava, Founder at Global Trade Research Initiative (GTRI).
SHOW NOTES
(00:00) Stories of the Day
(00:50) Why Indian markets are recovering now
(03:14) Goldman upgrades India, reverses October2024 downgrade
(05:41) Quality Control Orders and the unease of doing business
(17:21) More action in India’s weightloss drug space
(18:24) Indian restaurants in New York are facing tariff pains
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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 [email protected].
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Good morning, it's Tuesday, the 11th of November and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.
Our top stories and themes…
Why Indian markets are recovering right now.
Goldman upgrades India, reverses and October 2024 downgrade.
Quality control orders and the unease of doing business.
More action in India's weight loss drug space
And why Indian restaurants in New York are facing tariff means.
It's Earnings Growth
The big theme right now is earnings growth. We will come to India in a moment but this is a global story. As we pointed out earlier as well, most economies in the world are on actually a fairly strong footing as our company results contrary to expectations of a tariff impact across the board.
Corporate America's profit growth remains robust. In fact, companies in the S&P 500 index that have reported earnings to the third quarter, about 80% of the index by market cap have grown the bottom line by close to 15%, effectively doubling what analysts were expecting according to a Bloomberg report, which also says that even with all the macroeconomic headwinds, which increasingly include the effects from the longest government shutdown on record, analysts have been raising their expectations for fourth quarter profits according to that report, which adds that the momentum of earnings revisions, which measures the ratio of upgrades versus downgrades, is hovering near the highest level since the week of April 11th according to Bloomberg intelligence data. What this suggests is that Wall Street believes in companies' ability to deliver stronger results over the next year.
The presiding theme right now, of course, is the U.S. government shutdown, which looks like it could end and thanks to which global shares rose on Monday and government bond yields rose and the dollar steadied. Meanwhile, in the U.S., airlines cancelled more than 2,800 flights and delayed more than 10,200 on Sunday, in the third day of government-mandated flight cuts due to rising air traffic control staffing shortages after thousands of delays and cancellations on Saturday, according to Reuters. Meanwhile, everyone is watching carefully for signs on how long and how strong the AI frenzy will last.
Any letup in that will affect stock prices and flows worldwide, including India, though India may benefit positively, but that also depends on who you ask. Bloomberg is reporting that Taiwan semiconductor manufacturing company, that's TSMC, has reported slowing growth in monthly revenue, even as industry biggies like NVIDIA are chasing more chip supplies. The company posted a 17 percent rise in sales for October, which seems high, but that's the slowest pace since February 2024.
And that brings us to India. The major indices snapped a three-session losing streak on Monday, thanks to those positive cues that we referred to earlier. But more importantly, the domestic earnings story is looking stronger and we will have an exclusive interview on this theme tomorrow, so stay tuned.
Meanwhile, Goldman Sachs has upgraded Indian markets back to overweight a year after downgrading to neutral and estimated a 14 percent jump for the nifty by the end of 2026, thanks to strengthening earnings momentum and policy tailwinds supporting growth, according to Reuters. So therefore, as we said, Goldman has reversed its October 2024 downgrade and is now looking at a 2026 year-end target of 29,000 for the nifty 50. The index has risen about eight and a half percent this year, but that lags other emerging markets, which of course have had one of their strongest years.
The Sensex on Monday closed up 319 points to 83,535 and the nifty 50 was up 82 points to 25,574. The broader markets nifty mid-cap index was up 0.47 percent and the nifty small cap index was up 0.3 percent. And gold prices are inching up again.
They were up 2 percent on Monday, hitting the highest level in two weeks, thanks to economic data, which raised expectations for a Federal Reserve rate cut next month and a softer dollar provided more support to gold. Spot gold was up about 2 percent to $4,078 per ounce Monday morning, hitting its highest since October 27, according to Reuters. Unemployment Falls India's unemployment rate fell to 5.2 percent in the July to September quarter from 5.4 percent in the previous three months, thanks to increased rural employment during the farming season and a rise in female participation, according to the periodic labour force survey or PLFS released by the Ministry of Statistics.
Now, this survey covers about 564,000 people and has estimated that there are 562 million employed persons in that quarter. The overall labour participation rate or labour force participation rate rose to about 55.1 percent from 55 percent in the previous quarter. The female participation rate was up to 33.7 percent from 33.4 percent, continuing an upward trend in women's engagement in the workforce, according to Reuters.
Import Barriers
A global trade research initiative analysis has argued that policies meant to help India's steel industry are actually exacerbating structural weaknesses and hurting small players instead of helping them. The analysis was responding to a government official's argument earlier last week that steel prices, which had fallen to five year lows, were forcing nearly 150 small producers to shut down and another 50 to halve output.
GTRI quotes the government official saying government intervention through import duties and quality control orders was essential to protect domestic manufacturers from dumping and substandard imports. Now GTRI is arguing that the current crisis is not driven by cheap prices or imports, but rather by import restrictions themselves. The QCO or the quality control order regime has come in for a fair bit of criticism by Indian importers and industry and has restricted access to imported inputs, compelling smaller firms to buy domestically at high, often monopolistic prices set by a few dominant producers, according to GTRI.
And GTRI further says that many large steel companies are posting abnormally high profits and there is no real injury to them. The GTRI says the supply scarcity caused by these orders and not low prices is forcing many small enterprises to shut down. So the issue of import duties on steel came back into prominence after the government imposed 12% safeguard duty on steel imports.
The steel industry has been saying for a while that they've been hit by dumping from China where factories have been running at cost or even below cost. However, GTRI's point is that imports account for less than 8% of India's steel consumption and most of these are specialised grades not produced domestically. The issue it says lies in policy overreach, the combination of safeguard duties and expanding QCOs has raised input costs, created uncertainty for downstream industries and weakened export competitiveness.
Now one of the other problems that's been pointed out by GTRI and others including economists and trade watchers is compliance testing which is expensive and time-consuming and that affects smaller importers more than perhaps others because compliance testing means the testing has to be done physically and on location and that could be somewhere overseas as well. I reached out to Ajay Shrivastava, founder of the Global Trade Research Initiative and I began by asking him what needed to be done to ease the QCO burden on Indian importers.
INTERVIEW TRANSCRIPT
Govindraj Ethiraj: Mr. Srivastava, thank you so much for joining me. So, a high-level committee headed by a NITI Aayog member has reportedly suggested scrapping or deferring more than 200 quality control orders issued under the Bureau of Indian Standards Act. This is according to a business standard report that appeared yesterday.
Now, the number of products used to be less than 100, but 10 years ago there are more than 800 and I've just talked about steel and your GTRI's comments as well on So, what is the way forward? How do we make this work?
Ajay Srivastava: Govind, I'm very happy with the NITI.io recommendations. Of course, I have not read the full report because it's still not in the public domain. But I read bits and pieces of it from LinkedIn and other sources.
It shows that industry was suffering. Government is responsive. Government is not blind to the concerns by industry.
And government has come out with the recommendations, I mean, in the form of NITI.io, this report. And the recommendations are very straightforward, no-nonsense recommendations. I have to see how much of these are being implemented.
Govindraj Ethiraj: In an ideal world, what would it mean? So, for example, to use the illustration of steel, which you had also written about earlier, and importing steel inputs for, let's say, downstream steel users in India, and the challenges of, let's say, doing the on-site quality testing or certification, and so on. How would these new rules apply, if so?
Ajay Srivastava: Three, four things were hurting the industry very much on quality control orders. One, you know, earlier, the licencing regime was there. Anybody who could meet the conditions could import.
No more for the QCOs. QCOs, the BIS officer will decide which of the Indian party will be importing from which of countries, say, China's one particular factory, who will supply. One factory can be allowed.
Another factory, neighbouring factory, may not be allowed without any rational justification. So, what was happening was, on the Indian side, that many of the MSMEs, they were sourcing from a particular factory, and those factories were never registered by the BIS. But some of the largest steel pumps, they were sourcing from, say, Indonesia-based JV, and they were allowed.
What was happening was that even imports were always democratised in the country. Anybody who meets the conditions can import. With QCO, selective people were allowed to import.
That was the basic problem, in my eyes, which was hurting the industry. Some of the big guys, they were importing, and they were selling the same material after some processing to the MSMEs after hefty margins. So, that was the basic problem.
Another problem was, you know, the steel industry has gone too far. Even for the products on which they have not notified QCOs, they said, you have to come to us for taking NOCs. We will certify this product is not under the QCOs.
So, there are 10,000 steel grades world over. They notified QCOs for 1300. For the 10,000 minus 1300, also, everybody has to come.
So, goods were coming. They were lying at the port, incurring damage. People were suffering.
And their systems were half the time not working. And all these things, they were hurting. So, people went to the court, Madras High Court.
They stated the steel industry order. Case went to the Supreme Court. It referred to the Chennai High Court.
I think looking at all these, government took cognisance of this and came out with this report.
Govindraj Ethiraj: Right. Now, if we are saying that there are more than 800 or thereabout quality control orders, obviously, that means a very wide lineup of products. Is there an 80-20 rule here, first of all, like most products are of a certain kind and would be covered here?
The committee, they just met at the beginning.
Ajay Srivastava: We have 790 QCOs which are already being implemented. Committee selected only 208. How they selected?
They did not touch upon the finished products. They touched upon the raw materials, intermediates and capital goods, the machinery part only. They left aside the finished goods part.
Because world over, no country, no US, no Europe, no Japan, they apply QCO type regulations on the raw materials or intermediates. It's always on the finished goods. With India, we have gone across the stretch and applied on raw material intermediates.
And rightly so, this committee has focused on this most absurd part of the QCOs and recommended them to be knocked out.
Govindraj Ethiraj: If assuming these 200 or 208 are indeed removed, so how much of imports could be freed up potentially?
Ajay Srivastava: Products, people who are making them in India, they are two of the largest industries, very influential industries. And basically QCOs were helping them. So they will be going all out to ensure that most of the recommendations of the committee are not implemented.
So government has to see not to come under any pressure, evaluate the recommendations and see what can be implemented. But I get from here and there that already process is on to dilute the recommendation, implementation of the recommendation part. So government has to ensure.
Second thing is the committee has given a timeline. By 15 November, most of these have to be suspended or revoked. The timeline looks slightly premature, because if government has to take call without considering, it's all right.
But if government has to consider, because these will impact large amount of production, I'll give you just one example, synthetics. Now, synthetics story is, you know, world garment industry, 70% of it is synthetics or mixed fabric. But our exports are only 30% synthetics, 70% cotton.
World is reverse. That's why we are nowhere in the winter wear market. Very sparse presence is there.
Why? One of the reasons is restrictions like this. This alone is not responsible.
Many other factors are there. But one of the reasons is that you don't allow, say, garment makers to import the fabric freely. Bangladesh, extra industry, no debt.
All they allow is that, okay, you import quality fabric from Vietnam or China, from wherever you want. India, we don't allow. This QCO ensures, earlier anti-dumping duties were there.
They are thankfully gone, but now QCO is gone. So this ensures that India's presence in the synthetic sector is minimal. So I am sure if these are removed, and not only removed, as an investor, I should get the confidence and our word from the government, these will not be bought back for the next, say, 10 years.
Else I'm not going to invest in this. So not only you have to remove, you have to assure me, these are gone for some time. Then only investment will start taking place.
One particular sector, textile sector, will flourish. I mean, it will get a lot of impetus by just removing these QCOs and a few other conditions. And this same applies to steel and many others.
Govindraj Ethiraj: So on the example of synthetics, I assume you mean man-made fibre. Are you saying that basically the import is being blocked to some extent by domestic manufacturers, even if that were the case, and domestic prices are higher of synthetic fibre or man-made fibre, why is it that the apparel industry cannot use that? Or is it so uncompetitive?
Ajay Srivastava: Suppose I am making garment using polyester fabric, then for importing polyester fabric, the factory from which I'm buying, they have to be BIS certified. If BIS is not certifying them, or is taking time to certify them, then the local manufacturers will jack up the price for that. And industry will be forced because of the scarcity of the imported item, to buy at a higher price.
If you buy raw material at a higher price, your finished goods will be at a higher price, and you can never be competitive. In the domestic market, that's one of the issues. So one of the uses of QCOs is to restrict the choke imports.
And then I can raise my prices of the inputs, and which domestic industry will be forced to buy from me. Else, without the QCOs or lower duties, they will be importing straight, as Bangladesh or Vietnam is doing.
Govindraj Ethiraj: Last question. So suppose we were to start from scratch, and maybe rewrite the laws here, what would be your primary recommendation or set of recommendations?
Ajay Srivastava: So I say QCOs are very important for any country to ensure quality, consumer health, consumer safety. But look at what we have done. We were almost zero.
I mean, less than 70 QCOs by 2016. Less than 8-9 years time, we added 700. And sometimes we didn't do any study.
We just notified. I am privy to some of the developments while I was in the government. Quotas were there for each ministry to implement so many QCOs.
They have to be done on a fast-track basis. We forget that a continent like the European Union, they take 5-10 years to notify one QCO. They do all sorts of studies, big consultations.
After that, only they do it. And that's why they survive. Here, we have done with little preparation.
So I say QCOs are needed. But we have to look at them at 360 degrees. Whether they are for helping one particular industry or they will be benefiting the country.
If they're benefiting the country, they're most welcome.
Govindraj Ethiraj: Mr. Srivastava, thank you so much for joining me.
Ajay Srivastava: Thank you, Govind.
Weight Loss Drugs
India's largest selling drug by value is now a weight loss drug which was nowhere in the charts six months ago and this is Monjaro as we pointed out yesterday. Now Novo Nordisk has partnered with India's MQR Pharmaceuticals to exclusively distribute and market its weight loss drug under a new brand in India according to the companies on Monday. Under the agreement Novo Nordisk, a Danish company, will sell Povitra 2.4 mg semaglutide injection in India as a separate brand than its other weight loss treatment Vigovi.
Novo Nordisk launched Vigovi in India in June, three months after Eli Lilly launched Monjaro which like we said is the top selling weight loss drug and the top selling drug by value in India. Now Vigovi's 2.4 mg dose is priced at about 26,000 rupees for a month supply and the pricing for Povitra has not been revealed as yet. Last month Eli Lilly also partnered with Cipla to sell its weight loss drug under a separate brand in India according to Reuters.
New York Food
The 50% on tariffs from India into the United States are hitting New York restaurants. Chef and restaurant operator Salil Mehta, founder of Fungi Hospitality Group which includes grilled meat specialists Kabab or Sharab on the Upper West Side of Manhattan told Bloomberg that he has seen the wholesale price of a 40 pound bag of basmati rice climb from $30 to $45.
Similarly a 500 gramme pack of chilli powder that was about $7 now costs him about $10.50. The other problem according to him is that Indian and Asian restaurants are more vulnerable to these cost increases because they suffer from the stigma of being cheap cuisine. According to him people don't mind paying $35 for specialist pasta but there's a different perception that Indian food should be cheap already. Thanks to which Mehta like other restaurateurs are increasing prices at Lungi which is a South Indian and Sri Lankan dining room on the Upper East Side.
Prices for rice lentils and spices like ginger and garam masala are going up. Another restaurant Passerine in the Flatiron district one of the few Indian tasting menu restaurants in New York is also fighting higher prices. A bag of Arhar brand dal that was about $62 earlier is now $82.
Ghee is up from $150 to $220 and they say that as a new restaurant and an Indian restaurant we haven't felt that we have the wherewithal to raise prices. We know the impact that it can have on covers.
