Why Markets Are Directionless Again
It was another day of seesaw in the stock markets as fresh queues disappeared
On Episode 686 of The Core Report, financial journalist Govindraj Ethiraj talks to Garima Kapoor, Economist & Executive Vice President at Elara Securities (India) as well as Ajay Kedia, Director at Kedia Advisory.
SHOW NOTES
(00:00) Stories of the Day
(00:50) Why markets are directionless again
(08:20) Silver has already risen 50% this year and why it could go further?
(14:12) Automakers are reporting big sales numbers on first day of new prices
(16:20) Why a look at India’s remittance economy is important in the context of the new H1B rules
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 Wednesday the 24th of September and this is Govind Rajathiraj broadcasting and streaming weekdays from Mumbai, India's financial capital,
Our top stories and themes.
Why the stock markets are directionless once again.
Silver has risen more than 50% this year and why it could go further.
Automakers are reporting big sales numbers on the first day of the new prices and the festival season.
And why a look at India's remittance economy is important in the context of new H-1B rules.
Swinging Markets
It was another day of seesaw in the stock markets as fresh queues disappeared in some ways and the markets were weighed down by an overhang of tariffs and H-1B visas.
Nevertheless, they did recover towards the end of the trading session and only closed marginally lower. The Sensex, which hit a low of 81,777 during the day, closed finally at 82,102, which was lower by 57 points, and the Nifty 50 closed at 25,169, down 32 points. The broader market, the Nifty mid-cap 100 index was down 0.3%, the small-cap 250 index was down 0.5%. Elsewhere, markets from the United States to Taiwan are hitting record highs and we'll come to that in a moment.
Meanwhile, stockbroking firm Jefferies has said that software services and outsourcing, India's signature growth engine since the late 1990s, is giving away to a new one. Over the next decade, the firm expects wealth creation to shift decisively towards hard assets, airports, ports, hospitals, homes, hotels, real estate, and renewables as India pours capital into building its infrastructure backbone, according to a report in Mint. I guess what they mean is, India will continue to pour as it has been in the last few years.
Jefferies' analyst said that the only thing India was missing and that every investor has always pointed out is infrastructure and that now we are at the point or the cusp of infrastructure upgrade. So what services have been for the past 20 years, I think hard assets will be for the next 10 to 15 years for institutional investors, the analyst told Mint. Meanwhile, all three major indices to return now to international markets closed at an all-time high in the US, marking three consecutive winning sessions for the S&P 500, according to CNBC.
Nvidia shares jumped about 4% thanks to an announcement from the chipmaker that it would invest $100 billion in OpenAI, the company for the build-out of data centres. Meanwhile, the euphoria around artificial intelligence may have led to the biggest bubble yet in private technology investing. AZ-BC founder and managing partner Jack Selby told Bloomberg, sounding warning bells, that a correction in valuations was imminent.
Consumers, he said, were getting used to AI services at pennies on the dollar of what they actually cost now, he said in an interview with Bloomberg TV in Singapore. And he said that at some point, it's going to have to be priced at cost and probably with some margin. While that time isn't here yet, it'll be here soon enough.
And he also drew comparisons, as others have been, to the dot-com bust 25 years ago, pointing at the glut of AI companies, big and small, across the planet. And then gold prices hit a fresh record high on Tuesday. Thanks to increased expectations of further U.S. rate cuts, it rose to $3,784 per ounce after hitting a fresh record high of $3,790 an ounce on Tuesday.
According to Reuters, physical gold premiums have risen in India, that is, to a 10-month high this week as record prices in the festive season continue to spur investors to buy bullion in anticipation of further gains, says Reuters. The report also said that India and China are driving up gold rates to some extent, though, and spot silver has risen to about $44 per ounce, which is near a 14-year high. Elsewhere, Jefferies, who we spoke of in their shift to hard assets from, I guess, soft assets, spoke of gold at $6,600 an ounce, which, of course, sounds fantastic right now, but you never know.
It's already up 50% this year and more on silver as well later. The rupee fell to an all-time low thanks to the tariff and H1B visa overhang, which could, disrupt service exports, and fell to Rs.88.79 per dollar, closing at Rs.88.75 per dollar, down 0.5% of the day, which is its steepest drop in nearly a month, according to Reuters, which added that the rupee has fallen more than 3.5% this year, making it one of the region's worst performers. A foreign bank's head of forex and rates trading told Reuters, corporate hedging has effectively anchored volatility and cited a recent trade where a major public sector firm hedged dollar exposure with forwards and sold dollar rupee call options.
Corporate activity in dollar rupee options, Reuters said, has surged about 70% to $73 billion between January and August, compared to the same period last year. This market was less than $20 billion five years ago, Reuters data said. And now, oil prices, which we've really not referred to in recent days because it's been mostly steady, is just under $68 a barrel now.
But speaking of oil, The Washington Post is reporting that Reliance Industries purchased about $33 billion of oil, or worth of oil, from Russia since the invasion of Ukraine in February 2022, a previously unreported sum that accounts for about 8% of Moscow's crude sales over that period, according to the newspaper. Now, Reliance has not violated any sanctions, actually it's done it, with the blessings of the US, at least the previous administration, nor has it done anything illegal at this point in buying this oil. But the jump is definitely noteworthy.
In 2021, before the conflict, Reliance bought about $85 million worth of Russian oil. And the next year, the figure rose to about $5.5 billion and kept rising after that. Now, Russia, according to figures quoted by the Washington Post from the Centre for Research on Energy and Clean Air, has exported about $410 billion worth of crude oil since the invasion of Ukraine.
And while China is Russia's largest consumer or customer, India has been the leading buyer of seaborne Russian crude since 23. So, what CREA says is that Reliance is $33 billion against the total figure of $410 billion worth of crude exported by Russia is quite large for one company.
China Is Dumping Aggressively
China's exports are leading to a record $1.2 trillion trade surplus despite all the tariff threats and exports are now heading to other countries, according to a detailed Bloomberg report.
Indian purchases hit an all-time high in August, shipments to Africa are on track for an annual record, and sales to Southeast Asia have their pandemic-era peak, according to Bloomberg. And that across-the-board surge is causing alarm bells overseas as governments are weighing the damage of these low-cost imports into their countries against what their domestic industries are facing. Mexico has raised tariffs as high as 50% on Chinese products, including cars, auto parts, and steel.
Indian authorities have received 50 applications in recent weeks for investigations into goods dumping from countries like China and Vietnam, according to an official who spoke to Bloomberg. Indonesia's trade minister has pledged to monitor a deluge of goods after viral videos of Chinese vendors touting plans to export jeans and shirts for as little as 80 cents to major cities caused an outcry. We did talk about some of the challenges that Indonesia is facing in a conversation with Priyanka Kishore of Asia Decoded last week, who's based out of Singapore, and we touched upon the challenge that Indonesia faces because many factories have shut down because of Chinese imports there.
Silver Hits New Highs
On Monday, silver crossed about 136,000 rupees per kilogramme, though prices can vary slightly from city to city. So far this year, silver prices have gone up about 47,000 rupees per kilogramme or about 52% from about 89,000 rupees per kilo on December 31st, 2024.
Now, while silver prices have been rising almost in tandem with gold and are up close to 50% this year, the question of course is, where could it go? So silver demand continues to be driven by industrial users, which was not there in previous years, and continues to drive it today. I spoke with Ajay Kedia, commodities and metals analyst in Mumbai, and I began by asking him why silver prices were rising like this and where it could go.
INTERVIEW TRANSCRIPT
Ajay Kedia: Like we said, gold has already rallied but silver is now picking up its rally. Already we have seen in YOY around 55% rally has been seen in silver. The major reason is, first of all, whatever the supporting things for gold is supporting for silver also.
But over and above, industrial demand is now picking up. Even with the ETF, we have heard Saudi has added silver in the reserve, Russia is adding reserve, so I think industrial demand I would say is a measure which is supporting silver more.
Govindraj Ethiraj: So if you look at overall types of demand, is industrial demand the key new driver?
Ajay Kedia: Yeah, see in 1980 also we saw silver prices went to the level of $50 internationally in 2011 also. At that time the industrial demand was very negligible. Other investment demand or we can say other demand has been there.
But in 2022 to 2025, we will see extreme demand from EV, solar panels. This new demand has emerged in the market and supply side we have seen in the last 3-4 years, nothing has been added. Even the CAPEX story has been slightly lacklustre only.
Because of that there was a demand supply gap and as a result we know 55% gain in the last 1 year period.
Govindraj Ethiraj: And is there anything that has dramatically changed in the last 1 year?
Ajay Kedia: In the last year, a major shift was from the central bank. Up till now we have heard the central bank was eyeing gold. But last year from Russia, this year from Saudi, the statement that they can add, already they have purchased silver also.
So I think that was first of all a bigger shift. And secondly, as an investor, one ratio we call the gold-silver ratio was very attractive. In the last 50 years, we have never seen this ratio beyond 90 levels.
Right now the ratio is around 85-85-50. That clearly suggests silver is underperforming as compared to gold. I think one side industrial demand, second side silver has underperformed gold, makes a good bet for silver.
Govindraj Ethiraj: So you're saying at this point, it's still quoting below what it could ideally quote in relation to gold?
Ajay Kedia: In the last 50 years, we have seen a ratio as low as 30 and high as, let's say, 90-92 and currently the ratio is 85, which shows silver is currently very undervalued as compared to gold, first of all. Secondly, the demand is totally new. In the last 2025, we have never seen demand from EV, solar, this type of industrial demand.
That has been my first choice as a silver and last would be the ETF. Because in 2006, with the iShare ETF launching, we saw the rally to the 50 level mark. And this time from 2020 the Indian market has started with the ETF buying.
Even last month, we have seen a good inflow in ETFs.
Govindraj Ethiraj: Right. And how are you seeing demand now at these prices, including in countries like India, for, let's say, jewellery or other non-industrial uses and whether that will make any difference?
Ajay Kedia: See, if we see the demand from industry is going to be there because of the use case of silver in EV, solar panels are going to be there. But in respect to the jewellery demand or investment demand, maybe we can see some pause over here because when we talk about investment demand, one will definitely look for a return. Already the gain of 55% in any asset class is going to be a very high side.
So maybe a little bit of consolidation or some pullback may be possible. That could be a great level to reenter. But I think investment demand can be slightly paused from here.
But industrial demand or we can say consumption demand is going to be continued for silver.
Govindraj Ethiraj: Right. And how are you seeing the overall outlook for, let's say, the next year? I mean, do you see the pace of price rise continuing?
I mean, good thing. I mean, you did say that we will see some resistance now. But if you look at it over a period, let's say one year or plus.
I'm very much bullish.
Ajay Kedia: See, there are three things we have to understand. Up till now, silver was not in a critical metal side. Critical, we can say, the mineral side.
The US this year included platinum and silver in a crucial metal list. After that, only we have seen the demand has upsurged for silver because now for industrial use, silver has been highly used. Secondly, the investment demand.
Up till now, we have always used silver as a consumption part, like in jewellery or making for coins and bars. But now, with the introduction of the ETF, people now understand that silver can be bought as an investment also. So I think these two things are going to be a game changer for the silver outlook.
As of now, ETF family offices are very well placed for silver. So I think for the next couple of years, maybe this time we can reach the $50 mark, which we saw in 1980-2011. And as per our calculation, maybe we can see a level like 70-72 if we see a downturn from here to two and a half years.
Govindraj Ethiraj: Ajay, thank you so much for joining me today.
Car Makers See A Sales Bump
Maruti Suzuki, India's largest car manufacturer, has recorded retail sales of more than 25,000 units on Monday, expecting to touch 30,000. It also said it received around 80,000 customer enquiries on Monday in a report in the Economic Times, which looked at how lower prices and festive demand were driving additional sales. All of these numbers appear to be record numbers for a single day.
But of course, this is an unusual period because remember that between August 15th and September 22nd, that's the day before, there was a clear slowdown in sales as customers waited for lower rates to be revealed. Maruti Suzuki also said demand for small cars has been especially strong with bookings growing by nearly 50%. And they told the Economic Times that enquiries were high and they could even run out of stock for certain variants and dealers are staying open late into the night to deliver cars to customers.
Tata Motors said that it saw 10,000 deliveries on Monday on the first day of implementation of GST and it received more than 25,000 enquiries on the same day. Hyundai said that it saw 11,000 dealer billings on the first day of Navratri, marking the highest single-day performance in the last five years. Even pre-owned cars saw a huge surge, including presumably in terms of sales.
Most auto stocks including Maruti, Hyundai, M&M, Aisha, Tata Motors, and Hero were up almost 5% on Tuesday, according to the Economic Times report.
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Speaking of vehicles, India's Tata Advanced Systems Limited, part of the Tata Group, has opened a new plant in Casablanca on Tuesday to produce armoured combat vehicles in a move that dovetails with Morocco's recent efforts to grow a domestic defence industry, according to a Reuters report. The facility will make 8x8 wheeled armoured platforms, WHAP, vehicles for the Moroccan Army and for export across Africa.
The statement has actually come from the Moroccan government. The plant is expected to source about 35% of its components locally with plans to raise it to 50%, says the Reuters report.
Decoding Remittance Flows
Economists at HSBC have estimated that 5.4 million Indians in the US cumulatively send back about $33 billion in remittances to India every year, according to a Reuters report.
There are about 80,000 new visa applicants each year, including presumably the H-1B visa applicants. If they were to not get entry, remittance flows could fall by about $500 million, they said in a Tuesday note. The risk is that more restrictions on services exports follow, and the lowering of the 50% tariff takes longer than markets are factoring, says the report.
What could be the knock-on effects of the H-1B visa fees, including lower earnings in the near term, thanks to potentially lower personnel on ground for particularly Indian IT services companies? I spoke with Garima Kapoor, Chief Economist for Elara Securities, and I began by asking her how she was looking at remittance flows in the context of the recent H-1B visa imbroglio.
INTERVIEW TRANSCRIPT
Garima Kapoor: So, the immediate impact of this should be probably felt from next year onwards because the rule of the hike in fee does not apply for the approvals that have already been given for this year's H-1B visa applications. However, what does this do is on a broad basis, if you anticipate companies to rely less on H-1B visa programme, roughly India's delivery model for IT services exports is that 50% goes from GCCAs, another 35% is contributed by offshore which is by the company setups in India, another 50% is contributed by what you hire through H-1B visa on site. Now, assuming that over a period of time, this 15% is what will get impacted because you will also take time for this 50%, 15% to gradually be distributed among other options like GCCA enlargement or the better services through offshore model.
The broad consensus and the number that we're working with is roughly that we have about 400,000 H-1B visa applicants from India every year, assuming 110,000 average or a median salary for the entry-level, tech-heavy role. Then at a 10%, 20% or 30% impact, assuming a disposable income of 10% being sent to India or 20% or 30%, we're looking roughly at 4 billion to about 13 billion impact in terms of inward remittances into India. Now, taken as a percentage of total remittances that India receives, these are pretty large, about 10% to 30% of the total gross remittances that India receives annually.
Govindraj Ethiraj: From the US?
Garima Kapoor: No, annually across the board, not just from the US. So, we receive about $135 billion worth of gross remittances. So, if the impact of H-1B visa is such that you will hire lesser people on site, then you can have an inward remittance impact of anywhere between 4 billion to about 13 billion, depending on what is the percentage of disposable income that we assume is being sent back home into India.
So, as a percentage of gross remittances that India receives, this is anywhere between 10% to 30%. And as a percentage of India's GDP, which will matter then to your current account deficit, this is anywhere between 10 basis to 30 basis point.
Govindraj Ethiraj: Right. And you're assuming this is on a zero basis, right? That means if let's say no one goes, it could be 13 billion or what's the band that you're looking at?
Garima Kapoor: Yes. So, assuming that over a period of time, you are likely to reduce your reliance, then the worst case impact that you're looking at will range between 4 billion to about 13 billion is what the estimate is. As you mean, this is a stock that is being targeted.
In any case, as US as a geography becomes less attractive for let's say tech heavy or super skilled individuals to emigrate, then the number of people also that would like to choose US as an opportunity for education will also get impacted, which in some ways will have a positive impact on your current account because that would increase your outward remittances if you're abroad. But this takes into account only the impact, 100% impact if let's say the reliance on H1B visa was not taken into consideration. Depending upon how much is the reduction that you eventually see in terms of the number of visa applications from India, of course, the eventual impact would be 50% of what number I quoted or 25%.
But that will happen over a period of time.
Govindraj Ethiraj: Right. And just to go back to the other figure that you mentioned, you said 15% is your onshore revenue, which means what? Are you saying that these 100,000 engineers generate 15% of India's exports?
Garima Kapoor: That's right. So out of a total IT service exports, your delivery model is 50% concentrated into GST and 35% offshore, which is what happens out of India. And the remaining 15% probably is onsite through which you take H1B visas.
Govindraj Ethiraj: So if you take a company like TCS or any company which has a reasonable export exposure, what would their figure for onshore, which is US onshore revenue be like?
Garima Kapoor: So onshore revenue out for large companies like TCS could be even more because remember that the second largest user of H1B visa applicants. But what I'm talking about is industry as a whole.
Govindraj Ethiraj: Right. But if they don't have onshore engineers or onshore representation, does that mean that that revenue disappears or it just transfers?
Garima Kapoor: No, over a period of time, ideally the revenue should transfer. So assuming that you continue to operate out of the US because your client demands so. So there will be some absorption that will be felt in terms of cost.
So it will reflect your margins. A part of the cost would also be taken up by the tech companies because their reliance on Indian IT service providers is high. But assuming that over a period of time, because this model has been evolving ever since the visa costs have been rising and this has been a pattern for the last few years, the reliance of IT service providers on the onshore model has been reducing.
So safe to assume that the ambit under which the GCCs are being set up in India, the ambit of the services that GCCs in India deliver could increase. So this 15% could get over a period of time distributed between GCCs and offshore, while some may continue as a strategic reason to continue to operate. But safe to assume that this will see some bit diversification.
So the eventual impact should not be the entire 15% of loss of revenue.
Govindraj Ethiraj: Right. Last question. So if I were to expand this now and ask you about the overall remittance economy, are you seeing any impact of this on the overall remittance economy or is that going to chug along as before?
Garima Kapoor: Over a period of time, given that the US contributes 28% remittances of India and given the way US administration is moving towards becoming more and more closed in terms of allowing immigration, even high-skilled immigration, they're clearly putting a price to basically skilled, super skilled, super skilled labour. So naturally the preference might reduce unless other countries have the absorptive capacity or tech sector in other countries, particularly European or otherwise an absorptive capacity to be able to absorb the kind of STEM graduates that India produces each year, you could see some bit of disruption in the shorter term. But having said that, another sizable, about 17% to 18% of India's remittance inflows come from the Middle East and about 10% comes from the UK.
So long as the economic outlook of these countries does not look very significantly impacted and so long as we do not see a significant crash in oil prices, for example, we should not see a very negative impact from the rest of the sources of India in world remittances. But yes, once the decision in terms of hiking H1B visa fees does look to be disruptive in nature, which could actually change the course in which we have understood or we have US as a geography has evolved for absorbing India's tech graduates.
Govindraj Ethiraj: Garima, it's been a pleasure. Thank you so much for joining me.
Garima Kapoor: Thank you.
