Will Strong Reliance Results Shift Market Mood?
Volatility took hold on the last trading session last week with indices slipping further
On Episode 639 of The Core Report, financial journalist Govindraj Ethiraj talks you through the top news stories in business. We also feature excerpts from our recent interviews with CS Randhawa, President at the Federation of Indian Pilots (FIP), Captain Sam Thomas, President at the Air Line Pilots’ Association and Adosh Sharma, Country Commercial Manager at IKEA India.
SHOW NOTES
(00:00) Stories of the Day
(01:09) Will strong Reliance results shift market mood?
(04:53) Chevron to take over Hess as mega oil deal concludes
(06:07) In tense times, a Niti Ayog report says India should allow more Chinese direct investment
(07:32) The AI171 crash investigation is flailing. What needs to be done next
(18:41) IKEA’s secrets on what Indian homes want
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 21st of July and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital, and now in transit. I will be in transit for another eight or nine days and will not be regular with The Core Report's morning edition. I may resume intermittent broadcasts from the weekend, but our weekend editions are of course there.
Meanwhile, our top stories and themes for this morning,
Will strong reliance results shift the market mood.
In tense times, a Niti Aayog report says India should allow more Chinese direct investment.
Chevron to take over Hess as a mega oil deal concludes.
The Air India 171 crash investigation is flailing, what needs to be done next?
IKEA secrets on what Indian homes want.
A Volatile End To A Week
Volatility took hold in the last trading session last week, with indices slipping further.
There's been some amount of foreign institutional investor selling, global uncertainty around US Federal Reserve policy, and of course, the chair of the Federal Reserve himself. The Sensex was down about 501 points on Friday at 81,757 and the Nifty 50 was down 143 points at 24,968. The broader markets, Nifty mid cap 100 down 0.7%, Nifty small cap 100 down 0.8%. So let's look at the results now.
Reliance Industries, which was the big result last week, reported a better than expected 78% in first quarter profits on Friday, thanks to both a growth in key verticals, and I'll come to that, and profits from the sale of a steak it held in Asian paints, which you may not have known or may have forgotten about. Reliance's main oil to chemical segment saw improved refining margins and petrochemical demand, while its retail and digital services arms also pulled in strong performances. Other income was up about four times to 15,000 crores roughly in the June quarter, and about 8,900 crores from the sale of that Asian pain steak.
Consolidated profit for Reliance was at about 26,994 crore rupees in the June quarter, up from about 15,000 crores a year earlier, which was ahead of analyst estimates of about 19,859 crores according to LAC data quoted by Reuters. To give you a sense of scale, Reliance retail and Jio, which are the newer businesses, now represent about 45% of the company's revenue. Earnings before interest tax and depreciation from its Jio platforms was up about 24% year-on-year, which was the strongest amongst all its segments, while retail was up about 13%.
The telecom unit, that's Jio Infocom, saw a 23% rise in net profit and revenue, rose 16.6%. Reliance also said it was on track to set up its planned gigafactories in the next four to six quarters and that, once operational, the business would be self-sustaining without requiring further investment. Elsewhere in the banking space, HDFC Bank and ICICI Bank also beat estimates in their results declared over the weekend. Gold prices are holding just below 100,000 rupees per 10 grams and silver is about 113,000 rupees per kilogramme.
Crude oil prices are a shade below 70 dollars and there's not been much movement and, if so, only upwards. The action has been in the big deals, as we will come to shortly. Amongst other trade developments, India and Britain are expected to seal a long awaited free trade deal next week, according to government sources who spoke to Reuters, which will give Indian textiles and electric vehicles duty-free access to the UK market and, of course, allow duty-free imports of whisky, cars and food from Britain.
Now, the reason this story is important is because it also gives you a sense of the time it takes for these things to kick in. The deal was announced in May when both countries announced the conclusion of trade negotiations after three years of stop-start negotiations and now they are preparing to formally sign the agreement and could coincide with India's Prime Minister, Narendra Modi, who's supposed to or likely to visit London next week, according to officials quoted by Reuters. However, the trade pact will still take effect in about a year after it's approved by the British Parliament and India's Cabinet.
Interestingly, in April, a large garment exporter to the UK had told us precisely this, that it would take time and while agreements may be signed now, for the actual tariffs to kick in would take a while and it does look like it may take about a year. But consumers, that's Indian consumers, would gain access to scotch whisky at lower prices as import tariffs will drop to 75% from 150% immediately and about 40% over the next decade.
Big Oil Gets Bigger
An arbitration panel cleared the way for Chevron, the oil major, to complete a $53 billion purchase of Hess, dismissing ExxonMobil's claim that it had a contractual right to bid for Hess's crown jewel assets in Guyana, according to the Wall Street Journal. Chevron originally struck the deal for Hess in October 2023, but Exxon stymied Chevron's plans when it asserted a right to pre-empt its rivals' bid for Hess's 30% stake in Guyana's prolific Stabroic offshore block. According to the Wall Street Journal, Chevron had argued a right to first refusal on that project and said it wouldn't apply to the corporate takeover of Hess.
With a 45% stake in the Guyana project, Exxon operates vessels that are currently pumping about 650,000 barrels of oil and the oil companies aim to produce about 1.2 million barrels daily by 2027. That would make Guyana a country of 800,000 people into one of the world's largest oil producers by capita. Chevron CEO Mike Wirth said in an interview that it's been a long process, but it did not need to be.
And it's unfortunate that Hess employees and shareholders were put through such an extended timeline. It should have been resolved quicker. The outcome was never in doubt.
Easing The Way For Chinese Investments
Niti Aayog, the government think tank, has reportedly proposed easing rules that de facto require extra scrutiny for investments by Chinese companies, arguing that the rules have meant delays for sizable deals, according to sources who spoke to Reuters. Currently, all investment by Chinese entities in Indian companies need to be cleared by both in the home as well as foreign ministries.
Niti Aayog has proposed that Chinese companies can take a stake of up to 24% in an Indian company without an approval being required, sources told Reuters. Remember, this is a proposal by Niti Aayog. Niti Aayog's proposals are of a recommendatory nature, but do reflect official thinking, at least in some parts of government.
Now, India and China are seeking to mend ties that have been particularly frosty and strained since the border clashes in 2020. Any decision to ease might be months away and will be taken by political leaders, according to sources who spoke to Reuters. They said the industries department was in favour of easing, but other government bodies are yet to give their final view.
It is, of course, clear and well established that economic decisions will follow strategic ones, and all of this might take time.
An Update on Air India
The Air India crash investigation preliminary report has led to considerable criticism of the handling of the report's language.
At this point, more is known about what happened, but not why. Meanwhile, the United States National Transportation Safety Board Chair, Jennifer Harmendi, said on Friday that recent media reports on the crash of an Air India Boeing Dreamliner that killed about 260 people were premature and speculative. A preliminary investigation released last week by India's Aircraft Accident Investigation Bureau suggested there was confusion in the cockpit just before the crash and raised questions about the engine fuel cutoff switches.
A cockpit recording of a dialogue between the two pilots of the flight supports the view that the captain cut the flow of fuel to the plane's engines, Reuters reported on Thursday, citing a source familiar with the U.S. official's early assessment of evidence. It did not, of course, say why. G Aerospace, Boeing, Air India, India's Director General of Civil Aviation, and the AAIB did not respond to requests for comment from Reuters, but Harmendi did say in that post that investigations of this magnitude take time, something everyone concurs, and that the NTSB will continue to support AAIB's ongoing probe.
I spoke with Captain C.S. Randhawa, President of the Federation of Indian Pilots, a former Air Force and then commercial pilot who has also worked with the Director General of Civil Aviation, and Captain Sam Thomas, an active pilot, President of the Airline Pilots Association, now flying private jets, but earlier rated and flown multiple aircraft ranging from Boeing 737s and 787s at Jet Airways.
INTERVIEW TRANSCRIPT
Govindraj Ethiraj: You know, from what I can sense, there is a lot of divide within the pilot community about what happened. So, one set clearly, as both of you are aligned on this, believed that it was an electronic failure. There is another set, maybe more of them are sitting overseas, as is being alleged.
They seem to feel that it was pilot confusion, pilot error, and so on. Both are pilots. I mean, this is just a logical question.
I mean, why would pilots point a finger to themselves, and what would they gain by, let's say, supporting a manufacturer, and why is there such a divide? So, it has upset most of the pilots.
CS Randhawa: I will tell you why. Because tomorrow, whether you are in India, whether you are in America, or Ethiopia, or Australia, when you travel by air, you can think as a passenger that, okay, these pilots keep playing with the fuel controls, they may cut off the engines. Okay, you'll be scared a lot.
You are by these actions, please understand, Emperor Ashoka crashed off the Bombay High, pilot error. Accepted by the pilot community around the world, that it was a pilot error, right? Then you are speculating, and then try to justify that it's a pilot error.
That is what we are objecting to. Go by prima facie by the preliminary report. So, what the foreign media is doing, we're trying to correct.
Initially, your Indian media was also going the wrong way with Captain Nandanathan. What about that? Why blame the foreign pilots?
They started talking only after that, because rubbish was being discussed in the Indian media, that me and Sam have, at least, you know, in the last week, we have tried to correct that. Otherwise, it was not happening. The people who are already travelling in the airlines, they are scared to come on the…
on the TV channel and speak, and speak.
Govindraj Ethiraj: Of course, and they should not be either. So, yeah, Sam, let me come to you. So, you know, the…
My question is the same. I mean, yes, this is an era of amplified social media presence and social media push. So, we hear more, we see more, including from people you would have not heard from or of otherwise in the past.
But having said that, there seems to be clearly some kind of divide. When I look at comments by engineers, including in our previous conversation, engineers who work on these large engines, which power the Boeing 787s and the 777s, and pilots, maybe, like I said, some of them, more of them are sitting outside India than they are sitting in India. But why is there a divide on the same document that everyone is looking at?
Captain Sam Thomas: Firstly, yes, agree to the divide, but disagree on the ratio of the divide. It's a very small community that is talking nonsense. If you notice, but like you said very rightly, as far as social media is concerned, the outreach is disproportionate.
So, there are three or four jokers who are sitting and saying something. Now, the very fact that you've realised there's a divide, that shows how much of a disparity is there in trying to figure out even when two people are talking of the same system in the 787, how much of a dichotomy is there in thought. So, this is what we are trying to highlight, that if you don't have the subject matter experts, these kinds of divides will be going on because who are the ones who…
the NTSB, you consider the NTSB very authentic as far as they have released a statement saying, do not speculate, because it's going down the wrong track. Now, what we were trying to tell you is, you've already buried the pilots, finished. Now, no matter how much I prove to you with all the documentation, exonerating these pilots is going to be near impossible.
We are fighting, Captain Randhawa is fighting. When I gave an interview to a foreign media channel and I accused them of putting up these kinds of reports, they quickly told me back, hey listen, we are not the ones who are speaking, it's your senior captain who said it.
Govindraj Ethiraj: Okay, last question. So, you know, as we look ahead, Captain Randhawa, let me come to you. I think we've talked about what was missing in the report, the constitution of the committee, the investigating committee that has created this preliminary report.
So, my question is at this point of time, with some damage that clearly has been done, what can we do to maybe make sure either the next round of information comes more seamlessly or there is some order brought into this disorder as far as this Air India crash investigation goes?
CS Randhawa: See, this matter is going to be discussed maybe on Monday, Tuesday in Rajya Sabha and Lok Sabha. Okay, there are some questions, parliamentary questions, which are going to come up. So, let's hope that something positive comes, maybe there is a reconstitution of the board.
And if there is no reconstitution of the board, then we have to wait for the report to come after one year. So, then after that, you take it or leave it because that will be the final report, which will come out. It is no more piecemeal, you will come to know anything now.
It will be a final report which will come.
Govindraj Ethiraj: And you're saying till then there's nothing you can do as a body or others can do or demand.
CS Randhawa: You must understand that this body was constructed under the aegis of the Ministry of Civil Aviation and they wanted to de-link with the DGCA. So, as an independent body. So, they created that in case of such disasters, this investigation to be carried out outside the purview of DGCA, which was the right step.
But you have good professionals, not people from the Air Force who don't understand what kind of aircraft they have. You know, I'm from the Air Force. I'll tell you, they know DFDR, they know CVR, they don't understand what is a commercial aircraft, how the wiring is there, how the instrumentation is there, what all avionics are there, how everything is happening. And they've never worked in a civil environment.
I'm sorry to say, on one of the channels, I got agitated by one of the group captains from the Air Force technical guy. He was talking nonsense. You have to take into account, as I said, subject matter experts who know their job, put them in the committee. If it is not done, then present committee, whatever they will have to analyse now, whatever has been my thought process, I have written with technical documents to the minister, with technical documents.
So, let us see what happens. And I got a prompt reply from the DGAI. He responded within a few hours that they're going to look into it and they will do this, they will do that and all sorts of things.
Govindraj Ethiraj: Right. So, let's see where that goes. Sam, last word from here on, given everything that happened, what's been released, being selectively released, the nature of the report itself and the constitution, what can we do now or should we be doing or can we even do anything?
Captain Sam Thomas: I believe we can. On what is done already, nothing can be undone. I'm sorry, I will personally apologise to Sumit whenever I meet him.
But the point being, just take the two things that Captain Randhawa said. One, the legal aspect to go against people spreading misinformation. Two, reconstitute the committee with experts and an inclusive committee and maintain transparency.
If these are done, matter solved, at least you will get a truthful report. Otherwise, the narrative is set.
Govindraj Ethiraj: Got it. Right. And it's in everyone's interest that there is an impartial, fair, prompt report, which can also, can stand up to scrutiny of questioning, including by the media, if they're given a chance.
So, we don't, of course, have a representation from the AIB, but if they were, we would definitely bring them in as well. Captain Randhawa and Captain Sam Thomas, thank you so much for joining me.
Rules For Climate Risk
The Reserve Bank, India's central bank, is close to finalising rules for banks and financial institutions to disclose and manage risks from climate change, according to a Reuters report.
The central bank's norms, which have been in the works since 2022, are expected to ask banks and financial institutions to make regular disclosures about climate-related risks in their loan portfolios, along with mitigation strategies and targets. Now, this is something that we've been reporting as well in the context of the Coalition for Disaster Resilient Infrastructure, of which India is a founding member, which has made a case for transparency on investments in resilient infrastructure in large projects. The Coalition for Disaster Resilient Infrastructure is a governmental initiative.
Infrastructure resilience is a critical global challenge. A CDRI report says, for example, that 14% of global GDP growth is at risk each year from infrastructure losses to climate change and disasters. And 80% of this risk is concentrated in the critical power, transport, and telecommunications sectors, and that includes airports.
Disclosures are likely to be on a voluntary basis from fiscal year 27 and mandatory from 28. Many banks have apparently started collecting data and setting targets to meet those disclosure standards.
IKEA Insights
Ingvar Kamprad founded IKEA in 1943 at the age of 17, selling goods like pens and wallets, in 1948, he began selling furniture, signalling the start of the IKEA range as we know it today. In the early 60s, IKEA had a restaurant kitchen because Ingvar observed that people left the store at lunchtime to eat outside, which interrupted the whole buying process. He realised hungry customers buy less, hence the restaurants you see when you visit IKEA anywhere in the world with their curated menus.
IKEA opened its first Indian store in Hyderabad in 2018 with a 400,000 square feet outlet, an effort which at that time was already more than a decade in the making. So IKEA does and is expanding slowly and steadily across India with some missteps here and there. Its success now and eventually will, of course, depend on its products and services and their understanding of the Indian consumer.
On The Core Report's weekend edition, I spoke with Adosh Sharma, country commercial manager for IKEA, and I asked him how they were responding to what Indian customers were telling them or what their secrets were.
INTERVIEW TRANSCRIPT
Govindraj Ethiraj: And let me try and link it back to the life at home report that you talked about. What would you say are some of the key takeaways or learnings that you're applying to existing stores, maybe with some change from the way you started out and you're applying to stores that you're going to open?
Adosh Sharma: Yeah, exactly. So the life at home report happens every year. And what we figured out from all these years is number one, that a good 80% plus of the people do love to think about home and decorating home, but they always need advice on how to do it.
And I think that's the journey that the Indian consumer is getting in terms of not looking at furniture only for function, but also creating their own style statement. What does it say for me? Who am I?
And I think that's beginning to come through. The home is beginning to come out as their corner for Zen, as their corner of their expression of who they are. We've also understood that living with children is big.
People are very committed now to look at offering the best solution for their children. Living together, we've also seen in many cities, multi-generation families living together, which creates the need for creating separate spaces in that sense. A home within a home.
But more importantly, it's about small space living. It's a lot about space saving solutions. And I would say more than space saving, space optimisations, which is very important.
Outdoor balcony solutions coming together with nature is also quite big. So we do get a lot of these inputs, which is the reason why this year when we started our year, which is FY25, we started with sleep because we understood that sleep is a major driver for people. Lack of sleep, I would say, also is a big one.
So we created this whole story around it. And nowadays with internet and the entire thing going on about our addiction to the phones, noise, the pollution, the air, there are six elements that we researched on. So the Life at Home report actually helped us devise this, helped us understand this.
And that's where we came up with the Sleep Campaign.
Govindraj Ethiraj: It's interesting. Can you tell me, as I guess one of the many victims of the sleep syndrome. Can you tell me a little more on the sleep front and what you're doing?
Adosh Sharma: So we start every year. Our year for IKEA starts in September. And don't ask me why, but we start every new year in September.
And this has been going on for, you know, for decades now. So what we started as in last calendar year, but this year was essentially this movement on sleep. So through the Life at Home report, we realised that sleep is one of the most deficit areas of life in our life, in people's life today, especially in the urban areas.
And what we started to do is we looked at the six elements of sleep, which was about the noise, which is about air quality, which is about smell, which is about comfort, and which is about the light. And also, you know, passive pollution. And what we tried to bring about was not just about the products that help you fit in, but also the education around why sleep is important.
And then it went on to about what is a good posture to sleep? What is the right time to sleep? How do you create a right sleep environment at home that you can do with creating a blackout curtain so that there's not so much ambient light?
Also, the curtains absorb noise, so try to have a quieter place, and so on, so forth. More importantly, it's about health. Because what a lot of us don't end up understanding is that at this point in that race, you may still feel okay, by doing a few exercises in the morning.
But in the long run, it can really impact your mental and physical health. So I think for us, apart from just about talking about sleep, it is also about the health part. And that's what we try to push on.
Right.
Govindraj Ethiraj: And let me pick up the other point that you mentioned, or maybe two, but let me start with children first. So I can see why children is a growing area. People are spending on education for children.
And that we can see in overall macro numbers as well. But I'm assuming here it's translating into children's own rooms and working desks and sleeping beds and all that. Is that it?
Or is there more?
Adosh Sharma: I know there's always more. I mean, we believe a lot in terms of... I'll start with a small thing.
Our toys, if you look at some of the toys, they are educational toys. So we don't just believe in providing a toy that the kid can just play with. It also brings in some sense of sensory skills, cognitive skills, and so on, so forth.
Then we also believe in saving costs. So the beds that we do can be extended on length. So you don't just keep buying a bed every two years because the kid is growing.
The kid can grow and the bed can grow with the kid. So I think we tend to do that. And also it's about creating that own space for the child.
Many a times what we've seen in homes is that desks are for adults, but we move the desk around for a child. So we adjust it in a way. And those ergonomics don't work with a child, especially when they're growing.
So if you look at the products that we do, the desks are made for children. Even small details like they will not have sharp edges so that kids are kids. They run around, they bang things around on their heads and stuff.
So we don't want the products to be in a way that they become dangerous for the child itself. And then we've got kid safety products that we do, which are very basic products, but do come in really handy, especially for a growing toddler. So we do a host of products that are done to, one, create a separate space for the child.
Two, design ergonomically and educationally for the child's growth. And three also, you know, just be part of their life, you know, as they grow.
Govindraj Ethiraj: Right. And these are some of the things that you're meeting. But what would you say is an unmet need basis, the research that you've been doing?
Adosh Sharma: Yeah. If I was to look at it, I think in India, the one big need is definitely for home organisation. You know, we all have as Indians, we hold a lot.
There's a lot of stuff at our places that we keep in different corners. And I'm one of the victims. But I think that's where I feel that they should be more solution based than product based.
And I think that's where we are really putting a lot of efforts in to really create a more solution based approach. So if you have so many products, how do you really how do you really sort your life out? How do you really create your home in a way that it's got these organised spaces?
So in a small space also, you can create more space.
Govindraj Ethiraj: And you have 7000 plus products offered in India. And I understand more than a thousand of them are actually under 200 rupees. So it's, I think, very, I mean, affordable to those who come in.
Now, what if you what's the I mean, what are the top three or four products in the 7000, including those thousand?
Adosh Sharma: Yeah, interesting, because they change by market. But I think the top ones that we sell is definitely a Billy Bookcase, which is an iconic product that we've had. And the funny bit is, you know, we've also seen where people have moved homes with the Billy Bookcase.
So the quality never goes out. It stands out all the time. Then we have the Gamble Bin Sofa, which is an India made product.
So we're very proud of that. It's made for India for India product. So that that stands well.
And then you have the regular IKEA by the products, which you have the chairs. You have the different chairs that we offer. You have even small anecdotal products like the product, which is the coffee stirrer and so on and so forth.
So there's a host of products, but some of the ones that we're proud of is definitely the Billy, the Gamble Bin and also some other beds and so on and so forth.
