Will Trump’s Asia Visit Goodwill Spill Over To India?
The US-India trade deal is the only hurdle, perhaps, preventing stock markets from racing ahead
On Episode 713 of The Core Report, financial journalist Govindraj Ethiraj talks to Aamar Deo Singh, Senior Vice President - Equity, Commodity & Currency at Angel One.
SHOW NOTES
(00:00) Stories of the Day
(01:10) Will Trump’s Asia visit goodwill spill over to India?
(02:56) Market exuberance rules higher as Nvidia crosses $5 trillion
(05:17) It's the best time in a long time for PSU banks and the markets are rewarding the stocks.
(14:33) Suzuki wants to regain 50% of India auto market share and become the largest electric car company here.
(15:57) Did Bill Gates just do an about turn on climate?
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 feedback@thecore.in.
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Good morning, it's Thursday, the 30th of October, and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital. Now, I usually don't refer to WhatsApp forwards, but this is an interesting one from Mumbai, Bombay. It's a new dress code. Winter starts at 6am, summer starts at 10am, and monsoons start at 4pm, so dress accordingly.
On that note, let's go back to our top stories and themes…
Will Trump's Asia visit Goodwill spill over to India?
Markets' irrational exuberance as NVIDIA crosses $5 trillion in market value.
It's the best time in a long time for PSU banks, so public sector banks, and the markets are rewarding the stocks.
Suzuki wants to regain 50% of India's auto market share and become the largest electric car company by sales.
And did Bill Gates just do an about-turn on climate?
Deal Or No Deal?
The big question we're asking this week, of course, is if the trade deal with India is imminent, because that's the only hurdle, perhaps, preventing stock markets from racing ahead and, of course, more importantly, giving some lease of life to thousands of jobs that are in jeopardy because of the 50% tariffs on Indian exports into the United States.
The reason there is increased optimism is obviously because the United States President Donald Trump is in Asia right now. He and South Korean President Lee Jae-myung finalized details at a summit in South Korea on Wednesday, and he also sounded an optimistic note about a summit with China's Xi Jinping, which will take place today. We made our deal, pretty much finalized it, Trump said at a dinner with Lee and other regional leaders on the sidelines of an Asia-Pacific forum, according to Reuters.
South Korea will pump about $350 billion of new investments into the United States in return for lower tariff rates. There was also an agreement that Seoul can split its promised $350 billion investment fund into $200 billion in cash to be paid in installments and capital $20 billion per year, and the other $150 billion is to be spent on investments in shipbuilding, which South Korea has promised to help Trump restore. Now, the details are specific to Korea, but give you a sense on where the United States is coming from and what that portends for countries like India and our own deal, which is still being worked upon, even as optimism that there will be one is rising.
The markets are also looking at U.S. Federal Reserve policy decisions everywhere that is, including in India, and I'll come to that. But there is exuberance everywhere, and perhaps even extending to a smaller market like India, though Indian markets are yet to recover their September 2024 peaks and equally have a fair degree of tailwinds right now, including the fact that the economy is doing better than expected right now, as we discussed in some detail and went into the reasons why yesterday. But nothing beats the exuberance and AI-linked frenzy that the U.S. markets are seeing right now.
NVIDIA has become the first company to notch or cross a $5 trillion market value that happened on Wednesday morning. Shares of the Santa Clara, California-based company started rising once again after CEO Jensen Huang announced a $500 billion deal in AI chip orders and plans to build seven supercomputers for the United States government. This milestone also clearly marks NVIDIA's transformation from a niche graphics chip into the backbone of a global AI industry, going past Apple, Microsoft, and Alphabet, and turning Huang into a Silicon Valley icon, according to a Reuters report.
A $5 trillion value means NVIDIA's value will exceed that of the entire cryptocurrency market and equal about half the total value of the pan-European Stocks 600 index. NVIDIA had hit a $4 trillion valuation only in July, and this is obviously a pace that's rarely seen in modern markets, according to Reuters. Back home, Indian markets are working hard to recover their September 24 peaks, which analysts are telling us will come very, very soon.
So let's see. Meanwhile, on Wednesday, the Sensex rose 368 points to close at 84,977, and the NSE Nifty 50 was up 117 points to 26,053. In the broader markets, the NSE Mid Cap 100 was up 0.6%, the Nifty Small Cap 100 was up 0.4%. Gold prices are still staying soft with some of those trade fears receding, though of course we don't know for how long, and by that I mean the trade fears.
Speaking of fears, Bloomberg is reporting that India's Reserve Bank is now holding more than 65% of its gold reserves at home, and this is nearly double the share from four years ago, and the repatriation of the gold was accelerated after the Russia-Ukraine war. So the Reserve Bank has brought back nearly 64 tonnes of gold in the first six months of the financial year that began in April, it said in a half-yearly report on foreign exchange reserves on Tuesday, and in value terms gold accounted for close to 14% of total reserves at the end of September, up from about 11.7% at the end of March. The Reserve Bank usually keeps part of its gold overseas held at the Bank of England and the Bank of Four International Settlements, according to that Bloomberg report.
Bank Stocks
Public sector banks in India are setting remarkable benchmarks for the country's banking, financial services, and insurance sector, according to M. Nagaraju, Secretary of the Department of Financial Services, Ministry of Finance, while speaking at a Business Standard event in Mumbai on Wednesday. According to him, public sector banks are setting great benchmarks for the overall financial services sector, and also highlighted that the financial sector is witnessing its strongest period ever. He said, I think we all agreed when we assessed that India's financial sector is at the pinkest possible period of time in history.
Public sector banks made their highest profit during the last financial year, and they also paid the highest dividends, including scheduled commercial banks, he said. He also said that net NPAs of public sector banks were at about 0.5% in the last year. Gross NPA, or gross non-performing assets, were 2.2% during that period, and that term GNPA is something we'll hear a little more about shortly.
Public sector banks are currently at their most innovative, he said. Balance sheets of private sector banks are also at their strongest, and all of this reflects the strong health of the financial sector despite global uncertainties, at least at this point. I mean, I added that at this point.
All of this obviously is reflecting on bank stocks, particularly PSU Bank stocks, as we discussed yesterday with analyst and market veteran G. Chokhalingam. An ET report from yesterday also says PSU Bank stocks have pulled off one of the year's biggest comebacks with a nifty PSU Bank index, jumping nearly 20% since August, touching a fresh 52-week high and rallying as much as 46% from the March lows. Stocks like Indian Bank, Kendra Bank have all gained over 20%, and other banks like State Bank, Punjab National Bank, and Bank of Baroda have gained about 14-16%.
I reached out to Aamar Deo Singh, Senior Vice President, Equity, Commodity and Currency at Angel 1 Broking, who also focuses on banking, and I began by asking him what was driving the current surge in banking stocks.
INTERVIEW TRANSCRIPT
Aamar Deo Singh: If you look at both the public sector and the private sector bank earlier, we had this recapitalisation of public sector banks and then the writing off of the loans. Post that, what has happened, if you look at the credit growth in the country, we are seeing somewhere around 15-16% year-on-year growth, which is outpacing the normal GDP growth. So, somewhere or the other, there is definitely an interest in the banking space.
And also, what we are seeing is that the RBI is also opening up areas of opportunities for the banks, both in the public and the private sector space, while at the same time, I would say, getting competition from the NBF space as well. So, there are areas where the banks and the NBFCs are in competition. The government is of the view that the PSU banks, particularly if you look at the holdings in terms of raising the FDI investments in terms of banks, are also being looked at from 20% to 49% or so for the PSU banks.
So, these are some triggers. And also, as you rightly said, we've seen the benchmark indices, be it the Bank Nifty or the Nifty PSU Bank Index, they've gained almost 23-24% year-to-date, which is significantly better. And they've outperformed the index, Nifty, because Nifty is not Nifty, hasn't reached its September highs, all-time highs.
So, somewhere or the other, there's definitely a lot of interest which has come into the banking space. And it's the public sector banks, which are majorly valid because if you look at the private sector banks, the likes of HDFC Bank, or for that matter, ICICI Bank, they've been laggards in that.
Govindraj Ethiraj: Right. You talked about public sector banks, and let me stay with that for a moment. So, is it that public sector banks are performing independently, or is it more because they seem to have got rid of their legacy baggage?
I mean, what is really the bigger driver here?
Aamar Deo Singh: I would say definitely, second point which you raised, the coming off of the legacy baggage seems to have definitely worked for the banking space in the PSU space. So, that has held, if you look at some of the examples, India Bank, if you look at. So, we are seeing a year-to-year profitability growth of almost 11-11.5%. We've seen the GNP improve. So, GNPA improving is significant because it's come down from almost 3.5% to somewhere around 2.6% in a year. If you look at another bank, Tamil Nadu, the mercantile bank, there also we've seen the GNP significantly from almost 1.371%. In the private space also, we've seen, it's not only the public space, if you look at the DCB Bank, that has also generated higher returns in terms of profitability, almost 18% growth year-on-year, and stable asset quality. So, what investors are more concerned about is what's the asset quality, how's the NPA or the GNP trend quarter-on-quarter, because it's a catch-22 situation if you roll out a lot of credit.
But if you're slipping on the GNPA, then that is a cause of concern. Initially, the business could be good, but later on, you have to write off. And we've already seen that happen in the past.
So, there's a big learning for the PSU banks as well there. That's one of the figures because that's definitely helping. And as I said, the move towards enhancing the holdings in PSU banks, that's also one of the figures.
Govindraj Ethiraj: I'm going to come to the overall health of the banking system in a moment. But before that, if you want to compare like-to-like private and public sector banks, would you say that public sector banks are who are traditionally seen as holding a lot of assets, much higher costs, and therefore lower margins? Are you saying that or are you seeing that they've come on par?
And if so, are there any examples that illustrate that?
Aamar Deo Singh: What we are seeing here is that public sector banks have also been embracing technology because now digital is playing a very big role. And it is really, if you look at any sector, it's transformational. So, what's really happening in the public sector banks as well, that apart from the retail, the SME, and the corporate segment, they've been targeting more on the physical side, they've also been going very strong on the technology build-up side.
That's an area which the retail banking space would benefit from both from the PSU banks. In the broking space, you see that the large digital brokers have more than almost 60-70% share amongst the top three. So, this brings out the fact that technology is going to play a very important role.
And those public sector banks who are able to capitalise on this deal, definitely, again, from that perspective, and also the digital and the fintech integration, which is happening across different partners coming together, be it insurance, be it mutual funds. So, if you look at the wealth business in India, in terms of EMS, EIF, that has been a witness of phenomenal growth. And the growth is, I would say, still we would see multi-export from here.
So, banks are also getting into these areas where they could envision. So, those public sector banks which could capitalize on this, or I would say private sector banks would capitalize on this, are the ones who would be the leaders going forward.
Govindraj Ethiraj: Right. Now, if I were to ask you about the health of the overall banking system, which is obviously good, but it's also riding on credit growth, which is higher than what we've seen before. So, that could also be a concern, I'm guessing.
And the supplement to that question is really, what are the concerns that you're seeing at this point, if this growth were to continue on both fronts? One is the health of the banking system itself, and secondly, the stocks and their valuations.
Aamar Deo Singh: If you look at a global macro perspective, we are seeing that the US Fed is into rate cuts, more rate cuts are expected. So, the easing out of interest rates is definitely happening, and we've seen that in India as well. So, that's something, it goes well from the borrower's perspective.
That definitely has an impact on the NIM, that is the net interest margin for the banking banks. But then the leverage and how much is actually passed on to that will vary from consumer to consumer. Having said that, if you look at the credit growth, credit growth remains strong, as I've said earlier, around 15%, 16% growth, which we are seeing year on year.
And that is primarily driven by, you can look at the retail, you're looking at the MSME and the working capital demand and infrastructure and TPEX, linked corporate roles, that's also been picking up significantly. So, the government's trust on infrastructure is also definitely helping and also with regard to the buildup in terms of infrastructure for the manufacturing space, that also is one point one needs to look at. So, here we are seeing that from the MSME space, and also from the retail segment, we are seeing a lot of credit offtake which has happened.
Systematically, the GNPA overall below 3%, the lowest in over a decade. So, that allows banks to basically grow their balance sheet. This is one area of concern because of the GNPA, it's at its lowest over the last decade, below the 3% mark.
So, that clearly says that banks now have more leeway and I would say, the strength, the financial strength to go in for corporate credit, but they have to definitely keep the learnings from the past and not repeat the same mistakes. Again, that's something which is of very critical importance. And also the government's infrastructure push, if you look at the government's infrastructure push towards roads, defence, railways, power, TPEX, and early science, we're also witnessing of the private TPEX revival, that's going to play an important role, because that is what the government also was of the view that private TPEX revival needs to happen, because it can't be only the government as one. So, we are seeing that happening. And also, we are seeing across segments in terms of corporate lending happening, project financing is happening.
And in BFCs with infra infrastructure, like the likes of L&P Finance, RECBFC, they've also started to get more into the action.
Govindraj Ethiraj: Thank you so much for joining me.
Aamar Deo Singh: Thank you for having me.
Auto-confidence
You have to give it to confidence. There are very few competitive and open markets where any player in any product or service can command a near or more than 50% market share. Of course, airlines come to mind, with Indigo, which has an over 64% share of the market in India, and then there is Suzuki in cars. Suzuki is at about 38%, but wants to go back to where it was around 50%.
A very tough task, I would argue, in a highly competitive automotive market like India. Suzuki says it wants to launch about 8 sports utility vehicles in India in the next 5-6 years, according to the company's president, Toshihiro Suzuki, quoted by Reuters. He says that Suzuki wants to bring its share of the Indian market to its pre-pandemic level of about 50%, even as competition is at its fiercest since Suzuki began operating in India about 40 years ago.
They also want to be the biggest seller of electric cars in India and maintain its lead as the country's biggest car exporter, he added. The electric car part is a little interesting because Suzuki has been somewhat hedging the electric car approach at least a year or two ago and now seems to have swung more firmly in favour of electric cars, of course, as part of a larger portfolio. The Suzuki president also said the push would bring multiple powertrains to India, including hybrids as well as compressed natural gas and biogas-powered cars.
Bill Gates and Climate
In what the world at large is seeing as an about-turn, Microsoft co-founder Bill Gates, who wrote a book in 2021 called How to Avoid a Climate Disaster, is now saying that leaders need to shift their approach to climate change. In a letter published on Tuesday ahead of next week's COP30 in Brazil, UN Climate Summit, he said that too many resources are focused on emissions and the environment and that more money should go towards improving lives and curbing disease and poverty. Climate is super important but it has to be considered in terms of overall human welfare, he told CNBC in an exclusive interview.
He said that he didn't pick that position because everybody agrees with it. I think it's intellectually the right answer. In the letter, he also called out the doomsday view of climate change and said leaders need to make a strategic pivot to focus on issues that have the greatest impact on human welfare and it's the best way to ensure that everyone gets a chance to live a healthy and productive life no matter where they're born and no matter what kind of climate they're born into.
The New York Times reported in March that Breakthrough Energy, Gates' climate-focused investment fund, reportedly cut dozens of staffers earlier this year, according to CNBC. And the New York Times reported in March that the change shows how Mr. Gates is retooling his empire for the Trump era. A decade has passed since world leaders adopted the Paris Climate Agreement, which aimed to limit temperature warming to 1.5 degrees Celsius above pre-industrial levels.
