Our Top Reports For Today
- [00:00] Stories Of The Day
- [01:00] World Bank raises India inflation projection to 5.9%
- [04:35] Gold & silver prices fall to 7 month lows.
- [08:37] The Dollar Gets Stronger By The Day, How Long Will It Hold?
- [14:32] Vedanta puts a full page ad in a mainline newspaper for a shareholder communication.
- [18:13] Indonesia’s Bullet Train Goes On Rails
NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.
Growth, Inflation And The Rest
Lots of numbers yesterday, nothing much to note except to make a note.
The World Bank on Tuesday said India's Gross Domestic Product (GDP) is projected to grow at 6.3 per cent in FY24. In its "India Development Update" for October, the institution maintained its growth forecast for the country, having previously reduced it from 6.6 per cent in April.
According to the World Bank, India is expected to grow at 6.4 per cent in FY25 and 6.5 in FY26.
More significantly, it raised India's inflation projection from 5.2 per cent in its April update to 5.9 per cent.
For FY25, the inflation has been projected at 4.7 per cent. In FY26, it is expected to be 4.1 per cent.
The World Bank pointed out that recent spikes in inflation were due to adverse weather conditions and that it will moderate, supported by declining food prices.
India's retail inflation escalated to 7.8 per cent in July, driven by a surge in prices of food staples such as wheat and rice. This was an increase from 4.87 per cent in June. Although the inflation rate decreased to 6.83 per cent in August, it remained above the Reserve Bank of India's upper tolerance level.
"Inflation is likely to decrease gradually as food prices stabilise and government interventions augment the supply of essential commodities," the report added.
Meanwhile, India's manufacturing activity dropped to a five month-low in September, according to S&P Global.
Its manufacturing Purchasing Managers' Index (PMI) for India fell to 57.5 in September, the lowest since May. In August, the PMI was 58.6.
"India's manufacturing industry showed mild signs of a slowdown in September, primarily due to a softer increase in new orders, which tempered production growth. Nevertheless, both demand and output saw significant upticks, and firms also noted gains in new business from clients across Asia, Europe, North America and West Asia," said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, in a report quoted by Business Standard.
S&P Global said that while robust demand supported the production growth, it also added to price pressures.
And among the last few things to also go down today were the stock markets.
The S&P BSE Sensex slipped 316 points to close at 65,512 levels while the Nifty50 ended at 19,529, falling 110 points.
That’s yesterday’s news. It looks a little gloomier if you take a step back.
The BSE Sensex has just gained 1.7% in the last three months, making this the worst September-ended quarter in four years, says the Mint newspaper.
This was also true for the BSE500, BSE AllCap and the BSE LargeCap indices, though the most volatile mid-cap and small-cap indices remained unscathed.
The Sensex had surged 8.3% during the September quarter last year, and nearly 13% in 2021.
The last time it dropped lower during Q2 being the quarter we are discussing was in 2019, when the returns dipped into negative territory, declining 1.9%.
The negative return for the September quarter contrasts with that of the June quarter, when the Sensex was up 9.7%, up from the 3% drop in the March quarter, says Mint.
So very broadly speaking, it's a bit of a seesaw, you might say.
Gold and Silver Prices Fall Sharply
I almost forgot, there are other things falling too. It looked like gold was on a strong wicket until a few weeks ago. No longer. Gold and silver have fallen to hit seven-month low in both domestic and international markets.
Gold price today on MCX was yesterday quoting ₹56,734 per 10 gm levels, lower than its Friday close price of ₹57,600 levels.
In international markets, the gold price is quoring around $1,815 per ounce.
Rising bond yields and a strong dollar index are seen as the key reasons for gold and silver being pushed down.
So let's stay with gold for a moment and address gold and dollars separately.
Why are gold prices falling and what does the near term look like, remember this is the festival season so you could be buying instead of bemoaning falling prices.
I reached out to Saif Rahiman Mukadam, Research Analyst at ICICI Securities and began by asking him why gold prices were falling like this ?
NOTES ON THE DOLLAR
There is a very fundamental question, why is the USD so strong ? But before I come to the largely one line answer on that and which you obviously know, just to recap what has been happening.
The US dollar index hit an 11-month high. The latest trigger for the dollar surge seems to be the fact that the US government averted a shutdown of its government three days ago.
The dollar index has risen from a low of 99.60 to more than 107, i.e. 7.5% in around two months. In the same period, US 10-year yields moved from 3.7% to 4.7%.
The dollar has bounced back with a vengeance, threatening global central bankers’ tricky task of bringing down inflation while protecting fragile economic growth, the WSJ reported the day before.
The greenback on Monday reached its highest level of the year, bringing its gain since mid-July to 6.6%. The WSJ Dollar Index last week closed out its best quarter since last fall, when it was in the midst of a once-in-a-generation run-up.
Many emerging-market currencies have been hit.
The dollar’s strength has been driven by surging Treasury yields. The 10-year U.S. Treasury yield reached a new 16-year high Monday of 4.682%.
The bottomline appears to be that investors have grown more convinced of the U.S. economy’s resilience—and that the Federal Reserve is likely to keep borrowing costs higher for longer than it would do in a typical business cycle.
To dive deeper into the dollar and rupee of course, but in a more global context, I spoke with Anuj Gupta, head, Commodities and Currencies at HDFC Securities and began by asking him why the dollar was continuing to reign so strong and what that meant.
Vedanta’s FULL PAGE AD
The Vedanta Group is in a spot of trouble. I will come to what shortly.
Amusingly, since i could not think of any other word of it, the company released a full page advertisement in the Times of India, a general news broadsheet, on Tuesday morning, saying it would unlock value, accelerate growth and strengthen its balance sheet by demerging its diversified businesses unlocking value.
One always wonders who the audience for this kind of communication is, which should ideally be existing or future shareholders and maybe stakeholders in some of its businesses.
Even then, just a pink paper or two should do fine.
Anyway, the company reminded us it will be splitting into six separate listed companies, Vedanta Aluminium, Vedanta Oil and Gas, Vedanta Power, Vedanta Steel and Ferrous Materials, Vedanta Base Metals and Vedanta Limited.
It's a simple split with 1 share of Vedanta Ltd = 1 share in each of the 5 companies for shareholders. The stock was up around 3.8% in a down market yesterday.
The ad does lead me to ponder a couple of points.
Is Vedanta advertising its position because it feels its point of view is not being represented fairly by the media. So an advertisement is the best one-way communication device. Others of course have done it in different contexts as well, including some product failures. The larger question is does it work ? This is a marketing/communication question. If I were to say, over time, my answer is no to not sure. Because a story is best told by someone who is in a relative position of objectivity.
More importantly, it's not like Vedanta or anyone else releases ads for every announcement. Like they did not - at least to the best of my knowledge - when they and Foxconn broke up over a $19.5 billion project to make semiconductor chips in July. Or other, let's say, more positive developments.
Is Vedanta telling the Government of India that all is well, along with other stakeholders who may or may not have time to catch up. The GoI is an important stakeholder obviously in a mineral and resource business. As Vedanta itself points out, more than 90% of its profits come from India.
Now the spot of trouble. Calling it a forced $10 billion restructuring, BQ Prime’s Sajeet Manghat points out that a decade ago, Anil Agarwal embarked on the exact opposite journey, a mega consolidation at his group's metals-to-crude India business under Vedanta Ltd. to drive valuations.
Of course, the elephant in the room is debt.
Vedanta’s London-based parent Vedanta Resources has bond repayments worth about $4 billion coming up. Of which bonds worth $3.2 billion maturing in 2024 and 2025. And there is other rupee debt worth around Rs 44,000 crore on the Indian company as well.
“We have payment coming due in January (2024) and August. We are completely lined up. We have a 1 billion dollar payment in January and a 500-600 million dollar payment in August. Both are completely lined up. We are looking for ways to reduce debt,” said founder Anil Agarwal in an interview to CNBC TV18 yesterday.,
Agarwal said the sale of the steel and iron ore business could help reduce the debt. “We had a phenomenal response for our steel and iron ore sale. This can help take care of our debt. We believe that by March, we will be able to complete the sale transaction.”
Maybe there won’t be newspaper advertisements then.
Among other corporate news, HDFC Bank is revamping some parts of top management, three months after it merged with HDFC.
The bank detailed the changes in a memo to employees late Sunday, Bloomberg reported. The changes are all within the system and somewhat expected given the strong thrust towards technology and retail though some negative analyst comments of late may have accelerated the process.
Indonesia’s Bullet Train Is Rolling
Indonesia, the other large Asian tiger, has opened Southeast Asia’s first high-speed rail to the public after years of delay and cost overrun.
The train connecting the capital Jakarta to the nearby city of Bandung can ferry up to 600 passengers at a top speed of 350 kilometres (220 miles) an hour.
Initially set to be completed in 2019, the pandemic pushed back the project’s timeline while land acquisition problems led the overall cost to surge to $7.2 billion, from $6 billion. Safety tests also delayed the railway’s opening from August.
India’s own bullet train, the 508 kilometre Mumbai–Ahmedabad High Speed Rail Corridor (MAHSR) is under-construction and will be India’s India's first high-speed rail line.
Originally, the project was to have been ready by December this year or in two months from now.
However, because of delays in land acquisition and related hurdles, the target is now sometime in 2027 with a smaller corridor possibly being ready in August 2026.
The original cost was $14 billion but going by reports and official submissions, delays arising due to Covid and other reasons have already sent the cost shooting up.
Though smaller, India and Indonesia share quite a few similarities, including in structure of the economy.
An Economist report earlier this year said that if you were looking for growth opportunities among the world’s 20 biggest economies, two stand out: India and Indonesia. The Asian giants, with a combined population of 1.7bn, are forecast by the IMF to be the two fastest-growing top-20 economies in 2023, and over the next five years.
Both India and Indonesia are in the midst of ambitious infrastructure build-outs. Indonesia has built 18 ports, 21 airports and 1,700km of toll roads since Jokowi took office. India is adding 10,000km of highway each year and more. The length of the rural road network has increased from 381,000 km in 2014 to 729,000km this year. The number of Indian airports has doubled in this period. However, Indonesia’s gross national income per person is $4,180 and India’s is about half that at this point.