#953 Why Indian Markets Are Drifting Down

Good morning. It's Thursday, the 20th of August, and this is Govind Raj at Siddharth Broadcasting and Streaming. Weekdays from Mumbai, India's financial capital, our top stories and themes, why Indian markets are still drifting down. The government steps up incentives for piped natural gas consumers. Global bond markets are extremely volatile and what that means for India. Why the US is the most resilient export market yet for India. And a month on, how is the India-UK free trade agreement shaping up and early signs that we can take away. This is a call report with Govind Raj at Siddharth. And before we kick off, our featured article in our newsletter today, which is read by 90,000 subscribers every day, is by Prita Pahari and it's called Kalyan Jwela's Bets on New Brand to Win Market Share. Will it work? The story talks about how the Kerala headquartered Kalyan Jwela's is launching a standalone Tamil Nadu brand, Akshaya Tanga Maligai, to win over regional shoppers while navigating margin pressure. The link is in the description. It's bittersweet news on the markets. India has replaced Indonesia as Asia's least preferred stock market in a survey of fund managers by Bank of America, suggesting increased caution towards a market that's already rated as one of the world's worst performers this year. The lack of a clear AI exposure remains the key concern for Indian equities with weak growth emerging as the next most important risk, according to the survey, which showed that 32% of respondents were net underweight on India. Lack of reforms and high valuations also emerged as reasons for the bearish outlook on the fourth largest equity market, according to reports from different wire agencies. In contrast, sentiment improved for Indonesia with 27% of fund managers saying they were net underweight on the market compared with 32% in July. So that is where India is now at 32%. Taiwan and Japan remained investors' most preferred regions. A total of 98 panelists with $272 billion of assets responded to the survey's questions between August 7th and August 13th. And that, of course, gives you a sense. But on the other hand, we have been seeing somewhat positive inflows, though yet muted. And we're talking about foreign portfolio investors. Meanwhile, Reuters quoted Abacus investment managers saying that while robust profit growth for India's Nifty 50 companies has brightened the outlook for domestic markets, global risk aversion and a strong IPO pipeline could temper a broader rally in the near term. You may recall us talking about the day before that NSC or the National Stock Exchange's IPO could be valued at about $55 billion or over 500,000 crore rupees, which could also make it the largest IPO. The benchmark Nifty 50 and Sensex are down about 7.9% and 9.8% year to date. And there have been about $25 billion in foreign outflows. Pairs like South Korea and Taiwan are up about 50% each in the same time. And of course, these markets have very few stocks and it's those few stocks which tend to sway the benchmark indices. Now, Abacus, which manages about $5.2 billion of assets, sees elevated crude prices, rising global yields and volatility in the AI trade as key external risks for Indian equities. The head of equities of alternates at Abacus AMC told Reuters, On Wednesday, the domestically consumer demand and corporate profitability is strong as seen in the better than expected Q1 results, but globally they are not. They do feel that after a weak first half, India should perform emerging markets and Asian peers relatively, even as the overhang from global risk sentiment with crude and the AI trade are set to continue. They also estimate that 40 to 50% of capital may therefore be absorbed by IPOs and offer for sales, restricting a broader market rally. On Wednesday, oil prices were a three-week high as uncertainty over shipping routes through the state of Harmas and supply disruptions continue to affect the outlook for oil. Brent crude futures were at about $91.79, so just under $92 a barrel. And Brent crude hit its highest level since July 30th. And Indian markets, of course, continue to be weighed down by those higher oil prices, which usually tend to send the benchmark indices down. The Sensex and Nifty fell for another three weeks, but the Nifty fell for another three weeks. On another day, the Sensex falling for the fourth straight day as it fell about 325 points to close at 76,909. The Nifty 50 fell about 76 points and fell for the seventh straight session. In the broader markets, the Nifty mid-cap and small-cap were down 0.2 and 0.5% each. The government has announced a new incentive scheme starting next month, wherein city gas distribution companies will be able to buy and sell their oil and gas. The Nifty 50 will be able to buy and sell their oil and gas. Effectively, bond markets are a risk right so there are two parts to it one is the global context and there is a local context so if you observe carefully in terms of local context we are fairly placed and fairly priced in fact somewhat cheaper at certain parts in corporate bonds and government bonds etc the yields are fairly attractive but the moment you connect the cord with the global context suddenly you find that the risks are not probably priced in the way it could be given what is happening into the global market so what is happening in the global markets global markets are pricing in significant amount of macro disturbances which are caused by potential conflict in the west asia or general economic issues which the government is facing higher debt and so on and so forth inflation which has been slightly stickier central banks have got it wrong you a few times in terms of understanding how and what and why and so on markets have started effectively pricing in a fair amount of higher amount of risk which is there it is not getting priced in the bond yields so they started demanding a fairly high amount of premia in absolute yields and in the term premia as well if you look at the 10-year yield in the us which is trading at around 470 which is a fairly high from a historical perspective but the 30-year is trading at almost close to 470 which is a fairly high from a historical perspective but the 30-year is close to 530 so which is a good if i round it about 60 basis point steeper or a higher term premia so what exactly it is saying it is saying that even 10-year down the line the yields or the repo rate is likely to remain elevated for a fair amount of period of time understanding the kind of risk it is pricing it is significantly higher what is the significance of that i mean before we come to india then what does this mean for the way capital is flowing around the world right now yeah so effectively it says that these damages which has been done so far by higher debt and undertone inflation which is looking like more structural and probably taking more time such episodes are going to get repeated in future therefore we need a higher term premia and the government is effectively paying somewhat testifying that probably yes you may be justified in asking such kind of higher term premia and it is despite the fact that the significant amount of borrowing is in treasury bills had it been in the dated government securities probably this premia would have been much much higher right and to come to india now you said that i mean right now and this other analysts have been pointing out as well that we are somewhat disconnected from this phenomenon but at what point could things connect and could there be other let's say tangential impacts yeah so see typically these things are connected from a currency route we have already seen significant amount of pressures emerging into the inr and if we look at purely from currency point of view i think we have priced in reasonable amount of we can say bearishness or risk the way you want to look at it we have priced in if you look at the currency from a relative peer-side basis it is pricing in the required risk and it is relatively cheaper from a historical perspective but the same thing is not yet reflected in the bond just from probably the participation of the fpis is not significant it's very minimal so had it been a significantly higher weightage somewhat like indonesia or any other emerging market probably things would have been much different since we are just beginning and they are just taking exposure so probably it'll probably take some amount of time but the government and the regulators are playing this equation fairly safe therefore these volatilities is not yet impacted indian bond markets right i mean we've now seen the closure of the fcnr scheme as of the end of this month and obviously we've had very good flows there are you seeing any impact of that on or what's your sense of that on liquidity and so on this was a fairly good move while not touching any monetary measure they took this fcnr route to address the currency and bop related issues prematurely closing doesn't have any meaningful impact or doesn't have any impact at all because you are anticipating around 75 billion dollars give or take 10 billion here and there the same amount would have come in by september is likely to come in by month end so in a way it is a good news participation is fairly robust demand is fairly good so nothing negative just because it is closed but having said that i also want to put it here very clearly that the underlying issue needs to get resolved before we call it that okay this has been a success because unless and until we solve the underlying issues from an fbi fdi perspective we are likely to be in a tough spot sometime down the line because we are a trade deficit country and large amount of goes towards gold and some other non-productive assets which creates problem in times like this so i think it's a good news for us and i think it's a good news for us when the fdi and fbi are not coming in and if you look at services exports also that is also not growing so that makes the equation even more trickier so either you maintain your trade balance at the trade level itself curtail it which economy like india will find it difficult to maintain because we are 140 billion people and consumption driven economy and manufacturing will not pick up so soon therefore we need to take certain measures which kickstart the fdi and fbi process and some good amount of flows come in from that side unless and until that happens it will be difficult for the central banks to manage this equation in a short span of time right how is your or rather what is your sort of more near-term outlook on the fixed income side back home near-term outlook is fairly okay corporate bond spreads are decent as i said domestic risks are fairly prized in terms of rate hike etc if you look at the curve is pricing in more than 50 basis points somewhere 75 basis points as well so more than that we do not have a lot of money and we do not anticipate also too likely to get delivered so from that perspective we are fairly prized people who can't take volatility are devised to stay at the shorter end which is decent in absolute sense but at the same time longer end is also attractive as i explained it to the steep curve etc therefore something what we know as barbell strategy some and the short some at the long remain at a mid duration kind of strategy not going extreme here or longer short is likely to deliver results in 6 to 12 months by the time we have clarity on the war and what is happening to the crude oil prices and how are we going to shape up in a trade and bop then probably we can take a final call on long term rates got it abhishek thank you so much for joining me thank you the u.s treasury unexpectedly on wednesday announced its ramping up buybacks of long-dated government debt taking the action in the wake of yields on such securities hitting the highest in years according to bloomberg just two weeks after releasing its planned schedule for buybacks this quarter the treasury has announced that the treasury department on wednesday said it's increasing by at least double the size of liquidity support buyback operations for securities dated from the 10 to 30 year sector yields on the longest bond dropped nearly 10 basis points to 5.18 percent again going back from their highest level since 2007 india shares of exposed to the united states remain largely unchanged despite a year of unparalleled growth in the last 12 months this is the first time the u.s treasury in the last 10 years has been able to keep up with trade agreements with other countries in the last 12 months the u.s treasury has been able to keep up with trade agreements with other countries in the last 12 months through july by bloomberg says the u.s continues to account for about 20 percent of india's exports now in this period as we know trump has put tariffs as high as 50 percent on indian goods at one point effectively an embargo before dropping it to 18 percent in february this year and now there is a 10 percent tariff rate thanks to the u.s supreme court the u.s treasury has been able to keep up with trade agreements with other countries in the last 12 months through july by bloomberg says the u.s treasury has been able to keep up with trade agreements with other countries in the last 12 months through july by bloomberg says the u.s supreme court now exporters including the many we've been speaking to have been exploring newer markets to reduce risk but clearly the u.s share has remained steady highlighting the challenges of switching to other markets or the ability of other markets to absorb indian exports and thus away from the u.s market it will take two to three years for market diversification to show meaningful results according to the head of the federation of indian export organizations who spoke to bloomberg adding that the share of exports to the u.s has grown from about 17 and a half percent three years ago to about 20 percent now india has also broadly maintained its share of exports to other major markets according to that same 12-month data in the past year india has inked a trade deal with the united kingdom which took effect in july as well as agreements with the european union oman and new zealand and that brings us to the uk india free trade agreement earlier known as the comprehensive economic and trade agreement or setter pitched by both countries as one of the biggest trade deals of modern times it's now around 30 days since the fda kicked in from 15 july 2026 as a backgrounder uk and india trade was worth about 48 billion pounds in 2025 and 99 of indian goods entering the uk and 90 of uk goods entering india are either duty free or reduced in tariffs many sectors were expected to benefit including automotive manufacturing consumer goods creative industries and medical technology in the long run the deal was expected to boost bilateral trade by about 25 billion pounds indian gdp by about 5 billion pounds and uk gdp by about 4.8 billion pounds according to a note from the uk government so it is indeed early days but where do we stand now and what are the early signs i reached out to kishore jayaraman group ceo of the uk india business council who took over last year after a long stint heading rolls royce engines and g energies india operations i began by asking him what the early signs were looking like one of the things of this eif happening is first of all it's a clarion call for the two countries to enhance the trade and economy as we know that the eif was a strong message saying that look we are now in business so when the fda happened last year the cita happened last year everybody was wondering okay we got a year to go so let's all you know see wait and watch and see what's going to happen. But with the EIF happening, I think it's all coming to full flow. The first steps in the full flow is that, look, the interest level that I've seen of businesses, both UK side as well as India side, has been extremely high. You know, everybody I talk to knows about the FTA or the CETA. They basically say that, look, we would like to see what are our opportunities here. And most interestingly, if I look at the SMEs and the small also, I have not seen much of an attraction yet. But the medium enterprises, I think, you know, they are really looking at what can be done more for them to become an export-oriented organization. So the questions have varied from saying, look, can UK IBC go in there and do business development for us? Can UK IBC go in there and help us with, you know, what sort of help can you provide us? In the UK, this is from the Indian companies, and the UK companies are saying, okay, so now that this is coming to effect, what is it that we tried to do before that worked or did not work? And what is it we need to do more to get in line with India, right? And I think the other part of the things is larger scale, large banks like HSBC, Standard Chartered, Barclays, as well as some of the finance organizations, investment companies, they're all looking at India saying they've been doing things in India. So what does this really mean for UK and India trade and economy, which is a very interesting way to look at things, because now they are saying, here is what stopped me from doing more before, and I stopped doing things because, you know, okay, there was really no motivation for me to do more. The governments were not engaged. Now with the CETA coming into effect, they're all saying that, well, the governments are now engaged. So what is it that I need to raise to the government in order to enable a level playing field? So I see these kinds of activities happening in small, medium, and the large enterprises. Right. Any sectors that stand out or verticals that stand out from either side? I've had a lot of interactions with the financial services sector. I wouldn't say services, but all forms of financial sort of development of digital tools to capability enhancement to GCCs. I've seen a lot of movement in that space, people asking questions in that space. The other one is on the tech and digital side as to see how the collaborations can increase. Interestingly, aerospace and defense has gone into a different momentum curve. And if you look at the recent announcement by Rolls-Royce and Reliance, it is a co-creation project that was in the anvil as to how to do it, how to do it, how to do it. And I think that's a very important part of the to partner, where to partner for well over a decade now. And I think you look at what's happening, it is a first step in the right direction for Reliance as well as Rolls-Royce to enable the Indian Combat Engine Program. So would you say the Reliance-Rolls-Royce partnership is the first sort of major outcome of this FTA? I wouldn't say it is an outcome of the FTA or the CETA. It has been in the works for quite some time. It is a very major step in the right direction for both nations. Right. And as you look ahead, what are the newer areas apart from aerospace and defense that you mentioned, where you feel the reduced trade barriers on both sides could actually spur trade or spur more imports or exports as the case might be? I think there are spaces that have not been totally explored. I mean, the capital goods segment, it comes to machinery, automation, manufacturing, plant processing, etc. And food and beverage is another sector that will benefit a lot from this CETA agreement. Agricultural, sort of innovations on both sides will be very useful. I think the education sector will get into a revamp mode on both sides. Leave alone the services business. I think the services business has been doing well, but I think services will also be enhanced with the FTA. What is most important, what people are looking for, in my view, is the ease of doing business. So what does it really mean to ease of doing business? And I think that is the implementation piece of the CETA. The second part is, how do I come into India? And with the first part of ease of doing business, how does it make me establish myself in India easier? And these are the areas that UK IBC is focused on. And what we're doing right now is basically looking at the last mile connectivity and saying that if it is a medium or a small enterprise in the UK, how do we provide them a launchpad in India? For Indian companies, they're also looking and saying, what is it I need to do in order to get my business going in the UK? And we are trying to figure out what is that bridge that we got established for them or a reverse launchpad from India to the UK. So I believe there is a lot of conversations going on in the implementation of the FTA. And there's also a lot of conversation going on about what does it really mean? So we have enabled that to start with the implementation manual, which UK IBC worked with DGFT in partnership with HSBC. It's a beginning. It's a living, breathing document that shall allow companies to understand the CETA in its full details, ask the right questions, and grow the business. Right. As you look ahead, what are some of the challenges or unfinished agenda, if so? For example, in many of these cases, or at least some of these cases, the tariff barriers will still take time to come down. So there is a path to it. What else, apart from that, needs to be done or could be addressed? It may fall outside the FTA and may form part of the regular UK IBC agenda as well. No, I think the most important thing is, look, there is a euphoria about the whole FTA being signed right now. And it's a major accomplishment for both nations. And I think that euphoria is only going to be continuing on based on the implementation of this particular agreement. And the implementation of this agreement is only going to happen through communications and the support of the governments in eliminating the challenges and the barriers that will come up. There are plenty, like the rules of origin, people need to understand it very clearly. They still need to understand what are the regulations and the rules of operating businesses in either of these locations. What are the tax, especially the tax implications, the financial. So I think that's going to be something that's going to be very important. And I think that's going to be something that everybody would be very keen to understand and sort of remove the obstacles going forward. But there is going to be more challenges coming up. There's going to be more obstacles coming up. But with the CETA agreement in play, at least the intent is very clear that we want to enhance the trade. I am very, very hopeful that, you know, as we go forward, this is going to sort of allow us to think about these challenges and eliminate them as we move forward through the CETA agreement implementation. Right. For Indian businesses who are looking at the UK and a lot of business owners and leaders listen to us, what would you say are the areas that they could look at in terms of exploration, in terms of conversations, outreach and so on? Education is a major piece of things. I think both nations will benefit in terms of the collaborations in the education space, whether it be research partnerships, whether it be faculty partnerships, whether it be student enablement, mobility. I think there'll be a lot of work that will happen in the years to come. And I think when we look at the tech and digital space, there'll be a lot more coming out. I think there's a lot of capability opportunities from the UK needs. They have the creativity and they've come up with products and technologies that are very beneficial for both countries. India has the capability and the capacity and bridging these three C's would actually help both nations. And creativity on the Indian side and the digital payments, I think India is way ahead of every nation in the world in terms of digital payments. And I think it's going to be a lot of work. I think there's a lot of interest from the regions in order to build the regions. And I think there's a lot of interest from the regions in order to build the regions. And I think there's a lot of interest from the regions. And we are working very closely with the regions to bring a delegation here, hopefully very soon. And if that happens, then I think it'd be a major step in the right direction of mapping sectors to the different regions in the UK to the different states in India. Right. That's very useful. Kishore, thank you so much for joining me. Very good. Thank you very much for the opportunity. An experimental mRNA-based vaccine succeeded in preventing the spread of COVID-19. The study looked at people who had surgery to remove a melanoma. The point of the treatment was to reduce the risk of it coming back. The company said the late-stage study, which tested the personalized cancer vaccine in Tismeran in combination with Merck's blockbuster cancer vaccine, was a success. on www.thecore.in to track us on LinkedIn, where we usually post synopsis or extracts of our top stories and interviews. We would love your feedback on how we can make business more interesting and relevant, including, of course, India's vibrant manufacturing sector. So write to us at feedback at thecore.in. And thank you once again for listening.