The Core Report

Good morning, it's Friday, the 6th of September and this is Govindraj Ethiraj, headquartered and broadcasting and streaming from Mumbai, India’s financial capital.

The Take: Worshipping The Sun
Indians worship the sun as the source of life, as many civilizations do, going back to ancient Egypt.

Increasingly, it is a source of energy as well. Solar power generation in India is now touching 20% of total power generation in India.

Overall fossil fuel power generation is only at 53%, only because it is reducing by the day.

The first half of 2024 saw close to 15 gigawatts of solar capacity being set up, the highest ever for a 6-month period.

Interestingly, 87% of the solar power generated in India is grid power, or produced at large scale and pumped into the electricity grids, mostly state government run.

The other 13% comes from rooftop solar. And that is the opportunity.

Before we come to that, solar power generation in itself is getting cheaper and cheaper.

The problem is when you combine it with battery storage which you need for night time supply when the sun stops shining, the cost goes up.

“The combined cost is twice as that of fossil fuel based power,” Dr Rakesh Mathur, director general of the International Solar Alliance, a pan national body, told me on a panel titled reaching the unreached yesterday at the International Solar Festival 2024 in Delhi.

The title festival is apt for solar energy, suggesting something to celebrate rather than a seminar to grimly ponder over the future of energy.

Now the economics are still a little tricky when you look at grid power but can be a little different when it comes to homes.

I found it interesting to learn from the High Commissioner of Australia Philip Green that Australia has now the highest per capita of solar energy in the world.

Not just that 1/3rd of households in Australia now have rooftop solar, Mr Green said yesterday.

The Clean Energy Council says rooftop solar photovoltaic systems have touched 20 GW of capacity in Australia last year, is the fourth largest source of power and now represents a little over 11% of the country’s power supply.

Australia is a small country but the percentage is quite surprising and thus a good example and illustration.

There are calls for more subsidies for batteries to create the flexibility of storage and thus being able to access power at all times.

India has a new rooftop solar programme launched in January this year, targeting 10 million rooftops, riding on previous schemes launched in 2022, including subsidies for the cost of solar panels. Some 13 million Indians have already registered for this apparently.

The big opportunity and perhaps need is self-generation and innovating in utilities.

For example, solar heating can save water heating bills as it is already in perhaps millions of homes in India, perhaps more in the southern part of India where I have seen it.

Similarly, solar can drive power requirements for remote applications.

Going back to Australia, a friend originally from Delhi who lives in Sydney says his Tesla car is totally charged with power from his rooftop solar and he also pumps energy back into the grid. So his electricity is truly electric, he says.

It is something for a hobby for him to see if he can take less and less power from the grid and one day be totally independent of the grid.

India needs more applications like this which will decentralise and reduce distribution costs and friction.

It is almost a Gandhian way of self-sufficiency if you think about it, except that it is not in a way that he would have perhaps imagined.

And that brings us to the top stories and themes for the day

Markets slip further as the bottom stays weak.

Oil at its lowest since June 2023

Auto sales fall again, inventories rise further.

Singapore controls 11% of the global semiconductor market to partner with India for new projects.

Markets
The stock markets stayed weak for the second day after a 14 day non stop winning streak that led to much awe and surprise among market watchers.

Benchmark equity indices were down, thanks also to some sustained selling in Reliance Industries, among others.

The BSE Sensex fell 151 points to close at 82,201.16, while the NSE Nifty50 dropped 53 points to end at 25,145.10 on Thursday.

Analysts told Reuters there appeared to be a defensive shift underway in the equity markets. The global macro uncertainties appear to be coming at a time when the domestic equity valuations have been expensive, they said.

According to Reuters, India's rally is also ramping up its index weighting and creating a dilemma for global fund managers who own around 16% of Indian stocks: should they be passive as their relative exposure shrinks while the market grows, or buy in at high prices and stretched valuations.

The response is to either buy smaller companies or smaller cap stocks or look at other emerging markets.

In the last few years, India’s weight in the MSCI Emerging Markets' Index which serves as a benchmark for global EM funds has gone upto 19%, up from just 8% four years ago.

Some estimates say it could top 22% by the end of this year.

China's weighting over the same period has collapsed from 40% to 25%, data from MSCI shows.

Managers would need to buy Indian companies extensively to keep pace with the indexes

But the 12-month price-to-earnings ratio of 24 times for big and middle-sized firms is the most expensive in major markets, according to LSEG data.

So investors are staying underweight.

Valuations for Chinese blue chips are lower with the same price-to-earnings measure at 17 and at 15 for big Malaysian stocks.

All this also means that broad market rises are more likely to be driven by domestic investors which can be good and not so good news depending on what the newsflow is like.

On Wall Street, Nasdaq futures declined on Thursday open as investors dumped risk assets, and concerns mounted over the outlook for the U.S. economy, CNBC reported.

Investors also got out of popular technology and chip stocks as economic worries resurfaced.

Nvidia and Advanced Micro Devices were down, as were Meta Platforms, Microsoft and Alphabet.

Fresh labour market data Thursday sent mixed signals about the health of the U.S. economy as questions linger over whether the Federal Reserve is behind the curve on rate cuts, CNBC said.

Oil Prices
Oil prices are now holding near the lowest close since June 2023 as an industry report pointed to a big draw in US crude stockpiles, with the market taking a breather following a sharp selloff this week, Bloomberg reported.

Brent is hovering near $73 a barrel after losing almost 8% since the start of the week.

The American Petroleum Institute reported crude inventories dropped by 7.4 million barrels, according to people familiar with the data. That would be the biggest decline since June, if confirmed by official figures later Thursday.

Oil inched higher, with OPEC close to agreement on postponing a planned production increase.

Bloomberg also said key coalition members of OPEC likely won’t go ahead with a scheduled hike of 180,000 barrels a day in October, according to delegates.

This comes in the backdrop of falling prices in recent days amid weak economic data from China and the US, the top two consumers.

Auto Sales Down
It's quite amazing how sequential bad weather, ranging from heat waves to heavy rains can affect demand, in this case for cars, something you would think people would buy if they made up their mind to do so.

Latest figures for August from India’s dealers are showing that car sales have fallen by 3.46% MoM and 4.53% YoY.

The fall in itself is not so worrisome but the context in which it is happening, a massive pile up of inventory with dealers across the country, is somewhat worrying.

The Federation of Automotive Dealers Association which represents over 15,000 Automobile Dealerships having over 30,000 dealership outlets says even with the arrival of the festive season, the market remains under significant strain due to delayed customer purchases, poor consumer sentiment and persistent heavy rains.

Inventory levels are now at 70-75 days and inventory totalling 7.8 lakh vehicles, valued at an alarming Rs.77,800 crore.

The FADA says that car makers are still dumping cars on them, despite the fact that this is putting financial pressure on the latter.

Elsewhere, commercial vehicle sales have also dropped.

I reached out to Manish Raj Singhania, President of FADA and began by asking him whether the rising inventories suggested a larger problem.

In this somewhat longer conversation, I tried to touch upon various other aspects including why consumers were postponing their purchases and of course what the outlook was.

INTERVIEW TRANSCRIPT

Manish Raj Singhania: So even though we are seeing a degrowth of almost 4.53% in PV on a YoY basis, primarily we have attributed that to 16% excess rainfall there can be few more reasons that we get pinned down above. First is we have a very high base in last year. We had created lot of new records last year, and crossing those numbers every month would be possible. So factors would be influencing differently for this year and last year, it would be different that can be one probable cause. Second is, if you compare with diaspora era, the average price of acquisition for PV was around 6.5 lakhs. Now, average price of acquisition of a PV has gone up to 11 lakhs average. So the entry level, or the average price point of such a high price point, will lower the customer base as such, for the car buyers. So we can definitely see lot of PV manufacturers doling out huge scheme, also putting down on prices. Thirdly, I think we should note that compared to, like, say, if the car prices has gone up by almost 75 to 80% I don't see income of people rising to that level. Almost 70% rise in salaries in four year or five year time is not there. This can be a momentarily plunge also that was affected by certain conditions. And the degrowth is not plastic degrowth. It's still solid single digit growth, which we can very well be covered in the next one, or the coming first you've seen them. Okay.

Govindraj Ethiraj: So just to pick up on that figure, you said car prices are up 75 to 80% in four to five years.

Manish Raj Singhania: Yeah

Govindraj Ethiraj: on an average. So, and that's the figure of 6.5 lakhs that you quoted, which was the median price earlier, which is about 11.5 lakhs now,

Manish Raj Singhania: 2019 to 2023-24

Govindraj Ethiraj: right. And within the car models and within the price bands, what are the kind of trends you're seeing, which is going faster, maybe, or which is going less?

Manish Raj Singhania: There is no doubt that the SUV is ruling the roast, getting the maximum advantage. The people choices have changed and are totally inclined towards the SUV. If you see 90% of the models, new models that are being launched are all SUVs, or, you know, closer to the SUV types, which can cater to large spaces, feature rich vehicle and accessible vehicle. And you know, we can play around with the vehicle. So I think the fancy for SUV still continues for the coming couple of years. This would be the Segment, which will continue moving and growing

Govindraj Ethiraj: right. But when the overall numbers are low, and I mean, there is clearly degrowth, as you've said, that would imply that all segments are slowing down, maybe some more than the others.

Manish Raj Singhania: So here's definitely the entry level add back sedans. The numbers of share has constricted quite a lot. SOEs above contributed almost 60-63% of the total PV retail. That's a major chunk of retails that is going to SUVs.

Govindraj Ethiraj: And broadly, I know you've been saying that entry level models are facing pressure because people are not able to take loans for down payment. I mean, that could be one reason is that a trend that you see continuing right now.

Manish Raj Singhania: So there are multiple reasons here for entry level also, cost of acquisition has gone up by almost 60, 70% although entry level initially would be at well two lakhs. Now it has four, four and a half lakh vehicle it's a difficult and the stress of covid, job losses during lockdowns and all this has affected the entry level the most and recovery of that particular segment is also very slow. The urban Uber of India, they have got idea of money to spare, but this segment has to earn back that money and generate some extra savings so that they can invest in the luxuries of life or necessities of life. So recovery has been slow in that segment, but yes, the overall good economic outlook that we are seeing and overall good economic performance that we are seeing will definitely see a traction in this segment coming years.

Govindraj Ethiraj: So Maruti, for example, feels that by next year we will see pick up in this entry level segment. So you're in agreement with that,

Manish Raj Singhania: yeah, pretty much. Because please understand, for auto OB any for that segment, it is not a luxury, it's a necessary. In India, we always quote that public transport is not very good or even available in tier two or tier three cities, tier one but has the leverage or luxury of public transport. But rest of the cities, you have to own a vehicle if you want to transit from point A to point B. So it's a need that would drive this revival of that market.

Govindraj Ethiraj: So you're saying that at the entry level, therefore people will be able to buy next year or put down money because they would have managed to save more, or you feel incomes will improve. I mean, what's the more basic assumption that is driving this

Manish Raj Singhania: So overall, looking to the account rate of urban and rural, if you see it has been steadily improving, and we had expected. Especially the rural since last November or December, we were seeing rural contribution increasing in overall sales, but due to the extreme heat wave and the pons that we are seeing, if you don't have a proper quality quantity of crop, the expected rural sales will not come because you won't have the right quality quantity of crop, even though MSPs have increased, increased MSP will ensure that enough fund flow is there in the rural market, and eventually some of it will definitely flow back to automobile market.

Govindraj Ethiraj: So Manish, there's clearly a discrepancy between the data points, as far as inventory is concerned, between what you are claiming and what even companies like Maruti are claiming. So why is there a difference?

Manish Raj Singhania: See FADA talks on hardcore data. We have been maintaining the database since the launch of Vahan, and we were actively involved in the launch of Vahan with bot and and also on a day to day basis, we work very strongly with the bot and the database has been with us since those time almost now, seven, eight years now. And kindly understand the wholesale is declared by sayo all the OEMs. We don't declare it. And we take the retail figures from Vahan, which is a government website, and we also add to it a certain percentage of telangana retail, and we get the total retail. So we have a total wholesale. We get the total retail and subtracting them accordingly, we get the total stock available across India. See, the mockery is when we quote a stock level of 30 days or 40 days. Nobody is questioning that data. Okay, right now the two wheeler paid up stock is only 20 days. Nobody is questioning the data. As soon as we put up a higher paid up day stock, or a higher quantity of days, everybody starts questioning this data. So what is the logic behind this? I also wish to understand that. But please understand at FADA, we only talk only on the hardcore data,

Govindraj Ethiraj: okay, and that data is really what you're saying, is registered when the cars arrive at your dealership with the Vahan portal, which is the government of India,

Manish Raj Singhania: that is the whole sale. And when we sell a vehicle, we get the registration done, and then registration is reflected in Vahan. if I get, say, 100 vehicles Bill and I register a 20 vehicle, so my stop would be automatically 80 vehicles. No,

Govindraj Ethiraj: Right. Got it. So you're now saying that your inventory levels have increased even further. So despite, let's say, all the representations made to the car makers last month, the number of cars that are being sent to you are much higher. Why is that happening?

Manish Raj Singhania: I think this is not the right question to be answered by me. Car makers should answer it. We very actively give way of figures about the quantity of vehicles available and the value of vehicles available at the dealership. In fact, if you look at the office figures, that dispatches are at 3.54 if you configure the telangana retail and the Vahan retail, a certain percentage that we do that is 3.23 comes to and the whole state is more than retained by 21,000 week. So in spite of all our representation about, all our warning about, you know, I stop level the OEM continue to dispatch more vehicles. I think they really need to align with their retail goals. Where exactly do they stand? And should not be over ambitious, and just dumping cars at the dealership will not be a solution, unless, until that vehicle has a trade net, or, you know, is retail at the doesn't hold any value. And the health of the dealership is drastically affected. We'll see financial losses happening at the dealership, across board, wherever the inventory is high and the OEMs, though, there's an expectation that with the festival season, retails would be good, but correcting such a high inventory in one or two months is not possible. It will take three, four months, and every month the difference between wholesale and retail has to be minimum 50 to 70,000 then possibly there could be a correction.

Govindraj Ethiraj: And most of the models that, let's say, are now sitting with the dealerships. Are they mostly of a certain type? Or is it equally distributed?

Manish Raj Singhania: See now every OEM, more or less 80, 85% of the range of models that are there at the dealership are amply available at the dealership, heavily stocked at the dealership. There are few warnings, definitely with every OEM which continue to command waiting periods. And we do not see any schemes, or any type of schemes, all those model which continue to command waiting period. See, here is the offering. There are bodies which are commanding period, which are not available at the dealership. And there are models which continue to get down that dealership at a certain wholesale quantity. Here, the OEM have to be more vibrant. They should be able to produce, as per the market demand and requirement, rather than pushing a certain quantity of models like the dealership, the customer requirement needs to be addressed rather than just pushing numbers to the dealership.

Govindraj Ethiraj: Okay, so a point that you had made earlier, and I just want to revisit it, is that, you know, when people don't come to dealerships, they typically postpone a decision, and the behaviors is almost like a consumer product, or a perishable consumer product. You want to go to a. Restaurant, if it's closed, you don't go back again, or not go back for a long time. And that, as I understood, is also something that you see at dealerships. Is that something that's affecting sales on a longer term, or

Manish Raj Singhania: See the preparation of buying of a vehicle, it takes time. It doesn't happen instantaneously. But what drives Indian consumer is the Muhurat, if a customer has a Muhurat, or, you know, auspicious day to buy a vehicle. That vehicle is not available on that particular day of the muhurat day, then obviously the deal gets postponed, and it can be indefinitely postponed also. So we Indians as such, are very particular. That's why dealers also, during the pre festival time, we tend to accumulate stock also. So then we are able to address each and every requirement of the consumer. We have a variety of models now, with range of models that we need to keep and color combination diesel, petrol, automatic, metal sitting, combination, whatnot, but we need to keep lot of things in stock so that we are able to address this Muhurat requirement of the customer. So that you see if a customer doesn't get his choice of vehicle during Diwali, or, you know, Dante Ras then after Diwali, will start calling you up sir will come back and on Diwali, if he has wound, you know, if he has muhurat, he can buy any goddamn vehicle and take it to his own or her own.

Govindraj Ethiraj: Right. Manish, thank you so much for joining me.

Manish Raj Singhania: Thank you, Govind. Thank you.

Singapore and India To Partner On Semiconductors
Singapore and India have signed MOUs to leverage strengths and build on semiconductor supply chains.

The MoU was signed during Prime Minister Modi’s visit to Singapore yesterday.

India should benefit from the ecosystem development part of the MoU and of course the supply chain linkages.

According to Reuters, tiny Singapore accounts for 11% of the global semiconductor market, with 20% of global semiconductor equipment manufactured there.

India is building three semiconductor plants right now worth over $15 billion to manufacture and package chips which could target sectors like auto, defence and telecommunication.

India is not manufacturing the more modern, smaller nanometer chips used for the latest iPhones and the like.

India has some $10 billion of subsidies open for semiconductor plants.

There is a global race involving subsidies to set up semiconductor capacity and countries from the United States to Germany are setting up fresh capacity in very large projects.