#384 Markets Stay Positive But Lean On Wall Street
Good morning, it's Wednesday, the 11th of September and this is Govindraj Ethiraj, headquartered and broadcasting and streaming from Mumbai, India’s financial capital.
The Take
Car companies like Tata Motors are cutting prices quite sharply. The price cuts would be fine if the automobile industry was not so reflective of the overall economy.
A report just out by Nomura Securities says sales of passenger vehicles (PV) and medium and heavy commercial vehicles (MHCV) are important to gauge cyclical growth in the economy.
Passenger vehicles signal discretionary demand while medium to heavy commercial vehicles or MHCVs have a strong linkage to overall industrial activity.
Both passenger vehicles and commercial vehicles have disappointed in July and August, Nomura has said.
On the other hand, inventories have risen from 55-60 days to 70-75 days with dealers as we have been pointing out in recent days and months.
This is the important part.
Nomura says the moderation in buying may have been triggered by the fading of post-pandemic pent up demand, higher interest rates and the slowdown in Government spending thanks to elections which are of course several months behind us now.
There is nothing that says why this will reverse now.
I feel the larger issue is the reading of signals. Companies worldwide appear to have assumed pent up demand was equal to consistent demand and growth.
A small example from the US where discount retail chain Big Lots with over 1,300 stores has filed for bankruptcy. The WSJ says this is the latest retail casualty as consumers rained in spending after a post pandemic surge.
There are similar reports on spending slowing down in services as well, including travel within and out of the west.
You cannot blame companies for being exuberant and betting on a consistent rise in sales.
But India’s auto sector seems to be a cautionary tale of too much optimism leading to too much production and then not relenting despite dealers pushing back for months saying they were reeling because of the huge inventory build ups.
While, as always, some models are doing better than the others, the fact is there has been a slowdown and notably so at entry level.
Federation of Automobile Dealerships President Manish Raj Singhania told me last week that salaries incomes have not risen by the 70% or so car prices have.
“Average prices for passenger vehicles were around Rs 6.5 lakh four or five years ago, now the average price is almost Rs 11 lakh,” he says.
Somewhere in this, there is a pretty large assumption failure, that growth would follow a natural momentum. It is in some ways obvious, even in retrospect, that car makers were not really looking at other figures like income and jobs or even if they did not pay as much attention as they should have.
Moreover, they jumped on the easy to believe answers or excuses like heatwaves and then heavy rains keeping
India has a surfeit of less relevant data and scarcity of critical data on a host of factors.
Large companies, including car makers of course, do their own studies and build models based on them.
But between the lack of good public data, particularly more realtime and the haze that led to the car makers not believing in what they should have been seeing in broad daylight, they pumped out tens of thousands of more cars than they should have.
And then there was the stock market. Who wants to be the first to signal to the stock markets that sales could be headed down when stock prices are racing up ? Well obviously no one.
While the exuberance in auto sales and its hangover effects may be visible, could this be the case in other consumer facing industries in India as well?
And that brings us to the top stories and themes of the day
Markets stay positive but lean on Wall Street.
Mutual funds pulled in Rs 38,000 crore in August, second highest ever.
China’s $6.5 trillion market loss since the 2021 peak.
Understanding India’s oil import basket as Venezuelan crude makes an entry.
Apple’s AI powered iPhone16s are not quite here yet.
Markets Lean On Wall Street
Indian stock markets rose again on Tuesday, as stocks picked up cues from an overnight rally on Wall Street.
At the closing bell and after the almost predictable see-sawing, the BSE Sensex closed at 81,921, up 361 points.
The Nifty 50 closed at 25,041, up 104 points.
Monday was a strong showing on Wall Street after the leading indices bounced back from their worst week in 2024.
Stock futures were trading strong overnight as well.
CNBC reported that cloud platform company Oracle surged about 8% after posting fiscal first-quarter results that topped expectations.
Investors are now watching to see the extent of interest rate cuts at the FEderal Reserve’s September 17-18 meeting.
Wall Street is also watching out for the consumer price index report out today and the producer price index tomorrow, CNBC reported, adding that September is historically a weak month for equities.
Mutual Funds Rake It In
Equity mutual fund (MF) schemes raked in a net of Rs 38,239 crore in August, a 3 per cent month-on-month (M-o-M) increase despite higher volatility.
The inflows were supported by strong collections from new fund offerings (NFOs) and a surge in systematic monthly flows.
The August tally is the second-highest inflow into equity schemes during a calendar month, Business Standard reported.
Analysts told the newspaper that the correction in the markets in early August had encouraged investors to come into the markets, rather than, I guess, leave them.
Last month, inflows through SIPs went up nearly 1 per cent M-o-M to a new all-time high of Rs 23,547 crore.
NFOs in popular categories were also a factor. Six NFOs came to a close last month, collecting Rs 11,067 crore.
Equity MF schemes have collected around Rs 170,000 crore so far in the financial year (FY) 2025.
The tally is 92 per cent of the total collections of Rs 180,000 crore in FY24 or last year.
Total AUM surged to Rs 30 trillion for the first time in August or 28% in five months.
The equity MF AUM is 45 per cent of the total assets being managed by the industry, reported the BS.
China Stocks Under Pressure
Some $6.5 trillion has been wiped out from the market value of Chinese and Hong Kong stocks since a peak reached in 2021.
That’s almost equal to the size of Japan’s equity market, Bloomberg is reporting.
The CSI 300 index is down almost 4% in September after a four-month losing streak.
While there have been a few rebounds over the past several years, most have flopped in a matter of weeks as the grim economic reality hit home, said Bloomberg.
The selloff in Chinese stocks is also worsening a crisis of confidence in the country’s economy.
The CSI 300 is now near the lowest levels since January 2019, andis down almost 7% this year.
China is battling with the fallouts of a property crisis as well as falling consumer spending.
Interestingly, benchmarks in the US, Japan and India have nearly — or more than — doubled their levels during this period since 2019 while China has lost out.
Tata Motors Cuts Prices
We spoke how PV and MHCV sales both disappointed in July and August quoting Nomura Securities.
Wholesale PV sales growth fell to -2.0% y-o-y in July and - 2.5% in August, while MHCV sales growth declined to -7.1% and -10.7%, respectively.
Inventories for PVs have risen from 55-60 days in May to 70-75 days in August, with hopes now pinned on the festive season1 .
Tata Motors yesterday announced massive cuts in the price of its electric vehicles portfolio as part of its 'festival of cars' campaign.
The offer will be valid till October 31, the domestic carmaker said in a statement, quoted by Moneycontrol.
The automobile firm has reduced the price of Tata Tiago by Rs 40,000, Tata Punch by up to Rs 1.2 lakh and Tata Nexon by up to Rs 3 lakh, according to reports.
The automaker said the move will help in 'mainstreaming' electric vehicles in the country and accelerate adoption.
Interestingly, Tata Motors has said it is bringing the prices of the best-selling Nexon.ev on par with ICE models as well for a limited time.
This could also be read as electric cars now not showing the kind of growth a year ago or so.
Tata Motors also said customers can enjoy 6-month free of cost charging at any of the over 5,500 Tata Power charging points across the country, "making both inter- and intra-city journeys hassle free as well as cost free".
On September 9, the automaker had also announced discounts up to Rs 2.05 lakh on its ICE variants of cars and SVUs as part of the "Festival of Cars" campaign.
India’s Falling Oil Import Bill
India’s oil import bill could fall further but Morgan Stanley says low oil prices could signal slowdown.
Morgan Stanley has said that a decline in oil prices would be a cause for concern for Indian equities if the oil market is right about its assessment of a global slowdown, the Economic Times reported.
The brokerage said while falling oil may seem good for India's economy, earnings and shares, in practice, the impact depends on the reasons and duration of the fall.
"We think it is safe to say that the recent bearishness in the oil markets is being led by growing concerns about slowing demand, and to that extent, its positive impact on India's terms of trade is diluted greatly," Morgan Stanley's strategists said in a client note.
Oil prices have dropped over 10% in the past two weeks on demand worries and are currently hovering around $74 a barrel.
Morgan Stanley said there is no reason to be more optimistic because oil is down. "If anything, if the oil market is right in its concerns about global growth, then we should be worried about absolute share prices," said the brokerage's strategists, the ET said.
Interestingly, India's import bill could be lower than what it was thanks to cheaper Russian oil.
A chart published in the Business Standard says the average price per barrel of imports for India in September would be around $75 compared to a peak of $89 in April, also referring to the arrival of cheap Venezuelan Crude.
India is relying less on Russia and more on countries like Iraq but that has been good for the economy.
I reached out to Narendra Taneja, leading energy expert and also chairman of the Independent Energy Policy Institute and began by asking him how he was seeing the current oil import basket and also his outlook on oil prices
INTERVIEW TRANSCRIPT
Narendra Taneja: We are heavily dependent on import crude. we are importing roughly 88 to 88.5% are totally requirement of crude from various geographies. And if you look at, for instance, the current situation we are importing, if you go by the latest data, roughly 4.8 million barrels of oil per day, every day, 4.8 million barrels. That makes us the second largest importer of oil in the world. And if you look at the kind of, you know, mix in terms of geographies, roughly 40% is now coming from Russia of our total requirement. This varies, you know, month to month. Last month, it went down a bit because our refineries were going through, you know, the annual maintenance. So otherwise, if you look at broadly the last few months, its in the region of 40% or total oil, about 20% from Iraq and 15% from Saudi Aramco thats, Saudi Arabia, and 4% from the US. Of course, is a major change in terms of, you know, the geographies and the colors and everything. Because, if you see the situation before Ukraine war happened, we were importing a lot from the Middle East. Like 24% was coming from Iraq, and if I remember right about 16% from Saudi Arabia, and almost 10% from the US, and only 2% actually, little less than 2% from Russia. And that changed dramatically, you know, over a few months. And the reason for that was very simple. It was no love for Russia or anything of that sort. It was just that they offered very attractive discounts. So we really don't know the economics, for instance, that they had negotiated with Russian exporters, but we do know for sure that it was a very attractive economics. And because we just look at their GRM and look at their overall profit, it's very clear that they enjoyed heavy, heavy discounts from Russia. So that's the kind of scenario like today. And as I said, the you know, oil has no nationality when you look at it from the viewpoint of a major refiner or major imporeter like India. So whosoever offered, you know, good discounts, they go to them,
Govindraj Ethiraj: As the Russian prices have increased, or the discounts that we were getting are reducing. We are obviously switching to other options, including Iraq that you pointed out, also some Venezuelan crude, from what I could see now, what is the impact of all of this on the cost, or the average cost per barrel, to India and to Indian refiners?
Narendra Taneja: First of all, Iraq has always been a very important group for Indian refiners, and it is still number two. It used to be number one before Ukraine, and now it's still number two. So it's actually more important than even Saudi Arabia, because the quality of Iraqi oil is very good, and India's refiners are kind of very comfortable with that. Majority of our refineries are kind of designed in such a way that they refining Iraqi crude more economical, but in terms of, you know, discounts and the profit and all that. If you go by numbers which are available in the public domain, like in the last fiscal, the fiscal 2024 we save roughly between $18 billion it could be little bit more. The rough estimate is in the region of our $12 to $16 billion in that fiscal, and this year, already, the current fiscal, we have already saved more. And the numbers which are coming out, we probably are going to save much more than what we had in the last fiscal. But as each of the exact number the refiners don't share.
Govindraj Ethiraj: But you're saying that despite the discounts on Russian crude going down, we are still saving more. So we are getting oil cheaper this year than we got last year or the year before.
Narendra Taneja: Oh yeah, we are getting because you see, India now has kind of overtaken China. China traditionally has been the biggest importer of Russian crude, and they import by sea, and they also have pipelines, you know, so, but now India has overtaken China. Today, we are actually number one buyer of Russian crude, and that is a lot to do with India's economy. As you know that India today is the fastest, we see here, the fastest rate of growth in oil consumption. And at the same time, you know, if you look at large economies ofthe world, India is most dependent on oil imports than any other economy. And as I said earlier, we ranked roughly third in the world in terms of oil consumption and second in terms of oil imports. So it makes India a very attractive country for Russian exporters.
Govindraj Ethiraj: Right. You know, currently oil prices are low. We are in the $74 barrel region, crude oil. What's your Outlook looking ahead in a more global context, particularly in the context of prices.
Narendra Taneja: You see, predicting oil prices is always a very difficult job, but as part of my work, I've been doing it for years now, and I've, you know, rarely been wrong. So my own sense is, if you look at, let's say, next three months, four months since there is no. We don't see actually, kind of any dramatic growth in terms of demand globally. I mean, India is actually the most bright star on the horizon in terms of a see the growth of demand. But otherwise the demand China is going down. America is actually going up. Western countries are not consuming more. And there are few other bright spots, like in the Middle East, in a couple of other geographies. So given that situation where the demand is not going up, and at the same time, there are no major or there no there is no disruption in supply, which means demand, supply fundamentals are in favor. You know, oil prices being low, geopolitical trigger, which is always a very important factor. You know, when you look at all prices, Ukraine has been kind of already adjusted by the market. Israel-Hamas has also been adjusted, you know, by the market. So we also noticed that, you know, Senior Hamas leader was killed in Tehran. But still, you know, Tehran has not really reacted to it, in the sense that it seems that Iran is not in favor of any escalation in the region, which is a good news for the oil prices. So my sense is that, you know, while prices are going to move southward, a little bit more may touch even $70 per barrel, will not stay there for long, because then the OPEC will intervene, and they would like to make sure that the prices start moving northward. But when you look at the overall I think the price is going to be in the region of about 75 to about $83 per barrel. Of course, I'm talking of brands, because that's the benchmark we use in India, so in that region. So you will even see going up to 85 you may see it coming down to 70. But that's kind of short, you know, next few months. But when you look at the medium to long term, demand for oil is only going to grow, and there is not enough investment going in exploration production. And at the same time, global economy is still a fossil fuel economy, 80% energy being consumed as a planet is still coming from fossil fuels. In India, it's more or less the same, roughly 80% is coming from fossil fuels. So with that kind of landscape and the ground reality. So demand for only is going to go, I think India probably will be consuming roughly maybe 7 million barrels or 8 million barrels coming years from 5.5 million barrels to take today. So which means that demand is only going to grow and surprises will at the same time not enough investment is going. Sufficient investment is not going in exploration production, so they will be shortages and the price rise, but that's medium to long.
Govindraj Ethiraj: Narendra Taneja, thank you so much for joining me.
Narendra Taneja: Thank you very much.
Apple’s First AI Phones Are Not Quite Here
Apple launched the iPhone 16 and Iphone 16 PRo but without the Apple Intelligence Software, at least when they arrive on September 20.
The devices mostly look like last year’s models and cost the same, but with new colours and faster processors.
The regular iPhone 16 can play video two hours longer than the regular iPhone 15, according to the company’s specs. The Pro models boast an even bigger jump of two-to-four hours, says the WSJ adding that the star feature, a new Camera Control button on all four models, lets users quickly access and control the camera.
The button also launches a feature exclusive to the new iPhones: Visual Intelligence, which identifies and interprets things seen through the camera.
The yet-to-be-released AI features, including a smarter Siri and text-summarization tools will also be available for the iPhone 15.
The WSj says Apple showcased a revamped Siri that can speak more freely and use personal context to deliver better responses.
New writing tools will summarise, rewrite and proofread text in Notes, Mail, Pages and other apps. And the iPhone will be able to record and transcribe calls.
