The Silver Lining Amid Global Gloom

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Good morning. The Indian stock markets took a beating today thanks to the worsening situation in the Middle East, add to that the strike by dockworkers in the United States (US). While this sounds like doom and gloom, there is a silver lining for India in this. Read on to know more. 

There is another important incident that took place in Britain this week. It shut down its sole surviving coal-fired power plant and that is quite significant. 

In other good news, we’re bringing back The Playbook, our spinoff newsletter on the business of sports and gaming, after a short hiatus. Prem Panicker, consulting editor with IndiaSpend and a journalist for over 30 years, will helm the newsletter that will be published fortnightly on Fridays at 4 pm. If you haven't subscribed yet, you can do so here.

THE TAKE

Correction Of Overvalued Indian Stocks Only Silver Lining Amid Geopolitical Churns

There were many reasons proffered and offered for what could turn overheated stock markets eventually, war figured somewhere but was not on top of the list. Stock markets across the world have turned distinctly nervous now, ranging from Asia and Europe to of course Wall Street. On Thursday, Indian indices were down quite sharply in their worst session in two months, around 2%, more than many other markets.

Elsewhere, oil prices are rising and currencies are under pressure. Gold prices, which usually rise along with war tensions as investors migrate to safer assets, are also falling. But this doesn’t end here. The biggest dockworker strike at major US ports in 50 years stretched into its third day, stopping the unloading of ships. The ports on the West Coast are functioning but ships will have to sail around the Panama Canal to reach there. This obviously adds to the problems already afflicting commodity and merchandise exports and imports as the case may be.

Like before, India is not insulated against global market movements. Oil prices are still around $75 a barrel though it could be worse. But the fact that it is not worse is more worrisome. It reflects the perception that demand for oil in major economies, from the United States to China, is shrinking. This is not good news in the longer term because a global slowdown if it happens is not good news for anyone.

October 7 will be the first anniversary of the terror attack by Hamas against Israel. A year on, hostilities have only increased even as a low intensity war has raged for many months now.

While the world at large, including the financial and oil markets, had to some extent isolated the tensions in this part of the middle east, that may no longer be possible. This will be the case particularly if Israel retaliates against Iran’s latest missile attack. Given Israel’s track record of going for the aggressive and ignoring international pleas, it would be best to brace for the worst.

For India, the only thing going for it is the domestic economy. Strong monsoons will provide much-needed relief to the agriculture economy and boost rural consumption. On the other hand, China is pulling capital away. Reuters reports that stock brokerage Jefferies has increased its weightage of China in its Asia Pacific ex Japan portfolio and reduced its India weightage.

There is one perhaps silver lining to all of this. Indian stock markets by most accounts have been overvalued and needed some correction. That this present correction is coming via external triggers and not internal is perhaps the only good news one can see.

JANUS VIEW

India Needs To Increase Share Of Nuclear And Renewables In Its Power Mix

The closure of the United Kingdom’s sole surviving coal-fired power plant is a symbol of the ongoing energy transition from fossil fuels, of which coal and its brown cousin, lignite, are the dirtiest in terms of greenhouse gas emissions, to renewables and nuclear power.

Coal was the fuel that drove the industrial revolution. Coal displaced biomass, especially wood and charcoal, as the chief source of energy, by the mid-19th century. Coal was pulverised and burnt in boilers to produce compressed steam, which worked machines ranging from locomotives and steamships to textile mills. It was only towards the end of the 19th century that coal was burned to produce electricity. Oil is a 20th century fuel, growing in significance with the spread of automobiles. In the 1960s oil displaced coal as the preponderant source of primary energy. Now, coal and oil are giving way to lower carbon substitutes such as natural gas, wind, sunlight and fissile nuclear material 

Britain is the first G7 country to dispense with coal. Should India try to adapt to the global fuel mix, increasing the shares of natural gas, renewables, nuclear energy and hydel, while reducing the share of coal? India’s aim should be to focus attention on raising power generation to match the demand generated by a growing economy and improving living standards while doing research on technology and processes to remove carbon dioxide from the air.

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CO:RELATION

Stock Exchange Wealth

You’d likely read about the loss of shareholder wealth due to a sharp selloff in India on Thursday and many other global markets. However, investors' interest in shares of companies that run stock exchanges and depositories in India is relentless. Shares of Bombay Stock Exchange (BSE) are listed on the National Stock Exchange (NSE). In a falling market on Thursday, BSE shares moved northwards. Over the past 18 months or so, the share price of BSE jumped ten times. The market is awarding multiple price-earnings to BSE shares nearly five times the multiple awarded to Nifty 50 or the S&P BSE Sensex. 

The NSE's unlisted shares are traded in private markets at a multiple of 36 times. They have doubled in value over the past two years. When they list, they certainly would see a further jump as NSE is the biggest stock exchange in India. Shares of Central Depository Services and Multi-commodity exchange have all outperformed the broader market in 2024. The opportunity for securities services to grow in India is immense, considering a mere 3% market penetration.

FROM THE PERIPHERY

—🎧 Apple’s strategy in India just got a major upgrade, and it's not just about iPhones anymore. The tech giant is now taking a bold step by shifting AirPods manufacturing to India, solidifying its vision of making the country a key manufacturing hub outside China, according to The Business Standard. Production will be split between Jabil’s Pune facility for casings and Foxconn’s Telangana unit for final assembly. While AirPods won’t enjoy India’s production-linked incentive (PLI) scheme, Apple remains committed to scaling exports from India. However, MacBooks won’t hit Indian assembly lines anytime soon.

—💸 It’s good news for India Inc. as 2025 is set to bring a 9.5% salary hike, up from this year’s 9.3%, a survey by professional service firm Aon predicted. The report, based on data from 1,176 companies across 40 industries, found that engineering, manufacturing and retail sectors are leading the charge with expected double-digit increases, while financial institutions aren’t far behind at 9.9%. The tech sector, initially cautious, is eyeing a rebound with similar hikes around 9.9%. On the bright side, job-hopping is cooling off—attrition rates have dipped to 16.9%, down from 18.7% last year.

—🛣️ The Indian road logistics industry is set for moderate revenue growth of 6-9% in FY2025, according to rating agency ICRA. Despite Q1 disruptions due to the General Elections, the sector is gearing up for a strong festive season. Growth drivers include increased manufacturing output, restocking, rising consumer demand, and robust e-commerce. A favourable monsoon and government focus on capital formation will further support this uptick. While organised players will maintain pricing power amid inflation, operating profitability will trail FY2023’s peak. Debt metrics remain healthy despite expected capex for vehicle expansion and branch growth.

—😷 The monsoons are officially over and so are the days of good air in Delhi. As air pollution gets progressively worse by the day, the Supreme Court of India has said nothing was being done to stop stubble burning in the states surrounding the capital. Stubble burning, which usually happens this time of the year, is the burning of leftover materials like straw from harvests. It significantly contributes to air pollution in the region during this time of the year. The apex court slammed the Commission for Air Quality Management for being unable to follow through with its own directions about air pollution. It also pulled up the state governments of Punjab and Haryana for not being vigilant about machines being used for farm stubble and barely taking action.

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