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Every Monday to Saturday, tune in as financial journalist and host Govindraj Ethiraj gives you the latest news in business, economy and technology
Good morning. It's Tuesday, 28th May, and this is Govindraj Ethiraj broadcasting and streaming from and headquartered in Mumbai, India's financial capital. Our top stories and themes for the day, the stock markets have swung once again, and now it's 5 trading sessions to go for election results. How Japan and India are both China plus one investment destinations? India's economy slowed down in the last quarter.
Govindraj Ethiraj:What does it mean for the next? India's power demand is surging and usage patterns are shifting. Is there enough supply? Crime pays, but cybercrime clearly pays more.
Nidhi:This is the core report with Govindraj Ethiraj.
Govindraj Ethiraj:Highs and lows and 5 trading sessions to go. It was highs and then lows, almost like the markets were wrestling between the precise number of seats that the party in power would get to get back into power when votes would be counted on the 4th June in India's 20 24 general elections. But all of that was within the day. Clearly, there's pressure building up to take some profits off the table, and many institutional investors are either saying it and quite openly or doing it quietly, like foreign institutional investors, and have been so for a month or so. Despite all of that, the benchmark indices did hit fresh all time highs on the Ral Street with banking and IT stocks, or information technology services stocks leading the way.
Govindraj Ethiraj:The Sensex crossed 76,000 for the first time, and the Nifty crossed 23,100 for the first time, but closed downwards. The Sensex was down about 20 points to 75,390, while the Nifty was down about 25 points to 22,00932. Most of the selling happened in the last hour, as it often does when swings like these happen. In the broad market, the BSE Mid Caps was up very slightly and the Small Cap Index was flat. Meanwhile, for those looking for their daily dose of reassurance that institutional investors are firmly focused on the longer term, a top JP Morgan official told CNBC that India and Japan are the 2 bright spots in Asia's supremely interesting markets.
Govindraj Ethiraj:He was speaking with CNBC, guess where, in China at the Bank's Global China Summit, and his reference was both to the equity as well as the deal making landscape. Filippo Gorico, head of Global Banking at JP Morgan, told CNBC that you have Japan, which is on fire, and India, which is in very high demand. Japan's Nikkei 2 25 Stock Index, as well as India's Nifty 50, have climbed nearly 26% over the past year according to LSEG data. Now, that's interesting because also in general, I do not usually think of, and I'm guessing most people don't think of occasions that is, in the past where one could draw comparisons like this between India and Japan. For example, this data point being the most recent one about both markets having climbed exactly 26%.
Govindraj Ethiraj:The CNBC report also says countries like India and Japan have also benefited from the China plus one strategy as investors look elsewhere in the region to park their money amidst escalating US China tensions. Once again, I would have not thought of Japan being in the same boat as India in a China plus one context, because that's, of course, manufacturing. Though to those who are in both manufacturing and investing in them, maybe these things are clearer. India's economy slows down in the last quarter. What lies ahead?
Govindraj Ethiraj:India's economy likely grew at its slowest pace in a year in the January to March quarter, thanks to weak demand, says a Reuters poll of economists. The country's GDP or gross domestic product grew by 8.4% in the October to December quarter, which was comparing to a year earlier, of course, thanks to a sharp drop in subsidies, which provided an artificial boost to net indirect taxes according to Reuters. The high GDP number had caught, as I also saw, the most friendly or the government friendly economists also by surprise. But economic activity as measured by cross value added showed a more modest 6.5% expansion. So the poll of 54 economists says that growth likely slowed to an annual 6 0.7% in January to March, more in line with the long term GDP growth rate and GBA across value added growth was expected to slow to 6.2%.
Govindraj Ethiraj:Meanwhile looking ahead, Goldman Sachs has revised its forecast for India's GDP for calendar year 2024 upwards. I repeat its calendar year by 10 basis points to 6.7%. We use usually the financial year. Now analysts at Goldman Sachs are also expecting inflation to bottom out in the Q2, that's right now, and then rise after that. This belief they said was mainly driven by their view of an uptick in core goods inflation, thanks to a lagged impact of manufacturing cost increases.
Govindraj Ethiraj:I reached out to Aditi Nayar, chief economist of rating agency ICRA, or ICRA, based out of New Delhi. And I began by asking her how she was reading the transition from the October to December quarter to the Jan to March quarter and, of course, looking ahead.
Aditi Nayar:When we look at buildup of the GDP numbers, typically, we like to do a bottom up, estimation and first look at what the gross value added or the GVA growth number is going to be. So here, we are expecting that because of industry and services, the GBA growth number is going to moderate from 6 a half percent in q 3 to 5.7% in q 4. So that's the first reason. And the second reason is that, when we go from the GBA to the GDP number, there's a metric in the middle, which is effectively indirect taxes less subsidies. And over here, because of a contraction and subsidies, being, lower than the previous quarter, slightly technical, issues over here, We're basically expecting that the bump up in GDP growth over GBA growth is going to be a 100 basis points in 2 4 instead of a 185 basis points in the previous quarter.
Aditi Nayar:Therefore, our forecast, Adikra, is that GDP growth is actually going to come down to a 4 quarter low of 6.7% in the March ending quarter from 8.4% in the quarter ending December 2023.
Govindraj Ethiraj:Got it. So let me ask for signal interpretation. So for example, I mean, when one talks about GDP or, you know, one equates it to growth and growth of the economy, growth of companies, performance of enterprises, and so on. How would you approach it if you were to look at it from that point of view?
Aditi Nayar:So there are some factors which are indicating that growth was lower in q 4 as compared to q 3, like when we look at the index of industrial production. There, the volume growth indication is that it was lower in the most recent quarter. And, also, when we look at the margins of companies, we've looked at sample of companies that have reported early in terms of their financials for q four. And there, again, the sense we're getting is that margins are not as healthy as they were in the previous quarter because the gap of commodity prices over the year ago levels has narrowed quite significantly as it was expected to over the course of f y 24. Now going ahead, I think we have some transient factors that are going to dampen growth in the current quarter and in the next quarter.
Aditi Nayar:And there are some things to look forward to which are likely to push up growth in the second half of this fiscal year. So first of all, you know, we're in the middle of the election seasons. Spending from the government seems to be on the slower side as it normally is during the election period. And once we have the budget getting presented, then we expect that there will be a back ended pickup in things like CapEx, particularly. So this is something that will keep growth on the lower side in, q 1 and q 2, and we should see a big bump up in q3 and q4, particularly from government spending on the CapEx side.
Aditi Nayar:Also, when we look at the Monsoon, the positive that we've got today is that we do expect that it's going to be a 106% of normal. And this is, again, something that should really boost rural sentiment in the second half of the year.
Govindraj Ethiraj:Right. And you talked about government expenditure and that we can see the signs of, in any case, with the Reserve Bank of India giving more money and so on. But how are things looking on the private side?
Aditi Nayar:See, on the private sector side, as far as overall investment is concerned, what we've been seeing is that there are moderate capacity expansion announcements that are coming through from the private sector. And this is something that we hope will strengthen as the year goes on once the elections are out of the way and eventually once the rate card cycle starts. Although we're not expecting it to be a very sharp rate card cycle, but that is also something that should generally, you know, hasten the capacity expansion announcements from the private sector, as long as the overall outlook for consumption over the medium term remain intact.
Govindraj Ethiraj:Right. So just to go back to that number we saw in the last quarter of last year, and do you see that coming back this year or later?
Aditi Nayar:The sense that we have is for the second half of f y 25, we are likely to see growth in the range of 7 to 7 a half percent. That's what we are expecting right now. Obviously, there would be upside and downside risks. Upside, you know, if the monsoon creates a big boost in terms of crop output, dampens inflation, and boosts both the rural and the urban settlement, you know, that is something that would be positive. One of the downsides clearly would be if there are adverse developments on the geopolitical side and particularly if they're coupled with both weakening global sentiment and the rise in commodity prices.
Aditi Nayar:So it's not necessary that geopolitical issues will result in both of these. But if that is the case, then that would be, like, one of the, you know, worst case scenarios.
Govindraj Ethiraj:Aditi, thank you so much for joining me.
Aditi Nayar:Thank you.
Govindraj Ethiraj:As Aditi mentioned earlier, monsoon forecasts are above normal. India is likely to receive above average monsoon rains this year, the Indian meteorological department said on Monday, retaining its April forecast. This year's monsoon rains are expected to be a 106% of long term average, the director general of the India meteorological department told a virtual news conference reported by Reuters. So, yes, if nothing drastic happens, the second half is looking promising for the economy, including for consumption and thus consumer companies. Oil prices are steady.
Govindraj Ethiraj:The week began with oil prices holding steady as they did over the weekend, a little over $82 a barrel right now. Traders are focused on supply cuts and how the US, United States driving season, yes, that's a factor, kicks in. Brent futures dropped about 2% last week, touching the lowest since early February, while West Texas Intermediate or WTI was near $78 according to Bloomberg. Incidentally, Monday is a holiday in United Kingdom and the United States where the Memorial Day weekend also kicks off that summer driving season. All markets are closed.
Govindraj Ethiraj:That's in the US and UK, including financial markets. Now Bloomberg says early signs are already pointing to a solid showing with the number of people expected to fly over the weekend being the highest in nearly 20 years according to the American Automobile Association. All that obviously means is that demand for oil would be strong, and therefore, expect prices to also stay firmer unless something else happens on the supply side or even for that matter on the demand side. Power demand is surging in India and patterns of demand are shifting too. Energy demand is rising everywhere, whether oil for cars in the United States or powerful more cooling in India.
Govindraj Ethiraj:This comes in the context of rising weather advisories which have warned of severe heat wave conditions across most of Northern India. Rising summer temperatures have pushed power demand with numbers rising close to the power ministry's projected peak of 260 gigawatts this summer according to the business standard. Increased use of cooling equipment during heat waves is said to be a key reason although only a quarter of households own air conditioners or air coolers in India. However, this is expected to multiply in coming years decades. Eastern India and North India have seen amongst the largest increases in peak power demand says the Business Standard Report.
Govindraj Ethiraj:Thermal or coal generated power met most of that rising demand accounting for more than 3 quarters of the electricity generated as of March 2024, similar to previous years. And there are some interesting shifts though. One being that it is only now that peak power consumption is happening or shifting to the day it was evening earlier. And also some interesting insights on how power consumption, because of rising, let's say, air conditioners, may not necessarily be as high as we would think. I reached out to Ashok Srinivas, group coordinator at the Pune based Priyas Energy Group, which has been working on analysis based policy and regulatory engagement for over 30 years, and began by asking him how he was reading the present demand supply patterns.
Ashok Sreenivas:So compared to 2023, I think we are definitely much better prepared in 2024. As you said, the government has issued a set of advisories. I think coal based power plants are also better prepared. Coal production in the country has increased. Coal availability in the country has increased.
Ashok Sreenivas:So given all that, I think as a country, we are better prepared for the demand shortage or demand in summer of 2024. And I also think that in a way, the government, perhaps wisely so, has over prepared in a sense that because if I remember right, I was seeing figures of 260 gigawatts and stuff like that being talked about as a potential demanded June. Of course, we are not yet in June, so we don't know what is gonna happen in June. But as of now, at least indications are that we may not reach that higher demand in the first place. So that is one good thing.
Ashok Sreenivas:And as I said, both in terms of coal availability, coal production, and preparedness of coal based power plants, Things are better this year than last year. So I would think that and the data that you see actually coming out of the various agencies also indicates that, for example, in April March of this year, the shortages have been less than the shortages last year, much less.
Govindraj Ethiraj:Got it. And, you know, for example, we are seeing some places, like, Delhi had record demand just a few days ago. Now while the aggregate figure at or at the aggregate level we seem to be prepared, does that mean that we're also equally prepared in some of the big cities?
Ashok Sreenivas:I would, by and large, think so, though there could, of course, be regional variation. But these figures that I reported to you in terms of, that I reported in terms of, you know, the maximum demand, maximum shortage in the country, and stuff like that, they include all these they are aggregates of the various shortages around the country. So at least at an aggregate level, one sees that the shortages this year are lower than last year. But whether Delhi in particular this year has had a greater shortage than last year, We'll have to look at the numbers in greater detail. But I would think that the probability is low if the overall demand is not increased as much as expected and capacity is available.
Ashok Sreenivas:And today, we have an interconnected grid, so Delhi should be able to procure power from other sources, perhaps by paying a little more from the exchanges and so on.
Govindraj Ethiraj:So one of the reasons why there's more power consumption is obviously the increase in cooling needs. And while at one level, that's good news, let's say, for those who make air conditioners or other cooling devices. At another level, it means that demand levels can go up much more sharply than any linear growth level that we've perhaps seen in the past. How are you reading this?
Ashok Sreenivas:Well, I think air conditioner ownership and usage will definitely increase with increasing temperatures. The I don't think and increasing incomes. And perhaps that is to be expected and even required if people have to be cope with the heat and deal with it better. But I don't think the electricity demand necessarily will scale linearly with the increase in air conditioner numbers, But that is greatly a function of the energy efficiency regime that we have because this does not have to translate directly to a linear increase in demand. In fact, one of our own studies that we did last year showed that even with passive increase in air conditioner numbers in the country, the electricity demand growth can be much more muted.
Ashok Sreenivas:Even with a reasonable efficiency regime, we're not talking of, you know, global best or anything like that. Even with a reasonable efficiency regime, if we're able to implement it, need not increase like that. Of course, in practice, what will happen depends on how the efficiency regime actually rolls out, and one might see a higher than it still wouldn't be linear, it'll be sublinear, but it may not be as sublinear as it can be.
Govindraj Ethiraj:That's interesting. And any other trends that you're seeing, Ashok, in terms of consumption and demand? And we're talking about energy, and what could spike it, and any events or untoward events that we should be prepared for?
Ashok Sreenivas:We're only looking at it on the demand side. I think the major drivers are gonna be air conditioners. The major driver will be as your economy picks up and industry start getting electrified. So I'm now talking over slightly longer term, maybe 4 or 5 year time frame or so and so on. You could see demand increasing quite a bit due to increased electrification of industries because increasingly that's the trend.
Ashok Sreenivas:You move in order to decarbonize, you electrify first, and that will also happen in transport. Though transport may not contribute too much to the overall demand in the next decade or so, but these kinds of trends could also result increasing demand for electricity. Though the other interesting trend, which perhaps we talked about last time a little bit was also the shifting in the peak load when the peak load is occurring in the country, because that's now moving much more to the daytime. It used to be evenings not so long back, maybe 5 years ago or something like that. Now is very clearly moved to the daytime.
Ashok Sreenivas:Which is good news, because that's when you have solar available. And the if we are able to ramp up our solar installations fast enough, that'll probably be the best way to meet this increase in peak demand.
Govindraj Ethiraj:So at this point of time, how are you seeing the split between renewables and non renewables in meeting peak demand versus even the regular demand that we see?
Ashok Sreenivas:So the role of renewables is definitely increasing and increasing fairly fast. I mean, last I think now it's 4 or 5 years in a row that renewable capacity addition has outstripped coal capacity addition significantly. But we still need to do more because, a, as you well know, renewables have lower capacity factors than coal based generation, so it's not a one is to one comparison. So addition of 1 unit of renewable capacity is not the same as adding 1 unit of coal capacity. And given the targets that we have of 500 gigawatts of fossil fuel free capacity by 2030 and so on, we need to be adding renewable capacity at a much faster rate than we are doing.
Ashok Sreenivas:While our addition rates have increased, and tendering seems to be quite healthy. The tender pipeline seems to be quite healthy. But still, it looks like the ability to actually get those projects up and running, we need to look at that more so that we are able to deal with it better than we are. Otherwise, we will have to we'll have really no other resort than to fall back on coal as our backstop.
Govindraj Ethiraj:Right. Ashok, thank you so much for joining me.
Ashok Sreenivas:My pleasure.
Govindraj Ethiraj:Crime pays, but cybercrime pays more. 2 weeks ago, several colleagues of mine got a message from me saying that I needed money urgently and to transfer that money through various intermediate payment systems like Amazon Pay. The number on WhatsApp was a US one, but the photograph was mine, so the anomaly was not immediately clear. And one colleague unfortunately, succumbed to the scam and paid a handsome sum of money. She has now gone to the police.
Govindraj Ethiraj:Just between January April this year, Indians like my colleague lost about 1750 crore rupees to cyber criminal activities according to the government. Now if you were to annualize that as we financial journalists like to do, it's about 7,000 crores for the year or quite likely more given the pace of growth. All this has happened thanks to online investment fraud, gaming apps, algorithm, manipulations, illegal lending apps, sex torsion, and OTP scams. In 2023, the Indian Cybercrime Coordination Center reported over a 100,000 investment fraud incidents. And incidentally, in the last 4 months, there were 740 1,000 complaints lodged on the National Cybercrime Reporting Portal, which is managed by the Ministry of Home Affairs.
Govindraj Ethiraj:So unlike, let's say, good old robberies, most of us know someone or the other who has been scammed and we're getting hit by all kinds of calls and messages seeking money or trying to pull us into some kind of scam or payment scam, exactly like my colleague was. The Indian Cybercrime Coordination Center or I, numeral 4 c, I foresee stated that in May 2024, an average of 7,000 cybercrime complaints were recorded daily. And this is up about a 113% compared to that period between 2021 and 23, and about 61% from 22 to 23 according to a report in the Economic Times. Additionally, 85% of these complaints pertain to financial online fraud. So there are much more data, but all of this is pretty grim and I'm sure you get the message.
Govindraj Ethiraj:So parting advice, please be careful of any messages that ask you for money, whether it's from an individual you know or you do not, and check the number and please call that individual who asked you for money and then verify it yourself. That's it for me for today. That was the core report with me, Govindraj Etheeraj. Do stay connected with more of our coverage at the core. You can check out our site or sign up to our newsletter for our exclusive stories, one in-depth feature a day on www.
Govindraj Ethiraj:Thecore.in. Do also 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 the core dot in, and thank you once again for listening.