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Good morning. In today’s edition: a slowdown in India’s growth isn’t because of the US polls; why owning a credit card isn’t always a pleasant experience in India; and another mega initial public offering (IPO) on the cards.

THE TAKE

Let’s Not Blame India’s Market Crash On US Elections

Stock markets in Asia rose on Monday in anticipation of the US presidential elections that will take place today. They included Korea, Hong Kong, Australia and Taiwan. The US markets, already sitting on record highs, were also ticking up on Monday ahead of the elections.

The Indian stock markets, on the other hand, saw a sharp crash in keeping with the sell-off trend that started in October and has evidently extended into November. Whatever the reason may be for the sharp fall, it has little to do with the jitters in the run-up to and the outcome of the US elections to be held on November 5 (November 6 in India), even if that’s the reason being offered. 

Indian markets are now diverging from both Asia and the US and to some extent Europe. This is worrying and reflects a disconnect that could be larger than just the movement of indices. For one, a slowdown is clearly upon us.

According to a Bloomberg report, last week Jefferies Financial Group said over 60% of the 98 firms they track have had their earnings per share estimates downgraded following the recent quarterly results. This is the highest proportion since early 2020 when the Covid-19 pandemic upended economic activity for months. Jefferies now forecasts that the earnings of Nifty companies will grow at just 10% in the year ending March 2025. Analysts often remind us that the stock markets are a slave to earnings. 

What’s Behind The Slowdown? 

Indeed if that were the case, then the slaves so to speak have tougher times ahead. Moreover, India’s economy is now moving quite literally in the opposite direction to the US, which is powering ahead with a pace of economic growth not seen in a long time. The reasons for slower growth in India range from a fizzling of the post-pandemic surge to a curtailing of consumption thanks to the triple whammy of heat waves, heavy monsoons and of course elections. This could only partly be the reason for the slowdown. Those who’re hoping that this slowdown is entirely because of the above reasons must be told that hope cannot be a strategy.

Despite the government amping up its expenditure in public spending — visible in areas like roads and railways — the private sector has not picked up the slack. This is not just in the last few months but several years. Data shows that both private spending on capital expenditure and private consumption are weak and staying so. Companies continue to do well because they are going all out to preserve their margins and profitability, including by downsizing as the IT companies did in the last year.

A Distortion Effect

The larger question remains, as I have pointed out before, is did we see this coming? And what could we have done differently?  Did the companies, who are now speaking of taking a hit because of urban consumption slowing down, not see this happening or the likelihood of it, six to nine months ago?  Did they not get a feeling that the consumption spike was more of a post-Covid phenomenon? Remember, developed markets were clearly accounting for post-Covid spending and thus could we be really different?

Then there is the financing of all of this. India’s central bank, the Reserve Bank of India for more than a year has been sounding the gong on rising risks in micro, personal and credit card loans and borrowings. Early signs of defaults were already there and the fact that higher than normal borrowing was funding this consumption of products, services and then speculation in the stock markets was quite evident.

There is a signal and noise problem in the Indian economy. The amplification of various data points at very high levels creates a distortion effect. This is not to blame those putting out the numbers but to caution those who look at them and worse, wrongly interpret them.

The question one can now pose is whether what we are seeing is cyclical or more secular slowdown. It is tough to answer this without more data. This data will have to include what really happened in the last four years so that we can focus on what to correct. Meanwhile, as we eagerly await the outcome of the US elections, we have to focus more on what is happening in our own economy..

THE SWIPE

Credit Cards Need To Make Our Lives Easier, Not More Difficult

Owning a credit card should get you points that you could use for many different perks, right? Wrong! This isn’t the case, at least in India. The reality is that cardholders need to jump through hoops to avail of these perks and discounts. This isn’t very user-friendly, to say the least. 

Banks need to do some serious thinking on what can make this customer experience better. 

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CORE NUMBER

Rs 6 lakh crore

This is the loss in market capitalisation for Bombay Stock Exchange (BSE)-listed companies on Monday as Indian stock markets took a tumble. The benchmark Nifty 50 index fell over 1% while BSE mid and small-cap indices fell 1.31% and 1.65% respectively, Mint reported. This led to the overall market capitalisation of BSE-listed firms dropping from Rs 448 lakh crore to Rs 442 lakh crore.

FROM THE PERIPHERY

—📉 Your local kiranas and supermarkets are likely to see a surge in Rs 5 and Rs 10 sachets as Fast Moving Consumer Goods Companies (FMCGs) grapple with rising inflation and input costs. Reports as early as 2022 also indicated a shift towards smaller, more affordable packaging as companies sought to maintain sales volumes amidst rising prices. A senior executive at Parle Products told The Financial Express that the Rs 20 price point is also expected to gain prominence, with projections indicating a significant increase in its contribution to revenue within the next three to four years.

—📱Mukesh Ambani-led telecom giant Reliance Jio may launch its IPO in 2025, while postponing the conglomerate's retail unit IPO, Reuters reported on Monday, citing sources. Reliance Jio, valued at over $100 billion by analysts, reportedly believes it has achieved business stability as India's leading telecom player with 479 million subscribers. However, the retail business IPO is not expected until after 2025 as the company first needs to address internal challenges. Global brokerage Jefferies previously reported on July 10 that Reliance Jio could be listed on the Indian bourses in 2025 with a potential valuation of $112 billion.

—😷 India's Supreme Court on Monday questioned the Delhi government and Delhi Police regarding their failure to enforce the firecracker ban in the capital after Diwali celebrations resulted in hazardous air quality. The city's Air Quality Index (AQI) exceeded 400 on Sunday, surpassing the WHO acceptable limit by 65 times. Citing a Centre for Science and Environment report indicating that Delhi's 2024 Diwali pollution levels were the highest on record, the court expressed concern over the disregard for the ban. The report also noted an increase in farm fires during the Diwali period. Separately, the Central Pollution Control Board (CPCB) on Monday imposed fines on 60,000 vehicles and over 7,500 building sites for violating pollution rules.

—🧑‍⚖️ Chinese online retail giants Shein and Temu are facing challenges in Europe due to potential violations of European Union (EU) regulations aimed at creating a safer and more accountable online environment. The probe focuses on concerns related to consumer protection, fair competition, and data privacy. These include the sale of illegal products and the transparency of algorithms. Shein and Temu have gained popularity by undercutting prices offered by competing brands like Zara and H&M and even beating established Western brands in terms of delivery speed.  Increased scrutiny of Chinese-origin goods is evident in the EU's recent actions, including the imposition of higher tariffs on electric vehicle imports.

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