In this edition, we talk about growing concerns of an international trade war and its wider implications. We also talk about the RBI’s measures to support the financial system and why Reliance Industries and Ola Electric find themselves in a corner.
Welcome to Kuvera’s weekly digest on the most critical developments related to business, finance, and the markets.
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If you live anywhere in North India, you would have noticed how mild this winter season has been. For some, the absence of bone-chilling cold weather might have been a boon. For others, that’s a serious cause for concern.
Higher-than-normal temperatures could lower India’s wheat production in Punjab and Haryana while a lack of snow is likely to hamper apple output in Himachal Pradesh. And now, it’s getting warmer and hotter as we move from what was supposed to be the spring season towards the sweltering summers as soon as March itself.
But farmers aren’t the only ones worried about high temperatures. The heat is rising also on importers and exporters, IT firms and FMCG companies, automakers and drugmakers, economists and policymakers, stock and bond traders, currency strategists and crypto maniacs, and yes, also on mutual fund investors.
Before we dive into details, here’s a snapshot of what happened this past week: Stock markets stayed volatile. Foreign investors kept selling Indian shares. The rupee remained under pressure against the dollar. Consumer demand remained muted, with retail sales of cars and bikes falling in February. And worries over an international trade war mounted.
Just two words explain the reason for most of these developments: Donald Trump. Like last week (and the week before and the month before), global trade and Trump’s tariff warnings dominated headlines this week, too.
On Tuesday, Trump imposed 25% tariffs on most goods from Canada and Mexico. Simultaneously, he doubled tariffs on China to 20%. Trump had first announced the tariffs in early February, only to delay them until March.
As the tariffs went into effect this week, Canada decided to retaliate with Prime Minister Justin Trudeau calling US tariffs a “dumb move”. China shot back, too. “If war is what the US wants, be it a tariff war, a trade war or any other type of war, we’re ready to fight till the end,” the Chinese government said.
On Thursday, however, Trump decided to postpone tariffs on Canada and Mexico yet again. This time, he delayed the import levies until April 2, when he has warned that the US will start imposing reciprocal tariffs on all its trading partners. A day before, he had exempted automotive goods from the tariffs but retained the levies on steel and aluminium. Thursday’s decision prompted Canada to delay its own retaliatory tariffs.
India, meanwhile, hasn’t announced any move to deal with US tariffs, though commerce minister Piyush Goyal is headed to the US this week to engage with his American counterparts.
If you are now thoroughly confused about which products will attract what level of tariffs from when and where, we don’t blame you. Frankly, this flip-flop-flip-flop is getting really confusing. This chaos has caused great uncertainties across many countries, including in India and the US itself, and increased concerns about economic growth and inflation.
So, what can we, the mutual fund investors, do at this time of uncertainty? It might be difficult but ignore the noise as much as possible, invest regularly, stick to your asset allocation, and keep moving towards your goals
From Deficit to Surplus
While the Indian government hasn’t yet revealed any plan to react to US tariffs and how it intends to cushion any adverse impact on our exporters and the economy, the Reserve Bank of India has its hands full. The central bank has not only been working overtime to prevent the rupee from weakening sharply but has also been managing the tight liquidity conditions in the financial system.
This week, the RBI said it will inject nearly $21 billion into the banking system as rupee liquidity. It will conduct two open market operations worth a total of Rs 1 trillion ($11.50 billion) and a dollar-rupee buy-sell swap worth $10 billion.
These measures, the RBI hopes, will support economic growth and help to bring down lending rates, especially after its quarter-point interest rate cut last month failed to move the needle due to a liquidity deficit in the banking system.
India’s financial system has been dealing with tight liquidity conditions for the past three months as corporates paid advance taxes and the RBI sold dollars and bought rupees to prop up the local currency.
To be sure, the RBI has injected more than Rs 4.5 trillion into the system since mid-January. But even after that, the liquidity deficit in the banking system was around Rs 204,000 crore as on March 4, RBI data shows.
Will the RBI’s moves help? Yes, the latest infusion is expected to bring liquidity into the surplus zone. This, in turn, could nudge banks to cut lending rates. So, if you are waiting for your EMIs to come down, you may hear good news soon.
It’s All Gas
Moving on to the corporate world, Reliance Industries Ltd was in news this week—but for the wrong reasons.
The petroleum and natural gas ministry this week asked billionaire Mukesh Ambani-led Reliance and its partners, BP Exploration and Niko, to cough up money in a dispute related to gas drilling.
The ministry wants them to pay $2.81 billion. Yes, you read that right. The ministry wants Reliance and its partners to pay almost Rs 24,500 crore. That’s a big amount even for Reliance, India’s biggest company by market value and profit. (Okay, it’s not that big considering it’s just about one quarter of RIL’s net profit but you get the point).
So, why exactly does the ministry want the company to pay? The dispute goes back a decade when government-owned Oil & Natural Gas Corp accused Reliance and its partners of extracting gas illegally in the KG D6 block in the Krishna Godavari basin.
Without getting into much detail, the matter landed in court in 2013. Reliance later approached an arbitration panel, where it won. This prompted the government to approach the Delhi High Court, where a single judge ruled in RIL’s favour. The government then filed an appeal with a division bench, which last month finally ruled in its favour.
What happens now? Well, the company seems confident it won’t have to pay. RIL says it believes the demand is unsustainable and that it will challenge the high court’s decision. And it may again get a decision in its favour.
Reliance got another notice this week, from the ministry of heavy industry. This notice was for the delay by its unit Reliance New Energy Battery Storage Ltd in setting up five gigawatts of manufacturing capacity for advanced chemistry cells under the government’s production-linked incentive scheme to increase production of electric vehicle batteries.
Reliance had secured the incentives in March 2022 and was to start the manufacturing facilities within two years. The government has now imposed a penalty on the Reliance unit. The penalty is a paltry sum of Rs 3.1 crore as of March 3. Unlike the gas dispute, Reliance is not challenging the government’s decision. But it still may not pay the penalty amount as it has asked the government for more time to set up the factory.
In Need of a Recharge
Reliance wasn’t the only company at the receiving end of the government’s penalty drive. Bhavish Aggarwal-led Ola Electric also got a similar notice for missing a deadline in setting up its planned battery factory.
Ola, like Reliance, was selected in 2022 under the PLI scheme to set up a 20 GW battery manufacturing facility in Tamil Nadu. Ola didn’t disclose the penalty it faces but said it was engaged with authorities to resolve the matter. The company has previously said it will start the gigafactory by April this year, so it’s not as far back behind the schedule as Reliance.
While the penalty amount may not be large, as is evident from the notice that Reliance got, Ola can’t really afford to slip. The company posted a loss of Rs 1,406 crore for the April-December period of 2024.
Moreover, its shares have fallen 64% from the all-time high touched in August last year shortly after it listed on stock exchanges. In fact, the shares are now 25% below the IPO price. The company also faces a large number of complaints from buyers of its e-scooters and had received a notice from the consumer protection agency.
While Ola Electric remains India’s No.1 electric two-wheeler maker by sales, it is facing greater competition that has forced it to offer discounts. And now, it is even laying off employees in an effort to move towards profitability.
Media reports said this week that Ola Electric will let go more than 1,000 employees and contract workers across multiple departments, from procurement to customer relations and even service centre staff. Ola, which had cut about 500 jobs in November, admitted that it had now restructured and automated its front-end operations to cut costs.
When can Ola start making a profit and when will its shares recover? All we can say is that it faces a bumpy road ahead!
Market Wrap
India’s stock markets bounced back this week, as investors hunted for bargains following a sharp slide in the last two months. The Sensex ended with a gain of 1.6% while the 50-stock Nifty did even better, climbing 1.9%. For the Nifty, this was its best week in nearly three months. Mid-cap and small-cap indices jumped, too, rising 2.7% and 5.5%, respectively.
Despite the gains, the Sensex and the Nifty are down about 14% from their record highs in September.
Market breadth was positive with four out of five Nifty stocks ending higher for the week.
Metal stocks were among the top gainers, with Tata Steel, Hindalco and JSW all rising more than 6% each. PSU stocks rose too, led by Bharat Electronics, BPCL, NTPC and Power Grid. Index heavyweight Reliance jumped 4.1% after falling to its lowest level in 15 months on Monday.
Adani Enterprises, Adani Ports, SBI, and Mahindra & Mahindra were among the other major gainers.
On the other end of the spectrum, IndusInd Bank fell the most. HDFC Bank and the Bajaj twins—Bajaj Finance and Bajaj Finserv—also closed in the red. Two-wheeler makers Bajaj Auto and Hero MotoCorp as well as car market leader Maruti Suzuki slipped, too.
Other Headlines
- Blackstone-Sattva Group joint venture REIT files for IPO to raise up to Rs 6,200 crore
- Britannia Industries CEO Rajneet Kohli resigns
- Tesla signs lease deal to open first India showroom in Mumbai to sell EVs
- ICRA says Gensol Engineering falsified documents, raises corporate governance concerns; company denies
- IT firm Coforge signs 13-year deal worth $1.56 billion with US travel bookings provider Sabre Corp
- HSBC India services Purchasing Managers’ Index rises to 59.0 in February from 56.5 in January
- Reliance’s Jio Financial to buy SBI’s stake in Jio Payments Bank for Rs 105 crore
- ONGC acquires clean energy firm PTC Energy for Rs 925 crore
- Payments services company AGS Transact faces insolvency over unpaid dues
- Enforcement Directorate says Paytm violated foreign exchange rules, sends Rs 611 crore notice
- All India Consumer Products Distributors Federation files antitrust case against quick-delivery businesses of Zomato, Swiggy and Zepto
- That’s all for this week. Until next week, happy investing!
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