In this edition, we talk about India’s automobile industry and why it might be a good time to buy a car. We also talk about the surge in mutual fund inflows, the start of the quarterly earnings season, and the debate over jobs in India.
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“I know a lot about cars, man,” the late American standup comedian Mitch Hedberg said once. “I can look at any car’s headlights and tell you exactly which way it’s coming.”
Frankly, if that’s the yardstick, we all know a lot about cars and which way they are headed!
Jokes aside, why are we talking about cars? Because India’s car industry appears to be turning a corner that’s great news for buyers but not necessarily for carmakers.
First things first, here’s what’s going on in the car industry.
When the COVID-19 pandemic first began to spread worldwide, including India, travel restrictions and work-from-home arrangements slowed demand for cars. Domestic passenger vehicle sales slumped 18% in 2019-20 and then slipped another 2.2% the following year to 27.11 lakh units, according to data from the industry group SIAM.
But as the economies reopened, car sales recovered. This was thanks not only because of pent-up demand but also because of the growing preference for personal vehicles to travel instead of relying on crowded public transport where chances of infection can be higher. SIAM data showed that domestic passenger vehicle sales jumped 13% in 2021-22 and then soared 27% in 2022-23 to touch a new record of 38.90 lakh units.
High demand and supply chain bottlenecks, especially related to semiconductors, pushed waiting periods for many cars to six months or more. In fact, many SUVs of Mahindra & Mahindra even had a waiting period longer than a year.
The situation is now turning normal. Growth in local car and SUV sales slowed to 8.5% in 2023-24, to 42.19 lakh units, and has moderated even further in the ongoing fiscal year—SIAM data showed on Friday that passenger vehicle sales grew just 3% in June. This has pushed inventory levels higher to as much as 6.5 lakh units worth more than Rs 60,000 crore.
Slowing demand and rising inventory have, in turn, prompted dealerships and carmakers to start offering discounts and slashing prices. Both Tata Motors and Mahindra & Mahindra announced price cuts this week.
M&M slashed prices of its popular SUV700 by up to Rs 2.05 lakh. Tata Motors reduced prices by up to Rs 70,000 on Harrier and Safari SUVs and also offered benefits on these models as well as Nexon EV.
Pressure on Tata and Mahindra also mounted because the Uttar Pradesh government this week decided to cut registration duty on strong hybrid cars. The move will benefit Maruti Suzuki, Toyota and Honda. All three Japanese carmakers offer hybrid cars and have been slow to take the EV road that Tata and Mahindra have adopted.
So, if you are in the market to buy a new car or SUV, now is the time. Head over to a dealership and bargain hard for discounts!
When it Pours
While it’s raining discounts in Motown, it’s pouring money in India’s mutual funds industry.
Latest data from the Association of Mutual Funds in India (AMFI) showed this week that inflows into equity mutual funds in June jumped 17% from the previous month to a record high of Rs 40,608 crore, or almost $5 billion. Money flowing via systematic investment plans (SIPs) hit a new record high of Rs 21,262 crore in June.
AMFI data also showed that sectoral and thematic funds got the most inflows for the second straight month at Rs 22,352 crore in June. Multi-cap funds recorded inflows worth Rs 4,709 crore, a 27-month high.
Inflows into large-cap funds surged 46% to Rs 970 crore but money coming into small-cap and mid-cap schemes moderated 16% and 3%, respectively, to Rs 2,263 crore and Rs 2,528 crore in June.
Small- and mid-cap schemes have been investors’ favourite over the last couple of years but a sharp jump in valuations is now prompting many investors to diversify their allocations into large-cap and multi-cap funds.
Mutual fund inflows surged as investors sought to benefit from a drop in benchmark indices in early June due to election results and then doubled down as Prime Minister Narendra Modi’s government returned for a third time.
The Nifty 50 and BSE Sensex rose about 7% each in June. And with stock markets continuing to rise in July, mutual fund inflows are expected to remain robust.
Are you also doubling down on your investments or is the red-hot market making you cautious? Well, whatever be the case, do review your goals as well as asset allocation, and keep investing!
The Great Jobs Debate
Moving on to a more serious topic, India’s central bank this week waded into the raging debate over the state of employment—or rather unemployment—in the country.
The Reserve Bank of India said in a report that the country’s employment growth rate accelerated to 6% in 2023-24 from 3.2% in 2022-23. The RBI, which used data from the government’s National Accounts and Ministry of Labour to extrapolate the country’s productivity and employment levels, also said that India added 4.67 crore jobs in FY24 for a total of 64.33 crore jobs as of March versus 59.67 crore a year earlier.
Those numbers seem impressive, you might say. So, why did it add fuel to the fire?
Well, the RBI’s estimates are far more optimistic than private surveys. The Centre for Monitoring Indian Economy, a private think tank, estimated last week that India’s unemployment rate rose sharply to 9.2% in June from 7% in May. The rural unemployment rate jumped to 9.3 % from 6.3% while the urban unemployment rate climbed to 8.9% from 8.6%.
Also last week, Citibank said in a report that only 88 lakh jobs were added each year since 2012 and that India will manage to create only 80 lakh to 90 lakh jobs if the GDP grows by 7% a year for the next decade. This will be short of the 1.1-1.2 crore jobs that India needs every year, it said.
The Labour Ministry was quick to counter Citi’s report and said that its estimates suggest an average of over two crore job opportunities per year were created between 2017-18 and 2021-22.
Meanwhile, another report this week highlighted the gravity of the problem. India Ratings and Research, a unit of Fitch, said India’s informal sector lost 1.6 crore jobs between 2016 and 2023 due to three macroeconomic shocks—currency demonetisation in November 2016, the Goods and Services Tax rollout in 2017, and the Covid-19 pandemic. These shocks also led to an estimated loss of Rs 11.3 trillion for the Indian economy, India Ratings said.
The report, which was based on an annual survey conducted by the Ministry of Statistics and Programme Implementation, also said that these three shocks “severely” hurt the informal sector with an estimated 63 lakh enterprises shutting down between 2015-16 and 2022-23.
We know we have thrown around too many different numbers. But this is a topic we can’t really ignore. In fact, its importance can be gauged from the fact that employment was one of the most important items of agenda in the recent Lok Sabha.
So, is India creating enough jobs or not? And which set of numbers is more accurate—Citibank’s, India Ratings’, the CMIE’s or those put out by the RBI?
Frankly, we don’t know for sure. But a cross-section of economists and analysts aren’t fully convinced with the RBI data. Economists say the growing jobs trend may have been the result of self-employment, unpaid family work and temporary hiring in agriculture. These jobs, they say, can’t be equated to formal employment with regular wages.
Leading from the Front
In corporate news, Tata Consultancy Services kicked off the quarterly earnings season this week. India’s biggest software services exporter said consolidated revenue for the April-June quarter rose 5.4% to Rs 62,613 crore, beating market estimates of Rs 62,207 crore. Net profit rose 8.7% to Rs 12,040 crore, a tad above the Rs 11,978 crore estimate by analysts.
TCS said that it was “too early” to predict sustained growth and that market conditions remain “quite volatile” as customers hold back tech spends to prepare for a “rainy day”.
There was some more good news in TCS’ results. The company said that its net headcount grew by 5,452 during the April-June quarter and that its attrition rate fell to 12.1% from 12.5% in the January-March quarter. The company’s total headcount at the end of June was 606,998, up from 601,546 employees three months before.
The rise in headcount is significant. For one, this reverses a decline of three consecutive quarters. Moreover, TCS had reported a drop of 13,249 in its staff count for FY24, marking the first decline in 19 years.
The earnings should soothe concerns over the performance of Indian IT companies, which have been battling a slowdown in demand over the last several quarters due to high interest rates and geopolitical risks. However, with the US Federal Reserve moving towards an interest rate cut, IT companies are likely to benefit in the coming months.
Indeed, many analysts are now saying that the worst seems to be over for the IT sector. That optimism was reflected in IT stocks on Friday, with shares of all big companies rising between 3% and 6%.
Market Wrap
The benchmark indices continued to scale new peaks this week, and then got a boost on Friday from TCS results.
The Sensex is now marching towards 81,000 while the Nifty 50 closed above 24,500. The 30-stock Sensex climbed 0.8% for the week while the broader Nifty gained nearly 0.7%.
Top Nifty gainers for the week included the likes of ONGC, ITC, HDFC Life Insurance and Britannia. IT stocks Wipro, TCS, Infosys, LTIMindree and Tech Mahindra rose thanks to robust results from the Tata Group arm. Maruti Suzuki gained after the tax cut for hybrid vehicles in Uttar Pradesh.
Those tax cuts, however, made Mahindra & Mahindra the biggest loser this week. Other top Nifty losers included Tata Steel, Divi’s Lab, Shriram Finance, Adani Enterprises and Bajaj Auto.
Other Headlines
- Govt to present union budget in parliament on July 23; jobs, rural India to be in focus
- RBI widens use of foreign currency accounts in Gujarat’s GIFT City
- Emcure Pharma jumps 35% in stock market debut after strong IPO
- India foreign secretary says eying energy deals with Rosneft and other Russian companies
- RBI deputy governors call for enhancing quality of financial audits
- Paytm gets government panel’s approval to invest in payments arm
- IndiGo co-founder Rakesh Gangwal joins board of US carrier Southwest Airlines
- Bharat Petroleum among eight bidders for Sri Lanka LPG terminal
- Bandhan Bank appoints COO Ratan Kumar Kesh as interim CEO
That’s it for this week! Until next week, happy investing!
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