This week, we talk about why the US Fed could begin cutting interest rates in early 2024 and what this might mean for your EMI. We also talk about why retail and wholesale inflation in India is again on the rise as is industrial production, how the IPL has become a $10 billion enterprise and why iPhone maker Foxconn is investing thousands of crores more in India.
Welcome to Kuvera’s weekly digest on the most critical developments related to business, finance, and the markets.
tl;dr Hear the article in brief instead?
“What goes up, must come down,” Isaac Newton, one of the greatest minds of all time, is believed to have said.
We don’t quite know if he actually said this or not, but what we do know is that he did postulate the laws of motion that drive the world and everything and everyone in it.
Everything including interest rates, and everyone including central bankers, too, seem to be governed by the same laws.
Ever since Russia invaded Ukraine in February 2022, interest rates have been going up, across the world, including in India. The US Federal Reserve (yes, that’s the Fed) began raising interest rates as crude oil and commodity prices and consequently global inflation spiked, while the rest of the central banks followed suit.
Much like our own Reserve Bank of India (RBI) had done earlier this month the Fed chose not to tinker with interest rates this week. But, much like the Indian central bank, it said some very significant things.
Fed chief Jerome Powell said the historic tightening of monetary policy is likely over as inflation falls faster than expected and with a discussion of cuts in borrowing costs coming “into view.”
“People are not writing down rate hikes” in their latest economic projections, Powell said following the end of the central bank’s final policy meeting of the year.
“That’s us thinking we’ve done enough,” he said, adding that rate increases were “not the base case anymore.”
“The Fed is done!” exclaimed Diane Swonk, chief economist at KPMG US, and if economic data continues evolving as it has, with inflation cooling alongside an economy that seems poised to slow but not crash, then “the Fed will be cutting sooner” rather than later in the year.
In fact, the shift in outlook was stark, with 17 of 19 Fed policymakers seeing rates lower by the end of 2024, and none seeing them higher.
Simply put, this means that in 2024, the US central bank will likely begin cutting interest rates. And if the Fed does that, the others may follow suit. And if that happens, you can expect your EMIs to start coming down, as it gives the RBI an elbowroom to lower rates too.
Having said that, as we had told you a couple of weeks back, the RBI may not be in any teething hurry to begin cutting interest rates, if inflation begins to rise outside of its comfort levels.
Keeping Fingers Crossed
And for now, inflation remains a worry, at least for us here in India.
While the country’s industrial output accelerated to a 16-month high of 11.7% in October driven by mining, manufacturing and electricity, and the statistical effect of a low base, retail inflation rose in November, at the fastest pace in three months.
Data released by the National Statistical Office (NSO) showed that capital goods production, a proxy for fixed investments in the economy, grew in double digits in October. Alongside, double-digit growth in consumer durables, its fastest expansion this fiscal year, highlighted positive consumer sentiment. In October, output in the manufacturing sector rose 10.4%, mining 13.1%, and power 20.4%. Capital goods production witnessed a 22.6% expansion, while consumer goods output jumped 15.9%.
Further, numbers released by the statistics ministry showed that consumer price index (CPI)-based inflation at 5.55% in November, up from 4.87% in October and 5.02% in September; the figure is higher than RBI’s target of 4%, but still remains within its tolerance range of 2-6% for the third consecutive month.
While the factory data points to continued momentum in the Indian economy, inflation at elevated levels underlines the central bank’s cautious stance on interest rates, and signals likely measures by the government to curb rising prices.
And then, there’s wholesale inflation. After seven months, India’s wholesale inflation was back in the positive territory. Data released by the commerce ministry this week showed India’s wholesale inflation in November stood at 0.26 per cent. In October, it was at (-) 0.52 per cent. The ministry noted positive rate of inflation in November is primarily due to an increase in prices of food articles, minerals, machinery and equipment, computers, electronics and optical products, motor vehicles, other transport equipment and other manufacturing.
In April this year, the wholesale inflation went into negative territory. Similarly, in the initial days of Covid, in July 2020, the WPI was reported as negative. Economists, however, say a little rise in wholesale inflation is good as it typically incentivises goods manufacturers to produce more.
So, in all, while the alarm bells are not yet ringing, the mandarins at India’s central bank and the finance ministry will be straining their ears for the faintest of sound, especially as the country enters into an election year.
In a League of Its Own
Now, while lesser mortals like us worry about inflation and the EMIs on our loans, India’s top cricketers and folks in the Board for Control of Cricket in India (BCCI) seem to be on cloud nine. Or should we call it cloud 10?
The Indian Premier League (IPL), the BCCI’s super successful cricketing league, has joined the club of deacons, as it is now reportedly valued at $10.7 billion, or just short of Rs. 90,000 crore.
For perspective, that makes the sporting league more valued than some of India’s best known companies like Tata Consumer, Polycab India, Havells India, Apollo Hospitals and United Spirits and some very well known lenders like the Indian Overseas Bank, Canara Bank and Shriram Finance. All of them have a market capitalisation lower than the IPL’s valuation.
Since its launch in 2008, the IPL’s brand value has surged by an astounding 433%, according to Brand Finance, a brand valuation consultancy.
IPL’s brand value growth is due to factors such as a $6.2 billion media rights deal, an increase in the central pool of IPL revenues, the addition of two franchise teams, and the return to full stadium attendance in 2023 post-pandemic.
Among the most valuable IPL teams is the Reliance-owned Mumbai Indians, followed by the Chennai Super Kings, Kolkata Knight Riders, Royal Challengers Bangalore, Gujarat Titans and the Lucknow Super Giants.
Interestingly, the IPL has a Rs. 65 crore per year partnership with Saudi Arabian oil and gas behemoth Aramco, which seems to have contributed to the league’s valuation surge.
All we can say to that is, Khelo India, Khelo!
Foxconn’s Big Plans
Meanwhile in news that should make iPhone users happy, Apple supplier Foxconn plans to invest an additional Rs. 13,911 crore ($1.67 billion) in India’s Karnataka, the state government said this week.
The Taiwan-based company, which assembles around 70% of iPhones and is the world’s largest contract manufacturer, has been diversifying production away from China following COVID-19 disruptions and geopolitical tensions.
It has rapidly expanded its presence in India over the past year by investing heavily in manufacturing facilities in the south of the country. In Karnataka itself, the company announced in August an investment of $600 million in two projects to make casing components for iPhones and chip-making equipment. Foxconn is also expected to begin making iPhones in the southern state by April 2024 – a project expected to create around 50,000 jobs.
Market Wrap
Other headlines
- South Korea’s Mirae Asset to buy brokerage firm Sharekhan from BNP Paribas for $370 million
- ADB lifts India’s FY24 growth forecast to 6.7%
- Essar says to invest $6.6 billion in power, port projects in Gujarat
- S&P Global downgrades Vedanta Resources rating on concerns of bond maturity extension
- Disney, Reliance talks move ahead on merger of India media businesses
- Adani Ports to raise Rs 5,000 crore via non-convertible debentures, Rs 250 crore via preference shares
- Infosys names Jayesh Sanghrajka as new CEO after Nilanjan Roy resigns
- Mahindra & Mahindra, others to invest Rs 875 crore in Jawa, Yezdi bike maker Classic Legends
- SpiceJet to raise Rs 2,250 crore to revive grounded fleet
That’s all for this week. Until next week, happy investing!
Interested in how we think about the markets?
Read more: Zen And The Art Of Investing
Watch here: Investing through various economic and market cycles
Start investing through a platform that brings goal planning and investing to your fingertips. Visit kuvera.in to discover Direct Plans and Fixed Deposits and start investing today.
