In this edition, we talk about India’s negotiations with Britain and the European Union on trade agreements and why they are important. We also talk about the latest GDP numbers, Nasscom’s projections for the IT industry, and why UltraTech’s decision to enter a new business is raising concerns.
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tl;dr Hear the article in brief instead?
“We will have an immediate and extremely strong response” – Canadian Prime Minister Justin Trudeau
“Plan B is underway. We will win!” – Mexican Economy Minister Marcelo Ebrard
“China will take all necessary countermeasures to safeguard its legitimate rights and interests” – Commerce ministry
“The EU will react firmly and immediately” – European Commission spokesperson
These statements, all factual, with context removed, sound like the making of a real war.
Thankfully, it is a trade war. Regretfully, it is a trade war.
Ever since Donald Trump returned as the US President, international trade has dominated conversations and headlines. Trump’s decisions to impose import tariffs not only on American rivals such as China but also on allies like Canada and Europe has not only roiled stock, bond and currency markets but also threatens to upend the world order.
India, too, has been on Trump’s firing line. He has called India a big abuser of import duties and warned of imposing reciprocal tariffs, most recently during the visit of Prime Minister Narendra Modi to the US. Those pressures have started working. The Indian government has already reduced tariffs on import of heavy-duty bikes such as Harley-Davidsons and bourbon whiskeys, and may soon offer concessions to Elon Musk’s electric car company Tesla.
And now, European countries have come calling with a similar set of demands. British trade secretary Jonathan Reynolds met with commerce minister Piyush Goyal while European Commission President Ursula von der Leyen met with Modi.
Britain, which exited the EU five years ago, as well as EU want to seal trade agreements with India. And India wants these pacts, too, after signing trade agreements with the UAE and Australia in 2022. So, what’s stopping us?
India and Britain halted their trade talks last year ahead of general elections in both countries. They now want to speed up talks. India-Britain trade is currently over $50 billion a year, and the two countries want to double it within a decade.
Like the US, Britain also wants India to lower tariffs on certain products, such as British whisky, dairy and farm goods. On its part, New Delhi wants easier visa rules for companies and professionals to work in Britain.
Meanwhile, India and the EU first discussed a free trade agreement as far back as 2007 but suspended the talks in 2013 due to a lack of consensus. Talks resumed nine years later, in 2021. They now want to wrap up talks this year.
Despite the deadlock in negotiations, India-EU trade has nearly doubled over the past decade, to more than $130 billion.
The EU wants India to cut import duties on wines, alcohol, and cars, and make it easier for European companies to tap local markets as they seek to reduce their reliance on China. There are many more contentious issues. The EU opposes India’s intellectual property rules and wants a faster way for dispute resolution for its companies. India may seek relaxation in the EU’s clean energy targets, deforestation rules, data security regulations, and visa policies.
So, how soon can India stitch these trade pacts? While India may concede some of these demands and Britain and the EU may offer some concessions, such negotiations often take time, sometimes years. And it takes even longer for any trade pact to yield tangible results on the ground. But, given the new geopolitical realities, this is the only way to go.
Going for Growth
While there is still some uncertainty about trade tariffs, it is certain that India’s economy needs to do a lot to catch up to its potential. Government data released this week showed that gross domestic product expanded 6.2% in the October-December quarter, compared with 5.6% in the previous three months and 9.5% a year earlier.
Growth, while slow, still picked up pace due likely to an improvement in rural demand after a normal monsoon and as government spending rose after the Lok Sabha elections. Higher economic activity during the festive season likely helped, too.
For the full year 2024-25, the GDP growth has been estimated at 6.5%, much slower than revised growth of 9.2% in the preceding year. However, if one were to look closely, a 6.5% over a high base of 9.2% is not that bad. It is also better than a forecast of 6.4% made in January.
While Q3 numbers are slightly better than the Q2 print, this may not be reflective of a definite trend just yet. To accelerate economic growth, India can’t depend solely on government capex spending and needs both greater consumption as well as higher investment by the private sector.
The government’s tax cuts for the middle class announced in the budget last month will come into effect only from April and the RBI’s rate reduction affects economic activity with a lag. Add geopolitical uncertainty and the exodus of foreign investors to the mix and it becomes clear that it will take a while before GDP growth can bounce back.
Tech Talk
Moving on from overall economic growth to one of the most critical sectors of the economy, industry body Nasscom came out with its projections for India’s technology sector this week.
Nasscom said it expects the tech industry’s revenue to grow 5.1% to $282.6 billion in 2024-25, accelerating from the 4% pace last year. In 2025-26, it expects revenue to cross $300 billion. Most of this revenue will continue from outside India with software exports projected to rise 4.6% to $224.4 billion in 2024-25.
The sector is also likely to add more jobs in the current fiscal year—about 126,000 jobs on a net basis versus almost 90,000 last year. This will take the industry’s total workforce to 5.8 million from 5.67 million in 2023-24 and 5.58 million the year before.
The industry association said growth is likely to be faster this fiscal year thanks to engineering research and development and the increase in the number of global capacity centres (GCC) that multinational companies are setting up in India.
The projections are in line with the improvement in demand that some of India’s top IT companies including Tata Consultancy Services, Infosys and HCL Tech have noticed in recent months.
Nasscom also added a note of caution. Its chairperson Sindhu Gangadharan said that growing implementation of artificial intelligence and the rise of Agentic AI—which uses so-called ‘AI agents’ to perform tasks on behalf of users—is reshaping industry dynamics.
Essentially, what Gangadharan means is that AI poses a threat to Indian IT companies as their business model largely involves providing support services to clients in the US and Europe. Clearly, IT companies have their work cut out!
Tangled Up
While the IT companies are bracing for the threats arising out of new AI technologies, companies in another sector are facing a different kind of threat—the entry of a behemoth. That sector is wires and cables manufacturing and the giant entering it is the Aditya Birla Group’s flagship cement company UltraTech.
UltraTech said it plans to invest Rs 1,800 crore over the next two years to enter this segment. It will finance the capex through internal cash and borrowings. The company will set up a manufacturing plant for this purpose near Bharuch in Gujarat that is likely to be commissioned by December 2026.
Why does India’s biggest cement maker plan to start making electrical wires? Here’s the reason UltraTech gave. It said the move is in line with its strategy to strengthen its position as a comprehensive “building solutions provider”. It also said the wires and cables industry recorded annualized revenue growth of around 13% between FY19 and FY24. The segment’s outlook is robust, which provides an “attractive opportunity” for a new player, it added.
Now, if you are not convinced with UltraTech’s explanation, you are not alone. The company’s shares fell 6% on Thursday to an eight-month low as investors worried about its new plan.
The timing of this diversification also raised concerns, as it comes at a time when UltraTech is facing a hyper-aggressive competitor—Adani Group—in its core business. Adani entered the cement industry only in 2022 but has become the second-largest player by acquiring Ambuja Cements, ACC, Sanghi Industries, Penna Cement, and Orient Cement.
But just as Adani’s presence is giving sleepless nights to UltraTech, its expansion plan has left a bunch of existing wire and cable companies scratching their heads. Shares of RR Kabel plunged nearly 20% on Thursday. Polycab slumped 15%, Havells slipped 5% and KEI Industries lost 7%. It looks like another interesting battle is on the cards in Indian industry!
Market Wrap
Stock markets slipped some more this week, weighed down by Trump’s tariff threats and a selloff by foreign portfolio investors that has now crossed $25 billion since September.
The BSE Sensex plunged almost 2.6% while the Nifty 50 dropped 2.8% this week. This takes their drop to nearly 15% since September and more than 5.5% in February alone, the fifth month of losses in a row. The mid-cap and small-cap indices fell about 11% and 13% in February, extending their drops to 22% and 26% from their record highs last year.
Barring a few financial stocks, such as Shriram Finance, Bajaj Finance and HDFC Bank, the Nifty 50 looked like an ocean of red this week. Like last week, this week also saw IT stocks losing ground. Tech Mahindra, HCL Tech, Wipro, TCS and Infosys all fell by more than 5%. UltraTech slumped nearly 8% after its foray into wires and cables worried investors.
Tata Motors continued to skid, and hit a one-year low. Bajaj Auto and peer Hero MotoCorp also slipped.
PSU stocks such as ONGC, BPCL, Power Grid, Bharat Electronics, NTPC and SBI were all down. IndusInd Bank, Britannia, Apollo Hospitals, Grasim and Trent were among the other major losers.
Other Headlines
- Govt names finance secretary Tuhin Kanta Pandey new SEBI chief to succeed Madhabi Puri Buch
- SEBI allows long-short equity and debt funds under ‘specialised investment fund’ segment for rich investors
- SEBI plans rules to curb manipulation, limit spill-over of volatility from F&O into cash market
- RBI cuts risk weight requirements for banks on consumer microfinance loans to 100% from 125%
- IMF says India GDP expected to expand 6.5% in 2024-25 and 2025-26
- India needs to cut tariffs, start reforms to lift investment: World Bank
- Citigroup upgrades Indian stocks to ‘overweight’ from ‘neutral’; cites rate cuts, limited trade impact
- Coal India forms joint venture with France’s EDF for renewable energy business
- Tax authorities say Volkswagen only carmaker to evade import duties, Kia corrected course
- Singapore’s DBS Bank to cut 4,000 temporary jobs over three years because of AI
- Tata Play and Airtel Digital TV looking to merge, reports The Economic Times
- Tata Capital to launch IPO, approves rights issue to raise Rs 1,504 crore
- Govt seeks bids to appoint merchant bankers and legal advisers to sell minority stake in state-run banks
- US drugmaker Amgen to invest $200 million this year in new Hyderabad technology centre
- Angel One says some AWS resources were compromised, investigating its impact
That’s all for this week. Until next week, happy investing!
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