In this edition, we talk about Donald Trump’s win in the US presidential election and how it could impact India. We also discuss the Federal Reserve’s interest rate cut, the latest domestic auto sales data and activity in the IPO market.
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?
In October 2020, just days before the US presidential election, Donald Trump called India the “tariff king”. Trump was the president at the time and the candidate of the Republican Party, but eventually lost to his Democrat rival Joe Biden.
In September this year, ahead of another US presidential election, Trump called India “a very big abuser” of import tariffs. This time, however, Trump has defeated the Democrat candidate Kamala Harris and is now set to take over as the US president again in January 2025. In addition, Trump’s Republican Party has won a majority in the Senate and is poised to lead in the House of Representatives, too, effectively gaining control of both chambers of the US Congress.
So, how is Trump’s second innings likely to affect India? Well, it’s too early to say what Trump will or will not do, or how it may or may not affect us. But we will hazard a guess anyway.
In his campaign speeches, Trump promised an overhaul of American fiscal policies to strengthen the economy, increase real wages that have remained stagnant for decades, and boost employment. Essentially, he wants to slash taxes for both companies and individuals, and review the trade policy using import tariffs as a bargaining tool. Meanwhile, his No.2, the vice-president-elect JD Vance, wants to tax remittances that people working in the US send to their home countries.
These measures will have far-reaching impact. Tax cuts, for instance, could widen the US government’s budget deficit, forcing it to borrow more and jacking up its borrowing costs. Trump’s tariff hikes could ignite a trade war with China—the world’s biggest exporter—and possibly even with Europe.
Higher tariffs on imported goods and services could push inflation higher in the US. The US dollar will probably strengthen and cryptocurrencies are likely to jump. And US stocks will rise if Trump follows through on his promise of easing regulations and taxes for large companies.
If Trump’s policies do lead to a pick-up in inflation, it would put pressure on the US Federal Reserve to keep interest rates elevated for longer (read more on that in the next section). In turn, it could affect the policy decisions of the Reserve Bank of India and other central banks worldwide.
All this could mean a weaker rupee, a higher import bill for India and a possible slowdown in exports. This will especially hurt exporters such as IT companies, drugmakers and textile firms. Any tax on remittances and tightening in visa rules will hurt, too.
Already, the rupee has plunged to record lows below 84.30 to a dollar. While India’s stock markets rose on the day Trump won the election, those gains have now evaporated as other issues such as corporate earnings, economic slowdown and foreign fund outflows take prominence. All in all, the coming months could possibly be marked with greater volatility.
Is there a silver lining? Well, for one, India’s trade, investment and defence ties with the US have been growing steadily over the past couple of decades, irrespective of the governments in the two countries.
In addition, Trump and Prime Minister Narendra Modi often talk about the great relationship they share. How far will it help to smooth things over? We will find out in the new year!
Interest(ing) Times
Trump’s victory wasn’t the only major development this week that will have worldwide impact. The other event that affects markets and economies across the globe is the monetary policy decision of the Federal Reserve.
The US central bank cut interest rates by a quarter of a percentage point on Thursday, reducing its benchmark overnight rate to a range of 4.50%-4.75%. This is the second time the Fed has lowered rates this year, after the 50-basis-point cut in September, as inflation stays under control and growth in the world’s largest economy remains strong.
Also on Thursday, the Bank of England cut interest rates to 4.75% from 5%, marking only the second reduction since 2020. And a host of other central banks from Hong Kong to the Middle East followed the Fed’s move in lowering rates.
The Fed is scheduled to meet once more this year, on Dec. 17-18, is widely expected to trim rates further. Before that, the Reserve Bank of India’s monetary policy committee will meet on Dec. 4-6 where it may start lowering rates, too.
But the road ahead might get a little more uncertain. Trump, as we pointed out earlier, has vowed to cut taxes, increase import tariffs and tighten immigration policies. These moves can not only fuel inflation in the US but also affect America’s trading partners, including India. Already, Trump’s win has pushed the rupee to record lows.
Fed Chair Jerome Powell said that the presidential election won’t impact US monetary policy in the near term and that the Fed will keep evaluating data to decide on the “pace and destination” of interest rates. But if Trump overhauls tax and fiscal policies, that pace and that destination will be harder to gauge, both in the US and in the rest of the world.
Festive Boost
Moving back to India, the domestic auto industry had some reasons to cheer this week with data showing that festive demand, especially for SUVs, boosted passenger vehicle sales by 32.4% in October.
According to data from the Federation of Automobile Dealers Association (FADA), car sales by dealers to customers climbed to 483,159 units in October from 364,991 units the same month last year.
The festival season started a little early this year with both Dussehra and Diwali falling in October. This, along with seasonal discounts and new models, lifted retail sales from dealers to end buyers during the month, although sales from manufacturers to dealers remained flat.
The continued high demand for SUVs reflects in the earnings of Mahindra & Mahindra Ltd. India’s top SUV maker said this week that standalone net profit increased 13.2% from a year earlier to Rs 3,841 crore for the July-September quarter. This defied analysts’ projections of a drop in profit.
The maker of Scorpio, Thar and XUV700 sport-utility vehicles said revenue from operations climbed 13% to Rs 27,553 crore, exceeding analysts’ estimates. In addition, SUV sales volumes jumped 19% in the July-September quarter. That compares with an overall drop in car sales in India during the three-month period.
The company expects full-year sales to grow in the “high-to-mid (percentage) teens”, Rajesh Jejurikar, CEO of the company’s auto and farm divisions, said at a press conference.
On the flip side, inventory levels in the industry continue to be high, with cars typically remaining with dealerships for 75-80 days on average. This, FADA said, will ensure that discounts may continue until the end of the year. So, if you are in the market for a new car—or rather SUV—you can still hunt for bargains this month and next!
IPO Street
If you prefer stocks over SUVs, this post-Diwali week had plenty of options to choose from with four companies floating their initial public offering on the main board to raise a total of about Rs 18,500 crore.
First off the block was Sagility India Ltd, a technology services company that focuses on the US healthcare market. The company is owned by Swedish private equity firm EQT, which sold a 15% stake in the IPO and mopped up 2,106.6 crore by selling shares at the upper end of the price band of Rs 28-30 apiece. Sagility didn’t issue any fresh shares.
Sagility’s IPO was subscribed 3.2 times, with institutional investors bidding for 3.5 times their quota and retail investors placing bids for 4.16 times the portion allotted to them.
Renewable energy company Acme Solar is raising Rs 2,900 crore via its IPO. This comprises a fresh issue of shares worth Rs 2,395 crore and an offer for sale totalling Rs 505 crore. The company fixed the price band between Rs 275 and Rs 289 a share. The IPO closed on Friday receiving subscription of 1.5 times, with retail investors bidding for over 2.5 times their quota.
Another company to hit the markets was health insurance company Niva Bupa. Niva Bupa was earlier known as Max Bupa Health Insurance Company and is now majority owned by British insurer Bupa Plc. The company’s IPO is raising Rs 2,200 crore, comprising a fresh issue of Rs 800 crore and a Rs 1,400-crore offer for sale by Bupa and private equity firm True North. While the IPO will close on Nov. 11, it was fully covered on Friday itself.
The biggest and the most awaited IPO was that of food and grocery delivery company Swiggy. The total size of the IPO is Rs 11,327 crore, making it the second-biggest this year after Hyundai Motor India’s Rs 27,870-crore share sale. Swiggy’s IPO comprises a fresh issue of shares worth Rs 4,499 crore and an offer for sale of Rs 6,828 crore by its existing investors. The IPO was fully covered on Friday.
While all four IPOs sailed through, the modest subscription numbers perhaps indicate towards a softening in primary market activity. Still, there are more than 50 companies that are in the queue to float IPOs. So, even if some of these companies don’t eventually follow through with their plans, investors will still have plenty of options.
Market Wrap
Indian stock markets went through a seesaw ride this week tracking global developments. The markets jumped on Wednesday due to Trump’s decisive victory but failed to sustain the gains and ended lower for the week. The 30-stock Sensex fell 0.3% while the 50-stock Nifty closed about 0.6% lower.
Trent was the biggest Nifty loser this week, losing more than a tenth of its value, after reporting quarterly results that showed a slowdown in revenue growth. Coal India, Asian Paints, Grasim, Hindalco were the other major losers. Automakers Tata Motors and Hero MotoCorp, and index heavyweight Reliance Industries also ended in the red.
The winners were led by Mahindra & Mahindra. India’s biggest SUV and tractor maker gained more than 5% during the week after reporting strong quarterly results.
IT services companies Tech Mahindra, TCS, HCL Tech, Infosys and Wipro gained as they will benefit from a weak rupee. Apollo Hospital, Bharat Electronics, JSW Steel, Cipla, and State Bank of India were the other major gainers.
Earnings Snapshot
- Tata Steel beats estimates with Q2 consolidated net profit of Rs 833 crore vs Rs 6,196 crore loss year ago
- Tata Motors profit falls 11% to Rs 3,343 crore, misses analysts’ estimates
- Life Insurance Corp’s Q2 profit falls 3.8% to Rs 7,621 crore
- Oil India Ltd standalone profit grows six-fold to Rs 1,834 crore but misses forecasts
- GAIL India profit increases 11% to Rs 2,672 crore, beats analysts’ estimates
- State-owned SAIL’s consolidated net profit drops 31% to Rs 897 crore
- Titan consolidated profit slumps 23% to Rs 704 crore on customs duty cut
- Trent consolidated net profit jumps 44% to Rs 339 crore
- Apollo Hospitals exceeds estimates as Q2 consolidated net profit jumps 63% to Rs 379 crore
- Jindal Steel and Power consolidated net profit falls 38% to Rs 861 crore
- Policybazaar parent PB Fintech posts consolidated net profit of Rs 50.67 crore vs year-ago loss
- Dr Reddy’s Labs consolidated net profit falls 9.5% to Rs 1,342 crore
- JB Chemicals and Pharma consolidated net profit rises 16% to Rs 175 crore
- Mankind Pharma consolidated net profit jumps 30% to Rs 653 crore, tops forecasts
Other Headlines
- Supreme Court orders liquidation of Jet Airways
- MSCI adds Voltas, Oberoi Realty, BSE, Kalyan Jewellers, Alkem Labs to Global Standard Index
- Tata Trusts chairman Noel Tata joins board of Tata Sons
- SEBI orders CEO of Embassy Office Parks REIT to step down
- Reliance Jio likely to float IPO next year, Reliance Retail to launch later
- Rupee drops to all-time low below 84.30 as Donald Trump’s victory boosts US dollar
- India’s fuel demand increases 2.9% year on year in October
- Truecaller appoints India head Rishit Jhunjhunwala as global CEO
- German firm SAP to hire more software engineers in India, says CEO
- Germany’s Deutsche Bank infuses Rs 5,113 crore into Indian operations
- Union cabinet approves capital infusion of Rs 10,700 crore into Food Corporation of India
- RBI Governor Shaktikanta Das says economic activity remains strong, inflation still a challenge
- HSBC India Services Purchasing Managers’ Index rises to 58.5 in October from September’s 57.7
- HSBC India Manufacturing Purchasing Managers’ Index rises to 57.5 in October from 56.5 in September
- Competition Commission of India recalls Flipkart probe report after Xiaomi’s complaint
- Govt plans to merge regional rural banks to reduce their number from 43 to 28
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 in International Markets
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. #MutualFundSahiHai #KuveraSabseSahiHai
