Global Markets Bleed | NDTV Profit
- Global markets tank; where does India stand
- Why the talk of U.S. recession?
Here's Nupur Talwar with 'The Big Story' of the day. #NDTVProfitLive
- Why the talk of U.S. recession?
Here's Nupur Talwar with 'The Big Story' of the day. #NDTVProfitLive
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00:00percent lower. This volatility was triggered after Japan's central bank raised interest
00:05rates in a surprise move last week. The Japanese Yen, too, strengthened causing concern. Neeraj
00:11Shah is now joining us with a quick explanation of what we have seen through the day today.
00:17Carnage or any other synonym that you can use for world markets at large. This is, the
00:24sell-off is the right term and it happened across the world, by the way, because look
00:27at the Asian screen. China is maybe slightly better because it didn't sell off as much,
00:33but Nikkei had a terrible day and the rest of the Asian markets, Taiwan, Kospi, Kospi
00:38had a trigger attached to it coming as well. So a lower trigger out there because the market
00:44sold off over 8 percent, too. So across the Asian screen there was red and India was not
00:49left far behind, by the way. Any attempts at recovery were doused off and we ended over
00:54two and a half percent in the red for the large caps. So the Nifty and the Sensex were
00:58two and a half percent lower. More importantly, the mid cap and the small cap indices saw
01:03an even bigger drop with three and a half percent for the mid caps and the small caps
01:08cracking under pressure as well. And frankly, if you look at the heat map for the Nifty,
01:13you will see that not one sector was spared. Sure, FMCG probably sold off less and which
01:18is why you had the likes of HUL, Tata Consumer, Nestle being in the green and which is why
01:23only a small tick of red on the FMCG index. But look at what happened elsewhere. Autos,
01:29banks, infrastructure, IT, all of these were taken to the cleaners and which is why stocks
01:34like Tata Motors, ONGC, Adani Ports, the metal names like Tata Steel, Hindalco, all of them
01:41came under some serious selling pressure in the session today. No point in singling out
01:45names because everything came off. The broader end of the spectrum, if you look at the BSE
01:51losers and gainers, you will see there were some gainers, maybe the likes of PCBL, which
01:56is having a different day, you know, different last few days on the EBITDA guidances or stocks
02:02like Marico, Dabur, etc., essentially from the FMCG space doing well. But look at the
02:07red end of the screen and across the board from an auto to Thermax, which is this whole
02:13industrial play, Adani Energy correcting public sector banks, construction names. There's
02:19a lot of, lot of bloodbath on the screen today. And like we said, not a single sector
02:24was spared. The key is, viewers, it's not about individual names, but about what the
02:29markets could do in the near term. And it's very likely that the kind of fall that we
02:34had today, and we end with this nifty intraday move maybe if we can, but the way we paced
02:40ourselves today, sure, we tried to bounce back from the lows of the day, but I don't
02:45think we were able to. And that is where the problem lies, that world markets are looking
02:49iffy. When the Indian market shut, European markets were in the red and US futures were
02:54trading in the red as well. So the world markets are looking iffy and any kind of attempt to
02:59bounce back was also sold off, and which is why don't think that we can say with conviction
03:06that the markets will bounce back immediately. It may be better to wait for the market to
03:11show its hand before investors try and be a braveheart and try and bottom fish. Certainly,
03:17this kind of a market fall doesn't warrant an immediate bottom fishing. It probably pays
03:22to sit on the sidelines, wait for the market to show its hand, and then get in.
03:26All right. So wait and watch is what Neeraj is suggesting. In fact, to discuss what's
03:33setting off this global meltdown, we are now joined by Chakri Lokpriya, Managing Partner
03:37of Red Strawberry, Sunil Subramaniam, Market Veteran, and MK Global's Chief Economist,
03:42Madhvi Arora. Good evening, all of you. Thank you for joining us on this broadcast. Madhvi
03:48coming to you first. Now, we have seen this mayhem in the Indian markets. And before that,
03:53of course, the Asian markets went into a tailspin earlier in the morning. This current turmoil
03:59began, of course, with the Bank of Japan's rate hike last week. Help us make sense of
04:05what we've seen today across the Asian markets and the Indian markets.
04:11So clearly, I think, you know, the Goldilocks narrative, which was being sold off until
04:16almost a month ago, as you know, sort of toppled, you know, market was, you know,
04:22actually enjoying the narrative, which was basically based on the fact that you would see
04:28policymakers cut rate, despite a relatively healthy growth. And that narrative was sort
04:33of floating the market apart. What we saw in the last one month or so, one and a half month or so,
04:39has been a confluence of various factors. One is, of course, you know, the macro rate has started
04:45softening. I don't think it's in a situation that you can actually call it a hard landing scenario.
04:49But, you know, the narrative is slowly changing towards a weaker labor market, which it is,
04:54especially after having seen last week's labor data in the U.S. And more importantly,
04:59the, you know, divergence in the policymaking within the developed market space. With Bank of
05:05Japan, you know, finally moving away from its accommodative policy stance and looking to further
05:11hike rates in the coming months or so, which clearly has meant that the yen carry trade is
05:15sort of unwound, to the extent that Japan, which is, you know, one of the key investors in the U.S.
05:22treasuries market, especially with Japanese life insurance firms, which are, you know, a big chunk
05:28of players in the U.S. you know, treasury markets, are now looking to obviously come back home,
05:34because a large part of their portfolio is also unhinged. This kind of carry, you know,
05:39unwind essentially has led to a lot of panic in the markets, of course, you know, be it Japan or
05:44even the U.S., and especially with the narrative, which is now moving towards a panic situation,
05:50more than a macro, you know, disaster per se. I think it's more a panic at this point in time,
05:56where the market is now calling for a massive cut by the U.S. Fed to the extent that we had
06:00expect – market is now expecting more than 100 bps cut in the next, you know, three months or so
06:07by the U.S. Fed, which obviously would, you know, catamount to a panic situation in the
06:11U.S. economy, which I don't think is currently warranted at this point in time. But clearly,
06:16the change of narrative has led to, you know, market positioning getting a little disturbed,
06:21because nobody was really pricing in a scenario wherein the Goldilocks would be disturbed to this
06:26extent. Madhavi, you know, of course, there seem to be U.S. recessions concerns, you know, that
06:32are also capturing the global markets. And essentially, that's what set off this sell-off.
06:39The employment data didn't look too good. But do you think that this may just be a bit premature,
06:45because that's what I read from what you were saying, that we are perhaps reacting too early
06:49to it? Yeah, I agree with you. I think, to a large extent, you know, this is beyond just
06:57in the macro situation. It's a part of it is largely panic at this point in time. You know,
07:02there is, of course, slowdown in the U.S. economy, which was anticipated given the
07:06tight financial conditions that the economy has been experiencing, even with a comfortable fiscal.
07:12I think to a large extent, there's been an irrational panicking that you're seeing in
07:17the markets globally at this point in time. All right. Let's also bring in Mr. Subramaniam
07:22into this discussion now. What are you looking at? How do you perceive what's happening?
07:30You know, we wouldn't be wrong to say that this is almost a global sell-off. We are,
07:34of course, waiting for the U.S. markets to open at about seven-ish. But largely,
07:39it's not a good day. Everybody in the red, including, of course, me.
07:42I didn't find a red shirt to put on. No, but I have a slightly different take to what Madhavi is
07:50saying, and I'll tell you where the difference is. So I'm not very sure that it's as much a reaction
07:56to the U.S. data. I think it's more of a reaction to the Japanese rate hike. Now, I'll tell you why
08:02I'll say this, because even if you take India, right, as per my estimates, a quarter of the
08:08FII money that flows into India comes from Japan. Roughly half comes from the U.S. and another
08:19quarter comes from Europe. Chakri can reinforce this. If he has a slightly different thought,
08:24he can say it when he talks. But that cost of funding for a Japanese FII, because hedge funds
08:32leverage money, and they borrow, and they borrow on a floating rate basis. So any rate hike comes
08:37immediately. And so it's very similar to, let's say, a margin trader in the Indian stock market,
08:42right? So there would be bankers who would be calling, because the margin of safety will get
08:48breached because the cost of funding goes up, and they would be actually forcing them to sell.
08:52That's number one. Second is algorithmic trades. See, a lot of these hedge funds and other players,
08:59what they do is they feed these data into computers and set these top losses so that
09:03they protect themselves from a fast fall. And those computers actually trigger it. There's no
09:07human intervention. So for me, I think it's a greater Japan effect rather than the U.S. effect.
09:15And why Japanese markets fell so much internally was also because the strong yen hurts Japanese
09:21exports, and the U.S. is the biggest market for it. So if the U.S. is going to slow down,
09:26then Japan is going to get hurt big time. And that's why you saw South Korea also getting hurt,
09:29Taiwan also getting hurt. So the export markets into the U.S. get hurt. And that's where if you
09:34see in India, normally IT is a safety sector, but IT got hurt because IT is, again, exposed to the
09:39U.S. So to me, I would put a slightly greater weightage to the Japanese decision to rate high
09:45can lead to the strengthening Japanese yen as a bigger trigger. And because ultimately, a U.S.
09:51rate cut is something an equity market should welcome, right? What's happened? There is a
09:57subtle difference, is that a rate cut which comes from a control from an inflation perspective,
10:02that is, inflation is easing, so I cut rates, is a positive signal. Whereas recession is coming,
10:08and so I'm going to cut rates, is a negative signal. But that being said, let's take it a
10:13month or two months from now. And let's assume this 100 basis points rate cut is actually going
10:17to come through. The equity markets would welcome it. And I would see that that cheap money would
10:22again flow back in from the U.S. into emerging markets, and India would get a benefit. So this
10:28is an initial knee-jerk reaction on this situation. Otherwise, equity markets love rate cuts,
10:34love software interest rates to help them to margin. So for me, it's a Japanese thing which
10:38has been a bigger trigger today. And then the overhang of Israel-Iran, that's generally a
10:46nervous factor, which is also hitting it. And where the U.S. recession is actually hitting is
10:52probably in terms of metals, global cyclicals, crude, those kind of things, because then that's
10:57going to mean that there's only a software demand. China is already going through a slowdown. So my
11:03summary, that's why I slightly defer to say that I would give greater importance to the Japanese
11:07decision in this whole sell-off globally. Chakri Lokpia, if you could come to you next. Now,
11:13do you agree with that assessment that Mr. Subramaniam just made? And also, if you could
11:18weigh in on the impact of the yen carry trade, is that also a factor that is rattling the markets,
11:23perhaps? Hello, good evening. Thanks for having me. I would build on what Sunil just said. I tend
11:30to agree with him, because what is a yen carry trade? A carry trade is when an investor borrows
11:39in a low-yielding currency and then invests it in a higher-yielding currency. And such trades
11:46are usually leveraged. And so when the trade unwinds, the first thing a leveraged investor does
11:53is unwinds those leveraged positions. When those leverage, so which means this does not impact
12:00the longer-term deals that are entered into by, let's say, India with Japan or Japan with other
12:06countries, but the initial carry trade is what impacts. And the money that is invested by Japan
12:14into the US treasuries, not all of it is carry trade. There is a certain amount of a very stable
12:20money, but only the leveraged trades get unwound, and they get unwound in a hurry. And that's
12:25exactly what we saw today. And the impact of that, as Sunil said, is that when the Japanese yen
12:31becomes more appreciated, then the exports of Japan into the US hurts. So it again, further,
12:39it has a reverse effect of slowing down exports from Japan and therefore hurts its balance sheet.
12:47And then on the other hand, you have, why is US now, where did this whole thing start off?
12:53Is US had a slightly bad unemployment data. They said they were going to cut rates in September.
13:00So they penciled in probably September 25, November 25, December 25. That's roughly 75
13:07basis points. Now with what Japan did, they might front end, but some end of that 75 basis point cut
13:19in the US, but does this impact the US balance sheet? No. So they would wait and watch. Now,
13:26would it impact other countries like India in particular? Not so much because carry trades
13:34are not an integral part of our what you call trade flow. Trade flows are priced differently.
13:42All right. We are going to slip into a very short break. But on the other side, we are going to ask
13:47all our guests what their advice to investors is. So do stay with us. We'll be back after a short break.
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16:30Well, thank you very much for staying with us on Prophet 360. You're watching the big story
16:34on the mayhem that we've seen in not just the Indian market, but also Asian markets. We have
16:41Madhvi Arora, Sunil Subramaniam and Chakri Lokpriya with us. Mr. Subramaniam, how susceptible do you
16:49think is the Indian market to these global factors? Now, we saw nearly 3% intraday fall.
16:55Are you expecting this volatility to last a little bit longer, given the weak data that is coming in
17:02from the US? And of course, there is a lot of geopolitical tension that's still around.
17:08So, a couple of things to give close to that. So, first is, I think that the Dow futures are
17:13showing a pretty sharp drop. So, it means that the drop, or I wouldn't call it carnage, but
17:19the drop in the US is going to sustain. So, which means there will be that spillover effect on India.
17:24Second is that I would also point out a slight difference. The reason I focus on Japan so much
17:29was because if you see the Friday fall, Friday also the market corrected. The Friday fall,
17:33the large caps fell, but the middle small caps didn't fall as much. But today's fall,
17:38the middle small caps have fallen greater than large caps. So, generally, when you have an
17:41international-related sell-off, it's the large caps that tend to fall, because the middle small
17:46caps are out of the domestic mind. Why today did middle small caps fall more? There are two reasons
17:51for that. One is the fact that Japan, last year, I remember, they raised a lot of money from Japanese
17:58investors, Japanese FIIs, which were large and mid-cap combos, not just pure large caps. So,
18:05there was a significant increase in Japanese allocation to Indian mid-caps. So, when they
18:08sold off, mid-caps also got sold off. That's why today is more a Japan-driven sell-off.
18:12The second I would also suspect is that in such a carnage is happening, domestic fund houses,
18:18whether they be PMS, AIF providers, or MFs, or insurance companies, would not want to catch a
18:24falling knife. So, they are waiting for the market to settle to see how much the fall is
18:30going to be before going and buying the stock that they like. But to generate cash to be able to buy
18:35the large caps which they want to buy, they have been probably selling middle small caps today.
18:40So, that's why. So, part of the Japanese money and part of the domestic fund managers reallocating
18:45in a diversified fund, in a multi-cap, multi-cap fund, they have probably been
18:50they have been booking profits. And where would they be doing that? They would be doing that
18:53where the rise has been the largest. The areas like defense, infra, some parts of energy, PSUs
19:01have had a massive rally, which is not entirely backed by fundamentals. It's more of a future
19:06projection. This will happen, that will happen. So, all of that, I think there's been a significant
19:10profit booking. So, I would say that would continue because when large caps again correct
19:16tomorrow and the day after, fund managers would like to buy good quality large caps at much
19:21cheaper prices. So, the fund managers are going to behave this way. They're going to wait and watch
19:26and wait to buy. I would suggest that the retail investors do the same. Don't try and catch a
19:30falling life. So, if you're doing an SIP, you don't panic. You continue with your SIP or your STP
19:36because your rupee cost averaging is going to come to your aid. If you do want to deploy money,
19:41put a 1% or 2% of the free cash that you have into the market now. Don't put it all. Spread it
19:47out over a period of time because I expect this volatility and this to last for a few days and
19:52not to jump in to put all the money in like tomorrow or the day after. So, right. The advice
19:58coming in is wait and watch. Mr. Lokpriya, to you now, what is your outlook on the Indian markets
20:05and what would your advice be to investors? Sunil has put it so well that there's nothing
20:13much for me to add. In the sense, I wouldn't buy. I would wait by the sidelines for some more time,
20:20let the market settle down. And there is going to be some reallocation of capital between
20:28mid and large cap stocks. Less about what you call the change in prospects,
20:34but more about because fund managers want to reallocate their exposures. And sometimes,
20:42in these kinds of falls, always markets overshoot, individual stocks overshoot on the downside.
20:48And in terms of where India is still strong, its manufacturing is still strong, the PSUs,
20:55the banks which have reported earnings are still strong. So, the whole theme remains unchanged.
21:02And as interest rates start coming down in the US and India as a natural cycle of events,
21:09again, banks will do well, financial services do well, manufacturing because of lower cost of
21:15borrowing benefit. So, I think wait a little bit on the sidelines. But again, still, it's the same
21:22Make in India theme, which we'll continue to do it. All right. Mavi, we have spoken about what's
21:28happening in the US markets and the concern about recession. But I had a quick question.
21:33Do you think that this prolonged monetary policy, tight monetary policy, in fact, is actually
21:40pushing the US towards more of a recession? It's harming them more than they could have perhaps
21:48envisaged. See, to be very fair, I think the US has had a very comfortable run. Nobody expected
21:55this, right? A year ago, January of last year, if you had checked any of those global CEO surveys,
22:01they would have said recession was coming 2023. They all went wrong. Why? Because fiscal was a
22:06massive support. 2024, beginning of the year, nobody would have expected a recession in the
22:13US actually coming because the sense is always that whatever has happened in the last quarter
22:19would continue in the current quarter as well. So, we tend to have a very myopic view of the markets
22:24or the economy in general. See, to some extent, of course, a monetary policy where it is too tight
22:29tends to restrict the economy to a large extent. In this case, I think, as I said, fiscal has been
22:35a massive support to the US economy, which has led to the golden run in the US macro cycles as well.
22:42And also has led to Fed actually not able to catch the cycles right. We are still debating
22:49what is the real neutral rate in the post-COVID world, be it India, be it the rest of the world.
22:53And I think policymakers everywhere are struggling with that answer. To some extent, yes, if the Fed
22:59continues to remain tight, given the current macro dynamics, of course, you're going to probably lead
23:04to a much harsher economic realities than if Fed actually tends to start cutting rate at a
23:11stable step and probably lead to a more softer landing. Yes. But I think it is unfair to say
23:18that a tight monetary policy has led to all of this. Of course, the economy has had a very good
23:24run and incrementally fiscal probably would not have that much support that it gave for two years
23:28or so. So, I think any which way we've sort of stressed the whole recession scenario. And now,
23:34finally, the market is now letting off all the heat. And now we are actually getting to see some
23:39slowdown, which obviously is a function of policymaking to some extent, but not necessarily.
23:44Mr. Subramanian, final words on the rising geopolitical tensions. That's something,
23:49of course, that's triggering the markets. And we have, through the day-to-day at least,
23:53seen a lot of worrying statements coming in from Iran and Israel, both the US also
23:58wading into that debate, warning G7 that there could be an imminent increase in tensions.
24:04Well, yes, it's a overhang. But I would say if the Japanese and the US situation gets clear,
24:10the geopolitical tensions shouldn't make a difference to your investing in the Indian
24:14stock market, because I think we are fairly insulated from that kind of attention. In fact,
24:20the only thing that can worry us is a spike in oil prices. But I have a contra view that,
24:25that if at all Iran is getting into a war, he's going to pump more oil to finance the war. So,
24:29I don't see oil then rising because of that, though there'll be a spike in oil prices.
24:34Though there'll be initial spike because of the tension, but the actual supply and
24:37see already Saudi and everybody haven't done the production cuts to the extent they said.
24:41So, oil looks to be easy. So, I wouldn't worry too much about geopolitical from India's perspective.
24:45It's in Japan and the US thing. And even US, like I mentioned in my earlier chat,
24:52that ultimately the rate cuts are positive for equities and positive for FIFOs to India.
24:57To me, it's the Japanese situation, the uncertainty, once that settles down,
25:00I think we'll bounce back. And the biggest geopolitical concern was Russia, Ukraine,
25:06and that didn't hurt India's stock market in any way. So, I don't see why this should hurt India.
25:11It will have its repercussions on some markets around the world, but not necessarily India,
25:15as long as the oil prices are under control. So, it's the oil which I would say,
25:19wait and watch to see on a geopolitical front. All right. Mr. Lokapriya, any final words
25:26about the geopolitics as well as your sense of how long could we see this volatility now?
25:34You know, it's a couple of things. One is the geopolitics itself. If you look at oil price,
25:38the price is there at about $70, which is a very comfortable number for Indian oil exports.
25:46If you look at the basket crude price, it can sustain a much higher number of an oil price. So,
25:52that is not really a concern now. The second is the general slowdown that we're seeing. There are
25:57two different reasons. One is, you know, US consumer has slowed down some amount that is
26:03at the lower end of the income, where the inflation is hurting them. In China, you know,
26:08all kinds of consumers have slowed down, whether you've seen Liu Weitong sales and Cartier sales
26:13slow down in China, which has not happened in the US. So, the economies have to… the
26:20balancing in these different countries is slightly different. And that will have a…
26:26because India being still a domestic-led economy, at least in terms of earnings growth for the next
26:32couple of years, I think we're largely fine. All right. I'm afraid we're running out of time
26:38on The Big Story. But all three of you, thank you very much for joining us this evening. So,
26:42the word coming from all our experts is wait and watch. And things should be better perhaps
26:48sooner rather than later.