Talking Points This Week: Deals... Struck And Awaited

In ‘Talking Points This Week’, Niraj Shah studies how top business leaders and market makers are navigating the fast-changing financial landscape..This week was about deals. Can the warring states of Russia and Ukraine strike a peace deal? Can there be a deal between Russia and India for crude oil at discounts to pre-conflict prices? Back home, Axis Bank announced a deal to buy out Citi's India wealth business. Aside from that, a steady-state for equities, a bit of a risk-on in crypto, and high volatility in oil. Let's look at the talking points this week..Anchored To Wall Street.Investors looking for signals on China’s plans to tackle Covid-19, the economic slowdown, or Russia’s war in Ukraine were left disappointed this week. What came was a fall in crude and a steep hike in APM gas prices. Questions continue to hover around what's next, after a 10%-plus rise from the lows on the Nifty, as issues around geopolitics, inflation, and higher rates remain. The answer may lie in what the west does. In dollar terms, over the last two years, India's returns have mimicked the returns of the S&P 500, and that may well continue. While forecasting the returns of the S&P 500 may not be fraught with risks, there is merit in exercising caution because of fundamentals and history. Fundamentals are well discovered. History, because a small peek into the market behaviour after previous instances of yield curve inversion between 2-year and 10-yearr yields suggests that once the curve starts to steepen again, U.S. markets head into correction, as the chart below shows. Will Indian markets follow suit? Billion-dollar question..Holding Steady On Domestic Fund Flows.Stocks in Hong Kong attracted record inflows via exchange-traded funds in March, as retail investors took advantage of a historic dip and an ensuing rebound to bet on further gains. Some 60 equity ETFs tracking the city’s indexes added $4.4 billion since end-February, the most in monthly data compiled by Bloomberg going back to 2000.This is symptomatic of what the data could reveal about the domestic equity investments in India for March. While the final data is not yet out, the belief in the market is that local fund flow numbers into equity funds would come in strong, as described by Nimesh Shah of ICICI Prudential in the Mutual Fund Show. Domestic flows will be needed for the Indian market, considering that FIIs don't seem to be in a rush to come back after recent exits. Sanjay Mookim of JP Morgan sums it up when he says that while FIIs are a heterogeneous community and it is, therefore, difficult to give one trend to describe their behaviour. One analysis of a trend line of flows suggests that the FII selling could abate after an outflow of another $10 billion. Normally, a number like ten billion may stump everyone, but the way Indian markets have digested the outflows due to the retail inflows, it does not cause as much of a flutter..Commodity Costs Softening?.After a record quarter of sorts, are we in for some softening of commodity prices? Crude prices cooled a bit this week, but the commodity remains notoriously unpredictable. What is going to be tough to digest is the rise in the price of natural gas under the administrative price mechanism. The APM price will hit consumers and industrial users alike. However, there is some silver lining as well, particularly for industries that have been bearing the brunt of high input costs. According to reports, India is 'leaning toward' continuing to import coking coal from Russia, and Russia has even offered India crude at a large discount to pre-conflict prices. In days of unpredictable, volatile, and generally elevated input cost pressures, this might be a shot in the arm.The other good news for steel millers is that commodity costs are starting to come off, as per Seshagiri Rao of JSW Steel. Coking coal is down from $670 per tonne to $540 per tonne. It’s the same story for shipping freights, according to Rao, who expects the “balancing” to help commodity prices fall more and gradually normalise. Most industry watchers would be hoping he gets proven right, for the margins, which have been hit badly in Q4FY22, might well do with some respite, since adequate price hikes may not be possible without some demand destruction..EV Game Charges Up Further.The demand for electric vehicles is witnessing non-linear growth in India, driven by customers’ finding cost parity and other benefitss. A shift in the mindset of leading auto and ancillary companies in India is clearly visible as they join the race with EV-focused startups. The week was punctuated by multiple announcements in this space, with Suzuki Motor Corp. saying it would invest about ¥150 billion (approximately Rs 10,440 crore) by 2026 for local manufacturing of electric vehicles and batteries in Gujarat. While Suzuki has announced this, in a BloombergQuint interview group company Maruti Suzuki's Chairman, RC Bhargava spoke about how EVs are not the only way to turn toward clean automobiles. Bhargava called for a mix of methods including compressed biogas, flex fuels, and for clarity on government policy in these areas, which would allow vehicle manufacturers to draw out their plans. While that is a fair ask, the question would linger over whether the incumbents are still slow in coming to the party. The early movers in the space are starting to see decent numbers on a near month-on-month basis..But What Everone Was Talking About, Was....All in all, it remained a week of uncertainty. There was a lack of news triggers for the market, made evident from the fact that the most spoken-about topic of the week switched from the attack on a country to an attack on an actor, even if the two people involved were as famous as Chris Rock and Will Smith, and the stage was as big as the Oscars..Niraj Shah is Markets Editor at BloombergQuint.

Talking Points This Week: Deals... Struck And Awaited

Every week, Niraj Shah studies how top business leaders and market makers are navigating the fast-changing financial landscape.

Choose a plan