Talking Points This Week: Contrasts At Play

This week had contrasting news flow, which had some bearing on risk assets. If U.S. yields came off before rising again, there is a case for Indian yields to cool off, with September CPI falling to 5% and belief of October CPI falling further.

Indian risk assets largely got favourable tailwinds from U.S. markets for the better part of the week, and despite some issues around IT service companies' performance or guidance, the markets held out well, with over a percent gain.

And while this week was also punctuated by other news like Microsoft’s $69 billion Activision deal cleared by U.K. or Argentinian central bank hiking interest rates to 133%, or key Fed officials talking about status quo on rates even as the Fed minutes referred to a restrictive policy, the main news flow centred around the Middle Eastern conflict and the start of the earnings season. But I will start off with the macro data in India, which was a shot in the arm for the country.

India’s September CPI inflation came in at 5.02% YoY, lower than the Bloomberg consensus forecast of 5.4%. This compares with a print of 6.8% in August and a peak of 7.4% in July 2023. In some sense, it is a shot in the arm for the RBI, which consistently maintained that there was hope of some of the inflationary pressures being transitory.

With the September print, CPI inflation averaged 6.4% in July–September 2023, in line with the RBI's latest updated forecast. The expected sharp drop in vegetable prices (-15.8% mom) helped, as did the 4% MoM downtick in fuel prices, largely due to the recent LPG price cut.

As per a Deutsche Bank note, the current food price trend in October suggests further disinflation, which can potentially push CPI inflation down to 4% YoY or lower. However, the larger question is whether lower inflation can bring about a change in stance by the central bank and, eventually, the investing appetite of corporate India. Relative to the rest of the world, in an ace investor's words, India is experiencing a "Goldilocks situation".

All three IT majors that came out with results had some chinks in their armour in Q3. All three showed a headcount reduction as well. And all three either posted revenues lower than estimated or guidance lower than earlier. This is despite the order flows looking strong, at least for both Infosys Ltd. and HCL Technologies Ltd. Why is it that growth is showing signs of stress even as order flows are looking strong? A note on Tata Consultancy Services Ltd. by HSBC caught my eye.

The analysts say (about TCS): "TCV trends have been strong in recent quarters (for TCS and most other companies). TCS has signed more than $10 billion in TCV per quarter in the past three quarters, compared to the $8 billion run-rate of the past few years. Despite this, the recent revenue growth and outlook have deteriorated. We have noted this previously; to summarise, large deal TCV typically drives only half of the growth for IT companies. Flow business (scope expansion, smaller deals, etc.) is equally important, and this has slowed due to macro uncertainties. We expect flow business to improve from 4Q FY24e."

The question is, can this be extended to other companies? Even companies don't think so, as the CEO of HCLTech told me here. However, one thing is for sure—until the situation visibly improves across the board on growth, IT as a sector may not return to favour.

Did you know that an Afghan car turned heads at a Global Auto show? Afghanistan's first-ever indigenous supercar, named after the mythical bird from Persian mythology—Simurgh—has made its global debut at the Geneva Motor Show in Qatar.

Made by Kabul-based manufacturing company Entop and the Afghanistan Technical Vocational Institute, the Simurgh has captured the attention of automotive enthusiasts worldwide, according to a Bloomberg report. The Simurgh project brought together a team of 30 Afghan engineers and artisans who dedicated five years to its creation. Some story, eh?

In other auto news, Stockholm bans diesel and petrol cars in the city centre from 2025. And the UAW shuts down Ford's most profitable plant, escalating the auto strike, even as the workers are reportedly going to talk to Chrysler-maker Stellantis. Lastly, it's not great news for Tesla aficionados, as the company lost market share even as U.S. electric vehicle sales hit record highs.

The Israel-Hamas conflict remained centerstage in terms of news flow. And while we hope that peace prevails quickly, there are other impacts that need to be recognised. Chris Wood of Greed and Fear noted the impact of the conflict on the much-hyped Israel-Saudi deal.

He says, in the latest Greed and Fear note: "Key consequence for Greed and Fear is that it makes it much harder for the widely anticipated deal between Saudi Arabia and Israel to be concluded. Saudi has not recognised Israel since it was established in 1948. On that point, an article in a recent Economist noted that Saudi Crown Prince Mohammed bin Salman did little to hide his “relish” at the prospect of such a strategic pact in a recent rare TV interview with FoxNews."

"In this interview he gave on Sept. 20, MBS said that such a deal would be 'the biggest historical deal since the Cold War'. Such an outcome would now seem extremely hard to conclude in the foreseeable future, given the passions aroused on the Arab street. The same Economist article also noted that only 2% of young Saudis support normalisation of relations with Israel, according to the 2023 Arab Youth Survey, compared with 75% in the United Arab Emirates, which did normalise relations with Israel in September 2020."

One hopes peace returns to the world soon. Except for Saturday, when the most anticipated clash in cricket takes place, when the Indian cricket team takes on Pakistan in an eagerly anticipated World Cup clash. May the best team... Nah! I'm rooting for the men in blue! Fingers crossed!

Niraj Shah is Executive Editor at BQ Prime.