Talking Points This Week: The Fed, China And 'Make In India' Are All Changing

This week was punctuated by Indian markets hitting life highs, and global markets participating as well. Chinese markets have rallied, with CSI 300 up around 5% and the Hang Seng up about 10% in the last five days.

Compared to these, India's 1% upmove seems sedate, but Indian markets have had a 6% upmove year-to-date versus a 19.7% downtick for Hang Seng and 21.2% downtick for the CSI 300 index.

Aside of markets, public anger led to a change of rules in China as well as Jerome Powell's slightly softer stance on the rate hikes ahead were centrestage.

China protesters exploited gaps in the great Chinese firewall to pressure the Xi Jinping regime.

Presumably as a result, Beijing has decided to allow some Covid-infected people to isolate at home, in a landmark shift that reflects the pressure officials are under from a record outbreak and public opposition to strict virus regulations.

China’s top official, in charge of the fight against Covid, said the country’s efforts to combat the virus are entering a new phase with the Omicron variant weakening and more Chinese getting vaccinated.

The big question is: Is this a fresh sign that Beijing may be seeking to amend its strategy, after protests at the weekend were followed by a pledge to crack down on social disorder?

It may well have a bearing on how Chinese stocks do. Will Chinese consumption names see the same kind of revenge consumption that has been seen in other countries?

The Federal Reserve will slow the pace of interest rate increases next month, Chair Jerome Powell signaled, while stressing that borrowing costs will need to keep rising and remain restrictive for some time to beat inflation.

His comments likely cement expectations for the Fed to raise interest rates by 50 basis points when they meet on Dec. 13-14.

Stocks in Asia surged following a sharp rally on Wall Street after Powell’s comments, and the street now pencils in a more moderate pace of hikes.

However, as one expert wrote to me on a private email, we should keep in mind that the Fed would maintain the tightening strategy till it reaches a restrictive set-up as it will be necessary to attain 2% inflation over time.

The Fed draws comfort from goods inflation but is still significantly concerned on the other two dominant factors of inflation viz, housing services inflation and the dominant services inflation, which gets influenced by the high wage growth.

So, while the markets have cheered Fed’s guidance for smaller rate hikes, there might be merit in not extrapolating it to a more benign scenario in the immediate future.

Softbank arm SPV Holding was offering 22.8 million shares of PB Fintech at a 4.6% discount to Thursday's closing price. The stock closed higher by 5% on Friday. This brings into the equation the absorption of selling in the platform companies in India.

For a bunch of these names, the pre-IPO lock-in opened in November. However, amid some marquee investor selling stake in the stocks.

Nykaa was the poster boy because of the whole bonus issue, but the larger point is that the stock is down about 8.77% since Nov. 1, despite marquee investors including Lighthouse, TPG Growth, Senantii India selling stake.

Similarly, stocks like PB Fintech, Zomato or Delhivery are all doing much better compared to the fears of a possible collapse in prices because of the large selling that was expected.

Swiss chocolate company 'Barry Callebaut' started construction of its new factory in Neemrana, Rajasthan. Expected to commence operations in 2024, it will make India the company's largest chocolate producing market in Asia Pacific. This is the third investment in India for the group, and conversations with experts suggest that these names are not the only ones.

The grapevine has it that a large sports goods manufacturer is doing the same, and we have already seen instances of Apple and other global giants starting to use India more effectively as a manufacturing hub.

Has the party just begun? It certainly seems so.

Niraj Shah is Executive Editor at BQ Prime.