Talking Points This Week: Issues Galore, Markets Perform With Fervour

Did you know that, year-to-date, the best-performing asset class is neither gold nor crude nor any of the financial markets? It is Bitcoin. And while the cryptocurrency is awaiting its biggest trigger in January, the year safely belonged to BTC. But this week's piece is not about Bitcoin, though it certainly deserves to be written about.

However, the main talking points this week were escalating geopolitical tensions and chip wars, some more confirmations of potential benign rates and an action by the RBI that had a strong reaction. As also, the very strong response to IPOs in India. Keep in mind that some of the IPOs in the engineering and jewellery space got applications, which could make their listing price and listing market caps look extremely expensive on any valuation metric. But that is what bull markets are about, I guess. And markets continue to do very well.

Last weekend’s clashes between Chinese and Philippine vessels in the South China Sea sent troubling signals that their standoff is worsening to the point where lives could be lost, potentially dragging the world’s two most powerful militaries into open conflict.

While no injuries were reported in a much-publicised Sunday clash, it shows that serious injuries or deaths are possible. And because the Philippines, like nearby Japan and South Korea, has a mutual defence treaty with the United States, the deaths of Filipinos could trigger U.S. forces to respond. And it's not just around the Philippines. A Republican senator said Wednesday he'd draft pre-invasion sanctions from hell to impose on China if they take action to seize Taiwan. Now, this is one geopolitical situation that we do not want to see escalating.

The Reserve Bank of India has directed banks and non-banking financial companies to not make investments in any alternative investment fund that has downstream investments, either directly or indirectly, in a debtor company of the bank. The central bank is seeking to put a stop to transactions that entail the substitution of direct loan exposure by lenders to borrowers with indirect exposure through investments in units of AIFs, as such transactions lead to concealment of the real status of stressed loans. The notice aims to address concerns relating to possible evergreening through this route. The move is also expected to impact fund flows to AIFs.

While clean power is better, unclean power is better than less power. Developing countries seem to have realised this very well. India, for example, expects to add almost 88 GW of fossil fuel-fired generation capacity by fiscal 2032 to meet increasing electricity demand, according to Power Minister Raj Kumar Singh.

About 27 GW of thermal capacity is under construction, 12 GW has been bid out and 19 GW of projects are in the process of obtaining clearances, Singh said Thursday, in a written reply to questions in Parliament.

Yes, out of the overall 464 GW of capacity addition planned by the year ending March 2032, 322 GW of capacity addition is via renewables. And this is not surprising, because India is likely entering a phase of demand-supply mismatch. It will be interesting to see the U-turn in other areas as well.

Note that we have seen EV adoption slowing already. On Dec. 14, we saw the news piece of how EV inventories in U.S. hit record highs as cars piled up on dealer lots. Need to see how things shape up in Asia and India. But certainly seems that fully green is not a near-term possibility.

U.S. consumers traded down. For much of the past year, consumers said they adapted their purchasing behaviour to stretch their dollars further. An online article read that as consumers’ economic challenges persist even with grocery inflation declining, brands and merchants alike are seeing consumers pull back on food and beverage purchasing.

Apparently, Nestlé observed in a presentation in September that consumers have been purchasing food and beverages less in the recent past. Recently, 77% of Americans surveyed said they took some kind of trade-down action in the past three months. More consumers said they used buy now, pay later services in the fourth quarter of 2023 than in the prior quarter—again, likely because it’s the holiday shopping season. This payment method was particularly popular with younger consumers (26% of Gen Zers and 28% of millennials said they used BNPL services as compared with 6% of baby boomers).

While this newsletter is all about curbs or restrictions or reduction in different aspects like consumption or clean power, India seems to be on a different path.

I end this newsletter by wishing everyone a very happy festive season, and a quote from a LinkedIn post of Trinh Nyugen, senior economist of Emerging Asia at Natixiz, a large global asset manager.

"India presents a positive mirror image of China's debt, demographic and deflation woes. Corporates have deleveraged with a debt ratio of 54% of GDP (78% in 2012) versus China's 165%. Indian households will also open their wallets and invest in the rise of the investment cycle in the country as they rotate out of deposits and gold into pensions and mutual funds. We are structurally bullish on India, which we think is only at the cusp of its investment bull run that will be beyond 2024 and whoever wins the general elections (Modi is a shoe-in)."

Niraj Shah is Executive Editor at NDTV Profit.