Economic Highlights

New Delhi, 19 June 2023

Modi’s US Visit

MAY RAISE FUND FLOW

By Shivaji Sarkar 

The stock market is surging ahead of Prime Minister Narendra Modi’s visit to the US. However, would it be able to sustain the level amid series of steps taken by the US Fed and involvement of Goldman Sachs in SVB (Silicon Valley Bank) crash, said to be worse since 1930s Great Depression, is a big question. 

The stocks could be led by domestic factors or tumble on the US moves.  The Fed plans two more interest rate raises and the market is predicted to crash even if it is in a bull phase. The S&P 500 entered a technical bull market last week, but the sizable rally that led it there may not last for long, according to Bank of America chief investment strategist, Michael Hartnett. He is credited to have correctly predicted last year’s (2022) sell-off, warned in a June 16 analysis that the stock market could resume its downward spiral soon. “We are not convinced at start of a brand, new shiny bull market,” Hartnett wrote. “Still feels more like combo of 2000 or 2008, big rally before the big collapse.” 

India has pinned its hopes on the Prime Minister Modi-President Joe Biden summit. At the recent Hiroshima G7 meet the US President expressed his desire to see Modi at the dinner in Washington. Removing barriers to technological trade between India and the US is a key part of Modi’s coming state visit, says the US National Security Adviser Jake Sullivan. The deal would also mark a win for Modi’s ambitious “Make in India” plans, while offering Washington an opportunity to strengthen key supply chains outside of China. 

The Indian industry perceives this as a great opportunity for getting orders from the US companies. The US only sees it in terms of reducing reliance on China by giving crumbs to India so that it is placated at a crucial time of the Russia-Ukraine war. Its India investment hovers around $20 billion a year. New Delhi looks at the Washington meet to get this raised. 

India’s key deal is likely to be with Micron Technology, which is to commit $1 billion for a semiconductor packaging factory in India. As earlier told, it will not be an assembly facility but shall develop as export hub and give a boost to Micron, which faces ban on its Chinese made chips. India will discuss measures to deepen economic and trade relations and strengthen partnership in defence, space and clean energy, besides reinforcing its commitment to a free, prosperous and secure Indo-Pacific. 

The minor rupee gains by 30 paise is not a great indicator. But turmoil in the US can send the Indian market on a roll. The 30-share BSE index zoomed 466.95 points to settle at a record closing high of 63,384.58. During the day, it rallied 602.73 points to 63,520.36 on June 16, 2023. The index scaled its earlier lifetime high of 63,284.19 on 1 December last year. The NSE Nifty climbed 137.90 points to end at its lifetime peak of 18,826. Its previous record peak was 18,812.50. In short, it regains but not a real growth. 

The Securities and Exchange Commission (SEC) and Federal Reserve are reportedly seeking documents into Goldman Sachs’ role in purchasing $21 billion of SVB’s securities portfolio as the hamstrung regional bank was looking to shore up cash and find a potential buyer, as well as Goldman’s role in allegedly advising SVB in raising capital, revealed sources. Federal investigators will also probe whether Goldman’s trading and banking divisions were improperly communicating, and whether the banking behemoth advised SVB to sell its portfolio—SVB executives reportedly decided to sell its securities to Goldman without seeking other buyers, out of fear of market repercussions. 

This has led to credibility loss of rating agencies. The US Financial Industry Regulatory Authority or Finra, hit Goldman Sachs with a $3 million fine for mixing up 60 million stock orders between October 2015 and April 2018. The US corrections might make the foreign portfolio investors move back to the US, as rates are to be revised over 6 per cent. This could mean once again a loss to the Nifty and Sensex. 

Indians have lost the maximum jobs in the US as Meta-Facebook, Google, Microsoft and Dell and other tech companies cut 84000 jobs. It has hit remittances from the US. Though now the US is again relaxing visa rules, it would be sometime before it makes up the losses. India receives $111 billion, the highest remittances. It is estimated that remittances to be around $656 billion due to slowing economic growth across major sources. 

The stock market rebound remains glued mostly to FPI investments. As they invest, indices move up and with withdrawals again plunge. The FPI purchases are at Rs 72,670 crore and domestic institutions (DII) bought a mere Rs 3240 crore since January this year. Thus, the market is lopsided and is susceptible to uncertainties. The DII are cautious and are making virtual token investments. This is also an indicator of slow growth of domestic industries, manufacturing included. 

India has to seek an open access to the US market for its goods, including farm produces. India exports to the US leather items, medical appliances and accessories, frozen meat, textiles, gems, machinery and some agricultural products. The basket needs to be widened. India imports 93 items worth $51.77 billion from the US and exports are worth around $80 billion. How can India have a preferential market there, would be of interest to watch. 

In this scenario, the surge for gold remains a big issue. If the US Fed make any changes it boosts the demand for gold. Once that happens, various investments made in India get affected.

If Hartnett’s predictions come true, it means the American economy in real terms is not recovering. Maybe it is soft towards India for this reason. It needs various strategic and logistic support from India to counter move in Ukraine. 

The global slowdown finds it difficult to make up. Not all its European allies are happy with the war. This has not helped Ukraine much. But its friends like India are hit in more than one way. Indian petroleum companies find their earnings locked up due to blockade of banking network SWIFT. 

While Modi visit is significant, the gains would be moderate for now. Once the war comes to an end, the relationships could benefit both countries. That may not be soon.---INFA 

(Copyright, India News & Feature Alliance)