Moneycontrol Pro Weekender | Pomp and Circumstance, with a touch of Vertigo

As per the latest business developments, Dear Reader,

The much-awaited Trump-Xi meeting seems to have been all pomp and no circumstance. What did they talk around? Probably 'Of shoes — and ships — and sealing-wax/ Of cabbages — and kings/ And why the sea is boiling hot/And whether pigs have wings', a la Lewis Carroll, for all the difference it made. Trump laid on the charm thickly for the Chinese leader, quite unlike his address to the United Nations General Assembly, where he bragged around American power and stated, “To the victor belong the spoils”.

To be fair, no breakthrough was really anticipated from the Trump-Xi meet, and we had in fact written, “The summit’s real achievement may simply be avoiding a rupture”. That was a really low bar.

The real action is in the Middle-East, and we stated “West Asia is now in for an era of prolonged low-intensity war”. The market fears that too, noted in the climb in oil price marks, which is one big reason for the sharp climb in bond yields in the major developed economies.

The latest spurt in long-term US bond yields could be due to the S&P Global US Flash PMI for September, which saw business expansion surge to the fastest for over 5 years, with price pressures intensifying. Flash PMIs additionally revealed inflationary pressures in both the Eurozone and the UK.

The OECD’s latest Economic Outlook report, published the current week, stated, “Long-term interest rates have risen to the highest marks in 15 years or more in many economies, amidst mounting concerns around longer-term fiscal risks and heavy bond issuance by AI-firms.” Emerging market economies did their modest bit to contribute to rising yields by going on a record foreign borrowing spree. The upshot: the CME Fedwatch tool reveals that the market is giving a probability of 70.9% to another Fed hike at the next Federal Open Market Committee meeting on October 28. A month ago, that probability was a mere 9.7 percent.

So far, equity markets have admirably resisted any vertigo from the steep climb in bond yields — as on September 24, the MSCI All Country World Index was down marginally this month, but still up 12.6 percent year to date. One is reminded of Beckett’s line: “I can’t go on, I’ll go on.” Equity indices appear to have adopted it as a trading strategy.

Indeed, the OECD note stated, “Broader financial conditions stay supportive, reflecting elevated equity markets and improved credit expansion.” Nevertheless, if the high interest rates persist, they will affect equities. Apart from rising discount rates, elevated mortgage rates and rising corporate borrowing rates, there is a danger of the yen carry trade unwinding.

Of course, one reason for the resilience of some equity markets, as well as economies, is the AI boom. BofA says, “If AI risk is rising, so is its potential.” It sees AI sell-offs being bought quickly and says the bigger risk is for market participants who stay underweight. On the other hand, at the UN General Assembly, the question being debated was: “Could AI spark a financial crisis?” We warned of another risk—the AI cyberattack nightmare—a very real risk in the wake of recent attacks.

So, how do market participants value AI firms, faced with all the risks? This is a good moment to assess how, exactly, the valuation question can best be answered — and whether $2tn for Anthropic is the stuff of financial hallucination. Of course, we could always ask AI to value itself and see if it blushes.

The OECD report mentioned above revised India’s GROSS DOMESTIC PRODUCT expansion for FY27 to 7.1 percent, a 0.8 percentage point jump from the projection made in June this year. India’s PMI rebounded in September, although part of that could be on account of inventory build-up as the war in the Middle-East expanded.

Trouble is, the Indian equity market stubbornly refuses to celebrate the economic expansion. In fact, it’s gotten so bad in the past three years that “the Post Office time deposit, the plainest product in Indian finance, has beaten the Nifty 50 in price returns over the three-year period”. The current week, the market, already battered by rising crude prices, received another blow from IRDAI’s new draft rules, which we analysed threadbare here and here.

The bright spot was the primary market, with the NSE IPO stock-exchange debut the current week. We analysed the IPOs of Varmora Granite, Moneyview, Orient Cables and Acevector, and wrote around what explains the gap between IPO demand and market sentiment.

But with robust expansion, rising inflation, elevated crude prices, elevated bond yields abroad, and a near-zero real policy rate at home, the stage is set for the MPC to hike the repo rate at its next meeting on October 7. Cheers,

In case you missed them, here are some of the other stories and insights we published the current week, apart from our technical picks in the equity, commodity, and forex markets:

Deepa Jewellers, Vijaya Diagnostics, Astra Microwave, Symbiotec Pharmalab, Hyundai Motor, Elevate IPO, Life Insurance: which stock to bet on? Control Print, Mphasis, Bosch, Aptus Value Housing Finance

Bond market selloff creates opportunity for set income market participants

When an ETF’s price loses touch with reality, what should market participants do?

Why bullion holders have an edge

GIFT City infra is in place, it now needs scale

One of India's oldest long-short AIF strategies posted its best relative month yet

China tries on the smart glasses craze — and its privacy risks

The dying days of the The US central bank’s dot plot

Private credit’s ‘soft’ defaults

Firms & Sectors

Rural FMCG demand faces rough weather

India bucks the global PV sales downturn

HUL’s shares are hugging five-year lows, what can change the tide?

Tata Sons' IPO may list the firm. It won’t settle the war

From only roads to a pan-India infra presence, diversification is key to expansion: Devendra Jain, MD & CEO, Dilip Buildcon

Why Tata Chemicals’ market participants shouldn't fixate on the Tata Sons stake alone

India’s battery energy storage sector enters critical execution phase

The MDR friction on UPI risks erosion of access to easy data for lenders

Semicon India—Is private capital ready to chip in more?

Who will be a bigger victim if the US pulls the new tariff trigger?

A mineral bourse can be India’s backbone for pricing power

Big Food’s sugar-coated claims, double standards in India face a reckoning

India set to add a record 125-130 new GCCs this year, Hyderabad takes the lead

Why a music giant is hiring engineers in Bengaluru: Inside Warner Music's global tech propel