Dollar Dominance Tested

JANUS VIEW

Is It The Beginning Of The End Of American Hegemony?

The dollar’s latest slip following a Moody’s downgrade may feel routine—but it’s anything but. Unlike previous downgrades in 2011 and 2023, which ironically strengthened the greenback, this time capital fled US treasuries. Why? Because the world sees a nation veering toward self-inflicted economic harm.

That shift in perception, combined with the re-election of Donald Trump and his aggressive policy changes—higher tariffs, tax cuts for the wealthy, immigration crackdowns, and defunding of universities—has started to crack the foundations of America’s financial credibility.

The Trump administration’s latest budget reflects these contradictions. It promises tax breaks for the ultra-rich, slashes welfare, and boosts military spending, including a proposed nationwide missile defence system. His policies risk undermining the very pillars of America’s industrial revival—from semiconductors to clean tech—by undoing his predecessor’s incentives. Meanwhile, capital linked to Trump’s business interests is flowing from Vietnam to Saudi Arabia, raising fresh questions of conflict of interest and influence.

Back home, the rupee has strengthened, forex reserves are nearing the $700 billion mark, and inflation is easing. Consumer prices are below 4%, wholesale prices are nearly flat, and early indicators like the composite PMI suggest growth is gaining steam.

But it’s not a moment for complacency. The government cannot afford to go slow on the promised capital expenditure from the Budget. Since the Budget’s offer of Rs 1 lakh crore worth of tax giveaways will take time to materialise as additional expenditure by taxpayers, the government could think of incentivising frontloading of the consumption from anticipated low tax payout by individuals. 

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CORE NUMBER

61.2

That’s the HSBC Flash India Composite PMI Output Index for May—the highest in over a year—signalling sharp private sector expansion, according to data compiled by S&P Global and reported by Business Standard. The Purchasing Managers’ Index (PMI) measures business activity based on surveys across manufacturing and services; any figure above 50 indicates growth. Services led the charge with a 14-month high of 61.2, driven by strong demand and tech investment. Manufacturing held steady at 58.3, though output eased slightly. Analysts indicate that despite cost pressures, businesses remain optimistic and continue hiring to meet rising domestic and global demand.

Bajaj’s KTM Rescue. In a move similar to Tata’s historic Jaguar Land Rover rescue, Bajaj Auto is taking full control of Austrian superbike brand KTM AG, acquiring a majority stake through its Netherlands arm for €800 million (~Rs 7,765 crore). The two-wheeler giant has long backed KTM—from an initial 14.5% stake in 2007 to co-developing bikes in India, where booming sales arguably saved the brand. The acquisition marks a major milestone in Bajaj Auto’s global strategy, coming just ahead of a court-imposed May 23 deadline to settle 30% of KTM’s creditor claims—failure of which could have triggered insolvency proceedings for the Austrian bike maker and its subsidiaries.

Steel Import Shuffle! India’s finished steel imports fell 11.3% year-on-year in April to 0.5 million metric tons, driven by sharp drops in shipments from China (down 26.5%) and Japan (down 60%). The decline followed a 12% temporary safeguard duty aimed at curbing cheap imports. Meanwhile, imports from France and Germany spiked, mainly in steel plates. South Korea remained the top exporter to India. India’s steel exports dropped 25.7% to 0.4 million tons. Domestic finished steel output stood at 12.4 million tons; crude steel at 12.9 million.

Two-Wheeler Boom! Honda Motorcycle & Scooter India (HMSI) will invest Rs 920 crore to add a fourth production line at its Vithalapur, Gujarat plant, the company’s largest motorcycle assembly facility globally. Operational by 2027, the new line will add 650,000 units annually, taking the plant’s total to 2.61 million and creating 1,800 jobs. HMSI’s India-wide capacity will rise to 6.14 million units by 2027. Meanwhile, Hero MotoCorp reported a 6% rise in Q4FY25 net profit to Rs 1,081 crore, aided by higher premium bike sales despite flat volumes. Revenues rose 4% to Rs 9,938.7 crore.

Tourism’s Comeback Boosts Economy. Tourism created 76.17 million jobs in 2022–23—12.57% of India’s total employment that year—according to a Business Standard report. Foreign exchange earnings from tourism surged over 66% to Rs 2.32 lakh crore in 2023, the report added. Further, the research report also links a strong correlation between foreign tourist arrivals (FTAs) and gross value added (GVA) in trade, transport, and hospitality sectors. FTAs rebounded sharply post-Covid, driven by G20 events, the Cricket World Cup, and business travel, with tourist search data suggesting further growth momentum into early 2024.

PODCAST

On Episode 587 of The Core Report, financial journalist Govindraj Ethiraj talks to R. K. Behera, Chairman at RSB Group as well as Advocate Shrish Deshpande, consumer court expert. 

• Markets rise after gaining confidence

• Morgan Stanley quotes India’s new terror doctrine as part of the bull case for 89,000 Sensex

• India’s auto components industry is holding steady

• Another bank shuts down, will depositors be in the lurch?

👥 THE TEAM

✍️ Zinal Dedhia, Salman SH, Kudrat Wadhwa | ✂️ Rohini Chatterji | 🎧 Joshua Thomas