On Episode 916 of The Core Report, financial journalist Govindraj Ethiraj talks to Anindya Banerjee, Senior VP and Head of Research for Currency and Commodities at Kotak Securities as well as Sohrab Bararia, Partner, Indirect Tax at Grant Thornton Bharat.

SHOW NOTES

(00:00) Stories of the Day

(00:50) Are FPIs Getting Ready To Return To Indian Markets?

(03:50) Oil Flows Could Go Into Oversupply Soon, Says Goldman Sachs

(05:38) Tiktok’s $39 Billion Data Centre Is Coming Up In Brazil

(05:57) Where And How Could The INR Land In Coming Months?

(14:05) Nine Years Of GST, The Unfinished Agenda

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NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on feedback@thecore.in.

Good morning, it's Thursday, the 2nd of July and this is Govindraj Ethiraj broadcasting and streaming weekdays from a rained out Mumbai, India's financial capital.

Our top stories and themes…

Are foreign portfolio investors getting ready to return to Indian markets?

Where and how could the Indian rupee land in coming months?

Nine years of goods and services tax, or GST, the unfinished agenda.

Oil flows could go into oversupply soon, say is Goldman Sachs.

And TikTok's $39 billion data centre is coming up in Brazil.

Markets, Gold, Oil and TikTok

Global fund managers appear to be reassessing their retreat from Indian markets as a fall in oil prices to pre-war levels and measures to stabilise the rupee have boosted flows, particularly in debt, as we've seen in the last month. Daily selling by global funds has slowed markedly in recent weeks, with an analysis by Elara Capital saying India is showing early signs of stabilisation. Foreign outflows slowed to $98 million, which is the lowest in eight weeks, versus an average weekly redemption of $430 million in the last two months, according to that Alara Capital report.

It also pointed out that India focused outflows moderated to about $69 million from a four-week average of $480 million. Japan and Luxembourg are the key sources of pressure. Significantly, US exchange-traded fund flows into India, that's ETF flows, turned positive, that's about plus $136 million, for the first time in five weeks, suggesting that the pace of liquidation may be slowing.

Now, these are all, of course, signals, but the markets were positive on Wednesday, thanks to buying in financials and other sectors. The Nifty was up 140 points to 24,005, and the Sensex was up 443 points to 76,922. The broader markets were also up.

The Nifty mid-cap and small-cap are up 0.3 and 0.36 percent. Gold prices, on the other hand, continued to fall after it closed its worst quarter in 13 years in three months to the end of June, according to Reuters, which added that gold futures began the second half of 2026 on the back foot, and spot prices were even lower, falling about 0.8 percent to $3,974 per ounce. To give you context, gold hit on the 29th of January $5,586 per ounce, so from $5,586 per ounce in the end of January to $3,974 per ounce on the 1st of July.

About 16 percent has thus been wiped off gold in the three-month period ended June 30, which is also its worst quarter since the second quarter of 2013, according to the Reuters report. The rupee fell to a near three-week low on Wednesday, tracking declines in Asian currencies as investors turned cautious ahead of remarks from the U.S. Federal Reserve Chair and uncertainty over the ongoing U.S.-Iran negotiations. According to Reuters, the rupee weakened about 0.6 percent to close at 95.24 rupees, its worst one-day fall since June 8. Elsewhere, South Korea's won slid towards its weakest level since the global financial crisis, leading a retreat in Asian currencies as the dollar strengthened and overseas investors sold local stocks, according to Bloomberg, which added that the won declined as much as 6 percent, a level last seen in March 29.

Much of this was triggered by heavy selling by overseas investors who sold almost $938 million of stocks in the Kospi index on Wednesday, making it the eighth straight day of outflows. Meanwhile, the global oil market could swing back into oversupply as the impact of the Iran war fades and traffic through the state of Hormuz recovers, according to Goldman Sachs, who also said that while purchases of crude to replenish strategic reserves are expected to tighten the global market to some extent, they would only partially offset the anticipated glut, according to the co-head of global commodities research who spoke to Bloomberg television. On Wednesday, Brent crude was quoting at about $72 a barrel, a little over that, an optimistic number, all things said and considered.

The Goldman Sachs analyst said that once we have normalisation of flows through the state, the expectation is that we go into an oversupply, with the surplus expected to average just over 3 million barrels a day in the next year. Back home, Nayara Energy, who's also India's largest private fuel retailer, on Wednesday cut petrol prices by 5 rupees a litre and 3 rupees a litre for diesel across its nationwide network of more than 7,000 fuel stations. So this obviously is the first reduction in retail fuel prices by any company in more than two years.

The major public sector oil companies like Indian oil, Bharat Petroleum, Hindustan Petroleum, which represent more than 90% of India's over 100,000 fuel stations, did not announce any changes, according to a Business Standard report. Elsewhere in geopolitical news, Japanese Prime Minister Sanae Takahichi is heading to India and is starting a three-day trip today to bolster economic ties and align on security cooperation and discussions could include semiconductors, critical minerals and energy, according to a Bloomberg report. Speaking of geopolitics and now intersecting with technology, the US government has removed foreign access restrictions on Anthropic PBC's Fable 5 AI model, clearing it for wider distribution after the startup resolved the Trump administration's safety concerns, who had blocked it.

And sticking to AI and by extension data centres, in Brazil's Sierra State, hundreds of workers are building a $39 billion data centre for ByteDance, the owner of TikTok, also the largest data centre complex outside China, according to Bloomberg. And in the global race for data centres, countries like Brazil are clearly upping the game.

How will Rupee Perfom in the Coming Months?

The rupee will remain weak against the US dollar over the coming months, despite expectations that recent measures announced by the Reserve Bank of India will attract billions in foreign capital, according to a Reuters poll of currency analysts.

The rupee has strengthened somewhat after a sharp drop in global oil prices to levels before the war started. And then there have been several steps by the Reserve Bank to bring dollars into India, including through the FCNRB route, which is NRI deposits. The rupee is still down about 5.4% against the US dollar for the year, thanks mostly to huge outflows by foreign portfolio investors who've sold about $29 billion of equities during this period.

By the way, in the month of June, we've seen inflows of about $5 billion into bonds, so that may not offset the equities outflow, but it's definitely a welcome sign for the markets. According to that poll of 44 strategists, the rupee was forecast to trade around current levels, which is about Rs 94.50 per dollar in three months and Rs 95 by end December 2026. So this outlook is unchanged from earlier surveys, although analysts are less bearish than before, according to the Reuters report.

So I reached out to Anindya Banerjee, Senior VP and Head of Commodity Research, Currency, Commodities and Interest Rates at Kotak Securities, and I began by asking him how he was seeing the current view that the rupee is not really responding to all the latest steps.

INTERVIEW TRANSCRIPT

Anindya Banerjee: See, as far as the Indian rupee is concerned, if this question was asked to me a month back, or let's say just before the last RBI monetary policy, I would have said yes. That looks to be the scenario, because it was quite obvious. You had the oil pressure, and you had no way of getting more inflows in.

But what has changed since then is first, the RBI announcement on almost making it completely accessible for the FDIs, the Indian debt market. Second, the FCNRB, which is basically over two to four months, it can create massive inflows. Plus now, with the crash in the commodity prices, the whole inflationary risk is gone.

So people like to play duration. And plus, Indian rupees was one of the worst performing currencies over the last one year or so. First, the trade war, and then the oil shock, right?

So that also made the rupee an undervalued bet. So when I combine all these things, and look at the possibility of even 40 to 50 billion dollars coming in by September through the FCNRB and the ECB group, and plus now, if you look at June numbers, almost I think five and a half billion has come in the debt, which has completely cushioned the outflows in equity. July is also looking promising.

So overall, till September end, I think the buy and see is going to be there on the flows on these fronts. So that will be quite positive for the rupee.

Govindraj Ethiraj: Right. So given that, this is the forecast, of course, and it's a consensus forecast is still about 94.5 to the dollar, and around 95 by end December. So the forecast still seems to be somewhat muted.

Anindya Banerjee: Right. Currently, the price is around 95. So I would say it's basically expecting a flat.

See, it all depends on how much the RBI absorbs these flows, because a $50 billion number of 50 billion plus over, let's say, July, August, September, three months, it's a big number, because these are unsterilized flows, which comes and hits your spot market. So if RBI doesn't stand and absorb that, then we could see a sharp move on the downside, because before the war, the USDNR was around 89. It's now at 95.

And the oil prices are back to the pre war around 70. So six rupees, there is a still rich gap. So and this kind of flows coming in, and anticipating no major outflows happen in the equity front means whatever is happening one to odd billion, it continues like that.

So I think there is a scope that the Indian rupee could actually appreciate towards the levels of even 93, or even 92.

Govindraj Ethiraj: Okay, and in terms of the flow so far, you did mention the $5 billion in debt inflows, that's from portfolio investors. How are you seeing the other trends in terms of FCNRB so far, at least?

Anindya Banerjee: Since the RBI is clarification on leverage, so now the Indian banks can also offer leverage. So basically, it becomes an end to end lock structured product. We are getting a lot of bookings are happening.

Right now, big flows have not happened, maybe one to billion, but it might start in the next couple of weeks. And it is being estimated that around 50 odd billion can come in through this route, because the rates are so attractive. So some banks are even offering rates north of 7%.

That makes it very attractive, because the FX risk is gone.

Govindraj Ethiraj: Yeah. And how are you seeing the rupee in the context of other currencies, other currencies, I mean, non US dollar, including Asian peers, right now and in the near future.

Anindya Banerjee: In this Asian peer basket, the Chinese yuan is the strongest. So once the Indian rupee starts appreciating, we will see some catch up, of course, because the dollar is actually rising against the other currencies, because of the whole Fed interest rate cycle. So it might create a situation between now and September end, that the Indian rupee will appreciate against a whole basket of currencies, because it had appreciated against everything, almost everything.

As I said, it was one of the weakest currencies, maybe except for the Turkish lira or one two others.

Govindraj Ethiraj: Right. And are there any other factors that you see playing on the forex markets in the near future, apart from the few that you've outlined, including the price of oil?

Anindya Banerjee: At this point in time, internationally, the most important factor is Fed, because they have suddenly turned very hawkish. But at the same time, they have thrown a caveat by saying that we are not going to issue any forward guidance, which means that every meeting is live. It makes sense, because when oil is back to 70, actually building a case for a sustained interest rate hikes like they did in 2022 is not there.

So I think that is the single biggest factor. And we anticipate that eventually the Fed will turn neutral. The market is now pricing in two to three hikes by December.

That's very aggressive. So I think once that flip happens, then we will see the inflows rise towards EM currencies. You're saying the Fed will raise two or three times?

The market is actually pricing it in. So if you look at the US two year, which is kind of a proxy for whether Fed Fund rates are expected to be over the medium term. So that's around 4.2. The Fed Fund is around 3.75. So there is a good around 45 bps, almost 50 bps spread. So at least two hikes are priced in the bond market. Some quarters are expecting three. I think that is very aggressive.

That's like what was the case in 2022.

Govindraj Ethiraj: And what could that do to flows globally or into countries like India?

Anindya Banerjee: See, if they actually follow up with that kind of threat means hikes, almost every major meeting, it will, of course, lead to sustained strength in the dollar index. We could see a 4 to 5% or more jump in the dollar index. The US short term yields will jump, the curve will invert.

And that's a classic case where the flows dry up completely from international markets. But it will also jeopardise the American growth and especially the whole tech rally, AI rally, because they are highly rate sensitive. And how will Trump take that?

That also is a big question.

Govindraj Ethiraj: Right. I mean, they're useful note to end on. Thank you so much for joining me.

Anindya Banerjee: Thank you.

What is the latest Update on the Monsoon?

While rains have stepped up in and around Mumbai, bringing movement to a crawl on Wednesday, India is still likely to see below-average monsoon rainfall in July 2, Reuters quoted the India Meteorological Department saying, adding that the July monsoon rainfall is now forecast to be below 94% of the long-period average or LPA. July rainfall is important because it accounts for the bulk of the four-month monsoon season's precipitation and most farmers sow summer crops during this month, according to the Reuters report.

Yesterday, we reported that the IMD had forecast June monsoon rainfall at less than 92% of the long-period average but rainfall was 40% below average, making it the fifth driest June since records began in 1901.

How Successful has GST been over the last 9 Years?

Net and Gross Goods and Services Tax Collections rose about 11% and 14% year-on-year in June, with an increase driven mostly by revenues from imports, even as domestic collections remained subdued. Net GST collections after adjusting for refunds rose to 162,000 crores, while gross collections rose to 195,000 crores, according to data released by the government on Wednesday.

After adjusting for refunds, net domestic GST revenue grew only 2.6% and net GST revenue from imports grew 42% for the month, underscoring the strong contribution of customs collections. Meanwhile, a report from Grand Thornton Bharat says India achieved its highest ever annual GST collections of 23 lakh crores in 2025-2026, the last year. Additionally, the highest ever monthly collection was recorded in April 2026 at about 242,000 crore rupees.

Moreover, the formal tax base has grown substantially since inception, going from about 6 million registered taxpayers in 2017 to 16 million today. So the tax regime has officially transitioned from GST 1.0, which focused on foundational tax harmonisation and manual compliance, to 2.0, which is more of tax intelligence and analytics driven administration. So where could we be going in terms of the GST regime in future or where should we be going? I reached out to Sohrab Bararia, Partner, Indirect Tax and National Offering Leader for Global Trade Customs and Incentives Advisory at Grand Thornton Bharat and I began by asking him what's fundamentally changed in the GST regime in the last few years.

INTERVIEW TRANSCRIPT

Sohrab Bararia: So I'll just take you little back into what has happened. I think the advent of GST focused a lot on tax harmonisation and return filing. I think you know it was driven a lot in terms of compliances where 2.0 is driven by analytics, AI-based scrutiny, risk profiling, IMS and of course compliance analytics. We all are aware that you know GSTAT is now operational and there has been a significant rate rationalisation from a multiple rate structure into a three-tier framework. So 5% for merit goods, 18% for standard goods and 40% for demerit goods. Then of course you know government's idea on simplifying the entire procedures in terms of quicker registrations, simplified registrations for e-commerce suppliers, risk-based provisional refunds, enhancements on the portal and an overall strong architecture followed by you know AI-driven administration which increasingly uses you know intelligence, registration shield etc.

So that I think has been the overall synopsis and the changes of the last nine years. I think nine years have been phenomenal. We've seen a regime you know pre-GST which was driven a lot by compliance and which was driven by multi-fold taxes and now we have a single rate structure.

So one nation one tax truly has been the most significant change for the last nine years followed by the points which I just told you.

Govindraj Ethiraj: Right and what would you say broadly are the unfinished agenda points? One is the operational part as well as the sort of tax policy or tax administration policy.

Sohrab Bararia: So I think the largest point which they should now look at on the unfinished agenda is you know looking at bringing petroleum and petroleum products under the GST ambit. So you know you have diesel, petrol, ATF, natural gas which are still outside the ambit of GST. I think for a seamless credit flow this needs to be bought inside the GST ambit and that will fulfil the long vision of having you know a complete seamless credit flow. Then of course there is electricity which is also not under GST currently and this is causing some lot of breakage in terms of ITC chains and there has been you know challenges around how electricity being something which is you know not under GST and the credit for the same is not being eligible.

So these are I think you know some very important aspects which needs to be bought and which are unfinished agenda. Then of course a true seamless credit flow. I think that is very very important because vendor default related ITC disputes, compensation cess related you know transition related issues, block credits, then sectors such as real estates you know facing challenges in terms of ITC restriction.

All of this is something which is pending. A lot of it is something which is pending before courts of the country also. So this is actually the unfinished agenda.

In terms of litigations also while income tax has seen faceless assessments etc. We need to at least push ourselves for faceless audits to start with. So I think that is something which we need to look at from a litigation reform standpoint.

Digital litigation you know end to end while you know hearings are now on the virtual mode also but that could be a step towards a betterment or more reform on the litigation side. Then reduction of interpretational disputes etc. So all these are the large reforms etc which needs change and you know the vision is of course to have an integrated tax data ecosystem which will have GST customs integration, GST direct tax integration where single taxpayer profile.

So that is what the unfinished agenda is broadly and that is something which taxpayers are looking forward.

Govindraj Ethiraj: Right, so you talked about input tax credit and that's clearly one of the biggest sources of litigation and blockage of working capital. I mean assuming we want to move fast and fix this, where would you feel we need to intervene first from a policy point of view? Because the original promise of income tax credit was fairly simple and straightforward but that's not how it's panned out.

Sohrab Bararia: See if you look at how historically also you know we have worked within the indirect tax laws in India, there have always been provisions which distort the entire ITC structure okay. While the idea was always to avoid cascading of taxes but ITC has always been a challenge even in the previous regime. So if you take SenVat you know ModVat, SenVat followed by you know the VAT which was at the state level also.

Credit is always on the assumption that what goes into manufacture of your final products from a manufacturing standpoint should be eligible and for services the idea or the mechanism is a little complex. They have certain allowances, certain disallowances etc. A lot of things completely today are not seamless and you know if we take global jurisdictions such as New Zealand, Canada etc.

they have a very seamless credit structure. So to answer your question today if India wants to adopt best policies of some of those jurisdictions which I mentioned from a seamless credit structure perspective it has to look at its sectors. Doing business in India is not easy for a manufacturer or a service provider with a lot of costs being accumulated in the supply chain.

So you know easing of the entire GST structure from a ITC standpoint is important and how that easing will happen is when you allow the entire ITC which is a business cost to be eligible as an offset against your supplies or against your output tax liability and that differentiation of business costs you know is something which we really need to look at and there is a provision under GST laws which talks about 17-5 which is basically on stock credits etc.

You know that needs a lot more refinement that is something which they should relook at and they should allow more tax credits to flow which will help to reduce the cascading overall and you know make the cash flow better for the economy.

Govindraj Ethiraj: Right that's a good note to end on. Thank you so much for joining me Saurabh.

Sohrab Bararia: Perfect. Thank you Govind. Thank you. Thank you for your time.