Fears of Imminent Attack by the US on Iran Bring Down Markets
Artificial intelligence fears continue to weigh on global markets
On Episode 803 of The Core Report, financial journalist Govindraj Ethiraj talks to Priyanka Kishore, Director and Principal Economist at Asia Decoded as well as Rahul Jain
Director/VP – Research at Dolat Capital.
SHOW NOTES
(00:00) Stories of the Day
(00:50) India brings on stage the world’s biggest technology companies and disruptors with rivalry on full display
(04:48) Fears of Imminent Attack by the US on Iran Bring Down Markets
(06:00) Status Check on IT Stocks
(11:46) Guess which city in India has the largest homes?
(13:44) Why the recently signed FTAs by India are just the beginning of much hard work ahead
(25:05) More countries are gearing to ban social media for teens, this could affect business models too
(29:11) Feedback
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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.
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Good morning, it's Friday, the 20th of February and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.
Our top stories and themes…
Fears of an imminent attack to the United States on Iran is bringing down markets.
India brings on stage the world's biggest technology disruptors with rivalry on full display.
Guess which Indian city has the largest homes?
And why the recently signed free trade agreements by India are just the beginning of much hard work ahead.
And more countries are gearing to ban social media for teens and this could affect business models too.
Markets
Artificial intelligence fears continue to weigh on global markets even as the India AI Impact Summit in Delhi brought together some of the big names in AI along with heads of state.
Now, they did not all hold hands. For instance, Sam Altman of OpenAI and Daryo Amodei of Anthropic who held up their fists instead for a photo op along with India's Prime Minister Narendra Modi. Google Chief Sundar Pichai was on the other side of the Prime Minister.
Someone quipped on social media that even Narendra Modi could not get the two to hold their hands and raise them. That's Amodei of Anthropic and Altman of OpenAI. Now, rivalries can run deep in the valley too.
Amodei quit OpenAI on not so good terms to start Anthropic with his sister and is stealing the limelight for now being perceived as the most disruptive force in AI technology and tools particularly in the last few weeks. Speaking to Money Control about that incident, Altman dismissed any suggestion of symbolism behind the pause. He said that he was sort of confused like when he, that's Prime Minister Modi, grabbed my hand and put it up and I just wasn't sure what we were supposed to be doing.
According to Altman, the hesitation had more to do with the choreography of the moment. Where, of course, there was no hesitation was the sheer display of geopolitical force grounded in technology and, of course, AI. Now, all of that did not do much to help the stock markets, which were reeling from the likelihood of fresh tensions in the Middle East with the United States being poised to launch a war against Iran and more on that shortly.
But Thursday was another day and demonstration of the powerful forces at work around the globe today. The force of AI with its disruptive capabilities, energy, that's oil and gas, and the search for more of it to power AI and, of course, bring down prices. And finally, the attempt to create new geopolitical power centres, which partly links back to the first two.
Back home, Reliance Industries announced it will invest as much as $110 billion over the next seven years into AI-related infrastructure. And it also will seek to lower the cost of AI, Chairman Mukesh Ambani said at that summit on Thursday in Delhi. India cannot afford to rent intelligence.
Therefore, we will reduce the cost of intelligence as dramatically as we did the cost of data, Ambani said at the event, referring to Reliance Jio's 2016 launch with low-cost data packages and free calls, according to a Bloomberg report which summed it up, which also reminded us that Adani Group announced a $100 billion AI investment pledge, while Tata Group announced plans to partner with OpenAI. OpenAI will become the first customer of India's TCS, that's Tata Consultancy Services, data centre business starting with 100 megawatt of capacity, part of the global AI infrastructure initiative Stargate, according to Reuters, which quoted the company saying so. Stargate is a $500 billion multi-year initiative to build AI data centres for training and inference backed by major investors.
The deal is a big boost for TCS, which in a strategic shift last year disclosed plans to invest up to $7 billion in a one gigawatt data centre in India. That news, by the way, was not received very well by markets who prefer it to continue doing high margin software services. But more significantly and quite evidently, India's large conglomerates are further aligning their corporate strategy to national priorities, in this case along with the Modi government, which is pitching India as a hub for AI and cloud computing, according to Bloomberg.
But the big investment announcements coming from Delhi did not do much for the markets in Mumbai, as war fears ripped the market, which reversed course after starting on a positive note on Thursday. They locked their biggest daily losses in more than two weeks, as tensions also pushed crude prices higher and wiped out gains in the markets, that is, in the last three sessions. At close, the Sensex was down 1,236 points to 82,498, and the Nifty 50 was down 365 points to 25,454.
In the broader markets, the Nifty mid-cap 100 and small-cap 100 indices were down 1.6% and 1.3% each. Meanwhile, foreign portfolio investors have been buying stocks but have been selling IT stocks and, according to reports, sold about a little more than $1 billion worth of stock in the first half of February. Oil prices are extending recent gains thanks to the U.S. military buildup in the Middle East ahead of a possible strike on Iran, which, according to some reports, could come this weekend.
Brent crude futures were up 1% on Thursday, over 4% on Wednesday, and taking prices to above $71 a barrel. Crude has now gained more than 18% since early January, after a glut of oil from the U.S., Brazil, and other producers knocked prices, according to the Wall Street Journal. Analysts say that Iran could well close the world's busiest oil throughfare, the state of Hormuz, in response, squeezing global energy supplies.
India is a major crude importer, more than 85% of requirements, and any sharp rise in oil prices will hit the economy in terms of imported inflation. Warfares are obviously good for gold, which extended gains again on Thursday, after rising more than 2% in the previous session. It rose to $4,989 per ounce, according to Reuters.
IT Stocks
Well, the last few weeks have been turbulent for Indian IT stocks and companies. The IT index has been down 13%. Stocks like Wipro have fallen 19%.
Foreign portfolio investors, who have returned in many ways in recent weeks, have actually sold in IT even as they've bought into other parts of the market. While there is debate going on on whether the latest disruptions, thanks to tools from companies like Anthropic, can fundamentally change the nature of IT services, there is, of course, the fundamental question of whether the disruptions are real, or even if they are, to what extent are they playing out right now? To discuss all of that and to get a status check, I'm joined by Rahul Jain of Dolat Capital.
INTERVIEW TRANSCRIPT
Govindraj Ethiraj: So, Rahul, as things stand, we've, of course, been seeing a lot of debate going on whether the tools like Anthropic or AI as a whole will have significant disruption impact on IT services companies, or will it be limited, or if so, how much? So we don't know. So, but at this point of time, how are you seeing or how are you reading the sector and, of course, the stocks within it?
Rahul Jain: Yeah, I think our approach is simple, that the enterprises are going to continue to spend on tech and IT services player being the lowest cost producer in the world when it comes to our Indian players, they will find ways and means to help enterprise solve for technology, and right now it's all about AI. The core enterprises globally are not capable to do new customer journeys or workflows on this new architecture on their own, so the dependency on services player will always stay. Only difference that we see this time is that the technology generally is deflationary, so there is a lot of automation that comes all the time, which is the efficiency these companies have been bringing on to their clients, but with AI, that automation or that deflation could be more profound versus in the past, so there has to be far more work for less is what is the different point this time, and that's why probably the concern is still more.
Govindraj Ethiraj: And when you talk about customer journeys or the role of Indian IT companies in helping larger enterprises build or rebuild their technology architecture, what examples come to mind?
Rahul Jain: What we know today is that there are this very strong technology interface that are available. What we don't have right now is enterprise-grade solution. There's no single banking-specific software, which could kind of change when it comes to driving the transformation for such customers, so as a result, what is going to happen is that a player like Infosys is going to say that, oh, I know you've been doing this process in a certain manner, and I know this technology as well, so I would build that workflow using this super-powerful technology like Cloud or maybe any other AI tool and solve it for you using that rather than you are trying to do that.
Govindraj Ethiraj: Got it. You know, we've seen a lot of announcements in the India AI Impact Summit in the last few days. Is there anything that you saw there that interested you or caused you to re-look at something or change your mind or maybe enhance your knowledge?
Rahul Jain: Yeah, of course. I didn't attend it, so I've just been following it in bits and pieces. I think one very important point that came from Entropic CEO is that we are here to use this technology to enhance what you could do rather than trying to disrupt any businesses.
I think that is a very constructive statement because all we think about is that how this is going to kill a lot of other things. But the fundamental reason why the creator of technology is focussing on is basically to make the enterprise powerful using this technology to build something. So I think that is the change in mindset that all of us should think about that how we should use it to enable or empower your own journey rather than trying to see that this will kill everything, this will take away jobs.
It's not about that.
Govindraj Ethiraj: Okay. And how are you seeing the performance or how do you see the IT stocks in relation to all of this? Given that one is, of course, most stock prices are down in this sector and also foreign investors have been selling.
Rahul Jain: So yeah, I think the sector needed a reason to downgrade on the multiples because growth was missing for the last couple of years. This is a valued reason they now found and used it to get de-rated. What we've been saying for quite some time is that the real five-year CAGR growth potential for the larger IT company is in the zone of 5%.
So for that kind of a growth, if they were trading at 23, 24 times, was it really sustainable? And now with this kind of a concern in mind, it got into the zone of 16 to 18 times, which I think is the most sustainable valuation in our view. So I think this was due, it has happened.
Now it is baking in the kind of growth that businesses can do. So this is like reaching a fair point.
Govindraj Ethiraj: Its a good note to end on. Rahul, thank you so much for joining me.
Rahul Jain: Thank you so much.
Big Homes in Hyd
Hyderabad has retained the crown for the most spacious homes in India, boasting an average flat size of 2,600 sq. ft.
in 2025, up from 2,299 sq. ft. or about 2,300 sq.
ft. two years earlier. Average apartment sizes in the top seven major cities in India were also up significantly in 2025 thanks to a surge in luxury housing, with the national capital region recording the highest growth rate, according to real estate consultancy Anaroc on Thursday.
Across the top seven cities, the average flat size expanded to approximately 1,676 sq. ft. in 2025, up from 1,420 sq.ft. in 2023. This, according to Anaroc, is a 45% increase from the post-pandemic period, rather in the post-pandemic period, from the earlier period between 2019 to 2025, clearly indicating homebuyers' preferences for more spacious layouts.
Now, if you live in Bombay like I do, 1,676, assuming that's carpet area, is a large three- to four-bedroom apartment. And therefore, you can see the distortion caused by the very large apartments that are being bought, and thus changing the averages for the much smaller houses. The big jump, however, came in the national capital region, where the size jumped from 1,890 sq.ft. in 2023 to about 2,466 sq. ft.
in 2025. And that's, of course, a continuous point of comparison between the capital city and the financial capital, where people in Delhi tend to point out that Mumbai cars, like us, live in shoeboxes. So, speaking of Mumbai, the space-constrained Mumbai metropolitan region has the lowest average flat size at 904 sq.ft., though this also was higher than 810 sq. ft. in 2023.
So there you are, 904 sq. ft. is the average flat size in Mumbai.
After the FTA
While we're yet to see the full fine print of the India-US tariff or trade deal, we do have the broader contours of the India-UK and the India-EU free trade agreements. The larger question, of course, is, while these agreements are the culmination of much hard work, and of course they are, is this where the real work actually begins, which is starting now? A recent article in Nikkei Asia by Priyanka Kishore, founder and principal economist at Singapore-based research company Asia Decoded, has pointed out that historically, India's trust with free trade agreements has been challenging, to say the least. By 2011, India had 15 free trade agreements, mostly within Asia, which increased trade integration with the signatory countries, but also resulted in a faster increase in imports and widening trade deficits, particularly with Southeast Asia, which also soured public opinion on trade liberalisation.
The question now, she says, is whether the new wave of agreements will deliver the anticipated economic and productivity gains of opening up by lifting exports, increasing foreign investment, and facilitating knowledge transfer. The answer lies also in understanding why the older FTAs haven't lifted exports to the same degree as imports, and also why India's share in global manufacturing exports has stagnated around 2%. So I reached out to Priyanka Kishore and I began by asking her what it would take to ensure that the FTAs actually work for India.
INTERVIEW TRANSCRIPT
Priyanka Kishore: I think the interesting bit is that India has always been very open to FTAs. So what I noted was that by 2011, we had already signed 15 FTAs. So it was not the process of actually going to these agreements, it's the kind of agreements we were actually signing on.
And there, there was a challenge. The older agreements are what we call shallow. They are led more by foreign policy than trade considerations.
So to elaborate a bit more, they focus very narrowly, mostly on goods, very little on services and not much beyond that in terms of investments and all. And even within goods, it's more on tariffs and not much on non-tariff barriers. And within that, then they actually keep out a lot of sectors from tariffs.
So there's a sensitive list or negative list as it is called, which really does not liberalise a lot of the sectors because we kept on protecting our domestic industries. Or we had very long phase-out period for tariffs on these sectors. So that made them very little use for both sides.
But still what I did notice that for the partner countries that we signed with, for example, Japan, South Korea, ASEAN explicitly, they still gain market access simply because our MFN rates are so high. Even now, the average MFN rates we have are in double digits. And when we gave them preferential access and these FTAs in the sectors that we gave them, in the select sectors, they still gain market access.
But the reverse did not work for our exporters because these countries had like 0% MFN tariff to begin with or 2 point something, so very low MFN rates. And so the preference margins for Indian exporters, they were simply not large enough to compensate for the cost of compliance. They're very complex rules of origin or the upgrading they actually needed to enter these markets because when you're signing a FTA with Japan, it's Japan's standards that some get incorporated in the agreement.
So it turned out to be very lopsided. And as a result of that, we all know that these FTAs have had very low utilisation rates. So typically, internationally, we talk about 70% to 80% FTA utilisation.
In India, it's like 25% or below. So that's not really worked out.
Govindraj Ethiraj: Right. And you touched upon non-tariff barriers. And I was reading this article in the Economist by the World Bank Economist where he said that basically non-tariff barriers have become almost 80-90% of all barriers.
How would you look at the incidence and the composition of non-tariff barriers in the way these FTAs have progressed?
Priyanka Kishore: So there are two components, right? One is what you are doing at the borders and what you're doing behind the border regulations, right? The regulations that you are imposing in, for example, for government procurement, how do you compete for that?
Or some regulations that you're imposing in certain sectors and things like that. And the older FTAs did not really get into that at all. Like, you know, once your exporters enter these markets and then they're subject to these stringent regulations and they are new to these markets.
So maybe they should get some sort of grace period to navigate these behind the border regulations. And we did not get into that. But I think with the newer FTAs, there is more cognisance, what we call the deeper agreements that India has entered in, especially the UK FTA.
And when the text for the EU FTA becomes available, I think that should be the case too. So while, you know, there are standard stocks there, like on labour and environment, of course, you know, EU always has had higher standards, which has been a stumbling block, but we seem to have gone past those. But at the same time, you know, there are more provisions that should be probably incorporated for our side of exporters to also function better in those markets.
Govindraj Ethiraj: Right. So if you were to look ahead now, you touched upon the India-UK and there's the India-EU, which will all kick in between the next nine to 15 months. What do we do?
And there's the US tariff deal, which will become a bilateral trade agreement. So what do we do to ensure that we get the best or the maximum out of these agreements and at a larger level as well as on policy level?
Priyanka Kishore: So, of course, Govind, you know that the trade agreement with the US is a different animal. But just keeping on the topic of maybe, you know, what are FTAs supposed to do? They're supposed to deliver lift in exports and through that eventually economic gains.
And also in the new age, FTAs, we expect more investments to come through and through that knowledge transfer. So eventually a well-defined, a deep FTA with good and enforceable clauses should lift to both economic and productivity gains in the long run. That's what should happen.
Now, the fact is that while we have moved on to next-gen FTAs in terms of signing them, there is a basic challenge that remains in terms of our own domestic manufacturing competitiveness, which does not make our exports globally competitive despite these newer FTAs coming in. And so we have to move on reforms at the same time. At the end of the day, what does play out well for countries that can implement them is that there's a virtuous cycle between manufacturing, domestic manufacturing and exports that the FTAs facilitate.
But for that, you need to have your own domestic manufacturing in shape. For example, you know, if I give you some sort of comparisons looking at the textile sector, our labour wages are like 70 to 50 percent lower than China and Vietnam. And but we still lose out to them in competitiveness because our electricity costs are 50 to 70 percent higher, our corporate tax rates are higher, our logistic costs are higher, and our labour productivity is half of China's, 14 to 20 percent lower than Vietnam's.
So all these cost advantages on the labour get negated by all these points. And eventually, India comes out as uncompetitive on textile exports where we have been losing market share. So therein lies the crux of the problem.
That was true with the older FTAs. It's true with the current FTAs. And we need to push reforms to get that in shape to get the most of our FTAs.
Govindraj Ethiraj: Right. And you've quoted the example of electricity costs and where we're clearly higher between 20 to 70 percent than China, Vietnam and Bangladesh and all the other points that you made on productivity. So this seems like almost trying to boil the ocean.
Where does one start?
Priyanka Kishore: So I think electronic sector is a good example, right, where policy came through. We had industrial policy. So we put money there.
You also had regulatory streamlining. And in general, there was a focused effort between the government and the industry to get smartphone production going and get those exports growing. So that is a very good example of what could happen.
Our market share globally has gone from practically nothing to three and a half percent. But again, you know, how do you go from three and a half percent to 10 percent? And immediately you see that the intermediate inputs, most of which are coming from China at this point of time, are getting tariffed at a rate of 8.7 percent. In comparison, China itself is putting a tariff around 5 percent or so on its intermediate imports. Vietnam has practically no tariffs, just 1.9 percent, so 2 percent. And that's where, you know, India again starts losing out on its cost advantage.
So I think these are very low hanging fruits in terms of, you know, barriers that you can begin to take down. So to answer your question, you know, there are a lot of bureaucratic things that can be done, which are really administrative reforms. So start from there and then maybe you can move on to the bigger things.
Govindraj Ethiraj: Right. You used the example of electronics manufacturing. So we've obviously built scale or companies like Foxconn are doing that in India.
But as you also said, we're importing a large part of the intermediary. So it's really the value add is relatively low in electronics. So how do you balance the desire to, let's say, add more value?
Because arguably in textiles, we're adding way more value than we are in electronics. But we are uncompetitive relatively in one and competitive in the other. So as an economist, how do you look at these two worlds?
Priyanka Kishore: So that's an excellent question. And I think that's exactly where the FTAs come in, because, you know, if you have a built in commitment for knowledge transfer with trusted partners and you can give them a competitive manufacturing landscape where they can come in and they can produce in India, they will do so. Then let's, you know, take a real world example.
We've just signed a defence pact with France. It's out of the UFTA deal. The reason I'm talking about is that they're committed to 30% indigenous content from India in that deal and domestic production happening in India, not just with public sector companies, but also probably private sector companies.
They will need, you know, competitive landscape for these to materialise. So, you know, once you provide a base, then you can get the knowledge transfer to come in.
Govindraj Ethiraj:
Right. And last question on the India-US tariff, it's all up in the air to some extent, while we do have the contours 18% into the US, 0% reverse. Anything that you've read, which is maybe beyond whatever has been reported so far or anything that stood out for you?
Priyanka Kishore:
I haven't really read a lot. I think they're keeping it a bit under the wraps now, because next week, I believe we are going to get more information once I think somebody from India is travelling from the ministry to the US, right? But what did stand out to me that, you know, within 24 hours of that agreement coming out, there were some notable changes, right?
And the biggest one being that it's gone from, you know, commitment to purchase 500 billion to intention to purchase 500 billion, because that really is a sticking thorn in that agreement. India credibly cannot commit to doubling its imports from the US in the next five years. And if that was built in, then at some point, this agreement was bound to collapse.
So I think that kind of change in, you know, language that has come through even on services, India has been given a little more leeway in terms of the tax commitment that was earlier there in terms of lowering digital barriers that's made a bit more ambiguous. So I think there is generally a sense that the US would like this deal to go through with India, which is quite a, you know, shift from what we were seeing from the Russian oil tariffs and things like that.
Govindraj Ethiraj: Right, Priyanka, that's a good note to end on. Thank you so much for joining me.
Priyanka Kishore: Pleasure to be here, Govind. Thank you.
Social Media Ban Domino Effect
More countries are joining the movement to limit youngsters under 16 from accessing social media platforms. While this cohort is not a consuming class as such, at least in comparison to, let's say, the 18 plus cohort, this move could have much greater impact on business models of social media platforms down the line as we understand the implications of how it's going to work. Remember, countries like Australia have already put this into force, and France is likely to kick off soon, and more on that in a moment.
But first, some data points. India has about 1 billion internet users, and you have to contrast that with the fact that we had about 250 million in 2014. India is also the world's second largest smartphone market with about 750 million devices and has about 500 million unique social media users according to various data points.
Within that, YouTube has about 500 million, Facebook 403 million, Instagram 481 million, and Snapchat 213 million. This is from a source called DataReportal. On the other hand, average monthly data consumption per user has hit about 24 gigabytes in 2025, up from about 62 megabytes in 2014.
Social media dominates India's daily usage with an average of 3.2 hours spent on such apps daily according to another research report in 2023. Now, roughly 24% of India's population is even younger than 14. While specific estimates of children's social media usage are not available, some surveys have shown that nearly 90% of children aged 14 to 16 have access to smartphones at home.
Now, recreational use dominates screen time with 76% of children in one survey saying that they access social media compared to about 57% using it for education. Meanwhile, the French President Emmanuel Macron said on Thursday that protecting children from the harms of social media and artificial intelligence will be a priority for his country's Group of Seven presidency, which is a direct challenge to the Trump administration, which has lined up with U.S. tech firms and made free speech a cornerstone of its foreign policy. There is no reason our children should be exposed online to what is legally forbidden in the real world, Macron said at the India AI Summit in New Delhi, according to a Bloomberg report.
And what started as an isolated regulatory gamble by Australia last year has spread to more than a dozen countries where leaders are seizing on issues raised by childhood scrolling to appeal to parents across the political spectrum, according to a Wall Street Journal report, which says that this adds to a growing backlash against teenage smartphone use, says that Wall Street Journal report, which is being blamed by some critics for deteriorating mental health and an epidemic of screen addiction. Even in the U.S., Florida says it has started enforcing a ban on social media use under age 14, and some states, including California and New York, have passed legislation requiring warning labels detailing potential harms to children and adolescents from social media apps. The age limits proposed in European countries, including the UK, France and Austria, vary but are generally aimed at stopping children and younger teens from accessing platforms that offer scrolling feeds or short-form video and posts.
Australia became the first country to block access for under-16-year-olds in December, forcing social media companies like Meta, TikTok, Oner, ByteDance, and YouTube to deactivate millions of teen social media accounts. Apart from France, which we just spoke of, Spain is planning a ban for teens under 16, leaders in Germany have backed a ban, and the UK is beginning a public consultation on similar prohibition, according to that Wall Street Journal report. India's IT minister has also said in the last few days that talks were underway with social media companies over age-based restrictions.
Even a state like Goa has said or is considering how it can impose an age-based restriction on social media consumption. Macron, the French president, also argued that social media algorithms are biassed and challenged the contention by some tech companies that they protect freedom of expression. He said that free speech is pure bull-s if nobody knows how you are guided through this so-called free speech.
