Federal Reserve Rate Cuts Cheer Markets
The Fed rate cuts are over for now and Indian markets do appear to have responded positively to that.
On Episode 749 of The Core Report, financial journalist Govindraj Ethiraj talks to Vinish Bawa, Partner and Leader at Telecom PwC India and Karan Taurani, Executive VP at Elara Capital for Media, Retail, Consumer Discretionary and Internet.
SHOW NOTES
(00:00) Stories Of The Day
(02:03) Federal Reserve Rate Cuts Cheer Markets
(04:09) The Rupee Hits A Fresh Low
(07:16) Investors Are Looking At Global Energy Stocks As They Look Beyond AI
(08:46) What Is Driving The Latest Stampede For Setting Up Data Centres In India By The Hyperscalers.
(16:41) Why Are Netflix And Paramount Fighting For Warner Bros And What It Means For India?
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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 12th of December and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.
Now before I start, I do want to express my heartfelt gratitude to all of you listeners and well-wishers of The Core Report as we reach the end of 2025, a year that's been more momentous than we would have thought. Who would have imagined, for example, that we would spend so much time talking about global trade, a subject that would have struggled to capture any business news editor's attention in recent decades.
Or how the producers of rice, shrimp and apparel are grappling with the 50% import tariffs imposed by the United States and many more. A special thanks to many of you who shared your Spotify-wrapped photograph showing The Core Report leading your personal charts in 2025. And from the last week, another round of thanks to the two gentlemen I met at the Algorand blockchain conference in Bangalore over the weekend who said that they were regular listeners, and the folks I met in Kochi who had good things to say about our work even as we were travelling to our destination, a conference by boat.
All of this in the last week. And all of this also encourages us to work harder and bring the top business analysis and news to you every day.
Thank you once again and now to our top stories.
The Federal Reserve rate cut cheers markets but what's next?
The rupee hits a fresh low. And elsewhere, what's been the best return on investment? Is it gold, real estate, equities or something else?
The perils of policymaking in an era of bad public data in the United States. How investors are looking at global energy stocks as they look beyond AI.
What is driving the latest stampede for setting up data centres in India?
Why are Netflix and Paramount fighting for Warner Brothers and what it means for India?
The Fed rate cuts are over for now and Indian markets do appear to have responded positively to that. But what's next? Well, you could say Christmas or but beyond that, it's not very clear. There have been three rate cuts now by the Federal Reserve this year with the latest on Wednesday.
Wall Street has run up in anticipation of each rate cut and the Federal Reserve has delivered until now with more promised next year. Whatever the tensions might be between US President Donald Trump and Federal Reserve Chair Jerome Powell, the rate cuts are coming. Now, there is an interesting point of convergence I thought I spotted between the Fed's move to cut rates and the Reserve Bank's action last week.
In both cases, they seem to be ignoring some if not many data points. An interest rate cut decision is a rounded one, but the Fed seems to believe that the jobs data in the US is totally off the mark and is drastically overstating recent hiring. A Wall Street Journal report quotes Powell saying that Fed staffers believe that the federal data could be overestimating job creation by up to 60,000 jobs a month.
Given that figures published so far show that the economy has added about 40,000 jobs a month since April, the real number could be more like a loss of 20,000 jobs a month, according to Powell. Now, India cut interest rates last week, a move that was not expected by many because GDP growth was at a solid 8.2%. If that's the case, why would you cut interest rates? Well, as a few economists pointed out, and as we reported, the 8.2% number benefited from statistical anomalies with a low base and deflated issues possibly exaggerating the numbers. HSBC, for example, said that their estimate of actual growth in the quarter was close to 7%.
But the Fed's data quandary highlights the importance of good and clean data in an economy when it comes to policy decision making and for others looking at the economy from outside as well as inside, including investors. Without good and updated data, you could be flying blind without it, and somewhat seems to be the case in the United States of all places right now. Now coming to the markets, the stock market swung around quite sharply after falling in early trade on Thursday.
The Sensex jumped about 756 points from its low, finally closing at 84,818, up 426 points, while the NEC Nifty 50 was up 140 points to 25,898. Meanwhile, the rupee fell to a record low on Thursday, going past the 90-per-dollar mark as corporate dollar sales and the lack of tangible progress towards a trade deal with the US hurt the rupee, according to Reuters. India's chief economic advisor said a deal could be on the table in March.
Now, that's almost four months away. And we've of course heard dates even before that and going by earlier projections, we were supposed to have a deal by December. And it's obviously a tough one as both sides are admitting.
Now, the rupee fell to about 90.46, that's 90 rupees 46 paise against the dollar going past its previous record low of 90 rupees 42 paise and finally closed at 90 rupees 36. I repeat 90 rupees 36 paise down about 0.4% for the day, according to Reuters, which added that the rupee has fallen more than 5% against the dollar in 2025.
Golden Returns Over 20 Years
Investment in gold has trumped most asset classes in terms of compounded annualised returns over the long term, according to a note by Funds India reported by Business Standard. It says that while Indian equities gave a compounded annual return of 13.5% in 20 years as measured by the Nifty 50 Total Return Index, gold in rupee terms was up 15% during this period. Real estate with a compounded annual growth rate of 7.8% and debt at 7.6% were obviously lower down according to that same study by Funds India.
Interestingly, the return from equities in rupee terms is lower than the 14.8% growth given by U.S. equities in the same period as measured by the S&P 500, while returns from real estate were calculated based on the NHP Residex from December 2002 to December 2008. Interestingly, return from Indian equities in rupee terms at 13.5% over 20 years is lower than the 14.8% or close to 15% compounded annual growth rate return given by U.S. equities as measured by the S&P 500 Total Return Index or TRI according to that study. Now, there is a clear distinction between gold and gold jewellery which will actually be worth 20-30% less in gold terms as an insightful note from Kotak Institutional Equities pointed out last week.
That is because in jewellery you have diamonds which also cost a lot and making charges embedded in the price. So unless you have coins or bars or better still from an investment point of view, gold exchange rate funds give you the best liquidity. Demand for gold has been driven by several factors including central bank buying thanks to the heightened risk perceptions linked to geopolitics and trade.
Even on a five-year duration, the returns from gold was about 23% as compared to 16% for Indian equities and 19.6% for U.S. equities according to Funds India. This is compounded annual growth rate. Remember, many leading investment banks have projected $5,000 per ounce for gold which is currently in the $4,100 range.
The IEW Segment
The rotation from technology stocks has investors looking at energy producers who've lagged behind the broader market for the past three years according to a Bloomberg report which says that energy companies are now seen as attractive due to being the cheapest sector in the S&P 500 measured by price-to-future earnings with analysts expecting them to outperform as investors look for gains outside of technology. Despite caution about prospects for energy producers due to a potential global slowdown, analysts are becoming increasingly optimistic about the sector with energy having been the second best-performing sector over the last two months according to that Bloomberg report. Meanwhile, prices were higher on Wednesday after officials said the U.S. seized an oil tanker off the coast of Venezuela, adding to concerns about immediate supplies.
Crude futures were at about $62.20 while U.S. West Texas intermediate crude futures were at about $58.46 according to Reuters. Reuters says that the tanker seizure further inflames concerns about immediate supplies in the market already worried about movements of Venezuelan, Iranian, and Russian oil according to the Commodity Context Newsletter quoted by Reuters.
The Data Centre Rush
The last few days have seen over $67 billion in investments committed to India from the hyperscalers including Google, Amazon, and Microsoft.
A lot of this will go into data centres. Just Andhra Pradesh and mostly Vishakhapatnam has seen investments worth some $25 billion announced from Google, Adani, and Reliance into data centres. Just as a background, Chennai and Mumbai metropolitan region are the prime data centre hotspots right now and they represent about 70% of total data centre stock in India.
Coimbatore and Madurai in Tamil Nadu are some of the newer emerging data centre hubs according to a report just out from Aniroc. So what's triggered this latest data centre rush? How much of it is the local market and how much global? I reached out to PwC partner and telecom sector leader Vinesh Bawa and I began by asking him what was driving this rush?
INTERVIEW TRANSCRIPT
Vinish Bawa: You know what's happening? Data centres today is almost becoming upstream, which is almost like a horizontal fuelling every other industry. And let me explain what that means.
It means that data centres, which is the capacity building of needed by say manufacturing, automotive, healthcare, education, agriculture, any tech companies, data centres. Today, what's happening because of usage of AI and because of usage of the various industries being automated and digitised, data centre capacity is drastically increasing because of that. It's no longer consumer demand of you and me using data on our WhatsApp or phones or videos, etc.
It is AI use cases drastically increasing for all the industries. And the manufacturing plants are automated, the automotive companies are doing automation in the cars, the drones using agriculture are being automated. So all the industries are using massive, massive amount of data.
That is why the demand in data centres is drastically high, and it is increasing exponentially. So is one of the causes for it, but also the industry use cases across the world.
Govindraj Ethiraj: Right. So if I were to ask you for a split between let's say what the hyperscalers, as they're called, are doing, which is really the Metas and the Googles and the Amazons ramping up, versus let's say those who are using it for captive in-house industrial efficiency or automation, as you said, what would it be?
Vinish Bawa: So there are, you know, the breakup is multiple. It's not that direct an answer. So the hyperscalers obviously use majority of the data, almost like 60, 70% of the data consumption is because of hyperscalers.
And by that, it is for their own usage. For example, when we are doing a search or when we are using any of the applications of any of the hyperscalers, be it WhatsApp or be it Google Maps or be it Google Pay or anything. So that's for their own consumption, which is increasing a lot.
Then there is the other segment of enterprises. All your banking applications today are using data, right? They are all online, they are using AI, they are using cloud.
These are called enterprise use cases. So all the banks, all the industries, so that's the second segment. The third is all the industrialisation, which is happening.
So if you break down into these three, the biggest number is obviously the hyperscalers because of their demand, but there is a good amount of increase happening on the enterprise use cases and the industrialisation also. So it would still be around, I think around 60 to 70% on the hyperscaler side, the balance coming from the industrial increases of using cloud and data.
Govindraj Ethiraj: Right. Now, all of this could obviously happen anywhere. I mean, all this while, let's say, if I open a Gmail account or earlier, the server could be anywhere in the world and most likely somewhere on the west coast of the United States.
So why is all this investment coming to India, particularly of this nature?
Vinish Bawa: Multiple things. One, again, the hyperscalers needing data within the country, right? So usage of data of all these hyperscalers within India is massive, just because the consumption that started happening for those data within the country.
It was hosted elsewhere, but the usage has increased so much that they want to build data centres to support that capacity right in the region. That's number one. Number two, there is this need of sovereignty, or you would have heard about something called sovereign cloud, that all the banking applications, all the personal data has to reside in the country on its own.
So you can't take it outside anymore. So that increases the needs of the data residing in the country, in that geography. So that means that you need to create data sets over there, you need to have servers over here, you need to store things over here.
So that's causing the demand of the data centres within the country itself on its own. But mainly it's because of the consumption of India itself. India's consumption is very, very high, but India's data centre capacity is very low.
We are in the number, in the top two in terms of the consumption that we have, but we are not in the bottom, but we are not in the top five or 10 in terms of the data centre capacity. So that's the difference, right? It's nothing else but the usage of volume of data used by the people of the country.
Govindraj Ethiraj: Okay, so it's China, India, and you're saying in terms of data centre capacity, we're obviously not in the in the top deck as yet.
Vinish Bawa: So India's data centre capacity today is anything in the range of you know, data centre capacity is measured in gigawatts. So we are in the range of 1.3 to 1.5 gigawatts. So it's that is the today's capacity.
The view is that we will become 5x at least in the next three to four years. So by 2030, it's expected to go to anything above 5 gigawatts, minimum 5 to 8 investments, construction has already started. That's any report that we see.
But today, what do we see? The US is already on 30 gig plus, China is around 25 gig plus, and they are growing as well. So that's the difference.
The consumption is very high in India, but capacity is low, but exponential rises maximum in India. So by you know, within the next 5-10 years, we will see us sort of getting there. And that's why the more capacity, more investments, more creation of data centres in this country is high.
Govindraj Ethiraj: Right. And I mean, I don't want to pin you down on an ROI question. Let me ask you that to the extent that you can answer.
But also you talked about today's capacity being around a little over one gigawatt. And we have one gigawatt data centres coming up in Vishakhapatnam and more than one that is. So that's one single data centre, which will add the entire country's capacity as it stands today.
Vinish Bawa: But that won't happen overnight, right? It'll take for it to be built out, the capacity takes time to build up. So that's why I'm saying that 1.5 today will become at least five in the next three to four years, some companies are announced to make just one gigawatt on its own, but that will take time to build up and the capacity to happen, right?
And many of them have announced so one plus one and there is this whole reports that are there that you know, which company has announced what numbers and if you add that up, minimum is going to be five and you know, it can even go eight and 10, that those kind of numbers. So yeah, that's why this growth is there in India.
Govindraj Ethiraj: So last question. So all of this is costing huge amount of money. I mean, the investments are huge.
What's the sense of return on this? I mean, there is scepticism about return, even in the United States, where people are saying you'll only get pennies to the dollar right now, unless you really price it. How does the India investment look like in contrast?
Vinish Bawa: See, India's CAPEX data centre is a CAPEX heavy investment. Absolutely. India's cost of building a data centre is probably one of the lowest in the world, if not the top lowest two in the world.
China and India are very, very low in terms of the capacity build up cost of CAPEX that we call. And any mass that you see India talks around 45 to 50 megawatt of construction of a data centre besides the land. That's the number in India, which is very, very low compared to the rest of the world, right?
So that's one. So in millions of dollars, that would be about? Per hour is around 6 to 7 million dollars.
Correct. So that is besides land to build up the whole passive infrastructure and everything for a data centre, right? So that's all.
Now the capacity is increasing, the growth is there. You know, if I give you numbers, the return of investment, it's a seven to eight year payback period, anything higher double digit return of investment. So in India, data centre business is a great business to be in upfront heavy CAPEX, but in terms of in a long term return of investments is pretty high.
That's why you see the number of companies getting into data centres. Today, private equity, we drove a data centre companies, we the hyper scalers, we Indian grown homegrown data centre companies, everybody wanting a pie of the space. One of the days that only real estate companies coming up and setting data centre now every large manufacturing plants, we have announcements from public announcements from Tata Group, we have announcements from all conglomerates getting into exactly because the math's working with a view that yeah, there will be some heavy investments out front.
That's why we are seeing the growth.
Govindraj Ethiraj: Right, Vinish. Thank you so much for joining me.
Vinish Bawa: Thank you.
Netflix vs Paramount
Netflix, the world's biggest streaming company, said on December 5th it would acquire most of Warner Brothers' Discovery, a movie-making giant, in a deal valued at $83 billion. On December 8th, three days later, Paramount, which is a rival but smaller, appealed directly to Warner shareholders to accept an alternative offer of $108 billion for the whole company, promising a deal that was superior to Netflix in every dimension.
Paramount's owners, the Ellison family of the Larry Ellison and Oracle fame, have said they are willing to shell out more. Netflix, valued at over $400 billion, can also afford to up its bid if it wants to, says The Economist, which also points out that the main difference between the bidders is not the offer price. Netflix and Paramount see different things in their target and the result of that bidding war, according to The Economist, will shape the future of Hollywood and entertainment more widely.
Now the question here, of course, is what is driving this larger phenomenon and why is it happening now? And further, are there similar triggers lurking in India as well? And what are the waves of consolidation that we should look out for, if we should look out for them? I reached out to Karan Torani, Executive Vice President at Ellara Capital for Media, Retail, Consumer, Discretionary, and Internet, and began by asking him exactly that, why we are seeing this flurry of activity.
INTERVIEW TRANSCRIPT
Karan Taurani: So I think in terms of what is happening in terms of the market, if you see the global OTT market, you are seeing dominance of Netflix and Amazon since many years. But in the last four to five years, Netflix and Amazon to a certain extent have lost market share. So there are like two, three players who have actually scaled up very aggressively.
One is HBO Max, Paramount, Apple TV. These are players which are reporting a gain in market share at the cost of Amazon Netflix. So Amazon Netflix are number one, number two right now, as we speak, more than about 22% on market share.
But the other smaller players are investing aggressively into content. Now, if at all Netflix acquires Warner Brothers, they will move towards a market share number of 31 to 33% kind of range, which is the largest known market share in terms of the OTT market globally. And the gap between the second best player, which is Amazon, is going to be almost about 12 to 13 percentage points.
So they're going to be irreplaceable sorts as far as the OTT market is concerned. As we all know that, you know, it's a winner takes it all market. The bigger you are in the digital OTT market, economies of scale, lower content costs, better distribution capabilities, you have an advantage at various levels.
Paramount, again, if at all this thing happens, we'll also see a struggle. Same with Apple TV Plus, because both these companies' market share are more closer towards 9 to 10% kind of a number. So the biggest beneficiary of this will be Netflix, because it'll be number one.
Amazon will be the second largest. And other smaller fringe players need to partner amongst themselves, or they will not be able to scale up in the digital OTT market forever after this acquisition. So I think this is the reason.
There's a clear indication here that whoever buys this asset is going to become substantially large in terms of market share. Now assuming that Paramount ends up buying HBO Max, they will become the size of Netflix and Amazon today. So that's another proposition here.
So if that happens, you'll have three last players competing with each other rather than just two last players competing today. So that's the reason why everybody wants to chase this asset.
Govindraj Ethiraj: Okay, I'll come to India in a second. What is this telling us about the demand side? I mean, are consumers paying less?
Are their choices shifting?
Karan Taurani: Demand side, if you see, I think OTT has a market globally as well, especially the US markets. Now you are seeing certain challenges in terms of subscriber growth. What you're seeing right now for the OTT platforms, a large chunk of the growth is coming because of expansion to newer markets.
The likes of Amazon and Netflix, even Disney for that matter. India is a very focused market because the penetration opportunity is very large here. And so are the other emerging markets as well.
So I think it's very important for them to really scale up to reach that kind of level and then drive ARPU growth because currently the subscriber growth in the developed markets is going to converge from here on because of large penetration levels over there.
Govindraj Ethiraj: Got it. Now tell us about India now. How does this impact India or two questions, which are part of that.
One is what is the direct impact? If so, second is what do these trends suggest or could these trends also be happening in India as we speak? Or could we see them happening in terms of both the supply and the demand side?
Karan Taurani: India's market is very different as compared to global markets. If you look at the revenue share, India OTT market is dominated by advertising. People are close to 65 to 70% of India OTT market driven by advertising because the consumers are sensitive.
They don't pay for content in a large manner. ARPUs are rather cheaper. So India has a two-fold impact here.
One is on the OTT landscape and second of course is the cinema ecosystem. So firstly, coming to the OTT landscape, Netflix is a leader as far as the S4 market is concerned, which is substitution video on demand. They've got a most about 25 to 28% kind of market share over there.
So there are other players which are the sports-led platforms like JioStar, everything put together. But the largest player is Netflix and they've maintained the dominance because of good subscriber growth over the last four to five years and India being a focused market for them. So they are the largest over there.
Then coming to the advertising side, you have got the likes of YouTube which command almost 60% of the market share over there. And then something like a Disney plus Hotstar wherein you've got a lot of IPL and sports content. They command almost about 22% of market share.
So this is how the market dynamics look like right now. So I think once Netflix acquires HBO Max or other Warner Brothers in terms of the content, they will have the largest variety of content than any other OTT platform in the country except sports. So JioStar has got HBO Max content today.
But if at all the acquisition happens, this will immediately be transferred to Netflix over the next one year. And then you also have a lot of IP content of Warner Brothers coming on Netflix exclusively. So Netflix becomes extremely large and they can probably gain more market share on the S4 revenue base.
And they don't have advertising model as of now Netflix in market like India because it's very price sensitive and lower ARPUs. Ad models are more in the developed markets. So tomorrow in the future, if they want to introduce ad models in India, this will give them an edge because of having a largest variety of content as far as entertainment genre is concerned, X of sports.
So I think the competitive intensity will increase further in the OTT market because Netflix becoming so large. And I think JioStar dependence for increasing their share towards sports or maybe kind of wanting to renew IPL rights more desperately in 2028, the next IPL auction cycle, it actually become very big focus area for them. This is how the dynamics will change.
You will see JioStar actually being the second largest player after Netflix. But they'll have to invest aggressively and really chase a lot of large content to actually compete very hard with Netflix. So this is the first, you know, impact in terms of the OTT ecosystem in a market like India.
The second impact is obviously on the cinema chains, right? So I think Netflix acquiring Warner is going to come at the cost of many films also going over there in terms of the old IP, plus the new productions which are going to come in terms of the new films or the new franchise which is going to be made. Now, if you look at the matter here for any Hollywood film, for example, there is a film called Superman, which released by Warner Brothers, in terms of the global box office collections that the company reported in terms of domestic in US or globally rather, India market share in terms of box office was only about one and a half to two percent.
So we don't see a situation that because of this acquisitions, all films will go to OTT platforms, because economics don't support that the film cost is very high, you can't recover that only by OTT, you need to have a dependence on theatricals and globally markets, the numbers are very clear that 70% of your revenues for a large film does come from theatricals. So we don't see films going directly in the global market side. But in the market like India, which is very small in terms of box office share, you could see a situation where Netflix will actually kind of press for going for lower windows in terms of the film going to OTT after theatrical release, or they might even go to OTT platform because the numbers are so small in the market like India.
So putting that into perspective, this is a huge negative impact for cinema market. Because in the post COVID era, or the cinema industry, the Hindi segment has seen a massive struggle in terms of lower footfalls and occupancy. It's only the English content which is shown some kind of resilience because the nature of the premium content that they cater to.
So this is a twofold impact OTT landscape when Jio start will actually have to get more aggressive in terms of chasing content. And second, obviously, cinemas will see a struggle because 20% of your revenues comes from Hollywood.
Govindraj Ethiraj: You touched upon this, but I just want to maybe put a last question there. So the Jio star announcement or new reports that you know, they could pull from sport their ICC commitment. What does that mean?
Karan Taurani: So Jio star currently is trying to have a arrangement with ICC wherein they actually want to reduce the value of the rights or ask them for a new partner. The reason for that is that one thing has happened after Jio cinema started offering IPL free, we have gone back to the same thing again, because Hotstar before the acquisition happens in terms of when Jio actually bought Disney, Hotstar created a reasonable subscriber base for IPL in terms of the pay base mechanism. But Jio cinema offering IPL free led to again, convergence of ARPU led to that habit moving away from people wanting to pay for content.
So it was a very disruptive change that happened. And that actually had a huge negative impact in terms of TV ad revenues because people are watching IPL free on the digital platform. So TV consumption saw it and then the advertising revenue on TV also saw a massive decline and a fall rather.
So I think because of this what has happened the economics are not supportive right now in terms of TV plus digital for driving good revenues and the losses are only magnifying from here on. So that's the reason why they want to actually go to ICC to kind of renew the contract wherein they can reduce the prices or find a new partner because it is not economically viable or sustainable for them given the high amount of losses. Another negative impact in the last 2-3 months has been the ban on real money gaming.
So I think real money gaming as a category in terms of overall advertising is not more than about 5-8% of the overall AdEx market. But for sports predominantly, RNG accounts for more than 30% of the AdEx. So this going away completely will have a negative impact in terms of the consumption trends on OTT platforms of the sporting properties and also in terms of the ad revenue which is very important for monetization of these content properties.
So because of these two reasons, potentially they're looking for a new buyer or they're asking ICC to reduce the price of the content.
Govindraj Ethiraj: Right. Karan, thank you so much for joining me.
Karan Taurani: Thank you Govind.
