On Episode 1024 of The Core Report, financial journalist Govindraj Ethiraj talks to Professor Prasanna Tantri, Associate Professor of Finance at the Indian School of Business (ISB); Manoj Mishra, Partner & Tax Controversy Management Leader at Grant Thornton Bharat; and, Michel van Hoey, a senior partner in McKinsey’s Luxembourg office.

SHOW NOTES

(00:00) Stories of the Day

(00:50) Festive Spirits And Tax Promises Lift Markets

(02:52) Why Reliance Stock Prices Jumped On Monday

(03:45) Strong Results Continue To Pour In, As Consumption Stays Strong

(05:42) The Problem With Rising Bank Credit

(18:09) Will The Higher GST Numbers Sustain?

(22:43) Why India Is Now The Hottest Source And Destination For The Global Metals Industry

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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 Tuesday the 3rd of November and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.

Our top stories and theme…

Festive spirits and tax promises lift markets

Why reliance stock prices jumped on Monday

Strong results continue to pour in as consumption stays strong

The problem with rising bank credit

Will higher goods and services tax numbers sustain

And why India is the hottest source and destination for the global metals industry.

Markets, Reliance, Consumption and the Rupee

It's getting a little cooler now including here in Mumbai and of course pollution levels are high everywhere.

On the brighter side, the big festive season is now kicking off with Diwali, the festival of lights coming up this weekend. So the markets have reason to cheer, riding of course on a few other things including renewed suggestions of a cut in capital gains taxes for foreign portfolio investors and continuing resilience in several companies and sectors, notably automobiles where October was another blowout month. And of course oil prices were also subdued, though it's not easy being an oil trader at a time when you have to take a price call between either the fallout of a literal nuclear bomb being dropped on Iran or talks leading to a peaceful resolution.

Nevertheless, oil prices were down more than 4% to under $109 a barrel on Monday as talks between Iranian and Qatari officials on a deal to end the U.S.-Israeli war on Iran raised hopes that Middle East supply disruptions could ease, a Reuters report said. Elsewhere, Gulf Arab states are fearing that another U.S.-Israeli attack on a better prepared Iran could unleash an even more destructive war across the region, leaving them to pick up the pieces, a Bloomberg report said, quoting a diplomatic advisor to the President of the United Arab Emirates, saying they find themselves drawn within a crisis that they worked diplomatically very hard to try to avert. We are clearly seeking a political off-ramp, they said.

Back home, like we said, the benchmark indices were kicking off a Diwali or Deepavali week on an upbeat note. The Sensex hit a nearly two-month high, and Monday also saw the third straight day of gains for both the Sensex and Nifty. The Sensex rose almost 1,200 points in the previous two trading sessions and rose another 1,233 points, or as much as in the previous two days, on Monday to end at the day's high at 75,692.

The Nifty 50 was also up 387 points to close at 23,440. The two indices have now risen about 3.3% in three sessions. The broader markets were also strong, with the Nifty mid-cap 100 and small-cap 100 gaining 1.19% and 0.7% respectively.

Reliance Industries was the news-making stock on Monday, rising a little under 12%, marking its best day since April 2020, after it posted higher than expected quarterly profits, also generating fresh interest in the growth prospects of its oil and telecom businesses. The stock also contributed to roughly half of the Nifty's gains on Monday, though despite this, its stock price is still down 17% for the year. Earlier, as we reported, Reliance posted a roughly 41% rise in September quarter net profits, beating analysts' estimates thanks to stronger refining and petrochemical margins.

Stock prices of Indian automakers also were up on Monday thanks to strong October vehicle sales, which signalled resilient festive demand, though analysts told Reuters inventory buildup ahead of Diwali accounted for some of it and warned that rising input costs could test demand. We'll have ground numbers and a report later this week. Consumer products company Marico, owner of brands like Parachute and Sephola, reported a 29% jump in Q2 net profits and attributed this to strong volume growth in the domestic market, saying that the India business delivered a 10% underlying volume growth, marking another quarter of robust volume growth, while its international business recorded a 13% constant currency growth, the company said.

Elsewhere, the Securities and Exchange Board of India has apparently recommended the government remove the long-term capital gains imposed on foreign investors, a Reuters report said. SEBI has also proposed tax relief for domestic mutual fund investors, suggesting they be exempt from long-term capital gains if they are selling existing holdings to invest in new ones. Of course, these are suggestions at this point, according to that report from Reuters.

And of course, like many other such suggestions, even from within the government system, are not guaranteed to see the light of day. SEBI's role combines developing the markets apart from regulating them, so presumably here, it's playing a developer's role. Meanwhile, more analysts are saying that while they would welcome a reduction in capital gains on foreign portfolio investors, that should not be seen as a magic wand.

An October 30 report by JM Financial quoted by Business Standard says it's unlikely to trigger a meaningful revival in foreign inflows unless valuations become more attractive and the earnings outlook improves. Stock Brokerage Bernstein said last month a reduction in long-term capital gains tax would be desirable for a capital-starved economy but would not by itself trigger sustained foreign institutional investor inflows. Elsewhere, gold prices were up on Monday after hitting a one-year low in the previous session thanks to a fall in oil prices which also eased inflation concerns, a Reuters report said, adding that spot gold was up slightly to about $3,900 per ounce on Monday morning.

And the rupee was somewhat stable on Monday, closing at Rs. 94.90 against the dollar, slightly better than its previous session close of Rs. 94.95.

The Problem With Rising Bank Credit

Bank credit continued to expand at a strong pace in September with non-food credit growing 19.1% or about 19% year-on-year compared to about 11% in the corresponding period last year, according to Reserve Bank of India data.

Credit to the services sector was the fastest-growing major segment, rising about 28% in September against about 10% last year. Lending to industry was about 19.5%, up credit to agriculture and allied activities also was up about 19.5% and personal loan growth was about 17%. Prasanna Tantri, Associate Professor of Finance at the Indian School of Business, in a note posted on Sunday, asked if bank credit was growing at 19% when nominal economic growth was around 10-11%, what was the extra credit financing? According to him, the country's foremost policy objective should be to restrain this expansion and bring credit growth down to 13-14% as a first step and then align it more closely with nominal GDP growth.

I reached out to Professor Tantri, a regular guest on our show, and I began by asking him to explain the thinking behind his suggestion and how could this be done.

INTERVIEW TRANSCRIPT

Prasanna Tantri: So normally as a banking researcher, I should not whine about credit growth. You know, a country like India, we need credit. You know, our GDP to credit is like 50-55 percent.

We need to do better. Now we're at 60 percent. It's all good.

But the issue is, how do you achieve this credit growth? Now, what has happened in the over the last two years? I'll take your viewers back.

It's a long story, but I have to say, I know you for time. What RBI did last two years as, you know, for banks to lend, they don't need deposits in the short run. You know, every loan creates a deposit.

What they need is reserves. You know, when they create deposits, they have to maintain CRR and they have to transact with other banks. For that, what they need is reserve.

You know, in short, people can take it as cash. You know, that's the currency that RBI brings. This is something that RBI creates in its balance sheet.

Now, that reserves, once banks have reserves, then they can lend. What we have done in the last two years is that we have created at least, in my view, seven to eight lakh crores of excess reserves. By doing, you know, why RBI actively going out there, buying bonds from banks and infusing these reserves.

Now, a decent part of this credit growth is artificial because this is that reserves that RBI infused into banking system and banks and therefore started going out and lending and have made loans which they would not have made otherwise. That is my worry. And I've read RBI minutes very, very carefully.

And this was not that there was some need for this reserve. Initially, 2024, yes, RBI was too tight. Liquidity was very tight and that's why they infused, you know, that part is justified.

After that, it became a habit. RBI took on the mantle of creating growth on themselves. You should read that minutes very carefully.

It was not that there was some crying need for reserves or anything. And they said, look, growth is six and a half, we should become nine. They started bringing in and the minutes talk about why growth is much lower than potential and it's our responsibility to pump in money.

They don't use these terms, but we know that's and we pumped in 6-7 lakh crores. That I think is the number one problem that we're facing right now and not currency. Because these things show up with lag, you know, last time we were talking and which is showing up now.

First, good things show up like high tax collection, high growth, high nominal growth and all that. And then wages and everything, once they start adjusting, bad things will manifest. So my whole point is let's act before bad things manifest.

And the good news is they are acting, you know, they've started pulling out a little bit, I must point out, but I don't think we will escape a bout of inflation completely, but hopefully things will not be bad. So the short point is some of this credit growth is driven by reserves that RBI pumped in. And just to point out, your viewers should know that biggest components of growth within that report, if they look at is gold loans, which is like 80% growth.

And you will not believe RBI report says, oh, it is decelerated, decelerated from 120% to 80%. Things don't grow at 120%. Then gold loan will become all of credit.

If you read the headline, right, you should go to numbers. You'll see, oh, gold loan growth has fallen. You know, it's 120 to 80.

80% is gold loan. The other biggest segment is loan against deposits. That is around 50%.

Other loan is loans to NBFCs. That's around 42%. And NBFCs are further making gold loans.

Their gold loan growth is 57%. In NBFCs, another biggest segment is consumer durables. In banks, consumer durables is low, but banks are lending to NBFCs and they're lending.

These are iPhone loans and all of these notes. So these are not creating productive capacity. This is mostly fuelling consumption.

And at some point, it will lead to inflation. That was my point. So the artificial part.

So I would have been happy with 13, 14%. You know, we need to do a little bit more than nominal GDP growth, maybe to create capacity that I get it. But 19% seems too much.

And this should not carry on. You know, that is my point.

Govindraj Ethiraj: The breakup that you've given off that credit growth, and you said that gold loans is a good part of it. But how do you throttle back something which is being fundamentally driven by demand? At least what you can do is you don't supply fuel to that fire.

Prasanna Tantri: Reduce that. Every time, you know, we have this bad habit. Every time the call rate goes up a little bit, we call liquidity shortage, liquidity shortage and start pumping money.

This is what we've been doing for last few years, except last 15 days. Lata Venkatesh beautifully pointed out, last hike was 50 basis points. It was not 25 basis points.

You know, because the call rate now is 5.7%. Call rate is kept at repo rate. Now they're letting call rate go above. They should have done two years ago.

Two years ago, the moment the call rate would go up, they will come and pump money. Now this is what they've been doing. And not just temporary money, they would pump parallel money.

You know, VRR when you do variable rate repo, it is temporary. It'll expire in four days, 10 days, 15 days. Instead, last two days, last two years, they did OMOs, open market operation.

Your viewers should know. On an average, RBI does 20, 30,000 crores. Last two years, they did like 7-8 lakh crores.

You know, that kind of money that they've created, they have to pull back. So that's my worry. You can't do much.

You know, there's a wonderful paper of Rajan and Acharya that we discussed last time. That once you create this habit, it's very difficult to pull back. I get it.

But you have to do it. It will entail cost. But having done the mistake, you should not do another mistake of letting things go as it is.

And they are on the right track. I must tell you, whatever they're doing, they should continue. And this will mean higher rates, lower quantity of money.

But the other side is high inflation. I'll stop with this one sentence. We have moved away from inflation targeting to exchange targeting.

We should come back to inflation targeting. Inflation is a big problem.

Govindraj Ethiraj: Exchange rate is not. Right. And that's something that you've spoken of in the past as well.

So to bring you now to the exchange rate, between even the last time we spoke and today, we've obviously spent a lot of our reserves in trying to arrest exchange rate depreciation, or rupee depreciation. So where do we stand today in context of the strategy that we've used so far? And what are the lessons that we can maybe apply going forward?

I think we've done a lot of unnecessary things.

Prasanna Tantri: You know, I understand a little bit restriction on futures and in the short run to arrest volatility. I understand those things. But the FCNR type, you know, we borrowed 130-140 billion dollars to cover forex reserve from 640 to 780-790.

Now we've lost 70 billion out of that. So which we have to repay after three to five years, of course. And if you don't bother about future fair enough, you can claim victory.

But the point is, why do you want the currency depreciate? What will you gain? Look at the export numbers.

We have, after a long time, for the first time our goods export, excluding oil, is going at double digits. And even the last two months, trade deficit is going down. You know, that trade, forget about current account deficit, trade deficit is going down in the last two months.

See, inflation is a one-sided. Inflation, only the people who gain is government, because their debt will go down. Then tax collection, GST will go up.

Government will be a very big gainer in the short term to inflation. All of us are going to lose. Whereas exchange, it's not like that.

There are winners and losers and every country which has grown at 8-10% has fought for a lower exchange rate, not a higher exchange rate. Go back to Plaza Accord. The fight was every country wanted its currency to be lower, not higher.

We are the only one who's growing and wants to grow and we don't want a real exchange rate depreciation. You know, this is what we did in 23. Our real exchange rate was 10% higher.

Just a quick definition for viewers. You take a kg of rice in India and go to US. The question is how many kgs of rice you can purchase.

If you can purchase one-to-one, real exchange rate is one. You get less, our currency is, you know, cheaper. If you get more, our currency is expensive.

You know, last 23-24, we kept our real exchange rate very high. You know, it was 108, you know, compared to a basket, not just to the dollar. And exports suffered.

Now, thankfully due to, thanks to FII, our real exchange rate is 92. Let's keep it. Otherwise the rest of the world accuses you as currency manipulator.

Now we've got a golden opportunity of low real exchange rate, thanks to FII, without being called a currency manipulator. And I think we should forget exchange rate and focus on inflation. In the process, this is good because the problem with inflation is, there is no button.

The reason RBI likes exchange rate is, there are buttons like this. Immediately you press, borrow your exchange rate. Inflation doesn't work like that.

Once it goes out of hand, we have learned before, there is no button. It'll take 2 years. And politicians also will pay dearly.

That's why I think RBI is on the right track. We should bother more about inflation. If you ask me, credit growth should be our number one macro thing that we track.

Excessive credit growth. You know, you had it in 2010-11. You remember, you immediately after GFC, 2 years, we had wonderful years.

9.5% GDP growth. 15-16, then we eventually ended up with 15-16% inflation. So my worry is, we should not let that happen.

Govindraj Ethiraj: Right. And just to come back on the exchange issue. So what we are clearly faced with, and this is not a new thing, of course, is a mindset rather than a structural technical challenge.

How do we address the mindset part of it? The fear that something will go wrong if the rupee depreciates too much? You have to see history, right?

Prasanna Tantri: I understand. See, the rupees won't go to 2-1. There is something seriously wrong.

You know, that's a collapse of currency. We should distinguish between a collapse of currency and a real depreciation of 10%. See, the real tests go in JAS.

When your currency falls, does export respond? If the exports do not respond, that means there is something serious problem in your economy, and it's because of inflation. When the exports are responding, FDI is responding, there is a self-correcting mechanism.

You know, you manage a little bit of volatility, but flows will come and things will correct themselves. We have to have some faith. You know, I wouldn't touch exchange rate if until the rupee, it goes to like 110 or 120 or so.

You know, at that rate, my views will change, but I will not worry about 97. What RBS decided is they have treated 96-97 as a mark of failure. The moment it goes to 96, you will get all kinds of crazy measures, right?

Oil companies will have a separate window. I think next time if it goes to 96, they will give window to everybody. Then market price will remain, forex will keep going down.

You know, we should see history, you know, that's why this matters, this book, you know, I tell your viewers, our dollar, your problem. Read about countries that have tried fixed exchange rate, except Hong Kong. You know, Hong Kong is one rare case where fixed exchange rate worked, because their dollar reserve was equivalent to total money in the system, including deposits.

You cannot bet against Hong Kong, because they can buy up all their local currency, because they had so much dollar reserves, which is equivalent to not only the money they printed, deposits also. Otherwise, all fixed exchange rates, Southeast Asian countries tried it, Lebanon tried it, Brazil tried it, all of them have collapsed. So, we should not have this fixed exchange rate mindset, we should target inflation, you know, that's what our mandate is.

Do you know, RBI has now sort of overturned government mandate of inflation targeting and moved us to exchange rate targeting, without any mandate, without any parliamentary mandate, without any legal mandate, we are moved away from inflation targeting to exchange rate targeting. This was done by RBI. You know, after 2-3 years, our 2-4 is gone, and instead we move to exchange, where the law says, you know, they have a legal mandate to maintain exchange rate targeting.

So, this does not work, you know, I think we should go back to inflation targeting, maintain 2-6 whatever percent, maybe 5% inflation stable. That has done well in the last few years, and I think that's why I worry when I see 20% credit growth, gold loan growing at 80%, and then RBI claiming it to be slow. That is the funniest thing, guys.

I've never seen anyone claiming 80% to be improvement. Of course, it's improvement, and it is terrible. That's why I worry about credit.

Govindraj Ethiraj: Got it. Prasanna, thank you so much for joining me.

Prasanna Tantri: Thank you.

Will The Higher GST Numbers Sustain?

Like we reported on Monday, gross goods and services tax collections were up 23% to about Rs. 231,000 crore in October thanks to strong contributions from domestic activities as well as imports.

Gross GST collections from domestic sales were up 16% and revenues from imports were up 42%. After adjusting for refunds, net GST collections rose about 26% to over Rs. 203,000 crore in October.

So given this high import component, what can we read from these numbers and what's the outlook ahead? I spoke with Manoj Mishra, Partner and Tax Controversy Management Leader at Grant Thornton Bharat and I began by asking him how he was reading the numbers.

INTERVIEW TRANSCRIPT

Manoj Mishra: There are multiple factors. So, let's talk about the domestic revenue, which is more significant. So, there are two things to it.

One, of course, we have festive season, pre-festive season. So, people go out in the market, go for shopping, and it is actual demand. So, that is one.

And second, that GSTN has become more efficient, everything has to be recorded, the loopholes have been closed. So, second is good governance, or I would say that good practises, which has been implemented, and it is giving a good result. So, for domestic thing, I see two factors.

One, actual demand. And second, plug-in in loopholes, better GST governance, better automation, and that is helping government to get more revenue.

Govindraj Ethiraj: And you are saying that the evasion has come down very sharply between, let's say, August, September, and October itself, or was that more gradual?

Manoj Mishra: It is a gradual process. The more we are automated, the more systems are working better, it will become more efficient. You would have seen that this time, significant jump has taken place in terms of revenue collection from UPI transaction.

And that you have seen that they are moving towards that. Now, since they have plugged in everything, which is going through normal course of business, now they are moving towards UPI transaction. And in coming months, you will see more and more UPI transaction.

Because as of now, it is already there. It is just that government has not enforced GST collection on such vendors. So, you will see more and more on that.

That is on domestic front. If we talk in terms of imported revenue, we all know that because of depreciating rupees and import cost has gone up because of various geopolitical regions, that, of course, has increased value of import, ultimately resulting into more GST revenue for the exchequer. So, for domestic thing, I believe that it will continue, it will sustain.

As far as import revenue is concerned, nobody would want it to sustain in the long run, except for the case when it is used, we are importing for manufacture and export of manufacture as a substitute to the import.

Govindraj Ethiraj: Right. So, we have still got a couple of more months of festive purchases, including going into wedding season and so on. So, if we were at 231,000 crores for the month of October, do you feel that we will be somewhere near this number in coming months as well, even if international goes down and domestic stays strong?

Manoj Mishra: I think so. I don't see any reason why it should not happen because, of course, biggest festival, Diwali is coming and then we'll see Christmas and all. And apart from that, there would be a lot of vacation season would be there.

So, we believe that revenue should sustain at least in the month of November, we could see that same kind of momentum. December, it may get a bit settled, but even in that case, I don't see it is going below 2 lakh crores. Right.

Govindraj Ethiraj: You pointed out that UPI linked GST revenue was relatively new at stream and that's something that the government is focussing on. Is there anything else that you've seen which is different or unusual from before?

Manoj Mishra: There are two things. Like, when we are talking about GST, so there are three terms. When you have honest taxpayers, big corporate who are paying their taxes well in time, cost of collection is very low in such cases.

So, they are there and they are getting increased by like their normal growth. The second would be to plug in loopholes and collect the revenue from traders or buyers or service providers who are not in the tax net. Loopholes have been done, loopholes have been plugged in.

So, there have been increased as a result of that. But widening the tax net, I think that is something government is focussing on. And UPI is something we have seen.

And as I mentioned that we may see a lot of increase in UPI projection and GST coming out of that.

Govindraj Ethiraj: Manoj, we've run out of time. Thank you so much for joining me.

India Is A Hot Source And Destination For The Global Metals Industry?

For the last few months, it's been all about oil and now it's metals. India is emerging as a key growth engine for the global materials industry.

A new McKinsey and Company report titled Global Materials Perspective 2026 has pointed out, accounting for around 10% of global metals revenue in 2025, India has now the second largest metals market globally after China. Its share has risen from 6% about 6 years ago and is expected to touch about 12% by 2035. As China's share falls from its 2020 peak of 48% amidst slowing construction, India's demand-led growth makes it an increasingly important destination for capital and talent, the McKinsey report says.

Moreover, it also points out that India's steel market stands out for its profitability. While steel margins remain under pressure globally, strong domestic demand supported EBITDA margins of about 16-17% for Indian producers last year, the highest amongst regions analysed, McKinsey says. So, this presents opportunities for growth in a global industry where value creation has increasingly shifted towards higher margin commodities like gold and copper, adding that metals and mining workforce is also projected to expand significantly even as China's workforce is projected to shrink.

The report looks at the global metals and mining industry across state of the industry, supply concentration and trade, availability and growth, productivity and affordability apart from sustainability. I spoke with Michel Van Hoey, a senior partner in McKinsey's Luxembourg office who works with companies in the metals and mining industry worldwide. And I began by asking him what had fundamentally changed, if so, in the metals and mining space, particularly in the last year and everything that we've seen in this period.

INTERVIEW TRANSCRIPT

Michel Van Hoey: So look, I think it's been an extraordinary year for the metals and mining industry over the last year. We have seen a lot of disruptions, starting with the tariffs. We've seen a lot of, let's say, geopolitical interventions in the sector, both on the mining supply side, as well as on receiving entities, the countries receiving mining, putting in place barriers and so forth.

We've seen, let's say, the war. We've seen the energy shock. So there's been a lot of, let's say, disruptions in the sector.

And if you look at the financial performance of the sector, this has actually led to an extraordinary financial performance. So market capitalisation of the sector is at an all-time high now. The financial performance, the metals and mining sector has outperformed the S&P 500 very significantly, if you look over the last years.

And underlying this, there's actually a number of important shifts, if you look at the composition of the sector, allow me please to highlight a number of them. The first one is, we have seen that the steel and the coal representation in the sector has come down and that gold and the base metals like copper and to a certain extent aluminium have become much more important. In fact, gold for the first time ever is now the commodity with the largest value pool in the sector.

I think that's one. And by the way, for the first time ever also, if you look at, let's say, the top 10 metals and mining clients in the sector, for the first time ever, there's no more steel companies represented in the top 10 largest companies by market capitalisation. That's one.

The second big shift, I would say, is a shift of value from the downstream to the upstream. So we are seeing that the mining companies are starting to capture a disproportionate share or an increasing share of the value made in the sector to the disadvantage of the smelters and the refiners. So I'd say these are a couple of these big shifts that we have seen over the last years.

Govindraj Ethiraj: Right. And we've also seen in this period prices of metals like copper hit all-time highs. Are all metals behaving or seeing similar forces of supply and demand or is this unique to metals like copper?

Michel Van Hoey: We're really seeing a bifurcation of the markets. I would say on the one hand, you have commodities like copper, which are linked to the energy transition, electrification, the, let's say, battery electric vehicles and so forth. And we're now on top of that, there is a demand driver coming from the AI and the semiconductor sector, which are seeing significant tailwinds.

So in copper in particular, I would single out as one of those commodities that are benefiting from that. And combined with the fact that we are having difficulty bringing additional copper supply to the market means that you're seeing these high pricing levels. On the other hand, you're seeing commodities like steel, if I may highlight one, where demand is actually flattish, especially driven by, let's say, the real estate decline and the construction sector decline in China, which is under significant pressure because of the overcapacity that exists in China, which is putting pressure on global margins and prices.

And so we're seeing a real bifurcation where some commodities are trading very high and are actually what we call in flyer pricing regime, disconnected from the cost curve. And on the other hand, you have commodities that are not performing well because of, let's say, the global overcapacity, mainly in the, let's say, the downstream side, the refining side, where actually China has built up a lot of overcapacity over the last years.

Govindraj Ethiraj: Right. And your report also talks about India emerging as a key growth engine for the global materials industry, and also that it's the second largest metals market globally after China, with its share going from 6% now to about, or rather expected to go to about 12% in eight years. So tell us about that.

And within that, what are the shifts that you're seeing?

Michel Van Hoey: Yeah, I would say, look, India is on a great growth trajectory when it comes to the metals and mining sector. And as you're mentioning now, is it the second largest market, 290 billion by revenues globally for metals and mining? I think the number of things are driving this increasing importance.

I would say the first one is really the infrastructure build out that India is going through. And underpinning that is a real demand for metals, right? I take the example of steel.

Today, India's steel intensity is around a little bit higher than 100 kilogrammes per capita per year. So every Indian, let's say, inhabitant consumes 100 kilogrammes of steel per year. The global average is 200 kilogrammes.

If you look in the western world, so Europe, US, we're around 300, 350 kilos. Countries that are really going through such a development of infrastructure, yeah, often go to 600, 700 kilogrammes per capita. So there's a lot of headroom still for the Indian steel industry.

And that is what we're seeing now. So that is, I think, one driver. The second driver, I would say, is, of course, and I've alluded already to it before, the declining importance of China.

As India's share goes up, we see that China's share in the metals and mining market is actually going down quite significantly. Over the same period, you mentioned India growing from 6% to 12%, China is dropping from 48% to 38% of the global metals and mining market. And that is predominantly driven by the fact that their infrastructure and real estate market is significantly coming down.

And then I would say the third thing that I would highlight on the importance of India, India, of course, has a very significant gold market, a lot of, let's say, gold going into jewellery. And that is also driving this increasing importance of India in the global markets.

Govindraj Ethiraj: Right. And two slightly different questions. First, let me ask you the broader strategic question.

Is this the time that companies in India, for example, should be investing in adding capacity? And if so, in which specific areas?

Michel Van Hoey: I would say yes. And we're seeing that happen, right? If you look at the pipeline of announced, let's say, CapEx expansions, we are seeing companies lean forward.

And by the way, our research shows that if you look in order to meet the demands for metals in India in the coming 10 years, that India will have to double the capital investments they have made over the last five years on an annual basis. So we do believe that this is needed. We do see players leaning forward and we do see India as a very attractive market for players, quite attractive margins still for the sector.

Govindraj Ethiraj: Right. And, you know, obviously, you mentioned gold and India has a fascination for gold across categories, including, of course, physical gold for jewellery, among others. Now, gold clearly seems to have delivered the best return because prices have shot up so much in the last year or so.

But how does that look to you at the suppliers and from a more resource and mineral point of view rather than the market and market demand point of view?

Michel Van Hoey: So look, I think the gold sector, as I mentioned before, is now generating higher profits than the steel sector, which is an order of magnitude larger or the coal sector. This is the first time that we are seeing this. It's an extremely profitable sector at the moment, representing 28 percent of global value pool of the industry.

We are seeing players doubling down and expanding. So there's a lot of M&A discussions going on in the sector and a lot of M&A happening. But we will also require gold players to diversify and invest in other metals.

And that is another type of discussion that we are seeing happening.

Govindraj Ethiraj: Right. And for countries like India, what or where will be the strategic advantage as you look ahead in terms of the kind of metals? I mean, you've obviously talked about steel and steel in the context of infrastructure investment.

But are there other metals that will be strategically important or will be important? And therefore, India needs to invest. And does your research cover even areas like rare earths?

Michel Van Hoey: This is another big shift that we are seeing in the industry, which is this notion of geopolitical fragmentation and resource nationalism, where we are seeing the emergence of trading blocs that want independence when it comes to their raw material supply. And so we're seeing that in the US, we're seeing that in Europe, we're seeing that also in China. We're also seeing that in Africa, by the way.

Let's say there's a lot of countries that are announcing an export ban on unprocessed ores or that want to have more domestic supply chains. In fact, the degree of supply concentration in the metals and mining sector has never been higher than today. Across the board, we are seeing that the average supply concentration, the top three countries, let's say, controlling the supply of any commodity is on average 69%.

That is an unusual degree of supply concentration. If you compare it with oil and gas, for example, OPEC controls 40% of the oil supply. In mining, it is not uncommon to have one country represent 70% of global supply.

So as a recipient of that, as a buyer of those commodities, you are exposed. And so I think there is, when you look strategically, I think there is an opportunity, but also a need for India to also increase its self-sufficiency on some of those commodities of the future. And then looking at battery materials, I'm looking at copper and the likes, you may not have those resources domestically available, but then it's important to find the right alliances, the right bilateral agreements to make sure that you have access with friendly nations on those commodities.

Because we have seen so many interruptions over the last years, I would say two, three years. And it's really important for domestic industries to be able to have access to those commodities. And then indeed, you're mentioning the battery materials, I would say, the materials related to the electrification, also the rare earths, right?

The rare earths, which goes in everything that then ends up in magnets, which are then super critical for the defence sector, for the automotive sector, and so forth.

Govindraj Ethiraj: Michel, thank you so much for joining me.

Michel Van Hoey: Thank you so much. It was my pleasure.