On Episode 860 of The Core Report, financial journalist Govindraj Ethiraj talks to Puneet Gupta, Director, India & ASEAN Automotive Market, S&P Global Mobility as well as Jatin Kalra, Partner–CFO Advisory at Grant Thornton Bharat.

SHOW NOTES

(00:00) Stories of the Day

(01:00) A small cap revival is lifting market moods

(04:58) Can gold touch $8,000?

(06:01) People are investing more in gold than buying in jewellery for the first time

(07:41) The new provisioning regime for Indian banks could cause big shifts in balance sheets

(17:01) Ethanol blending levels in petrol will increase now, are vehicles ready for it?

Check out our Live Earnings tracker: https://earnings.thecore.in/

—

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

Good morning, it's Thursday the 30th of April and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital, and this is a holiday shortened week and we are off on this Friday.

Our top stories and themes…

A small cap revival is lifting market moods.

Can gold touch $8,000?

New provisioning regime for Indian banks could cause big shifts in balance sheets.

Ethanol blending levels in petrol will increase now. Are vehicles ready for it?

And people are investing more in gold than buying in jewellery or through jewellery for the first time.

Markets, Gold, Oil and The Rupee

The new theory and hope is a small cap revival which is of course happening.

Small and mid-cap stocks have outperformed the market erasing all their losses recorded post the West Asia conflict that started on the 28th of February. From their February 27th levels, the nifty small cap 100 index is up 6.5%, mid-cap 100 is up 2.2% and in comparison the nifty 50 and sensex are down between 4 and 5% according to a report in the business standard. Analysts are now expecting the small and mid-cap segments to continue their good run and outperform their large cap peers in the months ahead despite obviously all the war concerns.

One reason for this of course is their relative underperformance in 2025 and valuations are seen as attractive and investors need something to buy. Also small caps are trading at a one-year forward price to earning of 19.8 times which is in line with the five-year average of 19.9 according to analysts but that's still at a 15% premium to the long-term average of 17.3 times that's according to the business standard report. On the fundamental side analysts are saying that balance sheets are in better shape and there has been an earnings recovery cycle and that would mean that the risk reward proposition is good despite the valuation multiples according to analysts who spoke to business standard elsewhere.

Foreign investors have pulled out more than 20 billion dollars out of Indian equities in the first months of 2026 surpassing last year's record annual departures which means that we've seen more outflows in just four months than all of last year. The bulk of the selling that's 19 billion dollars has come since the Iran war started according to data from the national securities depository quoted by Reuters. All of last year the outflows were at 18.9 billion so that's just under 19 billion dollars and in the markets on Wednesday the nifty 50 and sensex gave up a lot of intraday gains even as crude prices rose the nifty 50 was higher 181 points at 24,177 and the sensex closed higher 609 points at 77,496.

The broader markets were mixed the nifty mid-cap was down slightly and the nifty small cap was up 0.6 percent. Now oil prices are rising again as it does look like a protracted battle and blockade around the state of Hormuz. The U.S. signalled that it would stick with the naval blockade of Iranian ports as it tries to choke off oil exports that's Iran's oil exports and force it back to the negotiating table.

U.S. President Donald Trump on Tuesday said Iran was in a state of collapse. The treasury secretary later said Washington's maximum pressure campaign had caused Iran's inflation to accelerate and it was running out of oil storage and would have to start cutting production. Thanks to which Brent crude rose to about 115 dollars per barrel on Wednesday even as the UAE or the United Arab Emirates announced their exit from the Organisation of Petroleum Exporting Countries with effect from the 1st of May and that's after nearly 60 years of membership.

The UAE said that its decision would help to meet growing global energy demand in the long term after recent investments to boost its production capacity. Analysts speaking to the BBC said the exit is the beginning of the end of OPEC. The Gulf states energy minister said that being a country with no obligation under the group would give it more flexibility.

Other reports have also suggested that the United Arab Emirates is upset with the fact that Saudi Arabia did not intervene to the extent desired when they were being bombed by Iran. US President Donald Trump has also been attacking OPEC for ripping off the rest of the world. Those are his terms and therefore this departure by the UAE is considered a win.

As oil prices rose the rupee came under pressure. The rupee fell to a record closing low on Wednesday and closed at 94 rupees 84 paise and it has now drifted back to record lows thanks to the impact of the central bank's rupee supportive measures fading with concerns over India's exposure to higher energy prices weighing on sentiment according to Reuters. Deutsche Bank in a new report has argued that gold prices will rise and could hit $8,000 per ounce in five years.

Current prices are around $4,600 per ounce. Now the report points to gold's decline as a share of reserves and this is I guess the interesting part and says that did not happen with the fall of Bretton Woods in the 1970s but the fall of the Berlin Wall and the assertion of US hegemony in the 1990s. As tectonic geopolitical plates shift again the share of US dollars in central bank reserves is once more in decline and has fallen from over 60% to just 40% while gold's share has tripled from its lows to about 30% today.

A return of history would be consistent with gold getting to at least 40% of global reserves says that report and there's significant scope for emerging markets to add towards this. For now says the Deutsche Bank report emerging markets central gold buying likely has to do with preserving the value and accessibility of foreign savings in a changing geopolitical environment. Sticking to gold, India's investment demand for gold has now surpassed jewellery consumption for the first time on record in the March quarter as investors turned to buying gold amidst among other things subdued equity market returns according to a Reuters report quoting the World Gold Council.

Investment demand in the March quarter was up 52% from a year earlier to 82 tonnes and jewellery demand fell about 19.5% to 66 tonnes according to the World Gold Council report. Meanwhile India's industrial output was up 4.1% in March that's the slowest in five months as softer factory output and weak power generation weighed on growth according to data released on Tuesday by the government. Economists polled by Reuters expected industrial output to grow by 3.7% compared to a revised growth of 5.1% a month earlier and finally here in a fresh illustration of how second-order effects of the U.S. war against Iran are playing out and where BASF the chemical giant is raising prices on plastic protecting chemicals commonly used in the car and consumer goods industries for a second time since the start of the Iran conflict in February according to a Bloomberg report.

The German company's customers will see prices go up by an additional 25% on products in its antioxidant process stabiliser and light stabiliser portfolio for plastic applications BASF said on Monday. This increase comes on top of a 20% hike announced on the 4th of March and is effective immediately and BASF cited substantial gains in raw material energy and logistics cost due to the war in West Asia according to the Bloomberg report.

RBI’s New Provisioning Regime

The Reserve Bank of India has introduced a new reform and credit risk assessment through its draft redactions 2025 proposing a shift to the expected credit loss or ECL framework.

Now this is a significant change in Indian banking regulations since the adoption of prudential norms in the 1990s. A note from Kotak Institutional Equity says that initial lender feedback suggests a manageable impact on a stock basis at about 5% of net worth for most public banks and higher sensitivity for mid-tier private banks while frontline banks appear comfortable. The Reserve Bank has prescribed product specific provisioning floors across retail, MSME, corporate project finance, gold loans and guaranteed exposures to ensure conservatism and limit model risk.

So there are of course more details but I reached out to Jatin Kalra partner at Grant Thornton Bharat who leads the West India accounting advisory team to get a sense on why we are talking about it now and what these rules mean in the context of overall banking safety and I began also by asking him to give us a background on these new rules.

INTERVIEW TRANSCRIPT

Jatin Kalra: The new framework, of course, is a very transformative step taken by the RBI. It's a massive step forward in terms of the quality of credit risk models, which the RBI is requesting banks to now make, and accordingly flow through to the provisioning. So it was long overdue in the sense that, you know, if you talk about international banks globally, they have been doing this for more than, you know, 8-10 years now.

So it's been a very long time that they have been continuing to report numbers on this expected rate loss model, and India has stayed behind. Earlier, of course, the government said that because of the, you know, certain high level of NPAs, certain banks, banks were not prepared. And then there were, you know, certain challenges in terms of whether they'll be able to implement because of the amount of, you know, work that's required and how much time do we need to give give to banks and all.

But now what RBI feels is that they're confident that the capital impact of transitioning to this new framework is going to be manageable for the banks in general. The industry is ready to be able to do that. And also from a work perspective, implementation perspective, they feel that they have given ample amount of notice to banks now in terms of getting themselves ready, and whatever remaining time that they've given would be adequate for them to really implement it appropriately.

So the RBI felt ready from that perspective and went forward with this. Obviously, there were parts of the industry which still felt you know, we need more time. The next one year is not going to be adequate.

1st April 27 is still a very aggressive, ambitious target. Give us one more year at least. But RBI, you know, with the final directions have made it clear that no, it needs to happen from 1st April 27 only.

Govindraj Ethiraj: Right. And what happens on, let's say, a bank and its balance sheet because of these new expected credit loss framework?

Jatin Kalra: Yeah. So till now, what's been happening is banks used to calculate what provision they need on their loans using rates which are given by the RBI. Just to give you an example, let's say a bank gives out a loan to a very good customer and a relatively poor customer.

So there are two different loans which are given. Both are very different in credit quality, of course. Relatively bad customer, the risk is much higher.

On a good customer, risk is much lower. But the provision that was required to be carried was exactly the same. It was, you know, 40 basis point provision on a 100 rupee loan.

You'll have 40 paise of provision that you need to carry. It was not differentiated based on a good loan or a bad loan. Furthermore, the provision used to increase only when an account becomes NPA.

And it was felt that sometimes would be very delayed. Right. So the new framework, what it does is it says that on each loan, you carry provision which is based on the expected loss on that loan.

Right. So if I'm giving loans to a project company which is building out a commercial real estate project and the developer is not very reputed or does not have a great track record, you'll carry much more provision because there's much greater risk on that as compared to giving out, let's say, a gold loan to someone which has such collateral because of which the expectation of loss is much lower. So you have differentiated provision based on actual risk that a bank holds.

And what this would also mean is that different banks would carry different level of provision. Certain banks are heavy on, let's say, microfinance lending, on retail unsecured loans. We saw that recently on credit cards and unsecured retail personal loans, the losses were much higher.

So if you have more such loans on your balance sheet, you need to carry more provisions. Every bank would have different level of provision based on their product needs. This really helps in creating resilience for banks.

They are better prepared in case future you're already holding capital, which is adequate based on what kind of losses do we expect on that portfolio. That's going to be a big change. And also it really helps stakeholders also.

If I'm an investor, I am a user of financial statements of a particular bank, I'll be able to assess that how much credit risk that the bank currently holds, what kind of portfolios do they have, on which portfolio, what kind of losses they have observed. Based on all of that, what kind of credit risk does the bank have? And then I can make more informed decisions on whether it's a stable bank, resilient bank, how profitable the bank is going to be.

And all of those decisions can be better made if I know that risk. All of those challenges which people have in terms of, I don't know what kind of risk the bank is actually holding, till things actually go bad.

Govindraj Ethiraj: And to pick up on the example that you gave, Jatin, you said, take the case of a commercial real estate developer whose, let's say, standing may not be as strong as others. What would have been the difference between the earlier kind of provisioning and the new expected loss framework?

Jatin Kalra: Earlier, you would designate the same amount of provision on all loans. So this particular loan, let's just say this particular loan is higher risk. But still you will have the standard provision only.

There was no requirement of carrying higher provisions on a higher risk loan. Now, you have to assess that, okay, this type of a loan, how much risk generally is appropriate, and accordingly create a separate provision. So earlier, maybe you had 40 basis point provision on this.

Now you might have one and a half, 2% provision instead. So significantly more provision on this. Second very big change also is that it's not that when you're giving out a loan, you do an assessment, create provision basis.

You have to continue reassessing the loan also for any changes in credit risk. What that means is, let's say this particular developer started out this project. At that time, you identified that, okay, maybe the probability of default is 1%.

Then there could be multiple scenarios after 1-2 years, right? Maybe the project gets stalled. Maybe there are some challenges, legal disputes which have come up.

If that is happening, the risk is going up significantly more. So maybe that 1% should be increased. This new regulation requires banks to continually reassess and increase provisions if, you know, risk is going up on a particular instrument.

Similarly, the risk may come down also. Let's say successfully the COD is achieved, right? Now the risk is much lower.

Repayments should be on track. Then what happens is you can reduce the provision you're making on that loan also. So it's very proactively tracking the risk and adjusting provision spaces.

Govindraj Ethiraj: Right. So you talked about how we are aligning now with international standards and it was delayed to some extent. And you said global banks were always doing it.

Are there any other areas you feel where we need to be catching up or aligning better with global, either accounting standards in the context of banking or with disclosures or provisioning?

Jatin Kalra: Yeah, no. What Abhi has done amazing in this scenario is that while ECL was the biggest gap, right, between India and global, and that they're fixed with this new final regulations which have come out, they have also adjusted on some of the other gaps which were there. So income recognition is also something that has come out as part of the ECL regulations only.

They've said that you have to do effective interest rate instead of contractual interest rate. So, you know, some of these upfront income and costs which you have on a loan now needs to be spread over the period of the loan. This was global practise.

Now it's being brought in India also. And again, with similar kind of timelines for 1st April 27, you would start doing that. So they have kind of remediated this gap also.

There are some minor differences still left, particularly when you're talking about securitisation transactions, or if you are signing particular loan, you are entering to ARC type of deals. I would say Indian practise are a little more conservative now, at the moment, based on what the RBI regulations are. International practise are a little different.

They are more substantial reform in some sense. So those regulations are still, we have a gap between India and global. But I think those are relatively lower in priority, relatively lower in terms of the impact also it has on the resilience of the banking sector and all of that.

So I would say with this coming in, we can say that our financial statements would be very, very much aligned to global practises.

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

Jatin Kalra: Thank you so much for inviting me.

Increased Ethanol Blending for Petrol

India issued a notification day before night proposing amendments to the Central Motor Vehicles Rules to formally incorporate higher ethanol blended fuels. The Ministry of Road Transport and Highways said the draft includes provisions for E85 fuel a blend of 85% ethanol with petrol and E100 which would allow vehicles to run on nearly pure ethanol.

The draft rules have been opened for public comments after which the government will take a final decision said a Reuters report. Now India has achieved a target of 20% ethanol blending or what's called E20 in petrol in 2025 and now wants to increase the blending levels. The country's roads and transport minister Nitin Gadkari said a few days ago that there is no future for diesel and petrol vehicles and if you as a manufacturer are not going to change then be cautious.

So what does a increase in ethanol levels in the petrol blend mean for vehicles? As you are aware many motorists have alleged in the past that they have seen a loss in fuel consumption among other minor impact on the engines. What are the lessons so far and can we go for further ethanol blending? I reached out to Puneet Gupta, Director India and ASEAN Automotive Market at S&P Global Mobility who tracks and comments on mobility related issues and I began by asking him how the journey has been for E20 so far.

INTERVIEW TRANSCRIPT

Puneet Gupta: So I think coming directly to your question, so clearly, you know, I think India has again done that, you know, they were able to implement E-20, you know, much before the real official timeline, which was 2030, to 2030, you know, planned earlier, but then I think the government really expedited the whole show, and CAR manufacturers supported, you know, in this vision. And last year, you know, we saw it becoming a real equation where, you know, all of us are having E-20, vehicles are running on E-20 fuel. So, you know, earlier, there were a lot of inhibitions around, you know, quality, that it will, you know, impact the vehicle in terms of corrosion, you know, or there will be problems.

Obviously, we may see it, you know, as we go around, but till now, you know, it looks like, you know, E-20 is a very stable fuel right now for India.

Govindraj Ethiraj: Right. And I mean, before I come to the new guidelines or the proposed guidelines, how has the supply side been? Has that been steady as well in terms of availability of ethanol?

And then the process of obviously, blending it at the refinery stage with all over the country?

Puneet Gupta: So currently, India needs, you know, almost 17 billion litres of ethanol, you know, every year. And India was running at almost, you know, 80% throughput, because obviously, our industrial unit, you know, have certain inefficiencies, right, because of almost, you know, close to 80% output, which comes to around, you know, 13-14 billion litres annually, right. So out of this, you know, almost 2-2.5 billion litres are being used by the beverage industry. And that's almost 10 to 11 billion litres annually is required by the fuel industry, right. As you know, that in the present guidelines, now, you know, maybe the proposed guidelines government is talking about, you know, increasing from or going from E-20 to E-25. Now, clearly, you know, obviously, one thing is that there are green distilleries, which we may see which are under installation process, but clearly, you know, it may also take some time, right.

So but one thing what India can really do is that since the installed capacity is already 17 billion litres, right. So maybe if we can run those units, you know, at a 90% throughput, then definitely, you know, we will be able to manage a big part of our, you know, need of that additional 5%, you know, by managing the efficiency. And then obviously, you know, we may also have to put, you know, certain more units, you know, because at the end of the day, I think 25% broadly means we should be having around 13 billion litres, you know, annually.

So apart from that, we also need two and a half roughly for the beverage industry. So that's not the challenge, right? Or that's not a bigger challenge.

The challenge is the feedstock, right? Because you obviously need to feed these units, you know, with the raw material, right? And clearly, right now, corn and sugarcane, you know, has been the source for India.

And clearly, it has been a great win-win strategy for farmers for our government for and maybe, you know, I will say that ethanol government has been able to find good economics in it. And obviously, it is an environmental friendly fuel. But I think now the challenge comes in, because once we are talking about more capacity, right?

So we are just talking about that everything goes ideal way. So what does that mean, right? So it means that, for example, you know, let us say this year, we are hearing that we may not have a normal monsoon.

So if there is no normal monsoon this year, so it does mean that our corn capacity, you know, the corn crop will get impacted, okay? So now if corn crop is getting impacted, so it does mean, you know, that we will have some issues, you know, with the feedstocks, right? So I think then the challenge is that either we import, you know, because obviously, there will be a need, or we find out new alternatives, you know, in terms of feedstocks for which a lot of research is going on currently, right?

But then it also means, you know, that the prices of corn and sugarcane, right, will go up. So I think somewhere, you know, we have to find a kind of an ideal solution. So obviously, we will be running on bottleneck, right?

But there is no option, because, you know, we are going through a massive Middle East crisis today, we have to find our own ways with which, you know, we can be self-reliant. And undoubtedly, you know, ethanol is one fuel, which can give us and support in our mission to be self-reliant, apart from, you know, obviously, coal renewables, right, or nuclear, which may be on comment agenda.

Govindraj Ethiraj: So on the demand side now, and when I say demand, I mean, the vehicles which will use it, two questions. One is assuming, let's say the amount of ethanol is going up and down. So let's say, as you said, there is a shortage of feedstock may result in a slower supply of ethanol in a particular year.

So let's say the level of lending goes down, and it becomes, let's say 85-15, for example, for a particular period, and then it goes back to 20. Will that affect engines of cars and two wheelers in India? That's one.

Second is at 25, and even 100 that we are talking about, which is a fully ethanol running vehicle. So what is the level of preparation currently?

Puneet Gupta: So for E25, I think there have been few trials going on after E20. So again, you know, it's very difficult to say because every old vehicle is in different condition, right. But clearly, I think government is looking for E25 today.

And, you know, they may find a way in it, right. So, and obviously, you know, on the way, if we find some difficulties around, you know, with corrosion happening, then there is always a possibility to trim down, right. But for now, I feel that E25 vehicles may run.

But obviously, you know, there may be issues related to, you know, hoses or piping or some kind of corrosion happening or break pipes or fuel pumps. But definitely, I think government is cautious and, you know, is aware about this fact. And a lot of trials have been going on.

So most probably till now, things are working well. And maybe, you know, that's why we go ahead, because we have to find a more practical way and find a solution, as I said, to this crisis and reduce our dependency on import of OEMs. The full ethanol is obviously a different type of engine, or is it the same engine? No, no.

I think maybe the next step is, which will be sooner reality in India also is about, you know, FFV. So which is flex fuel vehicles. So flex fuel vehicles, you know, obviously engine would be different.

So it's not only engine, you know, so it may be partially related to like piston, you know, like your piston rings, right? It may be related to your break pipe hoses, you know. So you may be doing a lot of coatings and, you know, a different validation is required, you know, to sustain the impact of, you know, ethanol.

So there should not be any corrosion. So obviously, with the ethanol, we expect that, you know, the price of the vehicles will obviously go by something around 50,000 rupees average, right? So it will depend obviously on a large OEM and on a small OEM, because if your volumes are less, obviously impact can be more.

But if your volumes are more, so we can obviously have more economies of scale and you can actually, you know, spend a little less. But broadly, you know, you may have to spend more on every vehicle to make it FFV compliant. Right.

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

Puneet Gupta: Thank you very much, Govindraj. Really great to be here.

War has made No Dent on US Hospitality

The war is yet to hit the hospitality industry in meaningful ways it appears particularly in the United States.

Hotel operator Hilton Worldwide Holdings who also has a very large portfolio in India has raised its full year room revenue growth forecast on Tuesday banking on strong travel demand according to Reuters. The company expects revenue per available room a key lodging metric that tracks the average daily rate and occupancy to grow between two and three percent for fiscal 26 compared with its prior forecast of one and two percent. Earlier this month at a conference Hilton CEO Christopher Nassetta hinted at signs of improvement at its middle market brands in the United States including more midweek business travel.