On Episode 966 of The Core Report, financial journalist Govindraj Ethiraj talks to Madhavi Arora, Chief Economist at Emkay Global as well as Gautam Shahi, Senior Director at Crisil Ratings.

SHOW NOTES

(00:00) Stories of the Day

(01:00) Indian Markets Feel Pressure Of Rising Oil Prices And Global Bond Yields

(03:16) India’s Rupee Hits Two Month High As Reserve Bank Brings Back Stability

(07:42) India’s Leading Jewellers Consolidate Even As The PM Appeals To Cut Back On Gold Purchases

(08:47) India’s Strong GDP Showing Fails To Lift Markets

(15:37) Why India’s Engineering Procurement Construction (EPC) Companies Are Having Their Moment In The Sun

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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 Wednesday, the 2nd of September and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.

Our top stories and themes…

The Indian markets are feeling the pressure of rising oil prices and global bond yields.

India's strong GDP showing fails to lift the markets.

India's rupee hits a two-month high as the Reserve Bank brings back stability.

Why India's engineering procurement and construction companies or EPC companies are having their moment in the sun.

And the country's leading jewellers consolidate even as the Prime Minister appeals to cut back on gold purchases.

Markets, Oil, The Rupee and Jewellery

Global bond yields are at their highest level in almost 20 years as rising oil prices have now fuelled inflation concerns and markets have ramped up their expectations for interest rate hikes. The rise in yields signifies and emphasises once again how difficult if not impossible it is to control markets that have been once set free. The move started on Friday after Federal Reserve Chairman Kevin Walsh doubled down on his vow to finally tame inflation and was extended this week as energy prices, notably oil, rose on renewed conflicts and attacks between Iran and the United States in the Middle East, according to Bloomberg.

The rate on the 10-year Japanese government notes touched 3% for the first time since 1996. UK's 30-year yields have reached their highest since 1998 and the 10-year treasury rate have hit levels last seen in January last year, according to Bloomberg, which also added that the yield on the Bloomberg gauge of global sovereign bonds have advanced now for a fourth straight session on Monday, rising to 3.72%, which is the highest since mid-2008. Now, taming the markets was never going to be an easy task for all the Wall Street experience and knowledge that U.S. Treasury Secretary Scott Besant does not seem to have leaned back on.

The Bloomberg report says the bond sell-off poses a fresh challenge for Besant who last month unleashed more measures to keep yields contained, as well as for President Donald Trump, with higher borrowing costs threatening to weigh on the economy heading into the November midterms. Meanwhile, oil prices were up about 2% on Tuesday as fighting resumed between the United States and Iran, leading obviously to fresh fears of supply disruptions. Brent crude futures were at about $92.20 a barrel on Tuesday morning.

With all of this, including escalating Middle East tensions, higher oil prices, and bond yields globally, the benchmark indices back home extended losses into the second session. The Sensex was down about 13 points to 76,944 and the Nifty 50 was down 24 points to 24,055. In the broader markets, the Nifty mid-cap and small-cap were down about 1.4 and 0.2% each.

Incidentally, the Nifty and Sensex are now down 7.8 and 9.7% for 2026, thus making them amongst the worst-performing Asian and emerging markets. Brighter news on the currency front, the rupee rose to a two-month high as the Reserve Bank stepped in to support the currency through dollar sales. The rupee ended the day at Rs.

94.95, up 0.2% from the previous close, also its third consecutive daily rise, according to a Reuters report. The Reserve Bank had started intervening in offshore and onshore markets right from the start of the session at 9 a.m. on Tuesday, according to Bloomberg, and the move came after the forex stockpile has now risen to a record $729 billion last month, thanks also to the $72 billion of inflows from all the various measures in June to attract foreign capital. The Bloomberg report said as the reserves have risen, the Reserve Bank has become more active in the market and, therefore, rupee swings have lowered or fallen in August as volatility has come down.

The Reserve Bank strategy also suggests an effort to counter expectations of persistent weakness in the currency, and the Reserve Bank of India's net short dollar book has now jumped to a record $136.8 billion in July, reflecting rising future obligations from all its moves to bring in foreign capital, including the FCNRB deposit programme for NRIs. Latest data, according to that Bloomberg report, says the Reserve Bank has mobilised about $72.8 billion, and while these inflows will obviously boost reserves, the Reserve Bank will have to return the dollars when the three to five-year deposits mature, adding to future dollar obligations. Meanwhile, goods and services tax collections at the gross level jumped about 15% year-on-year to Rs 200,000 crore in August, according to data released by the Government's Ministry of Finance on Tuesday.

Sequentially, collections were lower compared to the Rs 211,000 crore recorded in July. Meanwhile, India's manufacturing sector expanded at its slowest pace in five years in August as demand remained soft, leading to job losses for the first time in more than two years, according to the HSBC India Manufacturing Purchasing Manager's Index, or PMI, compiled by S&P Global, which fell to 52.8 in August from 53.5 in July. Now, earlier, as we've been reporting, India's Q1 GDP grew 7.8% from a year earlier in the April to June quarter, which was higher than most expectations and polls, but more on that shortly.

Despite the slowdown, according to the HSBC India PMI, business confidence has improved slightly and risen to its May. Early numbers from Carmaker suggest another strong month in August, with Maruti Suzuki reporting a rise in monthly sales on Tuesday, thanks to domestic demand ahead of the festive season. The company reported monthly total sales of 219,000 units compared to 180,000 in the year-ago period.

Those sales were down 9.2% sequentially, which Maruti attributed to fewer working days, according to a Reuters report. Meanwhile, the stock price of Tribhuvanda's BMGs an iconic name in Mumbai's jewellery markets, hit a record high on Tuesday after GRT Jewellers agreed to acquire a controlling stake in the former. GRT Jewellers is one of the biggest jewellery retailers in South India and will acquire a 74% stake from the top shareholders of TBZ, the short form for Tribhuvanda's BMGs, for about $109 million, according to Reuters, adding that the Chennai-headquartered jeweller would also launch a mandatory open offer for the remaining 26%.

GRT operates about 68 stores in India and one in Singapore, compared to 37 for the 162-year-old Tribhuvanda's BMGs jewellery.

Gold and Silver

Speaking of jewellery, Indians should avoid buying gold unless necessary, according to the Prime Minister Narendra Modi, who renewed an appeal to curb bullion demand, even as the country is looking at a widening trade deficit and a weaker rupee. The Prime Minister's comments come amidst local media reports that the government is considering cutting import duties on gold and silver after higher duties failed to curb inflows, according to Reuters, which also pointed out that this was his second such appeal this year, after asking Indians in May to refrain from going overseas for tourism, having weddings overseas, and of course buying gold for at least a year to conserve foreign exchange reserves. Gold is India's biggest imported commodity after oil.

Inbound shipments of gold were up more than 32% from a year earlier in the first four months of the financial year that began in April, which obviously put pressure on the rupee, according to that Reuters report. In July, India's trade deficit had widened to almost $32 billion, the highest since January.

India’s GDP Forecast

The June quarter GDP numbers were strong at 7.8% year-on-year, thanks to tax cuts, higher subsidies, and a limited input cost pass-through, all shielding, as an HSBC note put it, the consumer amidst a energy shock.

Meanwhile, CAPEX, or capital expenditure by both the central government and public sector enterprises, rose sharply, which indirectly provided a partial shield to rural consumers impacted by weak rains. The HSBC note says that the sequential momentum of 8% quarter-on-quarter in the GDP numbers also suggests strong growth momentum, which is further confirmed by their 100 indicators of growth database, which shows that growth remains strong in manufacturing and financial services. Meanwhile, a note from MK Security said the strong Q1 GDP growth validates the cyclical upturn in the economy, as reflected in a broad range of high-frequency indicators, including robust corporate earnings.

The resilience was seen despite elevated raw material costs amidst the war in West Asia, suggesting that volumes remain healthy and firms have been able to pass through a meaningful portion of higher input costs. I reached out to Madhavi Arora, chief economist at Emkay Securities, and I also began by asking her what stood out for her in the numbers that were released on Monday.

INTERVIEW TRANSCRIPT

Madhavi Arora: Because GDP data does not give you a breakup of public and private CapEx. Our own estimate of private CapEx shows that on a four-quarter moving average, which sort of smoothens out the noise, the private CapEx is probably going at 15% or so in the last quarter. This is derived from the fact that the GFCFO, which is a total fixed capital formation in the country, was fairly stable and resilient in the last quarter.

And if I look at the government accounts, which is states in the centre fiscal account, which comes on a monthly basis, there's been a front-loading of CapEx So, all in all, last, I think, six months, you were seeing that trend pick up, where the private sector CapEx has also been relatively strong or has been trending up rather. Obviously, we're not talking about the high of what we saw in the big CapEx cycle, which was early 2000s, but there's been a bit of a substantial upturn, which is probably being supported by the fact that the consumption story in India also has hit pace, partly because of GST cuts and partly because of other factors. And that has been supported by the private CapEx cycle.

If you look at the credit offtake to MSME sector in the investment side, that also has been picking up, which sort of gives us a sense that maybe the broad headlines are not capturing the CapEx cycle. You know, you're not talking about the likes of L&T doing big projects to the extent that there's a lot of noise in the CapEx story, but there are a lot of mini CapEx stories that are playing out, partly led by the MSME segment. Now, the only concern for me is that these segments are relatively less immune to global vagaries, unlike the big guys.

The big guys obviously are also doing their bit, but the smaller players need to be more convinced to be able to continue with this cyclical upturn or a cyclical investment that they have put on board. But at least in the recent high-frequency data is showing that there are a lot of project announcements that are also coming our way. Will that convert into actual project sanctions and investment is something which has to be seen.

And anyway, it takes at least 12 months to 15 months or even two years for any project which is getting sanctioned to actually come into play. But at least the data that we have in hand is showing that last six months has been steadily trending up for our proxy private CapEx. Thus, government also has been front-loading both from centre and state, which is a good sign.

And that sort of shows the domestic demand, which is a combination of public investment and consumption, has been pretty okay, pretty good, pretty resilient, despite the investitial crisis that we had to face post-March. And of course, government balance sheet, which has borne the large chunk of this West Asia crisis so far, also has been pretty okay because of other revenues stream, which are strong like direct taxes or the disinvestment stream. And they're able to pump in CapEx from their handles.

Govindraj Ethiraj: Right, and on consumption, what is it that stood out for you? Actually, two parts to this question. One is the consumption question.

The second is, obviously the GDP growth seems to have come in higher than what most people projected, and a little higher. But is there anything that was a surprise for you within that apart from what we've just spoken of, which is private sector?

Madhavi Arora: Nominal GDP, but see again, we sort of got used to the single digit nominal GDP in the last year because of low inflation. But we expect nominal GDP to be that higher. It has just turned out to be a tad higher than 10%, but we were looking more like 12% or so because we tend to sort of take the deflated angle accounting for WP and CPI weighted average.

But there's been a change in methodology. So that has now taken into account double deflated. I'm not getting your technicalities of it, but that was a bit of a surprise in terms of data because nominal GDP gets into the denominators of most of these financial ratios and macro variables ratios, and then fiscal deficit, current account deficits, even corporate profits as a person of GDP, all of that.

Nominal GDP plays an important part of the denominator. So to that extent, maybe with a double deflator methodology, which deflates outputs and input prices separately, there could be a much lower deflator than what WPI, PPI, and CPI are suggesting, which is WPI probably is tracking 9%, PPI is also around the same level, and CPI is close to 5%. The deflator could actually be much lower, close to 4.5% or so for a year. So I think nominal GDP may not necessarily grow at 13, 14% that people started talking about because of high inflation in wholesale prices, but probably could track more to the extent of around 11 and a half or 12%, but then that is an important variable because that impacts all financial and macro relations.

Govindraj Ethiraj: Right. And last question. So given the momentum that we seem to have picked up, what is Q2 looking like at this point?

Madhavi Arora: So see, this first quarter is going to be the peak. We've seen the peak in this year for the quarter. Going ahead, most quarters are going to be largely hugging to 7%.

So you will see a slower growth in the subsequent quarter on a sequential basis. That said, because the first quarter has been so strong, and there's also basically a lot of revisions have also happened in the last two years' data, which we continue as well because they're experimenting with the methodology, there's an improvement in data coverage, so it would be a revision in the past numbers also. But nonetheless, given the trajectory that we have, you will mostly see consistent slower growth compared to the first quarter, which is a peak for this year.

But that said, overall, we are still tracking 7% or even above for all year long.

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

EPC Companies Having their Moment in the Sun

Large diversified engineering procurement and construction companies, or EPC companies, are poised for a 100-200 basis point increase in revenue growth to 9-10% this year, thanks to increasing power sector investment, steady public infrastructure spending, and expanding overseas opportunities that continue to strengthen already healthy order books.

According to a new note from Crisil Ratings, the analysis looks at 14 large EPC companies with a revenue of over Rs 380,000 crore last year. Moreover, share of overseas orders, of which Middle East is close to 75%, increased to about 33% as of March 2026, from around 28% a year earlier. So overall share of overseas orders is up to 33% from about 28% a year earlier, and of this, the Middle East is about 75%.

Back home, power sector investments, which are another 25% of EPC order books, are expected to grow 15-20%, and these include fossil fuel and renewable energy-powered plants, as well as transmission infrastructure. I reached out to Gautam Shahi, Senior Director at Crisil Ratings. I began by asking him what else stood out for him in this analysis.

INTERVIEW TRANSCRIPT

Gautam Shahi: Clearly, we see an uptick in the growth rate for the diversified EPC companies, especially the ones which are established, which are fairly large, and which are also diversified. So, I think the key thing is, after moderating in the last two fiscals, we clearly see that the growth in the overall government capital outlay, which is the main pillar of growth for these companies, will remain steady at about 6-8% this fiscal as well as the next fiscal. And in addition to that, the continued growth in the power sector capex on the private side, particularly driven by the private participation, I was saying, will drive the overall infra growth and will give that push, clearly.

So, be it the renewable segment, though that has a little lesser EPC intensity, so to say, but on the conventional side, on thermal generation, and I'll come to the reasons also, on transmission, and also to an extent on the BOT roads, will lift the private capex and it will complement the public spending, very clearly. So, we see that players will grow at a higher cap of about 9-10% in the current fiscal 27, as well as the next fiscal. One thing, I think, that everybody is talking about is that there is weaker than a normal monsoon that we are looking at.

While that, in a way, helps these companies that they are able to have a non-stop execution. So that way, I think the throughput will improve. Also, overall, we see that the diversification internationally is benefiting them, clearly, somewhat of a steady pace of growth of the capital outlay here for Infra is getting offset by the growth that we see in the international markets.

It comes with its share of risk, we'll talk about that. But net-net, despite the impact of the commodity inflation of about 50-70 basis points on EBITDA, we'll still see that credit profiles of the players will remain fairly stable in the near to medium term.

Govindraj Ethiraj: Right. And therefore, you're saying that the growth of order books in these major EPC companies is reflecting the strength in both the Indian economy as well as the Middle Eastern economy or the resumption of activities in the Middle Eastern economy.

Gautam Shahi: That's right.

Govindraj Ethiraj: Got it. What's your outlook now? And what are the reasons that could drive the continuation of the trends that you've been speaking of?

Gautam Shahi: Sure. So first, as I said, government capital expenditure remains a steady growth pillar. While the pace of growth may moderate, but the overall infrastructure spending continues to be substantial in terms of overall quantum across roads, railways, urban infrastructure, and power.

Second, as I was saying, the private sector capex is gaining momentum in the power sector. So continued traction in the renewable capacity addition, revival of the investments in the thermal side, which has a higher EPC intensity, and the requirement of the transmission infrastructure is creating a healthy pipeline in terms of projects. Third, overseas opportunities, especially in the Middle East with the reconstruction opportunity emerging.

You know, once the conflict gets resolved, we see more stabilised circumstances. And also the ability of the players to win projects beyond Middle East. We are now seeing them win projects in Europe and other international markets also will become increasingly meaningful for the large and diversified EPC players who have good, strong execution credentials.

Govindraj Ethiraj: Interesting that you're saying that now even Europe is becoming a big market for them. Just to come back to power, you talked about the reasons for the increased expansion and activity in thermal or fossil fuel. So what's driving that?

Gautam Shahi: See, clearly for thermal, we see about 17 to 18 gigawatt of capacity addition, you know, this in the next fiscal. This is coming from rising power demand in the country, the base load requirement, which is there given the intermittent nature of the renewable generation. So all of these have led to a revival in the thermal power investments.

And also, I think what is important here is from an EPC perspective, higher quantum of opportunities will come from thermal along with transmission. You know, these have higher EPC intensity, they have larger project sizes and they have longer execution cycles also. So not only thermal, but transmission investments are also increasingly becoming critical to integrate the renewable capacity and address the grid connectivity bottlenecks.

So while the growth is broad based, but thermal and transmission are likely to drive the biggest chunk of the EPC opportunities over the medium term.

Govindraj Ethiraj: Right, so slightly broader question, you talked about, of course, the rising order book for overseas markets and particularly Middle East, but also going into newer geographies as you pointed out. So what is the, or what continues to be, let's say the competitive edge for Indian companies? I mean, what's really helping them win these deals?

Gautam Shahi: A valid question, absolutely. So Indian players, what we've observed over the years, they are consistently gaining market share due to their cost competitiveness. Also the proven execution capabilities that they have demonstrated.

They have been able to forge longstanding relationships with the regional clients. We saw that even during COVID, the large and established EPC companies in India, they stood by the state, by the governments in these regions, and they ensure that, you know, their teams continue to operate from there. They continue to execute and complete projects with as less delays as possible.

So that has created a good track record and reputation for some of these large Indian companies there. And as state investments in that region continue with the diversification and the energy transition initiatives, the opportunity pipeline, according to us, will remain strong. And in addition, as I said earlier, reconstruction opportunities are also going to emerge in the aftermath of the conflict.

So that could also support the further regional expansion.

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

Gautam Shahi: Thanks, Govind.