On Episode 929 of The Core Report, financial journalist Govindraj Ethiraj talks to Sanjay Notani, Partner at Economics Law Practice (ELP).

SHOW NOTES

(00:00) Stories of the Day

(01:00) Indian Markets Steady Even Global Markets Are Volatile

(05:25) Voltas Raises Prices, More Brands Could Follow

(06:34) A Lot Of Money Is Locked Up In Security Deposits For Taking Homes On Rent, How Much Comes Back?

(08:14) The India-UK FTA Kicked Off On Wednesday, What Are The Early Signs Looking Like?

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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 Friday, the 17th of July, and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital. Before we come to the top stories and themes, a quick alert, we are gonna be on a break from the second part of next week, as I will be travelling for conferences, but we'll resume the week after that.

So, today's themes…

Indian markets are steady, even as global markets are volatile.

Voltas raises prices and more brands could follow.

A lot of money is locked up in security deposits for taking homes and rent. How much comes back?

The India-UK FTA kicked off on Wednesday, and what are the early signs looking like, and what do the trends portend?

Markets, Oil, Price Hikes and AI Chips

There has been some debate on investing in India and outside.

Some fund managers have been particularly, should I say, nationalistic in arguing that Indian markets offer the best opportunity. It's not about whether they're wrong or right, because investors eventually go where they find the best returns, and they do not go anywhere and everywhere, because it is tough to invest outside India, or it takes some sophistication, not for the average SIP, or Systematic Investment Plan investor, anyway. Now, there is good reason to say that Indian investors did deserve easier offshore investing options, given how markets have not moved in the last two years.

Now, Indian investors do have the options to invest outside, but the accompanying paperwork can be quite intimidating, as much as the disclosures that follow. But the argument today is actually on the flip side. It's about how finicky global stock markets can be, including Wall Street, despite how much they've run up.

And now, this is something that we've been pointing out frequently, but it's worth mentioning again. We've seen how stocks like NVIDIA are now fighting to stay above the $5 trillion market capitalisation mark, a level that was once seen as a relief stop before moving much higher. Many investors would have entered NVIDIA closer to this mark, it's safe to assume.

An article in Barron's part of Wall Street Journal says the AI chip maker has been a laggard in the semiconductor industry this year, and there is evidence that it's starting to shake off that tag. Now, if you didn't track all of this on a more continuous basis, you would have been surprised to hear that NVIDIA has actually been classified as a laggard. Of course, the news now, according to Barron's, is that more recently, NVIDIA has outperformed the index, that's the PHLX Semiconductor Index, climbing six months this year, versus 11% fall for that index, that's the PHLX Semiconductor Index, or also known as SOX.

Barron's also says that it's a small sample size, and NVIDIA has a long way to go to catch up, but if the broader chip frenzy stalls, or even reverses, then the shares can continue to outperform. So that's NVIDIA. Now let's come to what happened yesterday.

Semiconductor major SK Hynix stock price crashed on Thursday, but guess what? This was on the heels of a massive jump on Wednesday. Hynix is the world's second largest maker of memory chips, which are now selling like hotcakes, to put it most mildly. But on Thursday, Asian semiconductor stocks fell as a sell-off in US chip makers, spelled into the region with SK Hynix, as we said, continuing to see massive volatility after its US listing last week, according to a CNBC report.

So the SK Hynix stock price was 11.5% lower in Seoul, and it was 8% up the previous day. The stock has now logged its steepest one-day decline on Monday, as investors, according to the CNBC report, locked in profits amidst growing worries about AI spending. Samsung Electronics also was down 8%, Seoul Semiconductor 5%, LG InnoTech 3%, and Samsung SDI also over 4%.

So, what is changing materially in the AI world from day to day, at least this week? Well, not much, it would appear, but the weakness nevertheless spread across the region. In Japan, AI-linked stocks fell, and so, of course, are Wall Street stocks in the semiconductor space, or in the AI space, set to open lower on Thursday. Now, the Thursday fall, of course, tracks the Wednesday fall, where stocks like Micron Technology fell 8%, Intel lost 4%, and advanced micro devices fell 3%.

So, is there a moral to this story? It's not something you would not know, which is not to charge into markets unknown, but also the larger point, everything associated with AI is still up in the air, and whether you're an investor or a consumer of AI enterprise or individual, we still don't know where it's gonna land. And that brings us to the somewhat boring and predictable Indian markets, which have neither rocketed up or come crashing down, like the Korean ones. The Nifty 50 and Sensex eased off a positive run on Thursday, even as there was pressure on realty and financial services.

The Nifty 50 was down 5.75 points to 24,072, and the Sensex was almost flat at 77,186, but the indices were higher during the day. The rupee was slightly down on Thursday, despite other regional currencies staying strong. It closed at 96 rupees 34 paise per dollar, down 0.1% from its previous close, and closed to its weakest level in nearly two months, according to Reuters.

Oil prices, well, they were up slightly on Thursday, as concerns over Middle East energy prices increased after Iran asked Yemen's Houthis to stand by to close the Red Sea oil route. Brent crude futures were up to about $85.83, or just under $86 on Thursday afternoon, according to Reuters. Elsewhere, thanks to all of this, prices of more consumables and appliances could start going up.

We did talk about Asian paints raising prices by a surprising 12% last week. Now, air conditioners, or rather, air conditioner companies like Voltas are raising prices by about 3% to buffer for presumably rising input costs. Now, the rise in price by Voltas is not unusual as the fact that it's an off-season time to do it.

Nilesh Gupta, director at Vijay Sales, which has retail stores all over the country, told the Financial Express that brands had already begun signalling fresh price hikes across appliances, and they were expecting price hikes to kick in. He did say that every manufacturer will move at different paces, and the extent of time of these hikes will vary across the market. He said that adding inventory levels, sourcing strategies, and localisation will determine how much of those increased costs each company can absorb before passing them on to consumers.

Raw material costs, including copper, are of course up, and then there is the rupee, which has depreciated, which has affected everyone. A Business Standard report sums up that India requires around 15 million air conditioner compressors annually, while domestic capacity is around 7 to 8 million units, and China contributes to bridging the gap.

What are some Macro numbers around Rent Deposits in India?

An interesting study from PropTech company, No Broker, quoted by Business Standard, says something like 126,000 crore rupees has been locked away as security deposit with property owners across the top six cities.

That's Mumbai, Bangalore, Delhi, Chennai, Hyderabad, and Pune. Mumbai has about 41,000 crores, and Bangalore about 31,000 crores, and they are the cities with the maximum amount of money locked in security deposits. Of course, most of these funds do find their way back into fixed deposits, markets, that's financial markets, or maybe expenditure in general and asset purchases with the hopeful intention of recouping before the tenant wants to vacate and turns up to collect the deposit.

75% of Bangalore tenants apparently said that a high security deposit has at some point stopped them from moving into a home they liked. Now here's the interesting part. Apparently in Delhi NCR, that's the National Capital Region, about 58% of tenants got their last deposit back in full after the expiry of the lease, or put differently, only 58% of tenants got their last deposit back.

30% saw deductions and about 12% faced a significant dispute according to that report. Now, I'm not sure, like I said, if 12% is only or is it quite high, given that 30% are seeing deductions as well, suggesting either very ruthless landlords or not so disciplined tenants. In Mumbai, something like 25% of tenants spend more than half their income on rent with another 15% in the 40 to 50% band, which means roughly four in 10 Mumbai tenants, according to that report, direct over 40% of their earnings towards housing.

How will the India-UK FTA play out?

The India-UK Comprehensive Economic and Trade Agreement, or CETA, which kicked off on Wednesday, opens new opportunities for Indian exporters, but gains will vary sharply by sector according to research analysis put out by the Global Trade Research Initiative based out of New Delhi. The strongest prospects, as we reported two days ago as well, will be in labour-intensive goods, processed foods, seafood, automobiles, and selected manufacturing. The numbers, of course, show substantial room to grow.

In 2025, the UK imported about $930 billion of goods from the world, but only 15, that's one five billion, came from India. So India's share of UK imports was and is, presumably, just about a 1.6% or under 2%. The UK, meanwhile, bought only 3.4% of India's $445 billion of global exports.

So low market share alone does not mean a big opportunity, and it in turn depends on many factors, including demand in the UK, India's export capacity, current UK market presence, and the tariff advantage, which, of course, is favourable. So what are the early signals of how things could go? I spoke to Sanjay Notani, partner at ELP, the law firm, and who also co-heads the International Trade and Customs Practise, and I asked him how things were looking in the last two days and, more importantly, how they were going ahead.

INTERVIEW TRANSCRIPT

Sanjay Notani: So I think before I answer, I just want to give you a bit of a context. See, this is the first agreement, which is a comprehensive trade agreement with a G7 economy. And that is very, very important because it clearly shifts the focus from a very, very defensive trade negotiation to a very, very strategic negotiation and a market access, which is very, very important for India.

And this is not merely about reducing tariffs, it's about creating a very, very long term integrated value chains for our Indian businesses and gives us a bit of an edge as compared to the other economies who are eating out of UK, such as China, Vietnam, and particularly China very, very important for us because the kind of, you know, the sort of trade wars which happen, of course, largely between US and China, but also between EU, UK, Europe, largely with China on certain instruments, particularly under the trade. So, you know, those kinds of things may give us a bit of an edge, which is very, very important. In terms of the numbers, I don't want to go on the numbers because clearly, you know, we are all seeing 99% tariff lines are now open for India.

And, you know, we are happy to do that. But I think looking at the traditional sectors, which are largely textiles and carpets and pharma, I think some of the new sort of sectors which we will get to see a lot of liberalisation is towards digital trade, financial services, government procurement, innovation, labour. So, you know, talk about those concepts, which are largely the G7 economic kind of topics.

And that is where we see India.

Govindraj Ethiraj: Right. So I was mentioning in the introduction earlier as well, that India's share of UK imports was just about 1.6%, according to GTRI numbers, and they bought only about 3.4% of India's total exports. So it's a very small market all said and done.

Now, obviously, this means that even if you want to step up, we still have to reckon with a whole lot of other issues. What according to your in your assessment is the key or amongst the key issues that we have to think about?

Sanjay Notani: Let me first touch upon a little bit about sectors. And then I'll talk to you about some things that we from an industry perspective, will have to look at it. Probably one of the biggest winners is the textile and apparel.

Clearly, we can, you know, compete with them on all of that. However, you know, there will be in terms of challenges, we've just passed the theoretically we always had, but now we are talking about forced labour issues, we are talking about some of those issues. But one of the things which we will have to deal with are some of those kinds of new regulations, which EU in any case, essentially had, but now they will bring it up like issues of CBAM, issues of certain sort of standards which they have for certain steel kinds of things we are getting to see again, you know, those old kinds of instruments being used in a new way, which is the quotas.

So depending on those kinds of issues, we will have to definitely, you know, deal with and those are the kinds of things that we'll have to, you know, worry about and try and take it from there. When I talk about some of these issues, it's also very, very important, some of those kinds of things in terms of rules of origin, it's not that we never had rules of origin with the East, but the way some of the documentation, the way some of these audits, the way some of these things that now we will have to bring about requires a very, very robust kind of origin provisions, which clearly preserve the integrity of preferences standards. Again, you know, some of these kinds of standards which they have towards Agri products, towards some other products, which is SPS, TBD, conformity assessments, and such. So those kinds of things will matter, you know, from our perspective, which we will have to wait and watch.

Govindraj Ethiraj: Right. And as you look ahead, it does appear that it is going to be competitively defined as in India's ability to increase share and it's not just a matter of the tariffs. Operationally, are things likely to change?

If so, could things move faster?

Sanjay Notani: You know, to be on the positive side, I would say yes, clearly, because now at the end of the day, we may have a sort of a channel of government to government sort of an interaction, which could help us to speed up stuff. But let me be very honest with you. At the end of the day, you know, you will not sort of only consider some of these traditional things which we have been talking about rules of origin and stuff like that.

With many things changing around the world, basically in supply chains, how countries are becoming protectionist, how suddenly one fine morning we may have to change our sourcing strategy and therefore the rules of origin will change. And then accordingly, what we are telling the UK or the EU, which is expected to come. Supply chain restructuring challenges as well as opportunities.

Digital certification processes will become, you know, very, very largely. Market entry strategies. Now with the CBAM coming in, which is expected in UK from January 1st, all the competing economies will be looking at other economies, even if we have a tariff benefit, because then those are not sitting on the tariff, on the edge of the tariff benefit.

Those will be sitting on the commercial calls, which the importers may want to have, depending on how much is their sort of a liability when they import something from other countries. Now, you know, the give and take between the tariff benefit versus all those other sort of nuances will have to be considered. And those are the things that we may have to bother about.

Govindraj Ethiraj: Right. And what about inbound, Sanjay? How's that looking?

Sanjay Notani: Largely, we should be looking at besides, you know, the wine and spirits, which everybody is celebrating upon, particularly in the UK and the EU. Some of those things, which according to me, I don't think will make a lot of dent, which is automobiles. One is the tariff benefit.

But by the time they come and ship the right products, there's a lot of matured market in India in terms of competition, all the other sort of non-tariff barriers, which India may suddenly show up in terms of imports of automobiles. I mean, giving you one example, quotas, going to the DGFT and getting your quotas could be a task and a challenge and how exactly India sort of works around it. Those are easy ones.

The bigger ones, which I personally am trying and looking forward to is, you know, a lot of stuff which is on services, you know, in terms of information technology, in terms of AI, in terms of all of those, that how can India play a market in terms of the services requirement? And those are the kinds of things that we will have to try and be ready with, because A, that also looks at other sort of considerations, such as the DPDP, when we will have a digital protection, how are those kinds of things going to play in some of those kinds of things? Are we going to be, you know, still saying that the data which comes from outside and we are processing for purposes of national security needs to stay within our country, particularly where financial products, insurance, all of those are concerned?

That is where my sort of stuff is looking at it. So clearly, IT, IT enabled services is a great place to look at it. The second thing which I am banking upon is on technology which can come from there.

Now, of course, those are again bases on the IPR. Those are bases on all other things. And last and not the least, one other thing which I always think that we will have to resolve is the issues of bilateral investment treaties.

How exactly are we friendly going to be looking at some of those kinds of changes and policies which allow the technologies to come, allow with all these, you know, investments to come? And how well do we sort of shepherd those kinds of things within the country and take it back? So those are my sort of other ask which I would be really hoping for.

Govindraj Ethiraj: So bilateral investment treaties or BITs, I mean, do they run concurrent? I mean, are they signed concurrently? Can you just tell us a little bit about that?

Because that's what sort of creates problems between, as it has in some cases, right?

Sanjay Notani: Yeah, the problem is, you know, not the concurrent as if I am advising any of these investors, I'll say, look at the past, but let's hope what can we do future to make it more strengthened. Even if you sign today, we've signed some of these treaties earlier in the good old days with Japan and stuff. But we saw there were some sort of BIT TIFs which we had with India and Japan.

Question here is what kind of trust while, yes, on the new set of treaties which we are talking about, we are saying, oh, allow these disputes to, you know, be settled within the country in domestic, give three years time period, courts are there, here and there. All of those are good things to say. But the question here is, after these three years is happening, from a regular perspective, whether it's issues of taxation, whether it's issues of change in policy, how are we reacting to those all other things?

Because once if I've invested my money, then I need my investments protected. But with these kinds of things, which India should not be, you know, regularly or consistently, we keep on changing our policies and including the Supreme Court judgments, which we had on particularly some of these key issues. Those are the kinds of things I think we will have to sort of try and work with some sort of a pattern, which sort of gives that sort of a comfort on particularly those investments which we are expecting, particularly from UK, EU and some other G7 countries, right moving up to Canada.

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

Sanjay Notani: Thank you.

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The United States has levied 25% tariffs on most imports from Brazil effective next week, concluding a year-long investigation into what Washington calls unfair trade practises and also reigniting tensions with the Latin American country after negotiations fell apart, according to a Wall Street Journal report.

The action, taken under Section 301 of the Trade Act of 1974, targets Brazilian practises, such as orders directing American technology firms like Twitter or XMeta and Google to remove certain political content and suspend accounts belonging to US residents, preferential tariffs for Mexico and India, weak intellectual property enforcement, and ethanol market barriers. The 25% tariff will kick in on the 22nd of July, which is next week, and will apply to most imports from Brazil with exemptions for certain goods like beef, orange juice, aircraft and parts, and energy products. Now, all of this is significant because India, too, is fighting similar cases.

Brazil's president, Luiz Inácio Lula da Silva, in a statement posted on X, rejected the tariff decision as groundless and also said that there is no justification given that Washington has run a cumulative $425 billion goods and services surplus with Brazil over 15 years. US goods trade surplus with Brazil was about $14.5 billion last year, which more than doubled from the year prior. Back home, a Reuters report says India is seeking to push domestic manufacturing for items worth $51 billion in imports, according to sources who spoke to the agency.

And the internal government analysis showed that of the $775 billion worth of goods imported in the 12 months ended March 2026, about $398 billion have the potential to be replaced by local manufacturing. Now, this is obviously a thought process right now within policymakers, within the government, which could, of course, get converted. Now, all of this is obviously a report based on sources which possibly reflect the thinking within policymakers, within the government, but it would also be interesting to see how this manifests itself, because raising tariffs to protect domestic industry to do some of this, if that's the route being thought of, is not maybe the most healthy way to go right now.