On Episode 870 of The Core Report, financial journalist Govindraj Ethiraj talks to Ajay Kedia, Director at Kedia Advisory as well as Shyam Kumar, President & Head of International Business at Kotak International.

SHOW NOTES

(00:00) Stories of the Day

(00:50) India’s austerity appeal is two months late

(06:29) Markets lose ground as friction increases on Iran-US talks

(09:57) How are gold markets reading the Prime Minister’s appeal to cut back on gold spends?

(14:34) More options are opening up for astute investors wanting exposure of international markets as opposed to domestic

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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 12th of May, and this is Govindraj Ethiraj, broadcasting and streaming weekdays from Mumbai, India's financial capital.

Our top stories and themes…

India's austerity appeal is two months late.

Markets lose ground as friction increases, or rather increases again, in Iran-US stocks.

How are gold markets reading the Prime Minister's appeal to cut back on gold spends?

More options are opening up for astute investors wanting an international market exposure.

Markets, The, War, Demand Moderation and Temperature

What is the best way to moderate demand, as the core report has been consistently arguing for two months? Request citizens to cut back on travel, particularly international, work from home, and buy less gold, or just raise prices, particularly of fuels like diesel and petrol. Of course, there are no easy answers to these ones, but the core report has consistently, and right through, maintained that the government should have raised prices.

Remember that because there was no price increase, while the rest of the world was cutting back, India was actually consuming more petrol and diesel in the month of April. Just as a reminder, the US-Israel combined attacked Iran on the 28th of February, and crude oil prices have crossed and stayed mostly above $100 per barrel since then. And because prices have been unchanged, petrol consumption went up almost 6.5% in April 2026, as compared to April 2025.

On the other hand, diesel sales were also up, though by only about 0.3%. On Sunday evening, India's Prime Minister Narendra Modi said people should prioritise a return to work from home and online meetings, widely adopted during the COVID-19 pandemic, arguing that it would help India use less fuel. He also talked about placing great emphasis on saving foreign exchange and asked people to use public transport like the metro and the car pool where possible, and urged citizens to avoid buying gold and to cut non-essential overseas travel for at least a year to save foreign exchange. He also called on families to reduce cooking oil consumption, describing that move as both healthy and patriotic, and asked farmers to cut fertiliser use by as much as half.

Now, an appeal to citizens' sacrificial side is well-intentioned but can have the opposite effect because unfortunately, no two people will read the statement in the same way. Some will see the larger picture, and others will see a doomsday scenario for the country's economy and thus to everyday lives, which often leads to panic. Remember, there have been several occasions in the last two months where fuel pumps have run out of petrol or diesel only because citizens have filled up more than they needed.

The Prime Minister's appeal to citizens to cut discretionary spending and conserve energy amongst the ongoing West Asia conflict signals that pressure on India's fiscal position may be reaching a tipping point, according to Japanese financial services firm Nomura Holdings in a report in Business Standard. In a note, Nomura said that the Prime Minister's remarks indicate that the government may increasingly look to households to share the burden of adjustment as elevated crude oil prices and geopolitical tensions strain India's fiscal balance. The brokerage added that the appeals could also signal that policymakers have limited appetite for further appreciation in the Indian rupee, with the adjustment burden now likely to be incrementally shifted towards consumers.

Now, there are several other reports that have surfaced on Monday, including one on Bloomberg, which suggests that a modest price hike in petrol and diesel is in the offing. Other reports have said that the total loss to oil marketing companies or the big refiners is about 30,000 crores a month right now because of prices not being changed. Now, back to Nomura, it says that India's fiscal policy has served as the first line of defence since the outbreak of the West Asia conflict, while measures like an excise duty cut on petrol and diesel, now these are invisible to consumers, have helped keep inflation low and consumer demand resilient, they've simultaneously increased pressure on India's twin fiscal and current account deficits.

Those recent excise duty deductions on fuel, like we said, these are invisible to consumers, are estimated to cost the government nearly 0.5% of GDP. Moreover, the balance of payments deficit is currently tracking above $70 billion, mostly because of weak net capital inflows, according to Nomura. Of course, the appeals could well and ideally should be a precursor to a price hike and a softening up of the citizenry in a manner of speaking, but whichever way you look at it, the move, including the appeal, is two months late at the least.

And then there is gold. Asking citizens to cut back on gold purchases is once again well intentioned, but can be interpreted more ominously given that gold purchases are also associated with auspicious occasions, including leading festivals and of course weddings across India. Nomura also says that the government could look to discourage non-essential imports, particularly gold, which could include a hike in customs duties on gold imports, noting that gold inbound shipments have already faced administrative delays at customs since March, something that was also part of a Bloomberg report last week.

Now, the government has clarified through sources on Monday that there is no intention to raise duties on gold and silver. So let's see. And then there is the outbound flow.

Some $250,000 is currently permitted annually per person, which can be sent overseas for use in education, health, and real estate, among others, and you can also pool with family members. Now that $250,000 could of course be cut back or the usage tightened further. While nothing may happen in the short term, this form of tightening of currency flows often tends to send the opposite signal to institutional investors, accentuating rather than mitigating the perception that the economy is in trouble.

And finally, going by past experience, the government could and very well might launch a foreign currency deposit mobilisation scheme to support the rupee. Similar schemes in the past have mobilised deposits equivalent to about 1% to 1.4% of GDP, according to Nomura. Now, the government on Monday assured citizens on Monday, as it has almost every day in the last six weeks or so, that there is no shortage of petrol or diesel in the country.

Monday's assurance, of course, came a day after the Prime Minister urged people to reduce fuel dependence amidst the ongoing West Asia crisis. So, the problem is obviously price and not the availability of fuel. Now, convincing an average citizen of this nuance is not easy, because the job of a government in most times, at least in the eyes of citizens, is to protect the common man from high prices.

Now, we'll come back to gold shortly. Keeping all of this in mind, the stock markets took a dive once again amidst weak global cues and a rise in crude oil prices after US President Donald Trump rejected Iran's peace proposal, and more on that in a moment. And of course, the unknown undertones behind the government's appeal for austerity.

The SENSEX fell 1,312 points to close at 76,015. The Nifty 50 lost 360 points to close at 23,815. The Nifty Mid Cap 100 and the Small Cap 100 were down more than 1% each.

The rupee saw its sharpest in more than a month on Monday to end at its weakest closing level on record, being 95 rupees 31 paise per dollar. And that was its steepest single-day drop since the 27th of March, tracking losses in regional peers or regional currencies, according to Reuters. Brent crude is now up again to $103.80, or just under $104, as shipping through the state of Hormuz remained paralysed, even as President Trump rejected that proposal.

Days after the US floated an offer aimed at reopening negotiations, Iran on Sunday released a response focused on ending the war on all fronts, including Lebanon, where Israel is fighting Iran-backed Hezbollah militants, according to that Reuters report. Iran also demanded compensation for war damage, emphasised its sovereignty over the state of Hormuz, and called on the United States to end its naval blockade, guarantee no further attacks, lift sanctions, and remove a ban on Iranian oil sales. Within hours, Trump dismissed the proposal in a social media post, saying that he didn't like it, it was totally unacceptable, that's in all caps, and there were no further details.

On Monday, Iran responded again, saying that its demand was legitimate, and wanted an end to the war, and lifting the US blockade and piracy, and releasing Iranian assets that have been unjustly frozen in banks due to US pressure. Back home, HSBC's economists have put out a note titled, Forget the Rains, in which they say that they are watching temperatures more than rains in coming days and months. They point to a note issued a few years ago, where they said that reservoir levels matter more than rains for India's food production and inflation.

Now they say they have taken their next leap from rains and reservoirs to temperatures. With global warming, average temperatures are rising and have crossed previous threshold. They now impact food output and inflation even more, or rather much more, than even rains and reservoirs do.

In fact, says HSBC, tracking surface temperatures is enough to get a good sense of where food inflation is headed, adding that this matters more in a likely El Nino year. They say that the probability of high temperatures is stronger than the probability of low rains, and the quantum of rise in temperatures during El Nino years is rising. So, there are no crops which can escape perishables like vegetables and fruits are traditionally more sensitive to heat waves, and this sensitivity is rising.

Even durable crops like cereals, pulses, oilseeds and sugar are not too far behind as old temperature thresholds are breached, says that note, adding that even animal protein sources are becoming more sensitive to heat. HSBC has now forecast that with these twin energy and El Nino shocks, 26-27 inflation will be at 5.6%, GDP at 6%, and two rate hikes are likely, between the fourth quarter of 26 and the first quarter of 27, taking the repo rate to 5.75%.

Should we Moderate Gold Purchases?

Now, let's look at gold. Last year, India imported $72 billion of gold, of a total import bill of $775 billion, or roughly 10%.

In contrast, crude imports were at $135 billion, vegetable oils at about $19 billion, and fertilisers also at about $14 billion. The government has asked citizens and farmers to cut back on fertiliser use and vegetable oil. Elsewhere in the markets, because of that appeal to cut back on gold consumption, stocks of jewellery companies like Senko Gold, Kalyan Jewellers, and Titan fell between 6% and 9%.

So, what does all of this mean for the gold market and thus gold prices, and do ETFs or Exchange Rated Funds in gold make difference. I reached out to Ajay Kedia commodity and metals expert and I began by asking him how he was reading the current sentiment and appeal.

INTERVIEW TRANSCRIPT

Ajay Kedia: So, first of all, if we talk about gold, we Indian don't buy gold, we consume gold. So, ultimately, we have to see whether our consumption would be dropping or not. But yes, from the jeweller perspective, things are very awkward because in last couple of years, things are not very good for jewellery industry.

We have seen diamond crashing down and high volatility or value-wise it has been gone very high. For industry perspective, I think it's not a good thing. But for individual, maybe they should wait or they should buy, it will show the time.

But I think we Indians have a DNA to buy gold. It can create a FOMO that is government is taking any action so that today itself, I will buy.

Govindraj Ethiraj: Right. One of the things that was feared, but at least the government seems to have now clarified is that there is no import duty. So, there is on gold or silver that is likely.

So, there is no price restriction, it appears on or price deterrent to gold buying. The reason, of course, the government wants you to consume less gold is because it is 10% of India's import bill and it's linked to dollars. So, what else could they do then?

Ajay Kedia: So, I think top five priority for government to import is crude oil, edible oil, electronic fertiliser, because gold is a non-yielding commodity, we can say. First of all, for duty, I'm sure already there is a clarification, I think going on in the market that duty hike, import duty, we are used to buy because there is a FOMO. If duty has been hiked, then also I will be buying means I will be buying.

This is the consumer behaviour because we are ritually attached with gold. So, I think other would be the rationalisation of gold distribution or we can say focussing on digital gold or we can say ETF or other form. If suppose you are buying in electronic form, there will be accountability and transparency.

So, that could be a restriction part where the government is looking, I think.

Govindraj Ethiraj: Right. But just to clarify again, for those who may not be clear on this, when you buy gold ETF in India, you're effectively buying physical gold because that ETF is backed by physical gold, which will be imported and kept somewhere, isn't it?

Ajay Kedia: Yes.

Govindraj Ethiraj: Right. Okay. So, given all of this, how are you seeing prices or price movement in India?

And do you see any further divergence between India and global markets or do you think it's going to track?

Ajay Kedia: So, it totally depends on how the investor will be behaving, consumer will be behaving because now it's the onset of marriage season and we Indians have a ritual to buy. So, definitely we will be buying. Living to this, I think the global scenario is not so much supportive for gold because as gold prices are consistently holding above $100 mark or let's say $110 nearby, inflation is going to be on high and whatever the factor up till now we have seen that interest rate cut scenario from US is not been there in the market, which will be capping the upside for gold.

Secondly, dollar is been slightly improving. I think gold unless and until $5,000 doesn't break, we are expecting a dip to the level of $44,000, $50,000, $4,500. I think the prices should come down only depend whatever the actual government has announced yesterday, how it will be reacted in Indian physical market would be another pivotal.

Otherwise, I am expecting prices to cool off from here.

Govindraj Ethiraj: Right. How are you seeing the rupee in the context of all of this?

Ajay Kedia: So, I think with the action what PM signal cautioning the gold buying would not support rupee because rupee is been depreciating because of crude oil prices and other factors. So, the speed of touching $100 would be getting slower with this action. But overall, I am expecting rupees heading towards $96, $50, $96, $80 zone.

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

Ajay Kedia: Thank you, Govind.

What of trends in investing in Overseas Markets?

For more than a year now, astute Indian investors have been actively investing overseas, in part to beat the depreciation risk of the rupee and of course to look for exposure to markets outside India, which have been appreciating faster and continue to do so even at this point. In keeping with this trend, Kotak Mahindra Group has announced the launch of the Kotak Indo-Pacific Defence UCITS ETF through its Singapore arm, that's Kotak Mahindra Asset Management, based international asset management business.

Now, this is Kotak's entry into the global exchange-traded fund space through the UCITS structure. UCITS stands for Undertakings for Collective Investment in Transferable Securities, and they are a set of European Union regulations that create a harmonised, safe, and regulated framework for investment funds such and ETFs. Now, this one has been launched by Kotak in partnership with Han ETF, a Europe-based white-label UCITS ETF and ETC platform.

Interestingly, the fund will trade under the ticker QUAD. The ETF is focused on companies linked to the defence sector across the Indo-Pacific region and includes firms from India, Japan, South Korea, Taiwan, Singapore, and Australia. The specific bet here is that governments in the region have increased spending on military infrastructure, domestic manufacturing, and defence procurement.

Indian companies will account for roughly 30% of the ETF's index composition. I reached out to Shyam Kumar, President and Head of International Business of Kotak International, and I began by asking him why this fund and why now?

INTERVIEW TRANSCRIPT

Shyam Kumar: No, so the fund is in the form of an exchange-traded fund, ETF. It is already listed in Ireland, it's going to be listed in London too. So the customer can be anyone who can buy an ETF of the exchange.

What we found along with the partner which we have chosen, which is HAN, HAN ETF, that they have been already successful in launching a European defence ETF. So the theme is very powerful, all right. When we're discussing the entire concept of what kind of ETF we should launch and what kind of theme we should take up, this defence theme became very compelling.

And like I said, where India needs to invest more in defence and India needs to depend less and less from the other parts of the world in terms of defence production, it became a very natural way of looking at what the opportunity is. And while discussing them, they said, okay, we'll create an Indo-Pacific defence ETF outside and the ex-China that is, all right. So that really fit into the entire scheme of things.

So investor can be anybody who can access the market from either through, your platforms or it's an ETF. So it's traded there. If you're an Indian investor under the LRS up to a quarter million dollars, resident Indian, you can invest in this.

It depends on your bank card and how you can access the ETF, of course.

Govindraj Ethiraj: And when you say Indo-Pacific, what does that mean? Or if it has any significance?

Shyam Kumar: No, we have Vietnam, South Korea, Japan, ex-China. You know, what Kodak brings to the table is India, right? And then for, let's say on two counts, one is obviously as on diversification on the rupee.

And particularly because there's a lot of liabilities, which people have now in dollars. So because of that, you need to really have assets in dollar also, or let's say non-rupee assets. That is one driving force.

Second thing, which I personally believe is that, I think in the last few years, we've seen a lot more equity participation, either through mutual funds and any other direct participation. So very often what happens, unless there's no new paper in the market, how much can existing money absorb? So you find asset prices going up.

And at some point in time, it needs to diversify further. And that's when you see this happening. And it's been incremental.

They'll say, oh, property in Dubai is one investment, but that's not really the point. I'm just saying, as long as you see investors looking to put money outside, and this is particularly in the last few years, you've seen the numbers, right? I think defence ETF, it gives you a flavour of, because many people don't understand the India story, right?

It gives you what are the like-minded stories in other parts of the world. That's how one is trying to capture through the Indutbus ETF really.

Govindraj Ethiraj: Right, and you've called it Quad, which is quite interesting. That's a tikka, that's a tikka. I must give credit to the high-need-to-have guys.

They said, let's call it Quad. Yeah. So how does this fit or where does this sit amongst the rest of your global portfolio of products that you offer to investors, particularly or whether they are sitting in India or elsewhere?

Shyam Kumar: No, most of our products, which we have manufactured outside is largely for the international audience, global audience. Because as I was saying, we have been focussing on getting money into India from foreigners, all right? So that's been, whether it's my MidCap Fund, whether it's my Orbit Cap Fund, there's been other strategies.

We've been trying to get money into India from global investors, all right? So this very much fits within that. There's a bit of diversification by going beyond India.

For a particular team, it's almost fine. And it's an ETF at the end of it. So it's going to be passive.

It's not going to be a very actively managed kind of a product. So clearly that fits into what we're doing outside. What you're suggesting about the money coming from India, that's an additional opportunity there.

Govindraj Ethiraj: And you've partnered with Han ETF and that's a young company as well. And they offer white label ETF platforms. So can you give us a little insight on how that works and how it will play out?

The ETF is a very interesting space outside.

Shyam Kumar: Obviously, you have a whole infrastructure which you require. They have authorised participants, you know, get listing agreements. There are so much of infrastructure creation for listing an ETF, right?

So you have these entities like Han. Han himself has been in the ETF industry, heck, the main promoter has been in the ETF industry for many years. They have got the entire infrastructure available to launch a product.

It needs people like Kotak saying, I want to launch a product. So they will listen to you. They'll understand what your requirements are, what is your particular interest, and then they're able to launch a product.

Otherwise, if you try and do everything by yourself, it's going to take its own time. So somebody already got the infrastructure, somebody already got, and they do it on a white label basis.

Govindraj Ethiraj: Okay, last question. And do you have any other products like this that you've launched or are thinking about for the future?

Shyam Kumar: That is very, what is exciting me. I want to see how this is going. We are very clear that we want to move to the ETF space.

Okay, that's something which is very clear. The question arises is that how do people view us? Are we an India player?

Do we do a global product? This is probably the first time going slightly beyond India. Of course, the theme is very topical today.

The defence is very topical. That is one. But eventually we will look and see what works in the market, what is the interest level in the market, and thereby create more and more products, which will largely be in the nature of an ETF.

Like I mentioned to you, ETF has a wider audience. So you have investors who put only money into ETFs, and you have investors who put money to funds, but they can also participate in ETFs. You're actually opening, you're broad basing the investor segment.

That is why ETFs becomes interesting. And because it's all about theme, you can come out what works next. I mean, for example, digital India can be a theme.

An example, financialization of India can be a theme. I'm not looking with Inborn. I'm still looking, creating products, which are available for investors to participate in, right?

My primary focus is getting money from outside into India. That's my first focus. LRS happens to be an incremental new opportunity which is there.

And largely LRS money will not come and buy another India product outside. You see, because why should they do? They can buy the mutual fund in country itself, less complicated way of investing.

But if you have a product like this, where there's a bit of India and others also there and a certain theme, that becomes interesting. So we'll see how it goes. Obviously, this is our long haul, right?

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

Shyam Kumar: Yeah, great, yeah, thank you.