India’s Solid GDP Numbers, What Lies Behind Them?
Will India Cut Interest Rates Next Month?
On Episode 739 of The Core Report, financial journalist Govindraj Ethiraj talks to Aditi Nayar, Chief Economist and Head of Research and Outreach at ICRA
SHOW NOTES
(00:00) The Take
(05:06) Is A Santa Rally Around The Corner ?
(08:14) And Now, $5,000 Per Ounce For Gold By Next Year
(10:24) India’s Solid Gdp Numbers, What Lies Behind Them And Will India Cut Interest Rates Next Month?
(19:37) Oil Producers Are Weighing Impact Of Russia-Ukraine Talks
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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 [email protected].
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Good morning, it's Monday, the 1st of December and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.
The Take
The stock market is hiding the truth from you. Now, here's a data point that should stop every amateur day trader cold.
If you had invested in the Indian stock market over the last 40 years but missed the 10 best days of movements, your returns would be famously suboptimal and it gets more ruthless, the math that is. If you missed out on the 30 best days or less than one day per year on average, you would have missed out about 90% of the total returns. I was provided the stock reality recently by Devina Mehra, the founder of First Global.
It encapsulates the asymmetry of wealth creation. While we obsess over the risk of being invested in the market, the crashes, the corrections and the panic, we rarely calculate the risk of not being invested. Now, that statistics leads to the uncomfortable truth for millions of retail investors, glued to their trading apps.
You cannot simply dabble in the markets and expect them to do your bidding. As Mehra told me, the markets have zero interest in the price at which you bought your shares. And yet, looking at the recent headlines, you would be forgiven to thinking otherwise.
Last week, the BSE Sensex and the NSE Nifty hit record highs. The numbers on the screen suggest a boom but these record highs are concealing more than they reveal. That statistically, this is one of the narrowest rallies we've ever seen.
Beneath the headline numbers, the carnage is quite bad. Since the previous peak in September 2024, 14 months ago, very few individual investors have actually made money. The index is being propped up by a handful of heavyweights while the broader market languishes.
It's a mirage of sorts. As a recent ET or Economic Times article pointed out, almost half of Nifty 50 stocks haven't even touched their all-time highs this year, exposing the same dangerous narrow rally where a few large-cap heavyweights like HDFC and ICICI and Reliance have dominated. And let's look at some other big names.
TCS is down about 23% says that Economic Times article. Wipro, Tech Mahindra, Powergrid, Infosys, IndusInd Bank, HCL Tech, and Dr. Reddy's are all stuck in double-digit losses for 2025, even though the Sensex and Nifty were up about 10% this calendar year. Altogether, some 23 Nifty stocks are languishing at least 10% below their all-time highs.
Which also brings us to the paradox of modern investing. If the math proves that timing the market is next to impossible and that missing a handful of days can destroy your compounding, why do we listen then to the cacophony of self-styled gurus who relentlessly predict the next big swing? The answer lies, perhaps, in the combination of technology and ancient human greed. In the early 1990s, India saw the rise of Harshad Mehta, a stockbroker who assumed the role of a pipe-piper, leading both small and large investors into an investing frenzy that ended in ruin for most and him in jail.
Mehta was the proto-influencer. He ruled the narrative before the internet, before Twitter, Facebook, and before the gamification of finance as we can see it today. But the spirit of Mehta today has been fractured and multiplied across thousands of YouTube channel and telegram groups and, for that matter, WhatsApp groups.
Financial advice now flows freely from unqualified individuals whose primary skill is not equity research but storytelling. They're aided by brokerages that have built admirable slick mobile apps designed to make losing your life savings feel like a video game. But investing is not a game, it's a discipline of emotional regulation and this is why the unglamorous mutual fund manager remains relevant.
Their job is not to be a hero but to be a robot, to research themes to buy without euphoria and sell without panic. Indian investors have, to their credit, shown a degree of collective wisdom by pouring their savings into mutual funds via systematic investment plans or SIPs. This steady drip of capital has actually shown remarkable resilience.
But one has to wonder if this discipline will hold when the narrative turns sour or if the temptation to time the exit takes over. The market is beckoning with its record highs, usually the time when a fresh crop of investors jump in. But unless you possess the professional fortitude to endure the boredom of long-term holding or the skill to navigate a market that is rising in name only, you are walking into a trap.
As we look towards a year where indices may hit a few more milestones, remember the math, the market doesn't care about you. And if you are taking your cues from an app rather than an advisor, you aren't investing. You're just gambling on the hope that you won't miss those 30 crucial days.
And that brings us to our top stories and themes…
Is a Santa rally around the corner?
And now $5,000 per ounce of gold by next year
India's solid GDP numbers, what lies behind them?
And will India cut interest rates next month?
Oil producers are weighing impact of the Russia-Ukraine talks, the India Energy Week segment.
A Santa Rally
Well, it's that time of the year again and also the first day of the last month of 2025. So will stocks stage a seasonal Santa rally or will things go slow and steady as 2025 winds down and 2026 comes in? Well, there is enough good news going around the frenzied AI investment boom, both on ground and in stock prices globally.
And in India, a resilient economy, despite the Trump tariffs with unusually strong macro tailwinds as the latest GDP numbers to which we'll come to shortly for the second quarter suggest. And foreign investors who are increasingly highlighting India as a market to return to in coming months, given perhaps the post-AI adrenaline rush they're experiencing elsewhere. Be that as it may, the start and to some extent end point is earnings and they are recovering well, as several analysts have pointed out to us in recent weeks.
There is, of course, the issue of timing as we've been discussing earlier, but that's a different discussion. If Russia and Ukraine head towards peace and India-US have a trade deal or something close to it, then there indeed is a Santa rally in the offing. Even if not, there is nothing to really exert downward pressure apart from the profit booking, which will continue.
On the other hand, we've seen a narrow rally, so there is more upside than downside if you look at the broader portfolio of investable stocks. Which brings us to the markets last week and on Friday, the benchmark indices, the Sensex and Nifty 50 were flat. At close, the Sensex was down 13 points to 85,706.
The Nifty 50 was down 12 points to 26,202. The broader markets as the Nifty Mid Cap 100 and the Nifty Small Cap 100 were also down 0.1% and 0.2% each. The rupee is still weak, once again closing near its record low on Friday, thanks largely to Reserve Bank of India intervention.
The rupee closed at Rs 89.45 against the dollar, down 0.6% for the month and that was very close to its record low of Rs 89.49 hit on November 21st Reuters. Earlier this week, the International Monetary Fund or IMF reclassified India's foreign exchange framework as a crawl-like arrangement two years after branding it stabilised. Stabilised meant that the Reserve Bank or the Central Bank was intervening frequently to keep the exchange rates stable, which was viewed with some consternation here.
As we've discussed here earlier, the rupee's weakness is a reflection of external pressures, widening trade deficit, flat-to-reverse portfolio flows and the Reserve Bank of India's intervention, depending on when it's there and not. India's merchandise trade deficit hit a record high in October, thanks to a surge in gold imports and a decline in exports to the United States following the imposition of 50% tariffs, the effects of which are being felt more strongly now.
Silver And Gold
While the markets hit record highs after that 14-month gap, silver and gold have been hitting record highs all through.
Unlike Indian stock markets, silver and gold prices are directly linked to and driven by their international benchmarks. So where could gold go now? A Goldman Sachs survey says many investors think their precious metal will hit a new all-time high of $5,000 per ounce by the end of 2026, according to a report in the CNBC. To remind you, gold prices have rallied about 59% year-to-date and cleared the $4,000 per ounce mark for the first time on October 8. Goldman surveyed more than 900 institutional investor clients, and 36% of them, the largest, expect gold to maintain its momentum and exceed $5,000 per troy ounce by the end of the next year.
Now, when someone predicts, or in this case, these investors predict a higher price for gold, they are also in some ways suggesting that there is likely to be more macroeconomic uncertainty or geopolitical uncertainty because that's what is usually driving gold prices, unless there is some other flow from elsewhere, including, let's say, a winding down in some of those inflated numbers that we've seen in AI stocks. A further 33% says the Goldman Sachs survey expect gold to reach between $4,500 to $5,000 per ounce, and this poll was conducted between November 12th and 14th. Meanwhile, currently, prices are at about $4,175 per ounce.
Now, let's come to silver, which have already risen 90% this year, and they have now hit a fresh high, jumping about 4% to about $55.66 an ounce over the last weekend. Silver too is being driven by prospects of a Federal Reserve interest rate cut in December inflows into bullion-backed exchange-traded funds and ongoing supply tightness, according to Bloomberg. Silver's new high comes just over a month after a severe supply squeeze in the dominant silver trading hub in London, which sent prices jumping in Shanghai and New York, according to that Bloomberg report.
Strong GDP Numbers
India's economy grew at a faster-than-expected 8.2% in the quarter ended September against a forecast of 7.3% in a Reuters poll and 7.8% in the previous quarter, according to data that was released on Friday evening. The government's chief economic advisor said that now we can comfortably say that full-year growth will be either 7% or to the north of it. He had earlier projected 6.3% to 6.8%. Other estimates from at least two economists that I could see and whose mails appeared in my inbox had already pitched full-year GDP at 7.2%, plus the reasons quoted by them, which was obviously before these numbers came out, or rather one of the reasons quoted was a lubricant from the goods and services tax rate cuts.
Now, it's of course interesting how only one or two economists appear to have a sense on these numbers, welcome as they are. Elsewhere, private consumer spending, which accounts for about 57% of GDP, was up about 7.9% year-on-year in July to September, compared to a 7% rise a quarter ago. Some economists are saying that these GDP growth numbers have been led by a front-loading of exports, and some of them are predicting, like Elara Securities, a 7.5% figure for full-year, that's 25-26, that's above the central bank's and government's estimate.
Manufacturing output is also up for the last quarter. Now, the big question with all of this is where does this leave the prospect of an interest rate cut this month from the Reserve Bank of India, which appeared pretty imminent even just a few days ago? Well, chances are clearly lower now, given the strong growth that we've seen as Aditi Nayar, Chief Economist of Rating Agency ICRA, told me. I also asked her in our conversation how she was reading the top-line numbers and how she was seeing the sustainability of these numbers.
INTERVIEW TRANSCRIPT
Aditi Nayar: Certainly, you know, we did get an upside surprise from the GDP growth number for the second quarter in a row. Our forecast for the real GDP growth was at 7% and for the real GDP growth to 7.1%. So, you know, quite a bit of an upside surprise for us in the headline numbers. And most of it is actually coming from one component.
This is the public administration, defence and other services component of the services sector. We thought that the base of growth would be much lower given the trends that we have from the fiscal data, both for the government of India and for the state governments, the revenue expenditure growth had been rather sluggish in this quarter. And therefore, we did expect that this component was going to show a much lower growth than it did.
Otherwise, most of the other components are pretty much in line with what we were expecting. So that's really where things stood out on the production side. The expenditure side is slightly different story.
We got an acceleration in the private final consumption expenditure growth. We had the start of the GST fuel fester season, which also started earlier than normal or rather I should say earlier than last year. So we did think that consumption growth was going to be pretty healthy in this quarter.
But if you look at the other components, pretty much everything has actually shown a deceleration and nothing has grown as fast as the headline number. So there is a component called discrepancies, which is flipped. And that's where part of this mystery or rather puzzle lies.
You know, I'm assuming that when we get revised trends going ahead, the discrepancy number is going to get reallocated to the other expenditure side components and that, you know, maybe then we will get slightly different trend in terms of the drivers of growth than what the initial numbers are telling us.
Govindraj Ethiraj: Can you go a little deeper into that? When you say discrepancies, I mean, what is the discrepancy exactly reflecting?
Aditi Nayar: So my understanding is that when the NSO puts out the numbers, they basically do a bottom up analysis. So they add agriculture, industry and services to get to the gross value added growth. To that, we add the net indirect taxes, which is indirect taxes, less subsidies.
And that gives us the headline GDP growth. Then the GDP growth has to be broken up into its expenditure side components. The main ones being private expenditure, private consumption expenditure, government consumption expenditure, investment, which is gross fixed or capital formation.
Then you take the difference between exports and imports. And whatever you can't classify into any of these is what gets lumped into a segment called discrepancies. And discrepancy is a residual.
So I'm not saying that the discrepancy number is inflated. What I'm saying is that there's a lot which hasn't been able to be, which wasn't able to be allocated within the standard expenditure side heads based on the data which is available right now. And the discrepancy number is very large for this quarter.
And subsequent data availability will mean that some of this will get reallocated between the other heads, which is, you know, as I said, the private final consumption expenditure, government final consumption expenditure, investment, valuables, net exports, etc. So then we'll get a better trend in terms of the expenditure side numbers.
Govindraj Ethiraj: Right. And if I were to come back on the public administration, defence and other services, which you said was one reason for the spike or a key reason for the spike, what happens in a normal quarter or a normal year in this context, which is different today?
Aditi Nayar: So, you know, in a normal quarter, we look at the fiscal data that's on the component of this subsector of services, and that tends to be mostly well correlated with what this components growth trends are looking like. So in this case, I'm certainly surprised if I remember correctly, the non interest revenue expenditure of the amount of India contracted in this quarter, and the pace of growth of the same for state governments half. So in that context, this growth is looking very high to me, we have to keep in mind that these are the initial estimates for GDP growth.
It's just two months since the quarter ended, the data for Q1 and Q2 gets revised. So when we get the print for Q3, and the print for Q4, we will probably end up seeing revised numbers for both Q1 and Q2. So that might give us a slightly different trend, the headline numbers may be different, the component wise numbers may be different.
So we'll have to see what the revised numbers tell us both for the production side, and for the expenditure side, once the discrepancy number sort of gets reallocated, in a sense.
Govindraj Ethiraj: Right. Assuming let's say there's not much problem with both these components that you've highlighted, what's the sustainability of these numbers going into the next quarter at the headline?
Aditi Nayar: A couple of things that we think are going to be headwinds. Going ahead, one of course, the base is very adverse, the pace of growth had gone up by 100 bits each between Q2 and Q3 and Q3 and Q4. So that's one thing that you have to keep in mind.
Secondly, specifically, if I look at how much headroom is left for the Government of India for its capital expenditure in the second half of the year, it's 15% less than last year, unless more funds are allocated towards capital expenditure through a supplementary, for instance. So that's something that we need to wait and watch, you know how things move in the next couple of And the third, of course, you know, the lingering uncertainty related to trade, particularly with the US. So just specifically, if we look at one sector, textiles, for instance, by the time the trade-related uncertainty would have settled in, I think the summer season was probably taken care of.
Winter orders would have been affected, but the winter is a much smaller season for most of our textile and garment exporters to the US. So the real test still lies ahead. In my understanding, things would need to be resolved well before the next summer season to make sure that we are able to get adequate orders.
While the headline merchandise export numbers haven't looked as bad, when we aggregate the trend in the first two quarters, there is a some amount of upfronting in shipments, which has happened. And perhaps, you know, for some sectors, the orders would have already been placed. So some of that pain could still lie ahead.
And of course, there is still uncertainty on things like the higher act, etc. and on services exports. So potentially, these are the headwinds going ahead.
Simply, if you look at the kind of base effects, definitely, we would expect that growth may not be as healthy as 8% as it was in H1. It's obviously, we've done a very quick calculation. I think now, simply because of the higher than expected number, obviously, we're looking at, we've upped our forecast for the We were at 6.8% before today's print came in, and possibly given the higher number for Q2. And we've also increased our expectation for Q3 and Q4, given the kind of strength that we've seen in some of the subsectors. We could look at a number closer to 7.4% or so now for the full year, unless of course, there are material revisions downwards for Q1 or for Q2.
Govindraj Ethiraj: Right, last question. Since you mentioned trade, and you talked about one particular sector, that's apparel, the numbers suggest that there has not been much impact of trade on overall GDP numbers as was projected and predicted by many economists, isn't it?
Aditi Nayar: So if I look at the projection that we have for the current account deficit for Q2, it's higher than Q1, but it's not terrible. With that record high trade deficit number in October, particularly on account of gold, the projection that we have for Q3 right now is higher than 2.5%. Even from the gold point of view, are these kind of mind boggling numbers going to sustain that will also have an impact on the net export number and the BOP number.
Govindraj Ethiraj: Aditi, thank you so much for joining me.
Aditi Nayar: Thank you so much.
OPEC Deals
And here is our India Energy Week segment. The Organisation of Petroleum Exporting Countries Plus will mostly leave oil output levels unchanged at its meetings on Sunday, according to Reuters, as the group slows down its push to regain market share amidst fears of a looming supply glut, we've been discussing here on the Core Report.
Now, the meeting of OPEC Plus, which drills about half the world's oil, comes even as fresh efforts are on to broker a Russia-Ukraine peace deal, which could add to oil supply if sanctions on Russia are eased, and obviously help importing countries like India. Crude is already at $63 a barrel right now, and it is down 15% this year, all of which is obviously good news for consuming countries, once again, like India. OPEC Plus has been discussing this for years, and it has proved difficult because some members, such as the United Arab Emirates, have increased capacity and want higher quotas.
And this segment was supported by India Energy Week 2026, to be held from January 27th to January 30th, 2026 in Goa. You can register for the same using the link in the show notes.
The Wealth Gap
Stock market spoils are spilling into high-end jewellery stores, where one-off pieces can cost $5 million or more. The Wall Street Journal is reporting, quoting experts saying that wealthy consumers are splurging based on their assets or their perceived wealth, and the stock exchange does play a role. The wealth gap in the U.S. is becoming so wide that even luxury brands are being divided into haves and have-nots, the Wall Street Journal says.
Booming U.S. demand for jewellery brands like Cartier and Van Cleef and Arpels is fuelling the rise. Tiffany & Co., owned by the Paris-listed LVMH, said sales of its fine jewellery globally, the most expensive pieces it makes, have hit a record in the third quarter, according to that same Wall Street Journal article. Presumably, there are similar signs in India, though I don't have specific data for it, though there have been wealth management reports which have referred to the heightened or the high-intensity spending, similar to U.S., perhaps driven by the same factors.
The Wall Street Journal report says overall jewellery is the best-performing category in the U.S. luxury market and is outstripping sales of handbags and clothing, according to consulting firm Bain. The feeling earlier was that American consumers were buying jewellery to get ahead of tariffs on imported luxury goods, but now it appears that this is really a sign of strong growth and a sign of a deeper shift in the U.S. economy. The S&P 500 is up 16% in 2025 and that's created an additional $7.9 trillion of stock wealth, and you can of course thank most of it to the buzz about artificial intelligence.
The A320s Are Back
The Directorate General of Civil Aviation on Sunday said all airlines in India have completed their software upgrades on their active Airbus A320 family aircraft to address a potential issue related to solar radiation affecting flight control data. The DGCA said a total of 323 A320 family planes of Indigo Air India and Air India Express which are operational have been upgraded.
On Friday, Airbus, after analysing an incident involving an A320 aircraft, had said that intense solar radiation may corrupt data critical to the functioning of flight controls. Well, on that note, that you could be on time if you're flying anywhere in the next day or two, here's wishing you a very happy December.
