On Episode 899 of The Core Report, financial journalist Govindraj Ethiraj talks to Ajay Bagga, Market Expert as well as Arvind Chari, Chief Investment Strategist at Q India (UK), affiliate of Quantum Advisors India .

SHOW NOTES

(00:00) Stories of the Day

(04:47) Monsoons are Running Late

(05:30) IPOs on Wall Street and Dalal Street, What will it Do to The Markets?

(12:47) Moves to Bring in Dollars Might Bring in Dollars but the Rupee is Still Weak

(25:59) Record Number of New Homes are to be Delivered This Year but The War in West Asia is Causing Delays

(26:57) Record GHG even as Human activities pushed Global Warming to 1.37°C in 2025

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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 12th of June and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital, and still waiting for the rains. More on that in a little bit.

Our top stories and themes…

Moves to bring in dollars, might bring in dollars but the rupee is still weak.

Monsoons are running late.

Record number of new homes are to be delivered this year but the war in West Asia is causing delays.

IPOs on Wall Street and Dalal Street. What will it do to the markets?

Record greenhouse gas emissions even as human activities pushed global warming to 1.37 degrees Celsius in 2025.

Markets, The War, The Monsoon and IPOs

Global markets are on a roller coaster ride as investors crowd into the now oversubscribed $75 billion SpaceX IPO and brace for more mega AI IPOs on the horizon. Analysts told Bloomberg that with SpaceX's $75 billion IPO set to be priced yesterday, investors have been raising cash, reducing leverage and reallocating capital to prepare.

The resulting concentration of capital is generating short-term liquidity pressures that are weighing down broader risk assets. Elsewhere, attacks on Iran have continued and Indian ships have not been spared. Either three Indian sailors died in a US military strike on a tanker off Oman.

The US Navy has now attacked three ships with Indian crews this week, including one on Thursday, according to India's foreign ministry spokesperson who spoke to reporters on Thursday. Now the deaths are the first reported since the blockade began on April the 13th. Operations which have seen the US disable eight ships and turn back more than 100 according to Reuters.

India is the world's third largest supplier of seafarers with more than 300,000 sailors working in global shipping fleets according to government data quoted by Reuters. Brent crude is currently around $92.50 or just under $93 a barrel but is set to go up as fresh and bigger attacks have been threatened by the United States but of course we are now seeing daily swings between threats and attacks and some execution of those. Meanwhile, Blackrock, the world's largest asset manager with more than $14 trillion of assets under management, has said that India's equity market has been over-punished for lacking a direct AI play and for higher oil risks according to a Reuters report.

Blackrock has argued that record foreign outflows and a tougher macro backdrop have not derailed the country's medium to long-term investment case. Blackrock is positioned constructively on India rather than an outright overweight according to a Blackrock analyst. India is also one of Blackrock's highest conviction medium to long-term emerging market trades supported by demographics, infrastructure, financials and indirect AI-linked opportunities, the analyst told Reuters on Wednesday.

As long as India's GDP grows between 6 and 7 percent that's a nice sweet spot for the economy to keep growing and expanding, she said. India's economy of course grew at about 7.8 percent for the March quarter as per data released last week which was stronger than expected. Which brings us to the markets on Thursday which were not so strong closing the day in the red and retreating from their two-day winning run even as those tensions fled again in West Asia.

The down 151 points to 73,833 and the nifty was down 53 points to 23,162. The nifty and sensex have dropped 11 percent and 13 percent in 2026 so far. The rupee also dropped against the dollar almost wiping out all the gains from the reserve bank's moves to attract dollar inflows thanks to weak Asian cruise and strong dollar demand from oil companies according to Reuters which added that it opened lower at 95 rupees 52 paise stayed under pressure and finally closed down at 95 rupees 76 paise losing or losing most of the gains that were there last week.

Elsewhere in the region Indonesia's bonds and stocks resumed their sell-off on Thursday underscoring expectations that the central bank there will have to raise interest rates again to limit capital outflows according to Bloomberg and the rupiah was down 0.2 percent and the benchmark stock index was down 0.3 percent. Indonesian assets have fallen this year with investor confidence shaken by President Prabowo Subianto's interventionist agenda and fiscal spending at a time when the nation's balance of payments has been strained by high oil prices according to that Bloomberg report to support the rupiah which has dropped to a series of lows and Lior foreign capital bank Indonesia has said it will let bond yields rise. Back home in the first 10 days of June India received rainfall that was 26 percent below normal.

India is now expected to receive below average rainfall over the next two weeks especially in central and northern regions as western disturbances have slowed the progress of the annual monsoon according to weather bureau officials who spoke to Reuters on Thursday. The monsoon has so far covered Kerala, Tamil Nadu, most of Andhra Pradesh, Karnataka and parts of southern Maharashtra which are expected to receive good rainfall over the next fortnight according to those officials. The monsoon is expected to gain momentum in the last week of June when most states are likely to receive ample rainfall.

Now we will have more on the impact of delayed monsoons to the extent that we could assess them but that would be next week. Back to the markets the SpaceX IPO closed on Thursday night and there are other big AI IPOs lined up. We are also going to see big IPOs launching in India which means as we discussed yesterday you could expect markets to remain flat even as that liquidity gets sucked out.

So what is the combined impact of these mega IPOs on Wall Street and India likely to be on markets and how could it change the outlook? I spoke with veteran market analyst Ajay Bagga and began by asking him that question.

INTERVIEW TRANSCRIPT

Ajay Bagga: Govind, in terms of flows, we are not the only emerging market seeing outflows. Very surprising data has been coming out that from October 2024, when we also started seeing huge outflows, we have seen about $55 billion of FBI outflows over the last one and a half years. And guess what?

Korea has seen $77 billion of outflows in that time. Taiwan has seen about $16 billion, so not that much for a market of that size, because it is a TSMC market. So, one TSMC is most of the market in Taiwan, and that has not seen outflows.

But overall, if you see the Korean market, despite getting sold into, is up to 26% from October 2024. Taiwan has done well as well. So, it is not a very strong correlation to the AI play, is what I would say, unlike what most of the market has created a narrative.

Now, in terms of flows, where do the flows go? Yes, SpaceX will get a huge amount, already Google did $80 billion. That was largely institutional money, Berkshire put in $10 billion.

It was underwritten, but slowly that supply will come in. Yesterday, Oracle spoke about raising $20 billion more. Now, how much is debt, how much is equity?

Within that, we'll have to see. M&A's are really going gangbusters in the US. So, a lot of supply coming through there as well with people trying to raise money.

Overall, SpaceX will crowd out, and we have seen that. We are calling it rotation out of big tech right now, but we are not very sure. It might just be that it's a reallocation from existing players into SpaceX because there is a listing pop that will come in.

Double-digit increase might happen on listing because there is just a very little free float. But in six months, employee shares will come in. A lot of the pre-IPO shares will start coming in after six months.

So, people are wary at the valuations. So, overall, huge IPOs will push out money. Is India getting affected?

Definitely. We have seen $29 billion going out in these five months, and June has been again very strong. Nearly $5 billion has gone out in June as well.

So, we are getting affected, and that will continue. That is not stopping.

Govindraj Ethiraj: And some of that you're saying is linked to this lineup of IPOs that we are seeing in or on Wall Street?

Ajay Bagga: It would be LinkedIn. You are trying to allocate money. So, I think part of it would be going there as well.

Govindraj Ethiraj: Okay. Now, even in India, we're going to see or hear that giant sucking sound because there are so many IPOs that are being lined up. Of course, we've seen in the last couple of years, mega IPOs come and go.

And how would you view the next round?

Ajay Bagga: Performance has been subpar. For a majority of the IPOs, they are below the offer price. So, that has hurt the psyche of investors.

Secondly, if you see the May mutual fund data, after a long time, we saw SIPs are continuing, but the net equity number has fallen from 38,000 crores to 22,000 crores. Does that become a trend then that there is fatigue setting in on the retail Indian investor, and they stop putting in flows apart from the SIP flows, which remain robust? So, that is one question.

Money will go out of the secondary market into IPOs. It always does because the new narrative and the good marketing. So, an existing 100-year-old or 50-year-old, 20-year-old company is not doing any marketing, while you're getting a lot of FOMO due to the marketing by new offers.

So, that will happen. We saw that last year also, we gave a very strong exit to a lot of PE funds, OFS sales, promoter selling, and IPOs, all combined together. If those had not combined so hugely with FIs, we would have a better market.

So, flow-wise, we are challenged, Govind.

Govindraj Ethiraj: Right. And how are you, or rather, what are you seeing beneath the surface, so to speak, at least at this point and looking ahead for the next few months?

Ajay Bagga: I think the turning point will come with Iran, if there is a peace deal and oil supplies do start coming in. What is good is that from about $112 in March, the Indian crude basket went to $114 in April, peaked in 2014. It came down to $106 on average in May.

And June, so far, we are running at $96. And yesterday, the Indian basket was $92. So, if we can be sub-100 like this and then go sub-90, that will help a lot.

So, waiting for something to come out of Iran, even a mild ceasefire and some kind of anchor traffic restarting will help. Second is earnings growth. So, if you take out the outliers and then look at Nifty, we are looking at about $1,200-$1,250 rupees for this financial year, going to $1,450 odd rupees for the next year.

And that at 19-20 times gives you FI 2028 number nearer to $29,000, which is not so hot. So, we are looking at next March number nearer to $27,000. So, hardly any growth baked into this market at the current earnings growth.

So, you have to see earnings coming in. And for that, you will need some counter-cyclical measures from the government, which reflects in the listed space. So, GST did reflect.

And if you see institutional positioning, a lot went into consumption, especially FIs went into consumption, selling financials, IT they were already selling. So, sector-wise, what we are looking at, beneficiaries, financials will benefit. Second will be industrials, because the government capex is an assured thing.

Cement, they've not been able to hold up the pricing and the input costs are going up. So, we don't know how that will work out. Real estate is still looking good.

If you look at a majority of the players in the listed space have done better year on year. Pharma will do well. Defence will do well.

Defence, very highly valued, but again, lot of visibility there, both for Indian armed forces, as well as the export market. Both ways, defence is getting a benefit and it's order of magnitude, especially for the aeroplane and the shipmakers. So, I think these are some of the sectors.

Telecom might do well again, but again, it's a two-pony game right now until the third-pony list. The tower company is more like utilities, so not much there.

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

Ajay Bagga: Thank you.

Why are Indian Companies Raising Short Term Debt?

Indian companies are rushing to raise short-term debt after the reserve bank's measures to support the rupee triggered a sharp fall in borrowing costs according to investment bankers who spoke to Reuters. Companies led by non-bank finance companies are raising more than 3.2 billion dollars through up to five-year bonds this week according to them.

This is one-third of what was raised in April and May according to Reuters data. Reserve Bank on Friday had announced as we've said a series of measures aimed at pulling dollars into the country including raising subsidised deposit and incentivising banks and state-run companies to raise funds overseas. Some 50 billion is expected from these moves.

As a little bit of history the 2013 launch of the foreign currency non-resident or FCNRB swap aimed at NRIs brought in nearly 34 billion dollars into the Indian banking system and that accounted for about 12 percent of India's forex reserves in 2013. India's foreign exchange reserves currently stand at around 682 billion dollars. I spoke with Arvind Chari, chief investment strategist at Q India, UK affiliate of Quantum Advisors India and based out of London and I began by asking him how he was seeing the action in the bond market.

INTERVIEW TRANSCRIPT

Arvind Chari: The way to think about it is, A, it's a time-tested thing that India does, right? Whenever you have an issue on the currency and you need capital flows, you tap your non-resident Indians. We've done that in 92, 98, 2003, 2013.

So this has been a thing that has always worked for India to be able to tap the non-resident Indians to augment the capital flows. I would like to take it from three different perspectives because there are three different aspects of what the government and the RBI are trying to do to augment capital flows. The first, of course, is the FCNR, Foreign Currency Non-Resident Deposit Flows.

In 2013, when the RBI and the government did this, we actually almost raised $26 billion back then in a very similar short period of time. So it can be sizable. So let's look at what we can raise this time as well.

The conditions are markedly different. In 2013, the global rates were pretty low and the global growth outlook itself was also relatively muted or maybe even negative. So from that perspective, the rate differential then was a lot attractive.

I would say global rates were at about 1% or 2% and the Indian FCNR rates offered at about 5%, 6%, 7% was that much more attractive just on a pure spread basis. This time, it will be a bit different. Today, global rates, if you take dollar rates, deposit rates, it's at about 4%, 4.5%. ICICI Bank in the UK is offering 4% on the dollar rates for medium-temporary already without this facility. So what we have seen is, immediately after the facility was launched, you've seen FCNR rates being hiked to about 6%. That's what I've seen. In USD rates, banks are already offering 6% in dollars.

And of course, the RBI is providing the spread. So typically, if a bank offers 6% dollar, its effective INR cost would be about 9, 9.5% because that's the cost of hedging that rupees in $2, which is what the RBI is kind of assuming on its own books. So most banks have offered 6%, but the 6% is very attractive.

Given, as I said, the opportunity cost of other normal asset is about 4, 4.5%. So it's attractive about 100, 150, 200 basis points, but it's not as attractive as it was in 2013. Also, I think that the environment of growth and expected returns is a markedly different. Today, you come out of a period of bitcoins and gold and silver and, you know, AI stocks and meme stocks and, you know, semiconductor chips and stocks.

So the expected rate of return from foreign investor is going to be significantly higher via that as we is maybe for a non-resident. The kicker, of course, is the leverage. So many private bankers, because the RBI has also allowed the Indian banks to provide what we call a letter of credit to the foreign bank or a foreign private banker.

So foreign private bank, if you put say $10,000, the foreign private bank can give you a five or a 10 times leverage to make $100,000. That guarantee, that extra money for the foreign bank is guaranteed by the Indian bank through a letter of credit. So instead of investing $10,000, you basically invest $100,000.

And with the leverage and the cost of leverage matters, I'm assuming the cost of leverage today is 5%. So you still make a 1% spread on that asset on an IRR basis or a return on equity of the individual investor basis. The returns can be anywhere in double digits.

So it is, from that perspective, it is attractive. So how much leverage is offered? How quickly and how soon can they do it?

Whether Indian banks can offer that leverage or they have to go to a private bank, we'll have to see. So broadly, I think the expectations seem to be $20 to $40, $50 billion in that range. So it all depends on how much leverage.

If it is indeed $30, $40 billion of FCNR, three-year locked-in money has come directly or come through leverage, it is sizable from a big perspective also for not only for the current account, but also for the domestic markets. Because typically, when a bank is receiving that money, it's rupee liquidity for them. Eventually, it will go into the market as lending, but initially, they will basically go and buy corporate credit assets.

So you've already seen one-year bank CDs and one-and-a-half-year, two-year corporate bonds. Yields have come down by almost 25 to 40 basis points. So that's the first impact and also adds into rupee liquidity.

If that number is $30, $40 billion, I'm still sceptical about it, given the fact that rate differences are not that high, expected returns by investors are reasonably high. The leverage, of course, matters, but the leverage is only going to be for private banking clients, very high-net-worth individuals. The individual retail investors are not going to get the benefit of that leverage.

So that's the first part. The second aspect that they've tried, that they've also done, is PSUs, banks, as well as PSU companies, which borrow overseas. The RBI has not announced what hedging leverage that they're going to spread, that they're going to offer, but they're also getting some benefit of a subsidy from the RBI to borrow.

Take, for example, the three-year, five-year corporate credit PSUs were borrowing at about 7.5%. If they borrow in the international markets at the same rate, given the spread of 3%, 3.5% of hedging, they have to offer 4% or 4.5% in dollars. Now, that is actually lower than what an investment-grade corporate is borrowing on their own in the dollar market. So it has to be higher, which is why you've not seen much ECB borrowings done by Indian entities, because it's just not been cost-effective.

But because the hedging costs will be provided by the RBI, I think even PSUs can raise money at 6% dollar, for example, at the same rate, which is, say, about 100 business points or 150 business points higher than what is available in the overseas market for similar rated credits. So hence, they should also be able to raise a good amount of money. I would assume anywhere between $5 to $15 billion can potentially happen.

And given that they are PSUs, even if they don't want to raise their money, they will be forced to raise their money, and they will go ahead and raise their money. That also has an impact, A, not only on the current account, if they're able to raise, but PSUs, if they raise $10-15 billion overseas, that means that much amount of money they will not borrow in the domestic markets. So domestic supply of their bonds goes down by that extent, which will also get yields compressed.

So that also we have seen on the bond market. The third aspect was done by the government. So the government finally reduced withholding taxes on interest income on government bonds, and also completely scrapped capital gains.

They actually removed withholding tax as well. Something that they should have done before as well. But I think they are very clearly aiming to get included in a global bond index.

So India is already part of the emerging market bond index, like the Bloomberg or the JP Morgan. And we have seen about $20-30 billion of flows from that passive or active funds, which track those indices into the government bond market over the last two, three years. What is expected is that India will get included in something called the Bloomberg Global Aggregate Bond Index.

That is the largest bond index, which is taken not only for passive funds, which track that index, but also active funds, which use that as a benchmark for their allocation. And even if India gets a 1% weight, that index, just passive flow itself is supposed to be about $25-30 billion. And then active funds who also use that as a benchmark will also be wanting to allocate, have some allocation to India.

That can be very, very sizable. But the way these indices work is they will first review it. If they decide to include India, given these changes that the government has done, then the inclusion will be announced over a year.

And then the actual inclusion will be staggered over a year or 12 months or 15 months or 18 months. So markets will, of course, front run it. And we saw that during the JP Morgan EM Bond Index inclusion that market run about $5-10 billion of that flow.

So something similar can happen. So these are the way to think about all the three. FCNR, to summarise, can be sizable if the leverage is very, very significant and the IRR is high double-digit dollar returns for an HNI investor, then you should definitely get sizable flows.

Otherwise, the rate spreads are not very attractive and the global expected return is very difficult. PSU bonds, I think over the next year, you will see a lot of PSU bond issuances in dollar market, given the subsidy that RBI is providing. Depends on how much subsidy the RBI is willing to give to PSU banks, that will determine how much they will be able to raise.

The bond index is separate discussion. If it happens, then it's actually very good from a long-term perspective as well. But we'll have to wait and see.

I think I was reading some reports that June end or July is the review period for the Bloomberg Global Aggregate Bond Index to consider whether India will be included eventually in the bond index.

Govindraj Ethiraj: Right. So the rupee, of course, is not really responding to all of this. As in, it seemed to have responded a little bit last week, but on Thursday, it was again under pressure.

So, is that because the markets will respond to actual flows and not really speculate, unlike in maybe equities, or will it take much more?

Arvind Chari: You're right in saying that. If I remember in September 2013, when Raghuram Rajan took over as governor and announced that FCNR bond scheme, on the next day when the markets opened, I think the rupee rallied quite significantly and stayed there for a period of time. Right.

And then Prime Minister Modi was appointed as the Prime Minister candidate for the BGP. That had an impact and markets rallied based on that, and even the rupee kind of stabilised and rallied. Today, if oil remains at $9,500, which seems likely given how the West Asia conflict is going, the current account deficit that we need to plug is about $60 to $80 billion in that range.

Given the fact that foreign portfolio investors are still net negative, as FDI, I think will be slightly more net positive than what we had last year, because the outflows might actually slow down. The outflows by companies and private equity firms taking money out might also slow down a bit. But still, we have about $30-40 billion of gap.

So if we total all the three, Bloomberg Bond Index and FCNR plus FPSU, that amount will sizably bridge that gap. And I think it'll exceed in terms of the total requirement. But till the time that happens, I think once you get some sense that, okay, banks have received say $5 billion of FCNR flows in the first 15 days, then the markets will start rising, then maybe the rupee will stabilise.

Although I would believe that most of these flows will be absorbed by the RBI, because RBI, remember, also has an outstanding short forward position. We are able to bridge that. So although BOP gets matched, but RBI will kind of absorb and rebuild its own forex reserves for this.

Govindraj Ethiraj: Arvind, thank you so much for joining me and sharing your insights.

Arvind Chari: Thank you so much, Govind.

What is the Latest Update on the Air India Crash?

India has given the go-ahead to a regulator for raising prices of platinum-based cancer drugs that have been in short supply thanks to a spike in raw material costs according to a letter seen by Reuters. Patients have been grappling with shortages of platinum-based cancer drugs, cisplatin and carboplatin, as hospitals especially government-run facilities have run short. Meanwhile investigators will miss Friday's one-year deadline to explain why Air India crashed right after takeoff because an examination of Boeing's plane engines in the United States still needs to be completed according to a Bloomberg report which added that the Aircraft Accident Investigation Bureau or AAIB of India will mostly issue a status report this week focused on the delay.

A final report could come in three months before which studies of the geo aerospace engines could be concluded and the examination is happening there because there are only a few places globally that can apparently dismantle the engines properly and have the necessary tools to do so according to that Bloomberg report. Flight AI-171 belonging to Air India crashed on the 12th of June last year just 32 seconds after lifting off from Ahmedabad en route to London. The disaster killed 241 passengers and crew and 19 people on the ground after the 787 Dreamliner crashed into an urban area just beyond the airport perimeter. Just one passenger survived.

How is the West Asia War affecting Indian Real Estate?

Close to half a million homes slated for delivery in 2026 are under pressure now as the Middle East or West Asia conflict disrupts supply chains. A report from Aniroc Research says that the prolonged Middle East war could test housing delivery timelines in 2026 thanks to disrupted supply chains and rising cost pressures.

It says that 540,000 housing units are scheduled for completion across the top seven cities in 2026 and this is the highest in the last decade. Of the total scheduled deliveries the western markets of Mumbai metropolitan region or MMR and Pune collectively account for about 57% of homes due for completion. Of this, Mumbai alone has about 207,300 or 2 lakh units for delivery over the year and Pune has about 100,000 units to be delivered in this year.

What does the IGCC report say about climate change?

Human activities have pushed global warming to 1.37 degrees Celsius in 2025 and its level is expected to surpass 1.5 degrees Celsius in about four years. Crucially the rate at which heat is accumulating in the earth system suggests higher levels of future warming and these are some of the key findings from the latest indicators of global climate change or IGCC report published yesterday in the earth system science data. The update also finds that global greenhouse gas emissions are at an all-time high reaching 56.8 or close to 57 billion tonnes or gigatons of carbon dioxide equivalent emissions in 2024 mainly from the burning of fossil fuels.

An international team of more than 70 scientists including IPCC lead authors contributing authors and chapter scientists from 56 institutions across 17 countries contributed to this year's IGCC study. A director at the Prisley Centre for Climate Futures at the University of Leeds and lead author said that the key indicator is the earth's energy imbalance which measures how fast heat is accumulating in the climate system and provides a crucial measure of the pace of climate change. Without human influence it should be close to zero but it has been growing since the 1970s and is now at a record high doubling in recent decades.

Other findings show that 2025 was the third warmest year on record consistent with the level of human-caused warming the world has experienced and that natural variability in the climate system had a limited effect on global mean temperatures last year.