On Episode 987 of The Core Report, financial journalist Govindraj Ethiraj talks to Rajiv Batra, Head of Asia & Co-Head of Global Emerging Markets Equity Strategy and Chief India Equity Strategist at J.P. Morgan as well as Nikhil Dubey, Senior Research Analyst, Refining & Modeling at Kpler.

SHOW NOTES

(00:00) Stories of the Day

(01:17) Iran Makes Fresh Overture For Peace Even As UN General Assembly Kicks Off In New York

(02:42) Indian Markets Slide On Weak Support And Continuous Liquidity Pressure From IPOs

(04:58) JP Morgan Chief Says Indian Govt Should Not Allow Companies To Use Regulation To Block Competition

(07:03) Why Global Investors Are Preferring Midcaps And What Is Keeping Them Away From Large Caps

(27:29) Will India Be Affected By The Global Diesel Shortages?

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NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on feedback@thecore.in.

Good morning, it's Wednesday the 23rd of September and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.

Our top stories and themes…

Iran makes fresh overtures for peace even as UN General Assembly kicks off in New York.

JPMorgan chief says Indian government should not allow companies to use regulation to block competition.

The markets slide on weak support and continuous liquidity pressure from IPOs.

Why global investors are preferring Indian mid caps and what's keeping them away from large caps

And will India be affected by global diesel shortages.

Markets, Iran, Jamie Dimon and The Rupee

The next week is critical and also offers a pathway and opportunity to find a resolution to the West Asia war and crisis. Yesterday we spoke of the United Nations General Assembly convening in New York and the possibility of Iran and the United States having talks on the sidelines in coming days. Now how these discussions could happen and what could emerge from them is obviously not known or clear but this is the first possibility of a possible resolution after a while.

Ahead of that Iran has suggested it could reopen the strategically vital state of Hormuz within seven days if the United States eases military pressure and lifts its blockade on Iranian ports according to several news agencies. It's now nearly seven months since the war that was promised to end in days if not weeks has started. Meanwhile External Affairs Minister S Jaishankar will lead the Indian delegation for the high-level week and is scheduled to address the high-level session of the 81st United Nations General Assembly on Saturday this week.

Oil prices fell to a two-week low on Tuesday thanks to prospects of Gulf flows increasing and improving with Saudi Arabia also saying it would resume exports from its Red Sea port of Yanbu. Brent crude futures for November were down about $2.11 to about $98.20 or just under $99 a barrel. Earlier in the week U.S. Treasury Secretary Scott Bessen threatened to shut down all Iranian airlines from as soon as Wednesday.

With all of this in the backdrop the Indian markets did not however take much direction from the sliding oil prices and ended weaker with the Nifty 50 breaking its four-day winning streak. The Sensex was down 329 points to 74,529 and the Nifty 50 was down 85 points to 23,329. In the broader markets the Nifty mid-cap and small-cap were down too but very marginally.

The rupee was somewhat volatile on Tuesday but closed higher and ended at Rs. 95.59 to the dollar and rose about 0.2 percent. And an update on the banking front, bank credit and deposit growth accelerated sharply as of 31st of August 2026.

Credit growth was up 20 percent year-on-year compared to 18.3 percent at mid-August. Deposit growth strengthened to about 18.6 percent from 14.7 percent, the fastest pace since December 2016. This is the first time credit growth has crossed 20 percent since March 2024, reversing the moderation recorded in the preceding fortnight according to a note from Carriage Ratings.

The note said that underlying credit demand in the country appears to have remained firm, supported by broad-based demand across segments, working capital requirements, and elevated yields in the capital markets. Though, Carriage does say that looking ahead credit growth could moderate from current levels with favourable base effects set to fade in the second half of the current year. Meanwhile, on Wall Street, AI frenzy has returned even if it may not last.

Technology stocks had their best rally since early August with the markets also gaining thanks to falling oil prices according to Bloomberg which added that chip stocks were up following early signs of success for Meta platform's AI agent. Meta's stock jumped 11 percent while Advanced Micro Devices or AMD saw its market capitalisation crossing $1 trillion. Meta's new AI agent called Muse has risen to the top of mobile app charts and that is a sign that the social media major is gaining traction in the increasingly crowded market for consumer AI assistance according to that Bloomberg report which added that Alphabet's Google has announced pricing and hardware specifications for its first so-called Google Books, which reflects a push into the high-end laptop market where built-in AI features have become the norm.

Speaking about Wall Street, global investors remain broadly positive about India's prospects though inconsistent application of tax rules remains a concern, JPMorgan Chase Chairman and CEO Jamie Dimon told the Economic Times. Most investors probably have very positive views on long-term investment in India but they worry about the inconsistent application of taxes, he said in that interview and he added that he gets a lot of complaints from companies about paying more tax on a deal than they expected. He also said that foreign companies often have a hard time competing here in India because they're not allowed to.

As a result, India attracts less foreign direct investment. He also said competition is good for India. Sometimes local companies use regulations to block competition and the government should not allow that and I think it's bad for all Indian citizens, he said in that interview to the Economic Times.

Elsewhere, India's finance Minister Nirmala Sitharaman, who was also addressing the JPMorgan conference in Mumbai on Monday, where Jamie Dimon was also present on Tuesday, said corporate governance was important for building resilience in the economy, adding that businesses need trust amongst each other and should resolve disagreements before turning to litigation. At a speech in New Delhi, she highlighted various factors needed for good governance, including how businesses conduct themselves and the need to improve management capacity. She said that trust between businesses cannot be demanded, it has to be built through conduct on both sides and businesses must engage constructively with government and regulators.

Legal recourse will always remain available, but every disagreement need not begin as a litigation. Her team has denied a connection, the reference seems to be to the ongoing Tata Trust versus Tata Sons battle, speaking of which the spat which is best resolved internally is also now seeing political voices weigh in, also hinting if not suggesting who is taking which side. And that would also muddy the waters further if a resolution takes longer than it should.

The best course of action in this case, at this point, is mediation between the parties concerned, however difficult that might seem to the parties concerned. Mediators must step in if nothing else to reduce the social media commentary by those who should be addressing the problem over telephones or in closed rooms rather than expressing their views publicly.

Why Global Investors Are Preferring Indian Mid Caps

We just spoke about Jamie Dimon in India and JPMorgan kicked off its 11th India conference, also its largest ever on Monday, bringing together investors, business leaders, policymakers and market participants to talk about key themes shaping the country's next phase of growth and its role in an increasingly complex global landscape.

The two-day conference was expected to attract close to 1200 delegates from 100 companies and institutional investors from across the world with a collective market cap exceeding one and a half trillion dollars, according to JPMorgan. So the big question, of course, is whether and when foreign portfolio investors would return to India in bigger numbers and what would that take in terms of the India story. Now the straight answers may not be very optimistic, but there are also lots of nuances as we found out.

I caught up with Rajiv Batra, head of Asia and co-head of Global Emerging Markets Equity Strategy and Chief India Equity Strategist on the sidelines of the JPMorgan conference in Mumbai and I began by asking him what he was picking up from his meetings with both investors as well as companies so far.

INTERVIEW TRANSCRIPT

Govindraj Ethiraj: Rajiv, thank you so much for joining me. So, this is an interesting time. We're seeing a lot of big cap stocks or large cap stocks being beaten down, having stayed there for several years now, and mid caps are looking better.

But that's a very generic description of what's going on. What's your sense, as you've been meeting both investors and companies in the last couple of days, what are you seeing in terms of trajectory, in terms of potential growth, and do you see any shift, most importantly, in the status quo?

Rajiv Batra: So, based on my conversations with some of the investors, we are hosting close to around 1200 delegates. Out of that, close to 400 plus are equity investors on ground. There's a marginal bit of a positivity compared to what their books are showing.

Books have been running underweight on India for close to two and a half years. Be it you are an Asia investor, EM, global, any kind of a cohort, they have been underweight. But coming over here, looking at the tailwind on the macro data point and stuff, that positivity shows up on the face.

But when we look into their commentaries or hearing them out, how they are sensing and feeling talking to our corporates on the large cap and mid and small cap, there's a divergence. So, there's a cautious optimism when the guidances are being given out by the large cap corporates. Obviously, it's on the upward side, but it's not on the same path, which used to be the case post-COVID, where we were enjoying 20-22% kind of an earning growth.

We don't require that to grow because valuations have come lower. But a high teens is a necessity where it is not coming at a large cap level. It is largely coming in my mid cap and the small cap spaces.

In fact, they are growing better than that last seven quarters. It's a 25% plus kind of a earning growth we have visited in mid cap space and small cap. And last quarter, I hope not a pinnacle.

The pinnacle is in making. But we saw 40-42% earning growth in small and mid cap space. So, that sentiment shows up when they are meeting our investors and sharing their views about their outlook, what they're seeing.

And I will say this benefit of the twin policy easing, which India has been now for close to 12-14 months.

Govindraj Ethiraj: I'll come to the mid cap and small cap in a second, but sticking to the large cap for a moment. So, why is it that you feel at a more top-down level that some of these companies and maybe some of the sectors as well are not able to either benefit from or are not able to grow faster than where they are?

Rajiv Batra: So, the big reason behind is domestic demand. Domestic demand since COVID across emerging markets has divorced from the top-line GDP growth. And the reason behind is 2022, all of a sudden, their Fed was not raising rate, but my emerging market centre bank started raising rate overall to control the inflation.

And hence, this is the reason why that's where somewhere my domestic demand got hurt. Then after that, when we look at the budget policies, fiscal policies of government, everyone is looking for security and resilience. That means they are focussing much more on investments, much more on capex front per se, just to secure their country lines and chain.

And beyond that, everyone wants to replace their import and focus on trade export part. So, who is the funding source? Consumption, domestic demand.

So, as my domestic demand consumption takes the hit, large caps, who are the big beneficiaries, who literally fund this trade, run this trade. And when the domestic demand and consumption is gung-ho, you go with your private capex also. That is a missing block for the last five to six years.

Even in countries like Korea and Taiwan, their top-line GDP growth showing you 9%, 11%. It is all coming from, first of all, three or max two companies per se. And it's largely coming on the back of exports.

In fact, in places like Taiwan, we are seeing income transfer happening because government is making huge money in form of taxes from this corporate to spur up the domestic demand consumption and make feel people that wealth effect is there. They are transferring income to people. Similarly, in Korea also, which we talk about the shareholder return policy.

But largely, if you will see, beside India, who is doing twin policies so that they can revive domestic demand consumption across EM, the space is dead. And hence, this is the reason why large caps are struggling here in India. But in other places, large caps are your investment tech, hardware-related cohort, which are benefiting.

Govindraj Ethiraj: And therefore, you're saying that do not use GDP numbers as a proxy to understand what's going on, at least in the listed universe. So, let me come to small cap and mid cap, which you touched upon. Now, these are obviously, we've also seen small and mid cap indices hitting all-time highs, 52-week highs quite recently, actually.

But it's also a much more scattered universe. So, how does that look to you as someone who's sitting outside and typically dealing with big pools of capital, seeking big ticket or bigger ticket investments?

Rajiv Batra: So, when we look at the allocations of our investor base, like let's say we are running a product called Consensus Allocation for last 21 years. Across the EM country levels, the deviation that is where you show your conviction, hey, I'm overweight on this country, underweight on this country, that conviction levels are dropping. If you are running an overweight also, max, you will become one and a half percent overweight.

If you are underweight, you will say one and a half, two percent. You will not show conviction by saying I'm overweight by five percent or I'm underweight by five percent. So, they're hugging a benchmark.

Same goes for a sector level. Also, their clear leadership today looks like an AI and tech cohort. But how people are investing is more on a thematic way.

As an example, people are investing in AIDC, investing into defence, robotic humanoids, space, investing into biotech and CDMOs, investing into security and resilience theme. That is the way of investments is evolving and we are watching in India also. Sadly, all this team will be take together and try to look into the India large cap, mid cap and small cap cohort.

Mid cap and small cap are the big representative of this team rather than the large cap. Large caps are still comprising of your traditional IT sector, financial, consumers, and you can say energy companies. So, hence, this is the reason why mid and small cap because of that thematic based investments and my retail audience are very watchful on what's happening on social media, what's happening on television, and they are also tracking that theme.

So, when they do one-on-one match of this theme, what is happening in globally within India and they find it in the mid and small cap cohort.

Govindraj Ethiraj: So, you said AI and DC or artificial intelligence and data centres is one such theme. If you were to list the top three in hierarchy, what would it be?

Rajiv Batra: Number one for sure is AIDC. Number two theme going around is your defence, which is a need of an hour. Third one is security and resilience.

And security, resilience, defence is some part of it. Energy is another one. We showed up in your solar renewables in that particular space.

And then there are a couple of things where India goes missing and that is your robotics, humanoids, and space. And then comes where India is present, biotech, CDMO, and then financializations of saving. So, there are a couple of themes where India miss, but some of the themes are present in India, but that largely in mid cap space.

Govindraj Ethiraj: Got it. So, let me take a step back and ask you the larger question. We've continued to see a lot of outflows and it's not a new thing. And we've seen 2026 being a highlight year almost.

And the month of September again, as we've seen outflows after some small inflows. So, what is driving currently the thinking when it comes to investing in India?

Rajiv Batra: I'll say that investors are growth tourists. They invest in destinations that offer them premium growth. The time till India was offering them premium growth, you can say max till 2023 or early 2024, foreign investors were all present.

The day the growth differential started waning, and that point of time, this flew away to the destinations that were offering them higher growth, be it Latin America, the commodity cohort, or North Asia, which is AI tech cohort, or the safer heaven that is US and US dollar asset class per se. That's what the flow trends are also showing you. So, India has witnessed 60 billion worth of an outflow since mid or late September overall.

There was a period recently, that two months we got close to $7 billion inflow from mid June till almost till end August. September tied change, tied again, went to one and a half $2 billion outflow again. But the interesting pattern what we have noticed this time around is the 7 billion, yes, large amount of lion's share is passive funds, ETFs, which are coming into EM, that's why it's going to India.

But the active fund was chasing mid and small gap. And that's where ownership pattern helps. So, foreign holding on an aggregate for India has gone to 14-15 year low at 15 or 14% mark.

But when you divide into three segments, large cap, mid cap and small cap, large cap foreign ownership has collapsed from 24% to 16%. But interestingly, mid cap ownership increased from 9% to 12%. Small cap foreign ownership is flat 10%.

So, basically, when the small cap was not doing well, foreign investors were not selling, they remain in that place looking at a growth overall.

Govindraj Ethiraj: And in large caps, I'm assuming banks and maybe consumer products, IT, these are the two or three sectors which have taken the maximum beating.

Rajiv Batra: So, consumer staples have been taking a beating for the last 10 years. Last three years, it's IT sector, which have derated massively and seen huge amount of outflows. This year, lion's share of outflows, just one sector, banks.

Govindraj Ethiraj: Got it. So, as you look ahead now, we are in September in the second half of 2026. And if you were to look at the financial year, we are halfway.

How are you seeing prospects for investors in India, considering that you are bringing them here? What are you offering them as a proposition?

Rajiv Batra: So, after the July episode, people are scared because a lot of questions have started appearing on this mid cycle phase for even AI also. AI cycle is on for a couple of years already and people have made a serious amount of money. Last year also, Korea was the best performer.

This year also, Korea, Taiwan, Japan, and again, the lead performers over there in the indices. But the question that appeared, whether the compute revenue are sustainable, number one, whether there is a responsible AI, whether people are not compromising on cybersecurity or the trust is not getting breached per se. And then lastly, the question on the financing part, because most of my hosting and hyperscalers guys, cash flows have turned negative.

They need to to keep on doing their trillion dollar worth of capex on an annual basis per se. So that questions appeared on AI and people started looking for an hedge. So one hedge could be if you're not buying the US AI ecosystem, you can look at the China AI ecosystem because US AI ecosystem is for US as well as their allies for the rest of the world.

China is still manufacturing and doing everything for their own consumption per se. So that's one hedge per se. But if somebody wants the non AI hedge, that's where India comes into picture.

Because when we look at the domestic demand or a consumption related cohort where policy support is there, obviously, China is a big boy over here. China waiting in the benchmark is 25%. And internet, e-commerce, other consumption play are a huge part of the indices.

But that space is slowing and we have not seen any good support yet from the policymaker and to revive the consumption in China. And that's the reason why you want to invest in the other consumption destination. ASEAN, Latin America, EMEA.

Yes, they are also the option, but they are very illiquid and the smaller exposures that are available. That's where a 12% weightage India with financials, discretionaries, healthcare, telecom, real estate offers you a refuge. So in a troubled times, which people have seen, that is from mid-July till August, when nobody wants to even talk about AI, that's where India emerges as a safer heaven.

That's where India sit. This kind of a question is not ended yet. It will keep on reappearing until unless my applications, that is the LLM model guy, frontier model guy, convince people that we are now making enough revenues to match up the kind of a spend, which we are doing.

We are generating enough margins on the bottom line. And that's where the questions stop. How much money you need for that one?

Maybe a trillion dollar or two trillion or three trillion revenue to show. Right now, the ARRs in the league of around 300 to 400 billion only. So till you don't answer this question, whenever this question will arise, India acts as a shock absorber for you.

So this is the reason why in our barbell, India sits right at the middle, not at the underweight, not at the overweight, but in a neutral direction that whenever we are in a shock absorbing period, India will help that. And you feel we're still in that shock absorbing? Yes, because India don't give you that kind of a full exposure to the AI, which means whenever market swing shift towards a non-AI, India comes into picture.

Govindraj Ethiraj: Right. So speaking about shock absorbing, so we've had a war going on since March this year, and there has been to some extent absorption of that shock by economies by demonstrating resilience and so on. But how do investors see this period now?

I mean, a few months ago, we thought that the war is going to end by June, we thought we'll have some resolution by July, August, but it's not happened. And it looks like now it's going to be a forever war in some way or the other. I'm talking about West Asia right now.

But we also have another one going on between Russia and Ukraine, which in turn is disrupting energy supplies and so on. So in this kind of a world, are investors moderating their expectations? How are investors looking at this whole phase?

And therefore, how are you selling the story, whether it's an India story or another story?

Rajiv Batra: So investors are looking earnings momentum, be it in India, we have seen in the past, like 20 years, the best performing factor or way to invest in India is always looks at earnings momentum. It's earnings momentum, it's you're in favour, you will generate a 25% compounded annual return on a long short basis. And it is much better than your Nifty 50 and NNC 200 kind of a return overall.

So when the story was on earnings, people were not giving higher valuation multiple, the rally by year to date, which happened in emerging markets or Asia, when all this geopolitical uncertainty was on, was coming largely on the back of earnings and earnings revision. Valuation derating was nothing the case. Now, when again, the sudden tension picked up, oil prices started moving higher.

Besides the AID leveraging concern, this uncertainty led to this valuation derating. So the global PE, which was at a 23 kind of a came down to 19 PE. And this is the reason why we think it will be a struggle to expect a sustainable rerating on the equities as an asset class when you are going through this geopolitical uncertainty, rising bond yield scenario, JPY, which is a pressure for my carry trades overall, and earnings will be the way markets will navigate.

So in case, like in India, if we keep on delivering on higher earning growth, yes, large cap started from the last quarter, mid cap is doing for seven quarters, then obviously, we can at 20, 20 and a half P keep on giving absolute positive return. But to hope that valuation should rerate and India go back to the prime 24-25 P in such an external environment, that will be a stretch. Oil and gas commodity head Natasha Kaniva says that we don't know what the end game would be.

As a baseline, we thought $100 oil, 4% or above on the 10-year per se, gasoline and $6 per gallon on diesel, that will draw on the US administration and deal will happen and war will come to resolution. But nothing resolved it. And in fact, right now, when we look at the fair value at a September level, oil should have been around $90.

But why it is $103, $106? Because market is discounting that there will be 4 million barrel per day shortage. We have to say that a lot of resourcing have done people have started buying it from other sources from Mozambique, Venezuela, other African countries, US shell, I will give big credit to China also, who reduced their import by 4 million barrel per day.

But will that will be enough to stop the demand destruction or prices not to go? I don't think so. Because despite all this kind of stuff, we are still short of 4 to 5 million barrel per day.

Govindraj Ethiraj: Right. And that also sort of goes back to the question I asked earlier about this being a forever war, or signs of a forever war. So when you talk to investors today in India, a lot of fund managers are saying and they too are thinking about diversifying their portfolio.

So investing overseas or having an overseas chunk is now accepted as normal for any slightly, let's say astute investor sitting in India. So let me ask you two questions. So one is investors who are sitting in India and how they could look at the world outside.

And secondly, to an investor who's sitting outside, what does the world look like?

Rajiv Batra: Definitely a lot of interest is coming to invest outside overall, which we have seen in India. Also, people chasing whatever Taiwan, Korea listed fund, China, global one over here, some of them where we have hit the capacity or the limit mark, and hence, the fund needs to stop taking new money over there. But diversification in name of the game, current scenario, there is a very good rotation in themes, good rotation in style coming on a very regular basis per se.

So taking that into account to safeguard the capital and not just harp on one thing because remember, the third thing which is impacting the market is some idiosyncrasy in each country. One factor which hurts you the external, one factor which hurts you is the domestic policies over there. Sometime the out of box black swan events come and last, if you will take into account since GFC, the black swan or idiosyncratic events frequencies are increasing per se.

Hence the need of an R is diversity. And when you take the diversity on the portfolio from equity and also, it gives you that kind of a diversification on currency too, on the policies also and safeguard your money. Same applies for my global investors also.

It's a growth scarce world because the potential growth, if you leave apart some of the EM in the Asia economy, it's all coming down. Potential growths are not rising per se. So at same point of time to safeguard the capital, generate the income, DM is a cohort which help them out.

But to beat inflation, we need a growth also on their book. That's where my emerging markets, frontier markets come into picture. Now when the geopolitical tension have started rising and questions started appearing, are we in a de-dollarization era or we need an alternative?

You can see the conversations have gone beyond the typical assets like equities and bond and bringing even gold, cryptos, everything else also into discussions. So be it the outside world or be it within the India. Yes, people are looking for diversity.

Govindraj Ethiraj: Right and that's a good note to end on Rajiv. Thank you so much for joining me.

Rajiv Batra: Thank you.

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JPMorgan expects more Indian companies to look for mergers and acquisitions overseas as they seek to secure key supply chains against volatile geopolitics that has led to the weaponization of key supplies such as critical minerals. Outbound M&A from India has had a strong year.

Paul Uren, head of investment banking for Asia Pacific at JPMorgan told Reuters he said there are a number of Indian companies that have a good acquisition currency and also have access to the capital markets both in equity and debts. Overall M&A in India has hit the 100 billion dollar mark in the first half of 2026 across 680 deals according to JPMorgan data which added that outbound deals have already reached about 24 billion dollars so far this year on track to hit a record high.

Will India Be Affected By Global Diesel Shortages

Diesel prices in Europe and the United States have now hit record highs as we've been reporting here as disruptions linked to the wars in Iran and West Asia and Ukraine put a curb on exports from major producers and have left global refineries with limited spare capacity according to Reuters.

European diesel futures closed at an all-time high last week more than doubling from the start of 2026 and supply disruptions have spread to the Red Sea a key region for Saudi Arabia's diesel exports. The wars in the Middle East or West Asia and Ukraine have damaged oil refineries and refineries are working hard to make fuels. The International Energy Agency has said that the United States for example refineries have operated now at the highest level in eight years in late August adding that one challenge is that many refineries around the world are already stretched to capacity.

I reached out to Nikhil Dubey senior research analyst refining and modelling at Kpler the global energy analytics firm and I began by asking him how he was seeing the latest developments and particularly the flow of diesel supplies.

INTERVIEW TRANSCRIPT

Nikhil Dubey: So regarding the diesel supply, we need to look at... so there's a two type of issues currently happening around the globe because of the diesel supply is very impacted.

First of all, the Middle East Gulf—there's a crisis in Middle East, everybody knows about it. So Middle Eastern crude, which is middle-distillate-rich crude—so when I say the middle-distillate-rich crude, when you process this kind of a crude in a refinery, your diesel and jet yield, this comes up higher comparatively if you process lighter crude, which comes from the North America, kind of a WTI crude. So that is the one thing which is causing a issue.

Another one issue is like there is a certain region which are particularly a diesel exporter region. First is Middle East Gulf: they used to export a lot of diesel—gasoil and diesel. Particularly Saudi Arabia, they used to export sort of 800 kbd, 1 million barrel diesel. Another one's the Russia: they also used to export something around 800 kbd. U.S. is the largest diesel exporter.

So what is happening—Asia is also used to export a lot of diesel. So what is happening now: the Asia, which is struggling for the feedstock because of the Middle East crisis—they used to get a lot of crude from the Middle East; now they are unable to get that feedstock. So that's why they are not able to reach the runs, they are not able to run their refineries at a level which they were earlier operating. So that is creating, first of all, the diesel issue.

Secondly, Middle Eastern refineries, because they are unable to export their product from the Strait of Hormuz, so that's why we have curtailed their refineries. Apart from that, we all have seen that how the refineries has been damaged because of the drones attacks, particularly from the Iran—how these also, because on the regional basis, they are the second largest after the U.S. diesel exporter. So now they are unable to export the diesel; that's why it's hitting the supply.

Third one is the Russia. So Russia, we know, I mean, because of the Ukrainian drone strikes, a lot of refineries has been damaged. What we are seeing that they used to run somewhere around 5.5, 5.6 million barrel per day; now they are running something around 3.8, 4 million barrel per day. So because of that, their domestic supply has crumbled. Because of that, Russian government has put a ban not only on the diesel, but also on the gasoline, other products also, because they also used to export somewhere around 800, 900 kbd.

And because of that, we are seeing this crunch in the global supply. So if you see on an overall basis: Asia is unable to export the supply because they do not have a feedstock; Middle East, which they are unable to run their refineries because they are unable to export their products from the Strait of Hormuz, so that is creating crunch; third one is the Russia—they used to be one of the gasoil exporter, now they are unable to export the product.

So that's... so these all three factors are adding simultaneously. That's why we are seeing... Another fact is why we are seeing the impact on the prices, because this is the high-demand season for the gasoil, particularly the Northern Hemisphere. So that's why we are seeing this impact on the prices.

Correct. And where does India stand in all of this? To be honest, India has been kind of insulated as of now. In terms of—I'm saying this not in terms of the economy of the refinery and how economy is working—in terms of the supplies, we have not seen those kind of prices which particularly everybody knows that how the price is skyrocketing in the U.S., how the prices are acting in the Europe. But thank God we have not seen those kind of prices in India, because we have ample domestic refineries here in India. India always make more than sufficient gasoil or diesel, whatever we used to consume. So we are kind of a net exporter; we used to add this supply in the...

So that's why we have not seen this crunch. Our refineries—they are sufficient to fulfil the domestic demand. Thankfully, we are also getting the crude supply, particularly from the Russia; it's a Urals grade. So that is also kind of a middle-distillate-rich grade. Once you process this kind of a grade in the refinery, they will produce more gasoil comparatively gasoline. So that's also kind of working in our favour. So, as of now, that's why India's... India has remained in terms of insulated with this impact.

Govindraj Ethiraj: Right. So some of the reports seem to suggest that this problem could be there for the rest of the year and maybe into 2027—and I'm saying specifically shortage of diesel. Is that your sense as well?

Nikhil Dubey: See, once we need to see that how the refinery comes up, how they are going to ramp up their refineries. Let's say there's a refinery which is damaged. Now refinery has a two kind of a capacity: one is the primary capacity, then the secondary capacity. Take an example for the Russia or maybe for the Middle East: so once the primary capacity is damaged, it used to take approximately one month, one and a half month to come online. When I say the primary capacity, it means then you put a crude oil and you heat it and then fractions will come—the distillation tower.

But there's a secondary capacity from where we used to get the diesel which we can directly put into our tanks, kind of a... which is in other terms you can say as a marketable diesel, which have a low sulphur and that meets all kind of a marketable specs. So if that secondary unit capacity—this is damaged—so these kind of a capacity take longer period of time to come online because they have a sophisticated part, kind of a compressor, kind of a catalyst, because they need kind of a lead time: once you will place an order, they will manufacture it, then they will deliver it.

So once this kind of a capacity is damaged, then this takes some time to come online. Now Russian capacities—they used to export a lot of diesel. Middle Eastern capacity is also kind of a damaged because of Houthi attacks and Iranian drone attacks. So that's why, if you see these two kind of a effect, now this diesel crunch, it will trickle down in the 2027, and we will see it for certain period.

Even if, let's say, if we talk about, let's say, today Strait of Hormuz condition improves and this crisis ends today, but still for some period of time, maybe up to the next H1 '27, we are going to see this kind of a crunch for particularly diesel as a product.

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

Nikhil Dubey: Thank you.