On Episode 989 of The Core Report, financial journalist Govindraj Ethiraj talks to G Chokkalingam, Founder at Equinomics Research as well as Vivek Merchant, Director at Swan Defence and Heavy Industries Limited (SDHI) from our extended Special Edition interview.

SHOW NOTES

(00:00) Stories of the Day

(01:13) Liquidity Stretched Markets Take A Dive On Bank Bad News

(01:40) US President Donald Trump Does An Airport Greeting For Chinese President Xi Jinping

(05:48) Why The Indian Markets Crashed On Thursday

(16:24) How India’s Shipbuilders Are Scouring The Globe For Orders And Winning Them Too

(26:30) The US Is Investing $10.3 Trillion In Ai And Data Centers In The Next 6 Years, The Largest Capex In History

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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 25th of September and this is Govindraj Ethiraj broadcasting and streaming weekdays usually from Mumbai, India's financial capital, but in transit right now.

Our top stories and themes…

Liquidity, stressed markets, take a dive on bank bad news.

US President Donald Trump does an airport greeting for Chinese President Xi Jinping.

Why the Indian markets crashed on Thursday.

How India's shipbuilders are scouring the globe for orders and winning them too.

The U.S. is investing 10 trillion dollars in AI and data centres in the next six years, the largest capex in its history.

Markets, Banks, UN General Assembly and the NSE IPO

The good news is that your banks are working hard and may open their doors on Sunday in anticipation of a three-day union-led strike that starts potentially on Monday. The bad news is that their incomes could shrink with the insurance regulator cracking down on commissions on insurance policies, thanks to which bank and non-bank finance stocks took a beating on Thursday contributing to the crash.

So they will have to work harder than just a Sunday special shift, and more on that in a moment. On Wednesday evening, Chinese President Xi Jinping and his wife Peng Li Wan, a well-known soprano, landed at Andrews Air Force Base outside Washington. Donald Trump welcomed the couple, becoming the first U.S. president in six decades to receive a foreign counterpart at that airport, excluding visits by the Pope.

This is Xi Jinping's first visit to the United States in 11 years and the U.S. and China have already sealed a two-month extension to their trade truce going into 2027, according to Treasury Secretary Scott Bessen, quoted by Bloomberg. Xi Jinping has said he is confident the trip would produce fruitful results. Meanwhile, U.S. Secretary of State Marco Rubio and India's External Affairs Minister S.J. Shankar held talks in New York to discuss the potential implications of sanctions targeting Russia, which of course is a key source of energy and crude for India.

Under the Sanctioning Iran Act signed into law last week, President Trump is able to and has the power to impose tariffs on countries that purchase Russian crude, a Bloomberg report summed up. S.J. Shankar reiterated India's interests and concerns with regard to this act, according to a social media post after that meeting, while Rubio emphasised that the United States remains well-positioned to help regional partners address their energy security challenges. So will Trump actually use these powers he has now to slap tariffs, or has India's pushback worked? Well, it seems to be tilting towards the latter, but there could be other gives for this take.

All eyes continue to be on New York, and whether the United Nations General Assembly or the meetings held on its sidelines will provide any fresh impetus to end the war in West Asia, or for that matter, between Russia and Ukraine. At least the Iranians and Americans are talking right now, but not enough it seems, and nothing concrete has yet emerged, at least to give the market some consolation, and Brent crude prices are now around $105 a barrel. On Wall Street, the nervousness is increasing as U.S. government bond yields are also rising.

The 30-year U.S. Treasury yield is now over 5.4%, putting it on track for its highest low since 2004. Benchmark 10-year yields also continue to rise after hitting their highest level in 19 years on Wednesday and are about 5.116%. Borrowing costs are surging in Asia and continuing to rise in Europe, the Wall Street Journal said. Back home, the much-awaited National Stock Exchange IPO opened on Thursday, with the stock closing 1.8% higher on its trading debut.

The NSE had launched its $2.3 billion IPO, which was an offer for sale or exit for existing investors and was also India's second biggest IPO after Hyundai Motors IPO two years ago. The NSE has taken almost 10 years to list and has now become one of the world's 10 most valuable publicly traded exchanges, with a value of Rs. 450,000 crore or about $47 billion.

NSE has a 93% share of cash trading and nearly 75% of options. Derivatives transaction charges accounted for about 68% of operating revenue in the June quarter, a Reuters report revealed, adding that derivatives activity has slowed since 2024 thanks to tighter regulation, higher taxes, and concerns over the closing auction, which raises questions about NSE's reliance on that segment for earnings growth. The BSE, or the Bombay Stock Exchange, earlier listed in 2017 and trades at a valuation of Rs.

130,000 crore or about $13.5 billion. With all this in the backdrop, i.e., global bond yields rising, oil prices up again, and the liquidity stretched domestic market, the Indian markets took a nose dive on Thursday with the Sensex falling 1,247 points to 73,580 and the Nifty 50 closing 383 points down to 23,063. The Sensex closed 1,247 points down to 73,580 and the Nifty 50 was down 383 points to close at 23,631.

In the broader markets, the Nifty mid cap and small cap were also down 2.25% and 1.5% each. The rupee hit a one-week low on Thursday for roughly the same reasons, which is mostly the global factors. Dollar sales by state-run banks, mostly on behalf of the Reserve Bank of India, limited losses and kept the rupee above 96 per dollar, a Reuters report said, adding it ended at Rs.95.95 per dollar.

Why the Indian markets crashed on Thursday

Buying insurance could become cheaper over time, but the people selling those policies may have to earn less. However, that is if the insurance regulators' latest suggestions go through.

The Insurance Regulatory and Development Authority of India, or IRDAI, has proposed tighter limits on commissions paid to banks, brokers, and agents, along with curbs on digital practises that can push customers towards buying a policy. The proposals are essentially aimed at reducing the cost of distributing insurance and also reducing mis-selling. Shares of insurance distributors and companies with large insurance incomes fell on Thursday.

The interesting thing is that banks and insurance stocks were thrashed alike on Thursday, apart from non-bank finance companies. But these are proposals and not the final rules. Though with the IRDAI issuing them as a consultation paper, it is seeking comments and will wait till the 25th of October.

The number to note is this. Life insurers paid about Rs. 61,000 crores in commissions in 2024-2025, an 18% increase, while premium growth was only about 7%, according to IRDAI data quoted by the Economic Times.

So why did the markets crash on Thursday and what does it reflect? I put that question to G Chokkalingam, founder of Equinomics Research.

INTERVIEW TRANSCRIPT

G Chokkalingam: It is not just one, I would say a combination. You know, last night you saw US market falling around 1.6%, which was quite substantial. And second, oil price last couple of days again firmed up.

Third, in the morning, Asian market, European markets also, majority of the markets corrected sharply. So, apart from global cues from the international stock exchanges, oil price and also, you know, the draining out of liquidity through primary market had a big impact. Already we saw NSE, you know, draining out lot of liquidity.

So, all these impacted the market today.

Govindraj Ethiraj: Okay. So, let me start with the insurance commissions, which will obviously hit banks and non-banks and even insurance companies because people were paying in commissions or rather banks were paying commissions and that was a key source of income and that will come down. So, how are you seeing this?

G Chokkalingam: So, good thing you reminded about this development. This is another reason for market fall because, you know, insurance companies have significant market cap combined together and the fear is real because these companies were, you know, able to market aggressively as they have been paying very high commission to intermediaries and also three-day strike impacted the banks, which in turn impacted the prospects of the insurance companies as well. So, that is why if you see both banks and insurance companies are declined sharply.

So, that also explains today's fall. Now, this commission, it's a really very good thing to welcome. You know, if you recall in 90s, we used to pay as much as even one and a half percent as a brokerage for equity trading, 150 paisa per 100.

So, as the world has digitalised, we know it has come down to even zero now on a discount brokerage platform. Similar thing happened on Unit Link insurance schemes. So many places we saw, you know, the digitalisation reducing their commissions, brokerages, helping the consumers to benefit and market to expand.

So, when you have a digital world, where is the need to pay huge commissions even for insurance products? So, this is a really welcome in the development and the long term, it will improve the business prospects of insurance companies. But in the short term, obviously, it will impact because aggressiveness will come down.

So, that's my view on what has happened on the influence.

Govindraj Ethiraj: Right. I'll come to the NSC IPO. But broadly, what other trends are you seeing, Chhoka, when you look back, let's say the last two, three months, given the fact that, you know, tensions have obviously increased once again in the in West Asia, and markets have clearly again gone into a trading zone of sorts.

G Chokkalingam: The last few months, only one trend which is worrying is more than, I would say, US Iran war and oil price, the liquidity concern. Liquidity is continuously getting drained out. You know, we have seen the IPO boom from early 90s.

But this IPO boom is different. This is for the first time in the last two years, the foreign institutional investors are investing aggressively in the primary market, and they are selling in the secondary market. And there are some estimates indicating, you know, more than 17 or 18 billion dollars being sold in the secondary market.

And that has gone back to, you know, the primary market. So, both retail investors and institutional investors are selling aggressively in secondary market and investing that money in primary market. So, this is the biggest concern for the market.

The second concern, obviously, oil and therefore rupee weakness, and hence consequent FEI selling in the secondary market. But, you know, that also impacted the market. There is no doubt.

But again, in the last few months or so, there is another important structural change. The retail investors as well as mutual fund managers, they realised, many of them realised that when they try to buy large cap stocks, they are only facilitating the exit route for the FEIs, particularly FEIs selling in, you know, that is why the instance and Nifty are down around 15 percent. In fact, if these FEIs have not purchased heavily, the index stocks, the fall in Sensex and Nifty would have been even 25 percent, 30 percent.

So, they realised off late, I'm not saying everyone, a lot of fund managers and retail investors realised. So, in the last three, four months, what's happening, they have shifted the focus to small and mid-cap stocks where FEIs are not dominant. So, that is why in the last three, four months, although the broader indices are very weak, there is a continuous stock-specific rally in the small and mid-cap segment.

I think that would continue as long as, you know, the oil price is very high.

Govindraj Ethiraj: Right. And on the NSE IPO, before I come to Outlook, the IPO has listed finally after maybe a decade of trying. And at least on Thursday, it was only up about 1.8 percent, contrary to maybe some expectations, at least that it could do much better on listing. What's your sense?

G Chokkalingam: I was not expecting a very big return on IPO listing for NSE, because if you take last five to six, seven years, people, a lot of individuals invested in NSE and they've been sitting on gains in terms of 300 percent, 400 percent, 500 percent. So, obviously, there will be a lot of selling pressure. And second reason, off late, it has lost some market share in F&O segment to BSE.

So, year on year, there is a degrowth, which was not the case in the past for NSE. So, these are the two reasons. But again, the second perspective from my side on this NSE is that this is a great stock for the long term.

We do not own the stock, but it's a great stock for the long term because capital market story is going to be perennially growth story. There will be cyclical behaviour from the capital market every three years or so. But this is going to be a long term perennial growth story.

And second, right now, literally, it is a dualistic market structure that is also favouring this business. And third, number of companies, number of retail investors entering the listed space is increasing every week. So, all this would have it well.

The third perspective of this NSE listing is that it's a very interesting day today. For more than three decades, BSE and NSE competed with each other for building the business. Today, the history is after listing NSE.

So, from today, BSE and NSE are going to focus more on competing with each other in building up their market cap or wealth for their own shareholders. Of course, that depends again on the business. But the straight away, the focus and the objective of these two institutions would be, you know, who is going to create more business incrementally and thereby create more wealth for the shareholders.

So, there is a dramatic change in the objective of these two institutions from today. So, this is going to be very interesting to monitor for the analysts.

Govindraj Ethiraj: Right. Chokka, how are you seeing the next few weeks and what's your general outlook given all of this?

G Chokkalingam: Very pessimistic. Not few weeks, it could be two, three months because, you know, the rainfall has failed around 15% deficit. The crop area under Kharif season is now negative on year-on-year basis.

Oil is again above $100 per barrel. Inflation is rising, bond yield is rising. So, most important, the liquidity is a major concern and there is no drop in the momentum in IPOs, number of IPOs.

What is lined up also is huge. So, unless the IPO momentum gets moderated or fizzles out or oil prices crack in a big way, this market is not going to improve significantly. So, it may take two, three weeks or two, three months, but we have to live with it.

Govindraj Ethiraj: Got it. Chokka, thank you so much for joining me.

G Chokkalingam: Thank you.

Possible Repercussions of Curbing US Diesel Exports

Back to oil, if only to once again talk about second-order effects. Someone from the US administration pointed out what happens when you tamper with free markets, at least in this case.

US Energy Secretary Chris Wright on Wednesday said a US ban on diesel exports would not work and could push up gasoline and jet fuel prices, a position that goes against his president, that's Donald Trump, who is backing the idea, according to a Reuters report. Diesel prices have hit record highs thanks to the war in West Asia as well as the Russia-Ukraine war. Average diesel prices in the US were about $6.5 a gallon on Wednesday.

Now that is up 76% from a year ago, according to AAA, a motorist advocacy group quoted by Reuters. Wright said at an event hosted by The Economist in New York that the blunt tool of banning diesel exports definitely doesn't work. He said that if you can't export the diesel that comes out of our refineries, you run out of places to store it and you have to reduce US refining, which would put upward pressure on gasoline prices and jet fuel prices.

Though he said that the Trump administration is open to any ideas on lowering fuel prices and will make policy announcements in coming days. He also said that the administration was working with the refining industry to increase the supply of US diesel in a simpler, voluntary, cooperative fashion without using blunt instruments that would reduce refining throughput. Before leading the US Department of Energy, Wright was the CEO of Liberty Energy, which is considered North America's second largest hydraulic fracturing company.

So you can expect that he has some sense of the oil industry dynamics.

How India's shipbuilders are scouring the globe for orders

India has set itself ambitious targets towards its journey to capture more share of the global shipbuilding market and also increase self-reliance. In July, the government approved a Rs 70,000 crore package to strengthen domestic shipbuilding capacity, maritime financing, and skilling.

The key components of that package include a shipbuilding financial assistance scheme, an extension of shipbuilding financial assistance policy to bring Indian shipyards on par with global shipyards, a maritime development fund for providing long-term financing support to shipbuilding and maritime sector, and a shipbuilding development scheme to expand Indian shipbuilding output capacity to 4.5 million crore tonnage annually by setting up greenfield shipbuilding clusters and capacity expansion of existing shipyards. On the core report special edition, I spoke with Vivek Merchant, Director of Swan Defence and Heavy Industries, earlier Reliance Naval Engineering, and I began by asking him to talk about their current roster of ships that they were building and also his outlook on the industry.

INTERVIEW TRANSCRIPT

Vivek Merchant: Reliance Naval and Engineering and we completed the acquisition in January of 2024. So it was four years of sort of studying the industry, understanding the markets and looking at how to place ourselves within the Indian ecosystem and the global ecosystem. After acquiring the shipyard, you know, what we did was we've refurbished the entire facilities which included licences, certifications, team building, getting all the infrastructure up and running, tried and tested as well.

And then what we did was we got into ship repairs to begin with. In ship repairs, what we did, we got the Indian Coast Guard as our first customer and that was the Ministry of Defence in India. And that was a good, you know, starting point because that showed that we had all our eggs in order and we had our paperwork in place.

The refurbishment continued until May, June of the following year, 2025. And that's when we went to market for the new building orders. The idea was to have the entire facility up and running.

We didn't want order book funding to fund the CapEx. And the intention was clear. We were getting into this business.

It's a long-term business. It's a generational business. And we wanted to demonstrate intent.

We went to market in maybe around May or June of last year. And it's a long gestation business, including the business development cycle. I think our first contract was signed in January of this year.

This was a chemical tanker order. These are 18,000 dead-weight chemical tankers, six of them for a Norwegian customer. So that was the first order that we signed off on.

The next is, it's a defence export order to the Royal Navy of Oman. This is a training vessel, which we expect to actually deliver as early as second half of next year. And then the third order is of course, the dual-fuel ammonia bulkers that we spoke about.

And we recently, about a month ago, signed off on Tugs. These are new generation Tugs for Switzer. Switzer is the largest stowage operator in the world today.

It is part of the AP Muller-Musk family. And we signed off on four Tugs for them. These are built to their transverse 3200 design, which is a design that they've developed themselves along with another designer.

Govindraj Ethiraj: So it's interesting. So there's nothing common between these ships or the types of ships, except that they are ships.

Vivek Merchant: Yes. It's interesting to mention that, because if you look at Indian shipyards, the shipbuilding programme over the last few decades has been primarily defence led, which means series vessels are not very common. Each vessel is complex and customised to the customer's need.

What we did was, we start with a clean slate. And our thought process is, it is going to be a challenge, whether you start with a Tug or a Bulker or a Tanker. So the idea was to take the challenge head on and see what we can make out of it.

In terms of the products that we have, it is a balancing act to ensure your entire infrastructure and facilities are utilised to the optimal levels. After having the first three orders in place, we are now choosing and picking bases, our output possibilities. So the Tugs, for example, are smaller vessels, which don't necessarily require the dry dock.

The dry dock being the most valuable resource. So we are also in the market for smaller ships. The general vision at the shipyard is to have a focus on green forward-facing technologies.

And that's why most or almost all of our vessels have some amount of green focus in them.

Govindraj Ethiraj: Interesting. So when you're out bidding in the market, you're obviously bidding against other players, maybe including from India as well. So what do you feel is the winning element here or has been the winning element for you?

Vivek Merchant: For us, since all our contracts are exports, it has been more of an outside-in approach from our customers. We have one of our customers who has built 14 ships in China before coming to us. So that was a good external validation that we had.

What was it that attracted them? I think it's the entire process that they look at. So ship owners today are evaluating not just cost of vessel, but total risk.

They look for delivery predictability. Those are two words that sum up the entire approach that we have to take. So starting from design, supply chain, having your machinery in place, having the manpower in place, and having your classification society in place, and having your tie-ups in place.

Because we are a new organisation in shipbuilding, we also have our tie-ups with Samsung Heavy Industries in Korea. And I think that adds to the confidence of the customers to place the orders here. And I think seeing is believing as well.

We've had every single customer visit our facility at least twice, some of them a lot more than that. And I think that's given them the confidence. Because we're a new organisation, we take support from the parent company as well.

And that's the other, you know, the financial support and comfort that we provide to our customers before they come to us.

Govindraj Ethiraj: So when customers come to visit your plant ahead of maybe signing a deal or maybe even after, what are the one or two things that they're looking for which sort of convinces them that, okay, I can go with these guys?

Vivek Merchant: So one is, of course, the manpower. I think that is primary importance. They like to speak to everybody, from the junior most foreman to the CEO.

Everybody is interacted with, questioned. And then, of course, we do have some works going on at the yard. Proof is in seeing what's being produced.

And, you know, we have customers who go inside the blocks that we're manufacturing to look at the tolerances and the quality of the wells and things like that. I think these are the two primary things that they look at. In general, this is a facility that has been dormant for quite a few years.

So when we have the customers visit the facilities, I think there is a lot more comfort and confidence that this exists. There has been a track record here of building similar vessels in the past. And now we can do this going forward with the current team, with the current manpower, with the current ownership.

Govindraj Ethiraj: I'm going to come back to the technology side in a moment. You mentioned China and you said that basically the company came to you after having manufactured in China or with China. So what is it that made them choose India in this round?

Vivek Merchant: So I don't want to make it an India versus China conversation.

Govindraj Ethiraj: No, because I'm sure others will continue to build.

Vivek Merchant: And China has developed over the last several decades and they are global leaders in sheer volume today. The vessels that we're building are specialised. There is a difference between steel heavy bulkers, conventional fuel, and slightly more engineered specialised vessels.

The market segment is slightly different from what has traditionally existed in China. That was something that got them here. Second is anybody investing in the country, what do they look for?

They look for long-term policy support. And we've seen over the last year and a half, we have good policy support in the right direction, which is more on capacity and capability creation rather than funding single vessel orders. The second thing is the engineering talent.

We have 1.5 billion people, average age of 29 years. We have engineers, outstanding engineers coming out of engineering colleges across the country, including naval architects and marine engineers. So the engineering talent is something else.

And that is why they interact with the entire team. And finally, it comes to the pricing as well. And I think the pricing is supported, of course, by the policy, by the supply chains, and then how we optimise is our bringing in supply chains closer to the shipyard, bringing in the efficiencies, the economies of scale is something that we have to do in India today.

And it is already being pushed in terms of this cluster concept where there are greenfield clusters and brownfield clusters being proposed in India today. The third thing is, you know, the engineering talent that we spoke about. And I say that again, we need the specialised skills.

Today, labour arbitrage is not the only mode that India has. We have to look at systems integration as well. Shipbuilding is a complex process where, you know, the ships are not built by just one company.

You have proportions, electronics, electrical, your welding, your consumables. You have thousands of MSMEs working as suppliers to shipyards. Shipyards are basically integrating these very large manufacturing networks.

So having the capability to integrate and demonstrate to customers is something else that we need in India today. I think the opportunity today in India is, there is an opportunity, we all agree. Today, 95% of India's trade by volume moves through sea, whereas India contributes to less than 0.1% of global commercial shipbuilding output. So that's the opportunity that we have today. And we don't need to copy the China model. We don't need to copy the Korea model.

We have to develop our own model, basis our own strengths to become part of that value chain. The third thing I would say is looking at exports. The idea of having this industry set up is, you know, it's not to protect Indian shipbuilding from global competition.

It should be to develop capabilities to ensure we can compete globally. So developing that mindset is only possible when you look at export orders. Domestic orders will not make you globally competitive.

I keep saying we are capable today, we need to become competitive. I think these are the, you know, three or four key things that we need to look at at a macro level to ensure we get to where we want to over the next few years.

The U.S. is investing 10 trillion dollars in AI and data centres in the next Six years

America's AI buildout is on track to become the biggest economic bet in its history, dwarfing the investments made to fund other huge U.S. infrastructure projects like railroads, highway systems, and the plumbing for the internet, according to a Wall Street Journal report. Total investment in data centres and related artificial intelligence infrastructure is expected to total $10 trillion between 2025 and 2032, according to estimates by economist Stin Van Nieuwerburg, published by the Brookings Institution. Now this is a staggering 3.6% of GDP a year on average, according to that report quoted by the Wall Street Journal, and it says that never before has the U.S. economy been so dependent on the buildout of a single industry.

Now all of this is transforming every corner of the economy, creating hundreds of thousands of jobs and minting new billionaires, but also creating significant risk as much of it is built on debt. An abrupt slowdown could ignite shockwaves throughout the U.S. economy, the report says. And in and around AI, Meta Platforms is expanding its smart glasses lineup with camera-free models and support for the Muse Assistant, which I understand could launch in a month or two, and that's something that could create waves in India too, as it has been elsewhere, given the fact that you can use it almost like an executive assistant and work through your WhatsApp.

So Meta has introduced a third generation of its camera-equipped Ray-Ban spectacles and new versions of its more affordable Meta-branded frames, including a hearing aid mode.