Markets Appear To Price In The Worst Of Trump Tariffs
The markets may have steadied but some of the most labour intensive industries in India are set to be hurt badly by Trump’s tariffs
On Episode 652 of The Core Report, financial journalist Govindraj Ethiraj talks to Viral Desai, Senior Executive Director at Knight Frank as well as Sugandha Sachdeva, Founder at SS WealthStreet.
SHOW NOTES
(00:00) Stories of the Day
(00:50) Markets appear to price in the worst of Trump tariffs as domestic flows stay strong.
(07:02) Where could gold prices go?
(13:58) A new IT Bill has been passed, with some changes as expected.
(15:24) At 1 billion square feet, India is now the world’s fourth largest market by area.
NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on [email protected].
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Good morning, it's Tuesday the 12th of August and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital. This is a holiday shortened week and our last broadcast will be on Thursday.
Our top stories and themes:
The stock markets appear to price in the worst of Trump tariffs as domestic flows stay strong.
A new income tax bill has been passed with some changes as expected.
At 1 billion square feet, India is now the world's fourth largest commercial real estate market by area.
And where could gold prices go?
Have The Markets Priced In A Worst-Case Tariff Impact?
Well, that would appear to be the case going by the way stock markets recovered on Monday and the general mood on the street.
The stock markets may have studied but some of the most labour-intensive industries in India are said to be hurt badly by Trump's tariffs presently at 25% and with the possibility of going up to 50% which would effectively be a trade blockade on exports in areas ranging from apparel and leather to gems and jewellery. The markets are of course driven by stocks that are seen to be doing well and only a few could be linked to the labour-intensive, often unorganised sector that will take a direct hit from rising tariffs. Now within the market some sectors are moving faster than others.
Let me share an interesting insight from Wall Street. Analyst and author Scott Galloway pointed out last week that spending on artificial intelligence is now outpacing consumer spending as the main driver of US GDP growth and in the markets 50 to 60 percent of equity returns in the last two years have been generated by AI linked stocks. This is not the same in India of course but there is an imbalance in the market that we should be aware of and there is an imbalance between the stock markets and the real economy and that in some ways is more pronounced.
The same imbalance of course exists in the United States as well, again going by several analysts. So back on Monday the BHC was up to 746 points to close at 80 604 so it crossed the 80 000 mark while the nifty 50 was up 221 points to close at 24 585. The broader indices were also up, the nifty mid-cap 100 index was up 0.8 percent and the small cap was up 0.36 percent and the supply rush continued.
Fund flows into India's equity mutual funds hit a record last month according to data from the association of mutual funds of India. Net flows into equity schemes rose 81 percent month on month to 42 700 crores or about five billion dollars in July. Overall assets under management in the mutual fund industry have now hit a record 75 trillion rupees.
Contributions via systematic investment plans for mutual fund investors were at about 28 464 crore rupees. So there are two kinds of inflows one from investments coming in through in a way pre-set systematic investment plans and the other is of course lump sum payments made by investors. And the number of contributing IP accounts have also now climbed to 91 million accounts from 86 million in June.
Analysts at Morningstar investment research told Reuters that intermittent market corrections on the back of tariff war with the United States as well as ongoing geopolitical tensions gave investors attractive entry points. Equity mutual funds also saw inflows now for the 53rd month in a row even as foreign investors have pulled out two billion dollars from the stock market in July and of course in 2025 as a whole. On the commodity side oil is now quoting just under 67 dollars a battle and everyone is looking out to see what happens in a likely meeting between Russian President Vladimir Putin and U.S. President Donald Trump.
Meanwhile gold prices fell more than one percent on Monday as investors waited for clarity from the White House and potential tariffs on bullion bars and spot gold was lower at about three thousand three hundred and sixty two dollars per ounce and more on gold shortly.
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There's an interesting export tax that has come into play in the United States. Nvidia and advanced micro devices are now going to pay the U.S. government 15 percent of revenue from chip sales to China.
The chips which are specific now Nvidia's h20 ai accelerator and amd's mi 308 chips were earlier banned by the Trump administration and require export licence to sell. An analyst at the Singapore-based idea told Bloomberg that to call this unusual or unprecedented would be a staggering understatement and other trade experts told Bloomberg that the chip payment arrangement may face legal challenges because it could be construed as an export tax, something that's not allowed under the constitution. The proposal is also the latest direct government intervention into business and finance since the Trump administration took over in January according to that Bloomberg report.
Bank Scrutiny For Export Facing Industries
The Trump tariff impact is now being felt across industries and onto enterprises presumably and most likely smaller ones in India. Bloomberg is reporting that Indian banks are increasingly scrutinising new loan applications from exporters by asking about exposure to the American market and contingency plans for coping with these steep tariffs.
Bloomberg says it spoke to officials at five large Indian banks who said that they are assessing the financial ramifications of the tariffs on their clients particularly in areas like textile gems and gems and jewellery. The questions are now more pointed and some export orders they learn are being put on hold even as those trade negotiations are going on now export orders being put on hold or import orders being put on hold is now becoming a regular feature not just in the context of India but other countries as well given the sheer volatility about where those tariffs could land. The industries that have been hit are also amongst the most labour intensive and many of them have asked the government that's in India to introduce measures to reduce pain from new trade barriers.
The gems and jewellery export promotion council says that report is seeking support like finance relief and duty drawbacks. There are also requests for deferment of interest on working capital facilities by six months 90 day pre-shipment and penalty free loan payment extensions and a freeze on downward provisions of credit ratings according to a statement from the chief of the gems and jewellery export promotion council.
Where Could Gold Go?
Gold prices, as we said earlier, fell more than one percent on Monday as investors were waiting for news from the White House on those tariffs on bullion and U.S. inflation data as well. Spot gold was down about 1.4 percent to $3,350 an ounce on Monday morning, after touching about $3,408 on Friday — the highest since July 23rd.
Earlier, there were reports that the U.S. had imposed tariffs on imports of one-kilogramme bullion bars from Switzerland. I reached out to Sugandha Sachdev, founder of SSWealth Street and a commodity analyst, and I began by asking her how she was seeing price trends right now for gold and her outlook ahead.
INTERVIEW TRANSCRIPT
Sugandha Sachdeva: So, in terms of gold prices, we have already seen in the domestic markets prices scaling to new record highs last week at 1,2250 per 10-gramme mark. A lot of factors are driving prices at the moment, the first one being the weakness that we have seen in the dollar index and the expectations that are building around a September rate cut now. Earlier markets were not expecting a September rate cut, but now there are 95% chances of a rate cut in September, all because the US jobs market has been cooling, as has the trend being seen in the US jobs report recently for the month of July.
And they have also revised the jobs growth lower for the last three months. So, this has led to a lot of expectations of two rate cuts this year. Apart from that, the tariff-related uncertainty is driving the safe haven demand for gold.
Trump has recently announced it reached a 25% tariff on Indian imports, apart from the previous 25% tariffs, which came into effect on 7th of August. So, we still have some time window to negotiate and strike a deal, but still, that has kind of led to a lot of weakness that has come in the Indian rupee, which is worrying the domestic gold prices. Alongside this, there is news that 1 kilogramme in 100-ounce gold bars from Switzerland would be subject to import tariffs, and that would stand at a figure of around 39%.
So, Switzerland being the world's largest refining hub, so that is likely to disrupt the gold flows. In terms of the overall gold imports in the US, it's almost 200 to 250 tonnes. And almost 60% of that comes from Switzerland.
So, that is the precise reason we have seen that comics prices had recently shot up significantly. And as compared to the gold spot prices, there was a premium of around $100 last Friday. So, it remains to be seen, because there has been some clarification from the White House that they will announce a new ruling about clarification on the gold bars.
So, it remains to be seen, but then if it happens, it is likely to certainly impact and hinder the growth of the gold market as of now. And it has affected domestic gold prices also, because we saw comic gold prices soaring to new record highs, even as the spot prices have not been able to breach the $34.10 per ounce mark. Alongside this, prices have recently given up some of the gains, because there are hopes that Russia and Ukraine are likely to strike a peace deal, because the White House is pressing for a peace deal with Ukraine.
And the presidents of both countries, Russia and the US, are likely to meet on August 15 to negotiate an end to the war in Ukraine. But then, it remains to be seen. I don't see that this quick resolution would come in, and that's again going to break prices.
Govindraj Ethiraj: Yeah, if I can ask you, you know, if you were to look at some of the broader trends that we've been seeing for a longer period, I mean, when I say longer period, I mean, let's say in 2025. So, central bank buying, for example, and a slowdown in demand in India as well, because prices are now, as you also pointed out, over a lakh per 10 grams. How are you seeing that?
Or rather, let me put it differently, what are the sort of more structural changes that you're seeing, if any, in the gold market, particularly as you look ahead, which could affect prices one way or the other?
Sugandha Sachdeva: I think gold is in a secular bull trend. Though prices are in an excessive territory, and excesses are likely to correct over a period of time. But then, as of now, it's one of the best performing assets.
See, a lot of factors are still driving prices, be it the uncertainty about the tariff or the strong ETF inflows. In fact, in the second quarter also, we have seen strong inflows of around 170 tonnes in the global gold ETF. So, this is on top of 226 tonnes of inflows that we had seen in the first quarter of this year.
Alongside this, the central bank demand continues. For the last three years, the central bank demand has been upward of 1000 tonnes. And this year also, even though the pace has slowed down, it's still very strong.
In the second quarter, central banks added 166 tonnes of gold. Even as the jewellery demand in India has been lacklustre, we have seen a 17% decline in the second quarter. But then, if you see for the second quarter, overall gold demand has risen by around 3%.
So, the broad trend in gold is still positive. We are seeing a phase of de-dollarization, which is impacting gold prices. And you also have expectations building around the rate cut.
There is a lot of conflict between President Trump and Fed Chair Jerome Powell. And the threat of Fed independence is also there, which is also likely to drive gold prices on a higher incline. But then if you look at overall prices, I don't see prices moving past $3,500 per ounce in the immediate short term.
Even as the festival demand in India creeps in, but still, the retail demand has been quite subdued because investors are not able to digest this current price benchmark of 1 lakh. I think everybody is waiting on the sidelines, even as we are likely to see peak festival demand. But then I think the purchasers are likely to be very small, as against large ticket sized purchasers around the festival season, we are not likely to see that, unless and until we see a big and deep correction in gold prices.
Govindraj Ethiraj: Right. So, you're saying that basically this year's festival season is likely to be more muted, which is on the retail side. But you're saying institutional demand is likely to continue at the same pace that we've seen in the last year or so, or more.
Sugandha Sachdeva: Yes, in fact, more.
Govindraj Ethiraj: And Sugandha, what is your outlook in coming weeks or months for domestic gold prices?
Sugandha Sachdeva: Govind, I see prices heading high towards 1 lakh 5,000 to 1 lakh 6,000 mark by Diwali. So there would be intermittent volatility that we are going to see in prices because of the various factors that are going to impact prices. But then on the downside, as long as prices are supported by the level of 98,000 mark, it's a buy and dip market.
And overall, we can target levels of around 1 lakh 6,000 on the higher incline.
Govindraj Ethiraj: And you said that this is still in and around Diwali or past that?
Sugandha Sachdeva: Yeah, towards Diwali. Yeah, towards Diwali.
Govindraj Ethiraj: Got it. Sugandha, it's been a pleasure speaking with you. Thank you so much for joining me.
Sugandha Sachdeva: Thank you. Thank you, Govind.
A New Income Tax Bill Is Here
The Finance Minister on Monday introduced a modified income tax bill in the Lok Sabha, or the lower house, after including almost all the recommendations of the Select Committee. On Monday, we spoke about that new IT Bill and why it was presented afresh.
Introducing the new Income Tax Bill 2025 (Number Two), the Finance Minister said the bill seeks to consolidate and amend the law relating to income tax, and will replace the Income Tax Act, 1961. A statement also said that almost all the recommendations of a Select Committee were accepted by the government. In addition, suggestions were received from stakeholders about changes that would convey the proposed legal meaning more accurately.
The government said there are corrections in the nature of drafting, alignment of phrases, consequential changes, and cross-referencing. Some of the sections include refund claims after missed deadlines, deletion of a clause that blocked refunds if returns were filed late, and allowing genuine cases such as illness or technical issues to be considered — among other specific examples.
According to a Business Standard report, Clause 20 confirmed that income from buildings and associated land would be taxed as income from house property unless used for business or profession. Interest for periods before completion could be deducted in five equal installments from the year the property is completed. And there are, of course, much more.
Commercial Real Estate
Speaking about property, we've had several insights into commercial real estate coming up this week actually — and let's begin with one interesting data point for today. India is now set to cross 1 billion square feet in office stock, from under 200 million square feet a little over 20 years ago.
A new report from real estate consulting firm Knight Frank India has said India’s office stock has overall grown at a compounded average growth rate of 8.6 percent in the last 20 years. Hyderabad has grown about 9.2 percent and Pune at about 8.9 percent, which have been faster than the national average. In general, Bangalore, National Capital Region (that’s Delhi), and Mumbai Metropolitan Region account for about 60 percent of India’s total office stock. Hyderabad, Pune, and Chennai account for 33 percent, and seven percent between Ahmedabad and Kolkata.
India's total office stock, says that report, is valued at about 187 billion dollars, or 16 trillion rupees. I reached out to Viral Desai, Senior Executive Director responsible for transaction services at Knight Frank India, and I began by asking him to tell us what lay behind that 1 billion square feet of commercial real estate, and what are the other data points that he was picking up that could be of interest to all of us.
INTERVIEW TRANSCRIPT
Viral Desai: First of all, you know, a big monumental moment in commercial real estate for India. At one billion square feet, we would be the fourth largest market by volume in the order of the US, Japan, China and India. And by growth, we would be perhaps the largest.
And what it means is that the eight key cities in India, which is three down south, three on the west, NCR as one block and Calcutta put together, we are touching about one billion square feet of office space, which has been, as you pointed out, over the period of, let's say, recorded commercial real estate over time. If I had to break this up in terms of demand, or who consumes this office space, I would broadly base it into two very, very large categories. First is the companies that operate to cater for the Indian consumer base, whether B2B or B2C, right?
So it could be Siemens. And at the same time, it could be HDFC Bank. So Siemens, when it is catering to the Indian market, and HDFC Bank, so it's both Indian and multinational.
The second big bucket is all the work that happens out of India to support global technology work. And which could be IT services firms, the likes of TCS, Accenture, Wipro, IBM, Capgemini. So both Indian and multinational.
And GCCs, which are capital centres, which are doing global work out of India. So these are two very, very broad categories.
Govindraj Ethiraj: Right. And if you were to look at how the market's been moving or growing in the last six months to a year, has anything changed in the broader trends? Or are we seeing more of the same?
Viral Desai: So in terms of, again, into two broad categories, one is demand and one is supply. What we are talking about here is the supply of office space touching 1 billion. But of course, demand is a key catalyst.
And we have a bit of a dichotomy here. So the office demand in the last four, five years, so before COVID, the whole calendar year we used to do, the peak all-time high was 60 million square feet, 2019. Then you had it fall down to about less than 40 million for a couple of years.
Then it went to 50 million. Then the calendar year of 23 was 60 million and 10, 2024 was 72 million. What is stocking is India being the best performing commercial real estate market by volume.
We are at 49.8 million square feet in H1 of 2025 of the space consumed. And by that, if I had to extrapolate, I could go close to 100, but I would say safely 85 million square feet. So it is going to be a historic high again.
So that is on the demand. On the other hand, one would usually say that demand, supply dynamics feed into each other. But the supply on the other side is not growing at the same pace.
So when I look at the new absorption, it is growing at a certain CAGR, at a healthy CAGR annually. And if I just look at a year on year growth for the last three, four years, it's 20% plus. But the new supply is diminishing.
In fact, I'll give you one stat. In 2007, the annual demand for office space was 30 million square feet. And the new office supply was about 40 odd million square feet.
In the past calendar year. So the ratio of completions of new completions as a numerator to demand as a denominator was more than one, which is a healthy market 1.4 actually in 2007. That has gone down to 0.7 in the past calendar year. So the new completions are actually less.
Govindraj Ethiraj: So in square feet, how much would that be compared to 40 million supply?
Viral Desai: Yeah, so we have about 50 odd million of supply, fresh supply. Yeah, 72 million of gross absorption and fresh supply of 50 million. So you know, the ratio has actually reduced.
And there are multiple reasons for it. Okay, and what would the top two or three be? So one is that when you pour concrete, it takes three, four years for the new supply to come in.
The residential cycle has done very well post COVID. So as a choice on the table, for an investor, although the office market is doing exceedingly well, you always have these alternate cycles where either office or residential is doing well. Largely, it is an office which has done well and has had residential struggles for eight, nine years. It was very sluggish, you know, before COVID.
And because of the office you get the first rent check after four years, five, six years of buying land, and it is highly capital intensive. So there's been a huge consolidation and not more than 15, 20 large developers across the country, right, both Indian and institutional. Whereas resi, you know, it's cash generating immediately and the market has done well.
So one is that reason. The second reason that I would, as one of the main primary reasons for it. The second reason is that the value of commercial real estate is actually lower than residential real estate.
And people perceive it the other way around. And I give this example everywhere. If you look at Camellias in Gurgaon, they sell at upwards of 100, 150,000 rupees a foot, you know, closer to that.
Across the road, DLF and Heinze have made commercial buildings, renting at about 175. So capitalised value at seven and a half, 8% cap at under 30,000 rupees a foot. So, you know, there is a, like a three times cap up or at a huge discount on the capital value side.
If you compare Express Towers and NCP apartments, same NCP apartments upwards of 100,000 and Express Towers, 300 rupees rent, seven, seven and a half percent cap value. So 50,000. If one were to be sold, I'm not saying it's up for sale, you know, same as the case with Satwa Knowledge Park, which is under REIT right now, just getting listed next week, a hundred rupees rent.
So capital value 16, 17,000 rupees a foot at seven, seven and a half percent. Across the road is a residential project by my home called Bhuja, 24, 25, 26,000, no, Hyderabad. I'm giving you three core cities for example, Bangalore, one Shobha, 250 rupees rent, so less than 40,000 capital value.
Kingfisher Towers, Bangalore will sell at upwards of 60,000. So, you know, it is at a discount and in dollar terms for an occupier, you are paying the same rent for the last 30 years because the dollar keeps appreciating or the rupee depreciates. So the weighted average rent 30 years back was 40 bucks and the dollar to the rupee was the same.
Weighted average rent today is about 85, 86 dollar to the rupee is the same. And the ownership of commercial real estate, the kind of buildings, amenities, you know, everything is just fantastic. I mean, all credit to developers, but value wise in dollar terms.
So it's extremely, extremely valued to it, but highly capital intensive. So in a high interest rate cycle, it will be a, sometimes it's a challenge.
Govindraj Ethiraj: Right. Last question. You talked about H1 and the fact that it's been encouraging in terms of supply and demand.
So how are you seeing the second half?
Viral Desai: So the second half, like I said, with all things that we are seeing every day, the speed of change, I'm not using the word, which is the famous volatility. I would rather call it the speed of change that we are seeing every single day. Despite that, I think the value at which office market or what India delivers for the world, I think it should continue to hold.
This is despite AI, etc. And I'll tell you, if 10 employees had to come to the office, only five would come or four would come. There is that pressure that I want to also get more people.
And if, you know, for example, that 10 becomes seven because of AI or anything else, you still don't have enough space to get people in. And every day, every other day you hear of a world leader saying, I want everyone in, I want everyone in, I want everyone in. So that keeps increasing and each one at its own pace.
And all of these things haven't happened, tariffs haven't happened to services. You know, the value that it gives you both as human capital and real estate as a combined form and what you can deliver in terms of, you're not doing call centre work, you're doing very high end GCC work out of India now. So we are very, very confident that we are crossing 85 million or more, maybe even centuries sometimes.
Govindraj Ethiraj: Great. Viral, it's been a pleasure speaking with you. Thank you so much for joining me.
Viral Desai: Thank you. Thank you. Thank you, Govind. Always a pleasure.
