Markets Continue To Reel From FII Selling And Weak Cues
Indian markets were perhaps better prepared for the 25% tariff than other markets were
On Episode 645 of The Core Report, financial journalist Govindraj Ethiraj talks to Indrani Bagchi, Chief Executive Officer, Ananta Centre as well as Shankkar Aiyar, veteran economic journalist, columnist and author.
SHOW NOTES
(00:00) Stories of the Day
(00:50) Markets continue to reel from FII selling and weak cues.
(05:49) Rising gold demand suggests prices will be stable to high in coming months.
(07:36) India will continue to buy Russian oil, for now.
(09:27) Where have India-US relations gone so wrong? with Indrani Bagchi.
(19:01) India must fix its domestic economy before aspiring for strategic autonomy with Shankkar Aiyar.
NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on [email protected].
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Good morning, it's Monday, the 4th of August and this is Govindraj Ethiraj broadcasting and streaming weekdays, usually from Mumbai, India's financial capital, but in transit right now for another day.
The top stories and themes.
The stock markets continue to reel from foreign selling and weak cues.
India will continue to buy Russian oil for now.
Rising gold demand suggests prices will be stable to high in coming months.
Where have India-U.S. relations gone so wrong?
And India must fix its domestic economy before aspiring for strategic autonomy.
Markets Reel From Tariffs
In retrospect, Indian markets were perhaps better prepared for the 25% tariff than other markets were, including what we saw in the United States with the slew of weak economic data which led to the firing of the Bureau of Labour Statistics Now, this is an important development because it does hit at the very foundation of economic decision-making which somehow not everyone seems to pay attention to or gives enough importance to. So, President Trump on Friday fired the Bureau of Labour Statistics Commissioner, hours after it reported that the job growth in the United States had slowed to a near halt.
The U.S. added a seasonally adjusted 73,000 jobs in July, according to the Labour Department report on Friday, much below the gain of 100,000 jobs economists polled by the Wall Street Journal had expected to see. A bigger problem in some ways was that there were revisions for the past which cut down jobs growth originally reported for May and June by a combined 258,000, which means in the month of May there were only about 19,000 jobs added and in June about 14,000 jobs. Now, all of these are below what seemed to be expectations in the U.S. and, of course, all of which the President of the United States did not like.
This was also the biggest two-month downward revision since April 2020, the early days of the COVID crisis, according to reports. Now, datasets do get revised both ways, as we see in India too. Inadequate data leads to poor decision-making and guesswork in policy as we often see in India sometimes and around the world.
An India Spend article written at the end of last year counted 16 critical datasets in India as delayed, with nine ministries yet to release their annual reports. And, of course, the biggest, which is the once-in-a-decade census, is now only going to come in 2027, that's two years from now, and six years after it was scheduled in 2021. So, effectively, the country for most of its economic and social economic decision-making is going with 2011 numbers.
Now, while corporate balance sheets do provide important insights on economic activity, they only touch parts of the economy. Now, America's move to fire a bipartisan data official who has worked on both sides of the aisle for several years on the basis of a bad jobs report, or rather one bad jobs report, is worrying and obviously sends the wrong signals, including, in this case, the impact of tariffs in general and technological changes like AI in specific. Now, to come to the markets, last week was not a very good one, with continued foreign institutional investors selling and trade tensions, thanks to which the census fell about 863 points to close at 80,599, that's for the week, while Nifty 50 fell about 271 points to close at 24,565.
For July as a whole, the census and Nifty have lost about 3%, and to come to Friday specifically, the last trading day of last week, the census fell about 585 points and the Nifty fell about 203 points. Now, the belief, or rather hope, of course, is that India still has a chance to negotiate its way out of these current tariff levels. Now, whether and how India can do that would also depend on what's really causing the breakdown in India-US relations at this point.
Is it economic, geopolitical, personal, or a little bit of all, and more on that shortly. Foreign institutional investors sold about 20,000 crores, or a little under $3 billion, of stock last week, which is their fifth consecutive week of selling. Domestic investors continue to buy for 15 weeks now, and they've bought over 24,000 crores, or similarly under about $3 billion.
In July, foreign investors sold equities worth about 47,000 crores, or just under $6 billion, while domestic investors bought equities worth about 60,000 crores. Now, weak data also led to the dollar falling on Friday, even as hopes now rose of the Federal Reserve cutting interest rates thanks to that weaker-than-expected US employment number. On Wall Street, stocks fell on Friday as investors responded to the latest data, which pointed to that weaker economy and, of course, the new tariff rates, which seem to be, at least for now, set.
The Dow Jones fell about 540 points to 43,588, which made it its worst decline since June 13, according to CNBC, and the Nasdaq Composite was down 2.2% to close at 20,650. That's its biggest fall since April 21. That's the 21st of April.
And the dollar is weak as well. The Bloomberg dollar spot index fell 0.9%, its worst day since April 11, after those payroll estimates were missed, and traders are now pricing in two rate cuts by the Federal Reserve this year, perhaps more confidently. Also, other currencies have gained.
The yen rose as much as 2.3%, and the euro also rose more than 1%. And here's a message from a sponsor. Want smarter investing at your fingertips? With Investing Pro, get real-time market data, customer alerts, and global financial insights all in one place.
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Gold Outlook
Global gold demand has increased about 3% year-on-year to about 1,249 tonnes in the April to June quarter for the current year, or the quarter that just went past, thanks to a high-priced environment, according to the World Gold Council in its second quarter 2025 gold demand trends report. Now, the buying trends also throw some light on where prices could go or whether they will remain strong, which of course appears to be the case.
So the World Gold Council says gold ETF investment remained a key driver of total demand, with inflows of about 170 tonnes over the quarter compared to small outflows in the second quarter of 2024. Total barren coin investment also increased 11%, adding 307 tonnes. Chinese investors led the way with a 44% year-on-year increase to 115 tonnes, and investors in India, that is, continue to add to their holdings to about 46 tonnes in the second quarter, according to that report.
The important part, I guess, is central banks, which are continuing to buy, adding about 166 tonnes in April to June, led by Poland, Turkey, and Azerbaijan. China and India in the past have also been buying gold, but now more steadily. Importantly, the World Gold Council's annual central bank survey shows that 95% of reserve managers believe that global central bank gold reserves will increase over the next 12 months.
On the other hand, jewellery demand continued to decline, with the volume of consumption down 14%, and now nearing levels last seen in 2020 during the COVID pandemic. So in China, it was down 20%. In India, it was down 17%.
But the value, because obviously, prices have been rising steadily, and more than 30% this year is up, and the global jewellery market value has increased to a total of $36 billion.
Oil Prices Fall
Oil prices fell by about $2 a barrel on Friday, thanks to the potential of an increase in production by OPEC and allies, which is very likely now, while a weaker-than-expected U.S. jobs report is also triggering concerns about demand, according to Bloomberg. Brent crude futures were at about $69.67 a barrel, which is down about $2, but just under $70, that is.
Overall, Brent was up about 6% for the week. So the agreement amongst the Organisation of Petroleum Exporting Countries is expected to result in about more than a half a million barrels a day increase in production in September. Meanwhile, here's the interesting part.
India will continue to buy oil from Russia despite threats from the United States, officials told Bloomberg over the weekend, responding to reports that India was suspending purchases after those threats to impose more tariffs on India for buying oil from Russia. The sources told Bloomberg that no decision has been taken as yet on stopping imports, and both state-run and private refiners are allowed to buy from their preferred sources, and crude purchases remain a commercial decision made by them. Trump later told reporters that he had heard India would no longer be buying oil from Russia and calling it a good step.
Meanwhile, Prime Minister Narendra Modi has urged citizens to buy locally made goods to help the economy during heightened global uncertainty. In a speech at a rally in UP, Uttar Pradesh on Saturday, he said, the world economy is going through many apprehensions, there is an atmosphere of instability. Now, whatever we buy, there should be only one scale, we will buy those things which have been made by the sweat of an Indian.
He also highlighted the importance of shielding India's economic interests during uncertain global conditions, and he said that interests of our farmers, small industries and the employment of our youth are of paramount importance.
India versus Trump
In a few months, President Trump has gone from praising India as a major strategic partner to saying that he wouldn't care if its economy implodes.
Now, if you look at the tariffs compared to India, which is at 25%, Bangladesh is at 20%, Vietnam 20%, Indonesia and Pakistan 19%. So, in areas like apparel and others where we are competing with some of these countries, India is now obviously at a disadvantage, which was not expected to be the case going by previous utterances, statements and negotiations. Bloomberg quoted officials saying that the Trump administration still values the US-India partnership, but added that ties between Washington and New Delhi have steadily soured over disputes about trade, Russia and whether Trump deserves credit for brokering a ceasefire following a four-day conflict in May between India and Pakistan on the border.
On Wednesday, Trump said that India would incur a penalty for its continued purchases of Russian goods, that's oil and defence equipment. So, what's really turned on in this India-US equation? Is it only about trade and India's refusal to open some parts of the market to American exports or is it more to do with geopolitics or something else? I reached out to Indrani Bagchi, CEO of Ananta Aspen Centre and foreign affairs columnist with the Times of India, and I began by asking her what had gone wrong.
INTERVIEW TRANSCRIPT
Indrani Bagchi: Somewhere the Modi-Trump relationship has soured. That is pretty clear because Trump's rants have become very personal. I mean it's not a policy thing and you have to worry about that because this is a president that literally turns on a dime.
He's somewhere in the morning, somewhere else in the afternoon. So clearly something has happened between him and TM that has taken the shine off the relationship. It has impacted the relationship in the way that you're seeing right now which is tariffs.
My sense is if we don't repair this, it will spread across many other sectors. But what went wrong? We are all in the realm of speculation but a couple of things that I heard.
One was that when the Prime Minister went to the Quad Summit in Baltimore in September of last year, Trump tweeted that my friend Modi is here and I'm going to meet him. Modi did not meet him because somebody advised Modi not to meet him until he was also meeting Kamala Harris who did not have time for Modi. So Modi did not meet Kamala Harris but he also did not meet Trump and I was told by fairly authoritative sources that Trump took that aim.
The second was the ceasefire. If you've noticed that Trump has now spoken about it about 30 times in the last month and a half and Modi wasn't giving in on the ceasefire having been mediated by Trump. A lot of it has to do with domestic politics.
A lot of it has to do with the fact that India's position on foreign policy about this is that we don't allow another country in between India and Pakistan. Now there have been people who have said oh yeah so what you know why didn't you just let Trump take credit. The answer from people in Modi's circle was that we reckoned that the domestic cost would be very high which we would have a problem with.
That's the second and you can see that Trump's sort of fascination with Pakistan is not really that he cares about Pakistan at all. A lot of it has to do with needling India. There are no oil reserves in Pakistan since the 1950s. They've been looking for oil reserves.
There is a sui gas field in Pakistan in Balochistan which is managed by Mitsubishi. It is still the biggest energy source inside Pakistan. The third element of what went wrong there was the trade negotiations.
Now the trade negotiations you know the way the Indians negotiate on their trade deals which is on and on and on and basically wearing down the opposition without actually closing a deal. Trump at least two weeks ago received a full deal by the USTR which was agreed by the USTR and the Indian side on his desk. He looked at it, tossed it and said I want more.
What does he want? He wants opening up of the agriculture market, GM foods, dairy and particularly soy. Now soy is an interesting story.
Soy farmers are actually a big Trump voting base. America's soy exports used to go to China. From 2024 China soy imports started to dip fairly heavily.
25 When the first targets went out I mean China became target practice for Trump. China said I've stopped getting soy from America and recently Argentina. The Malay government reduced all export taxes on agriculture products which basically means that the two big soy producers in Brazil and Argentina are now in the China market. There is no other big large market in this world.
The Japanese take a little bit but they're an old population so that leaves us and we will not take soy because it's genetically modified. So that's where we are.
Govindraj Ethiraj: But that looks like a stalemate because India is clear about these agriculture and dairy deadlines and you're saying that Trump and the US administration is equally keen that we open up that market.
Indrani Bagchi: I think Trump more than everybody else. I think everybody else recognises why we will not take dairy, why we will not take agri and GM crops are anyway illegal in India. You have to change the law.
So others recognise this. Trump does not. Trump is a headline man.
They've been trying to get a call between Trump and Modi for some time. Modi has refused. So there has been no conversation between Modi and Trump.
The last conversation was on the 17th June and there has been no conversation since then. So we are in a bad place.
Govindraj Ethiraj: Right. So if this has to be resolved, from where could it be resolved? Could it be from the foreign affairs side which is let's say more diplomacy even at the highest levels or is it offering trade concessions?
My question really is what matters more at this particular point of time?
Indrani Bagchi: Diplomacy at the highest level, at the highest level, which at this point, Modi having stood up in Parliament and said what he said will be a little tough. So if he doesn't call, Trump is not going to call. We are looking at a bit of a stalemate.
So there has to be a way out. I'm not sure what the way out is. At this point, everybody is sulking.
The Indians are sulking very big. The Americans are sulking. The Russia bit is all nonsense.
I mean, that's just fluff. Trump has not put a single sanction on Russia. Far bigger importer of Russian oil than India is actually China.
Not one sanction. China has not been sanctioned once on import of Russian oil. Brazil has not been sanctioned once on the import of Russian oil, although Brazil has been hit on a whole lot of other stuff.
The Europeans still are the largest importers of LNG from Russia. Still nothing. So it's only India, which basically means that there are other calculations here at work and not Russian oil.
Govindraj Ethiraj: Right. So last question, Indrani. So if you look at, again, I'm asking you from a foreign affairs lens, what is the one lesson that you think we should take away and then incorporate in our dealings going forward, given the way America and Trump or Trump and thus America is approaching issues in this very social media intense world?
Indrani Bagchi: Our biggest fault, if I may call it a fault, was that we completely misread Trump-Washington. We have been playing diplomacy in Washington, which is a very old school, which is the official round, the think tanks, etc. Ain't working because most of the old officials have been removed from their jobs.
The think tanks don't count because Trump doesn't care for the think tanks. There are entirely new ecosystems of influence peddlers inside Trump's Washington beltway, which we have not tapped. The Pakistanis have done a super job of it.
They have got 13 companies to be lobbying for them at every stage. We had none until a few months ago. We now have one.
So the Indians believe that we can do our job. Clearly not. I hate to say this.
You're not playing golf. You're not drinking buddies. You're not hanging out in the same bars.
You don't have friends in the MAGA circuit. We used to be good at Washington. We are not good at Washington anymore.
We have to fix that.
Govindraj Ethiraj: Right. That's very useful and insightful, Indrani. Thank you so much for joining me.
Indrani Bagchi: Thank you. Thanks, Govind. This is always a pleasure.
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Back to the India-US spat, there are some lessons that obviously go beyond the present and call for reflection on what can move the needle when it comes to taking up bargaining positions on the economic and trade fronts.
There are no straight and simple answers or quick fixes, but assuming there would be, would make it even more dangerous than actually not finding a solution. I spoke with Shankkar AIyar, veteran economic journalist and columnist and author of a recent piece in the New Indian Express on India's quest for strategic autonomy and what that will really take in order to improve India's position in the global bargaining table.
INTERVIEW TRANSCRIPT
Shankkar Aiyar: Essentially, what I'm saying is that when we make assessments, we tend to overestimate the immediate and underestimate the long term. The immediate implications will be seen in the GDP figures, it will be seen in the employment figures, and it will be seen in the consumption figures. So basically, what does this 25% tariff do?
It removes whatever edge you had in terms of competitiveness for the exports. Now, some of the orders may have already been taken, some of the tariff will be eaten by the Indian supplier, and some of the tariff will be eaten by the overseas purchaser. And you always hope that you will get a better deal at the end of the month when the two sides meet.
So the short term is something that can be managed. It isn't a big dent, but the long term is an issue. If you continue to be in this idea that you are going to harvest the China plus one policy, which means essentially that all the shifts in supply chains out of China by global companies, some of it will come to India, just like Apple, iPhone and other opportunities have come to India.
Now, when you have a tariff that is higher than the competing countries, your long term prospect of attracting manufacturing investment is daunting. Because every company who wants to invest in India will first figure out what will be the option to export back to US or to EU or to UK. So these are questions which have long term implications.
And the long term implications will also visit the employment picture, because most of our exports are labour intensive, large MSMEs, like gem and jewellery, garments and stuff. And so they are tariff sensitive. We have loaded our economy with many costs about which we can talk later.
But this is my view that the immediate may not be that bad, but the long term could be really bad.
Govindraj Ethiraj: Okay, so the other point that you've made, Shankar, is this dichotomy between the quest for strategic autonomy in trade, versus what you've called the parasites that haunt the domestic economy. Now, this obviously is something that we know, I'm talking about the challenges in the domestic economy. But what is it that we can do to change things?
And how could that in turn, let's say, help us become stronger in our negotiating ability, at least in the short to medium term?
Shankkar Aiyar: So it's a matter of how you design the ecosystem. So what do businesses want? They want predictability, consistency in tax policy.
They want predictability, certainty in terms of judicial process. They want predictability in terms of the direct and indirect input costs. So this is something that has to be managed by both the centre and the states.
Now, we know that companies who have invested in India have been haunted by tax cases. We know that opening a company is easy. The complaints that companies face.
Just now, TeamLease Tech has put out a report which says that just in the renewable sector, this covers the renewable sector, renewable companies are subject to 799 or so, 700 plus compliances. And these are unique compliances. If you take the whole industry, a business area as whole, there are over 69,000 compliances.
Now, most of this is in the labour law area. So in 2016, we started reforming the labour laws. In 2019, a code was made.
In 2021, the code was shared with state governments. In 2025, the codes were supposed to be adopted. I think only half the states have sort of even looked at the code.
So if you're not going to fix your labour laws, how are you going to create large manufacturing units? The Make in India programme started in 2015 or so. At that time, manufacturing as a percentage of GDP was roughly around 16 or 17 percent.
Today, agriculture has a higher share of the GDP than manufacturing. I mean, this is where we are. And if you look at options, how do we become competitive?
We have to have a mix of policies and we should not be afraid of competition. In 1991, 1992, the government was toying with the idea of imposing FDI caps on the software sector. The software companies said, no, we don't want to.
Narayan Murthy, I think, was leading the NASSCOM at that time. They said, no, we don't want any protection. We let it be open.
We'll compete with the best. And so today, software companies are competing with the best. Similarly, we had a policy till 1991, 1992 of blocking all kinds of collaborations and foreign companies into India in the automobile sector.
And then came Suzuki and thereafter Hyundai. Now, Chennai-Bangalore corridor is known as the sort of Detroit of India. I mean, how did they manage that?
Because they created an ecosystem. I'll give you another interesting example. We are a cricket crazy nation.
So look at the IPL. The IPL, when it started maybe about 2007, so it's like 14 years now or 18 years. At that time, there were a lot of questions about allowing foreign players in the team, four players in the team.
But Indian cricket actually leveraged its market, which is the audience, used all the foreign players to acquire new skills, used the money to deploy new. So these are examples that exist in the system for the Indian government to sort of look at. It is sort of mystifying why every few years Make in India becomes something else.
What is the objective here? The objective is to employ the maximum number of people and get the largest share of the overseas exports market. How is that to be done?
Somebody has to strategise. And you should think about, should I charge GST on these products? Should I have a higher customs duty on imports?
Should I have a higher exercise on these things? Should I be protectionist or should I open competition? Will my brands be globally competitive?
These are questions that are sort of staring at the entrepreneurs and they should be staring at the government also.
Govindraj Ethiraj: Right. Last question, Shankar. So you've referred to the 1991 reforms being the last real reforms.
My question is actually slightly different. When you look at reforms linked to tariffs protection in the Indian context, would you say that the government is more responsible or is it the industry itself?
Shankkar Aiyar: So that's why, Govind, I use the word ecosystem very carefully. There is an interplay. When we have a PLI scheme, for instance, the moment you introduce a PLI scheme, there is a race by industry to sort of get protection around it.
So how are you going to increase? What is a PLI? It's a productivity linked system for offshoring companies.
And how are you going to improve the share of Indian inputs in any manufacturing if you sort of constantly protect the department? India does best when the market is open. You can see this in banking.
You can see this in mutual funds. You can see this in automobiles. You can see this in pharma.
You can see this in telecom. Every time governments think that they owe protection to the industry, they are actually doing that industry a disservice. I think the big problem in India is the collaboration between government and industry, what I call the strong consensus for weak reforms.
This is something that needs to be dismantled. We should look at issues in terms of national security and failure. Rest all should be open.
Govindraj Ethiraj: Right. Shankkar, thank you so much for joining me.
Shankkar Aiyar: Always welcome.
