On Episode 1013 of The Core Report, financial journalist Govindraj Ethiraj talks to Dinesh Kanabar, Founder, Chairman & CEO of Dhruva Advisors. We also feature an excerpt from our recent Special Edition featuring Jitendra Gohil, CFA, CIO – Listed Equities at Bajaj Alternate Asset Management Limited.

SHOW NOTES

(00:00) Stories of the Day

(01:00) When Will Fuel Prices Rise At The Pump?

(03:25) Markets Dip Again As Oil Prices Cross $112

(03:56) China’s Markets Enter Bear Territory

(05:39) How Effective Is GIFT City As An Investment Channel?

(18:30) Will India Inc Pull The Trigger On Higher Capex And Growth?

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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 23rd of October and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital presently smogged out and we are also reaching the end of October and the last few months of 2026 and obviously it's not been a very good year.

Our top stories and themes…

The markets have dipped again as oil prices shoot up.

When will fuel prices rise at pumps?

China's markets have entered bear territory.

How effective is GIFT City as an investment channel and where it links up with a larger challenge of long-term capital gains on investors?

And from borders to boardrooms, will India Inc pull the trigger on higher capex and growth?

Markets, Oil, The Rupee and China

When will prices at the petrol pump go up next? It does seem like a when and not an if question, which of course will have a fair amount of downstream impact including retail inflation and increased misery, but it cannot be helped. India's crude oil import bill jumped 47% to $15 billion in September thanks to rising energy prices. According to data from Petroleum Planning and Analysis Cell quoted by Business Standard, this is despite oil imports in volume terms rising only 7% to about 22 million tonnes for the month compared to about 20.3 million tonnes a year earlier.

Now the rise in the import bill came as the Indian basket crude price was averaging around $116 a barrel in September. That figure was about $69.60 or just under $70 a barrel a year earlier. So there you are $70 a barrel for the Indian basket crude price and $116 a barrel today.

This also suggests that the demand side is a problem and matters have to be better managed there and one way to do that is to send the price signals or the right price signals which is prices. And matters are not improving on the supply side Brent prices were at their highest since May on Thursday after more Houthi attacks in Saudi Arabia including on Dammam airport. Brent crude futures were at $112 a barrel on Thursday morning, which is the highest since the 18th of May and they hit $112.55 in that session, Reuters said.

Analysts told Reuters that efforts to mitigate tensions both in Ukraine and the Middle East lack credibility. Reports of Middle East crude oil exports exceeding pre-conflict levels are more than countered by attacks on ships in the state of Hormuz and the Houthi attacks on Saudi Arabia and on its oil infrastructure. India's oil companies are also beginning to report their losses.

Hindustan Petroleum reported a 9% drop in second quarter profits on Thursday, thanks to higher tax expenses and that increase in crude prices that squeezed margins. Average global Brent prices have risen about 40% year-on-year in the second quarter. Elsewhere, the U.S. State Department has ordered some diplomats and family members to leave their missions in Saudi Arabia and plans to withdraw family members from a number of other U.S. missions in the Middle East, U.S. officials told Reuters.

So make of that what you will. India's imports of Middle Eastern crude have gone up in September, have now returned to pre-war levels, while refiners have now cut back purchases of Russian oil amid stiff competition with China ship-tracking data compiled by Reuters showed. With all of this in the backdrop, the benchmark indices ended lower for the third day and the cents excelled 460 points to 73,249 and the nifty 50 was down 123 points to 22,687.

In the broader markets, the nifty mid-cap and small-cap were down 0.9 and 1.1% each. The rupee was down 44 paise to close at 94 rupees 82 paise against the U.S. dollar and that was largely due to the negative trend in domestic markets and of course rising oil prices. Elsewhere in Asia, China's benchmark CSI 300 index on Thursday entered bear market territory has now fallen 20% from its June peak, as a prolonged sell-off in equities deepened, CNBC reported.

The index tracks 300 of the largest stocks listed in Shanghai and Shenzhen has declined for 10 consecutive weeks and is down about 2.5% this week. Analysts at Pella Funds told CNBC that China's equity market continues to face structural challenges particularly as the world's second largest economy grapples with the fallout from years of excess capacity and over-investment. Back home, the $3.2 billion IPO of Reliance-owned telecom and media company Jio Platform saw more appetite on the second day of public bidding with the retail portion also getting fully subscribed.

And in a sign of further stress on global aviation and Indian Airlines as well, American Airlines Group has issued a broad range for its fourth quarter loss prediction highlighting how the industry is struggling to map out its performance amidst persistently high fuel prices, Bloomberg reported. The airline, that's American Airlines, said on Thursday it incurred a $1.9 billion increase in fuel expenses and has warned that it may need to further reduce flying if prices remain elevated, echoing rivals that are prioritising profitability over market share, as per that Bloomberg report. Now domestic aviation in India, as we've been reporting, has already slowed down on lower capacity and higher prices.

We'll have more on this on Monday. Elsewhere, British bank Barclays has said it will cut 5,000 jobs, about 5% of its total workforce, as part of an artificial intelligence-linked efficiency push. CNBC reported that 60% of the cuts are expected to be in support functions like developers, according to the earnings presentation, which also noted an outcome was organisational simplification and technology change efficiency driven by AI.

How Effective Is GIFT City As An Investment Channel?

Artha bharat Investment Manager said the day before that it plans to move two investment funds managing more than $125 million to Abu Dhabi and convert its existing gift city vehicles into feeder funds as it seeks to widen investor access and simplify the way resident and non-resident Indians invest in its strategies. The decision was driven by the difficulty of accommodating resident and non-resident Indian investors in a single fund structure under the existing International Financial Services Centre framework, or IFSC framework, as well as the lower investment threshold in Abu Dhabi, Sachin Sawrikar Managing Partner at Artha bharat Investment Manager's told Business Line on Now we touched on this theme with Sawrikar yesterday as well, but today we reached out to Dinesh Kanabar, CEO of Dhruva Advisors, to get a larger perspective on not just gift city and its efficiency in the context of expectations and where it stands, but on the larger issue of long-term capital gains on portfolio investments into India, a theme which is clearly recurring quite often now.

INTERVIEW TRANSCRIPT

Dinesh Kanabar: Gift City was created as a part of a dream to say that why should investments into India come from Mauritius or Singapore? Why don't we create an offshore centre within India from which investments can be made? Like all good things, as they say, the road to hell is paved with good intentions.

It was all paved with very, very good intentions. I think where things have got a little bit stuck. First, it took several years to give clarity on the tax part.

There was a 50% exemption, then there was a question of whether dividends would be exempt, and then a total exemption came, etc, etc. The situation today, Govind, is that it's a fantastic regime. It gives you a tax exemption for defined years.

But the question is that how do you show substance in a gift city? So if you are a fund, you have got to prove that your effective management is in the gift city. And that means people have to relocate there, people have to be sitting there and making decisions, which is where things tend to get very challenging, A, for the funds, and B, for lack of certainty as to whether when you are sitting with a tax officer trying to claim a tax exemption, will you be able to show substance in the gift city?

That is where the challenge of the fund side is. There are other challenges on outbound investment where there has been a flip-flop of policy, etc. That's a different subject altogether.

Govindraj Ethiraj: Right. So between outbound and inbound, where do you feel the complexity is higher and which problem does which channel solve?

Dinesh Kanabar: Maybe I could answer that a little bit differently, Govind. Today, gift city is used for outbound. In outbound, there was a flip-flop again as to whether FDI would be permitted, not permitted.

There was a Reserve Bank of India circular, and then there were issues around interpretation of that circular. So the question was that, can I set up an entity in gift city of my own? And if that entity is doing outbound investment, which regime applies, FDI or FBI, which regime applies, it is widely now accepted that the FBI regime applies and therefore, 50% of the net worth of an entity can be invested into gift city from which outbound investments can be made.

That is one thing for which gift city is widely used. There are several AIFs which have been created in the gift city from which investments are made. Family offices have been set up on that basis, etc.

Insofar as inbound is concerned, there are several people who have set up offices there, RDI, etc. But again, there the issue of effective management remains. And then we have exemptions for things like aircraft leasing, etc., where one can set up an entity out there and get a tax exemption on the leasing, etc.

Govindraj Ethiraj: Right. So specifically, in the context of the funds that I was referring to that were moving their master funds out, they were saying that they were disallowed tax deduction under section 80LA. And basically, that leading fund jurisdictions generally tax at the investor level, whereas in India, it's differentiated.

So could you explain that? And of course, then I'll link it, I guess, to the larger issue of long-term capital gains.

Dinesh Kanabar: So the challenge again goes back, Govind, to say that the fund is a pass-through entity. The tax is on the investors. And again, when you are coming in from a foreign jurisdiction, whether the investors or all will not be liable to tax in India, are they entitled to tax treaty exemption, etc., could become a challenge. So two things. One is at a fund level, whether the management is in India or not in India. And second, whether the investors are coming from a tax treaty protected jurisdiction.

Treaty applies, does not apply, how does one deal with it? Those are the issues which come up. And that's why funds are basically relooking as to whether it's a right decision to have a master fund in India.

Govindraj Ethiraj: So what could the advantage have been earlier? And what did these funds not anticipate that they are now facing?

Dinesh Kanabar: The advantage earlier expected was that would be no taxes at a fund or the investor level. And that advantage is no longer there, because you do not know whether the investors will or will not be entitled to tax exemption.

Govindraj Ethiraj: Right. And does that link or is that the same challenge in a way, at least thematically, that foreign portfolio investors face when they are paying long-term capital gains tax in India?

Dinesh Kanabar: So far as foreign investors in India are concerned, today there is no tax exemption at all. India had a tax treaty with Mauritius, Singapore, all of which have been scrapped or the exemption taken away treaty, of course, continues to apply. The challenge which foreign investors are facing is really slightly different.

The issue there is that we have a depreciation in the rupee. The computation of gains in the context of FPI is in rupees. So you may end up paying taxes on a basis that you made gains in rupees, whereas the gain in dollar terms is nothing significant.

And you end up paying taxes out here. That's the big challenge out here so far as FPIs are concerned.

Govindraj Ethiraj: That's the practical challenge because the rupee is depreciated. But what if the rupee had not depreciated, then would this particular aspect be a concern?

Dinesh Kanabar: See, 12.5% rate of tax going is not really a killer. There are two parts, which are again challenges. One is that when India renegotiated the tax treaty with Mauritius and Singapore, there was a grandfathering provided.

And the grandfathering said that investments made prior to the date of renegotiation will be entitled to continue with the old exemption. Then came GAR and again on the GAR it was provided that general NT abuse will not be applied to old investments. Practically, that is not what is happening.

Practically, questions are being asked with regard to old investments also. In fact, just about a week ago, India formally notified the principal purpose test under India-Mauritius tax treaty, which in essence meant that you have to demonstrate that the principal reason or one of the principal reasons why you had set up the entity was not to take advantage of taxes, which is a threshold which is very difficult to prove because it is even beyond substance because now you have to determine the purpose. Why were you set up? You may have substance, you may have management, that is not sufficient.

Now, this of course was negotiated way back in 24, it is notified now, it is nothing new. But what is happening is that every time an investor is looking at a new regime and does not know whether or not it will be entitled to benefits of the treaty.

Govindraj Ethiraj: And the Mauritius route and the principal purpose test as you call it, is it something that has been brought in post facto?

Dinesh Kanabar: So, the government's intention is that it will be applicable post facto. Unfortunately, one has seen practically at the tax office, tax officers take their own view. And in fact, we have had Supreme Court judgement also to go back and say that one has to apply the law of the land.

The fact that under a circular, you might try to protect or mitigate the rigours is of no consequence.

Govindraj Ethiraj: Okay, so let me come back to long term capital gains and you wrote a column on on October 22nd as well. So, one of the points that you argued as you just mentioned was the fact the double whammy of sorts because the taxation is on rupee gains, whereas the rupee itself is depreciating. And whereas obviously, the portfolio investor is taking out in dollars.

Is the solution to that to link it only to dollar gains or is it to do with the tax itself?

Dinesh Kanabar: There are two, three parts to it. First is that we have investors who come in and who in their home country have no tax at all. So, take sovereign wealth funds, some of whom are under statute exempted from tax, but others who are not.

Now, these entities do not pay tax in the home country. So, the tax in India actually becomes a cost for them. So, the challenge is how do you really give them an exemption so that their returns are not mitigated?

That's number one. You could extend that even a bit more. This has been a subject matter of discussions with successive finance ministers and others.

Other thing is that you look at pension funds, etc., which make investment into India and they don't make it directly. They make it to private equity where they are LPs, etc. Again, they do not pay any tax in the home country and having to pay tax therefore becomes a real burden.

So, what tends to happen, Govind, is that when investments come into India, you factor country risk, you factor currency risk, and then you factor taxes. And within taxes, one is the tax itself and the other is the certainty of tax. As you know, if there is a tax challenge on any account, then we have litigation which goes on for years.

So, that is where the challenges arise. I think one way out to your question is to what would be the way forward. Of course, one can say that do away with capital gains tax, but that amount is very large.

So, we have about a lakh and 28,000 crores collected as long-term capital gains on equity, both listed, unlisted, there's no number available for listed securities. But if the government came back and said that we are looking at long funds in India, we don't want overnight investors. So, today you have one year as a threshold to constitute an investment to be long-term.

What if this was made three years, for example? And you say that any investment which is there in India for more than three years, genuine long-term, will not levy capital gains tax. One could work something like that and come back to say that is, you know, in my article, Govind, I referred to what is the lay of the land, which are the other countries with which India is competing for funds, whether it is Taiwan, whether it is Korea.

India has both long-term capital gains tax and securities transaction tax. Most of these countries only have an almost equivalent of a securities transaction tax. So, you are not becoming competitive.

And you have a tax regime which is known to be fairly cantankerous and aggressive. Got it.

Govindraj Ethiraj: And obviously, there is a lot of expectation that something will happen very soon. Because obviously, the markets are not looking very good. The rupee is still weak, though it's a little stronger right now.

So, do you feel that there could be a response in the near future? Or is this something that people should mentally prepare to wait for maybe the next budget or beyond?

Dinesh Kanabar: I wish Govind I had a crystal ball and I could give you that answer. But two things. The fact that at a Bloomberg conference, the finance minister simply said that she's willing to hear comments.

She did not make any promise. She did not make any commitment. She said, I'm willing to hear that debate.

And the market rose 1000 points in the next half an hour. Just shows that there is a deep impact. Now, it is not going to be to attribute the entire market to taxes would be incorrect.

There are many other structural issues in and around that. But tax is a definitive leakage. And if therefore, something happens, and the very fact that the finance minister said this, there are deep consultation happening, Niti Aayog has been having meetings, etc.

Representations have been made, shows that there is an active consideration. How will that transition to action Govind One can only wait and see.

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

Dinesh Kanabar: Thank you.

Will India Inc Pull The Trigger On Higher Capex And Growth?

Bajaj also recently put out a report called Connecting the Dots from Borders to Boardroom, referring to how business decision-making is increasingly being driven by a set of factors.

Bajaj says that they study global forces along with macro and policy shifts to identify next multi-bagger opportunities and sector rotations, and politics has become a primary driver of growth in this hostile economic and geopolitical environment. It is even more relevant to follow political events that shape up the world and future of economies and stock markets. Be that as it may, a critical issue is whether or not Indian boardrooms are being aggressive enough in their capex or capital expenditure outlook and thus growth prospects.

I caught up with Jitendra Gohil, CIO of Bajaj Alts, and I asked him how boardrooms are currently looking at expansion and growth and how he was mapping out opportunities in this context. And you can catch the whole interview on YouTube by clicking on the link in the description.

INTERVIEW TRANSCRIPT

Jitendra Gohil: I would say they will be forced to take this kind of decisions, right? So, they will be forced in the sense that look, either you believe in India's growth story. Now, nobody thought that SBI's balance sheet would be 2 lakh crore in 2005 and today it is 50 lakh crores.

Now, who thought that this kind of growth SBI, but that's the fact and we are currently in a JCOW kind of a situation where all the non-discretionary things have already taken care of, right? So, the poverty rate if you see, very interesting, like people don't talk about it. The absolute poverty like $3 per day kind of income poverty, now it is somewhere closer to 2.6%. It used to be somewhere around 27% in 2011. So, one food, clothing, shelter is being taken care of. Now, we are talking about discretionary side and once we look at these kind of growth, 10 trillion and that additional 6 trillion in 10 years where we took almost 79 years to reach 4 trillion, we are talking about 6 trillion in 10 years. That kind of a jump, we need to have private participation.

So, you will see that first the ROI, the ROI numbers, right, return on equity is one of the best in the world after US to some extent. We are somewhere closer to 14%. US will be somewhere around 16-17%.

Net NPA levels, all time low. At the time when the hormones crisis and world is burning, right? You are talking about interest rate I already mentioned.

So, what happens is that the cash flows are now there with the corporates. There is a very attractive market which is 6 trillion in next 10 years and the ROAs are very attractive. So, a cement company will say, why don't I look at wires, you know, because the wire gives me 25% ROIC, I will go into that segment.

Cement…

Govindraj Ethiraj: Or paints before that.

Jitendra Gohil: Paints, wires or you see this even auto now, right? So, all these companies will have to take this board decision that look, there is this big opportunity, I can go integrate forward, I can do backward integration and there are new segments which are coming in where the government is providing so much of incentives. So, for example, the battery technology, some incentives are so much that the centre and state will account for almost 75% of your CapEx.

So, it makes sense. So, all these corporates will have to understand that look, now India is going to see the 6 trillion jump in their GDP and we have one of the best time for the young population to, you know, grow and catapult themselves into developed economy by let's say in the next 20-30 years. Then this is the time that we have to just invest and that spirit is coming.

And if it is not coming, then the incubators or the smaller players or you can say the startups are actually launching rockets.

Govindraj Ethiraj: They'll come and they are grabbed. And like we've seen it in PIMS, for example, we've seen or defence for that. Defence, for example.

Yeah. So, you're saying that, okay, if the big companies and I'm going to supplement with a question there as well, but if the big companies and conglomerates don't move, though they are moving, but they also tend to move in areas where let's say there's some regulatory cover, but if they don't move, then you're saying that the smaller companies or even startups for that matter will come and start grabbing share, even though the industries or sectors themselves are very traditional.

Jitendra Gohil: Yes, yes, yes. That has started. Yeah.

Govindraj Ethiraj: Okay. So now coming to the boardroom or rather coming back to the boardroom, now many companies are sitting on, as you said, a lot of cash and healthy cash flows from the past. They're also tempted to not do something because they feel that their share prices might fall, their margins might get squeezed.

And that could happen for short periods of time and is understandable. But now it's happened for a long period of time, as in companies have been now sitting on their reserves and so on without taking any real big bets, or at least many companies. What can really change that?

I know what you're saying that, yes, it should change, but will that trigger come? For example, in IT services, there is a general feeling that many of these IT services companies should have invested more in AI linked innovation and so on, but that's not happened. And from their point of view, they're better off doing cash purchases or buybacks of shares and so on, and keeping shareholders happy as opposed to thinking of something else.

Jitendra Gohil: So let me answer it in two ways. One is that earlier, let's say just before COVID, if you see the global environment was mostly consumption, all these things, infrabuilding started happening post COVID when the AI bubble started or AI boom started rather. Right.

Similar story can happen. Bubble is not a wrong word. I mean, so I will look at in two ways.

The capital is coming back in the economy. So for example, you're talking about the family offices. Now, last 25 years, I've been dealing with a lot of UHNIs and the next gen.

So now what is happening, if I'm not able to run my business, okay, I will give it to professionals. Whatever money I've earned, I've started investing in startups. So you are creating a kind of a circle where a person who has an idea was idea and was fire in his belly to just take this business forward.

He needs capital. You invest in that. And that's why I think what we are seeing that the same capital is getting rotated back into the economy.

Second, the IPO market has also boomed. So if you, let's say you are scared, okay, you know, this is too risky. I go to the market and you are getting money because the same capital is coming back to them.

So that cycle has started. And this is actually probably some, you know, promoters, you have to be a little careful in India. But most of the time, I've seen that 25 to 30% of this capital is going to establish new businesses and new capacities.

Govindraj Ethiraj: If you were to take a step back and look at this over a 20 to 30 year period. So you're saying that boardrooms today have been hesitant for some time, and it's time that they start investing again. But if you take, like I said, if you take a step back, do you feel that this is a cycle?

I mean, and when was the last time boardrooms are aggressive? And how did that pay off? And could it therefore come back because it is a matter of cycles?

Jitendra Gohil: So obviously 2002-2008. So from 28 times investment to GDP went up all the way to 36 times investment to GDP or even higher. Today, we are sitting at 34.3 investment to GDP, right?

The gross capital formation, right? But during those days, I think all other economies were on fire, right? The commodity prices were going higher, emerging markets were doing pretty good.

And that time, then we saw the crisis happen. And then the government gave incentives via the public sector banks, the public sector banks indiscriminately given loan to various groups. And by 2013, we realised that this is like something gone, right?

So that learning is there. That's there in the memory. So what happened during COVID?

India did not give the kind of stimulus that US, Germany, Japan, or any other European. India and China were very, very restrictive in their stimulus. So what happened in this bargain?

We piggybacked on the balance sheet printing of that happened in the West, but we did not loosen our strings. And now India is in a position where the war is going on and your NPAs are at an all-time low. Your margins are at all-time high.

Your ROEs are one of the best in the world. So now if you do CAPEX, now if you do significant amount of CAPEX, you get a benefit. And second, you also see the demographics, right?

India's demographics suggest that we are seeing this TFR rate of India is falling, right? From 2.1, which is a replacement to 1.9. What exactly means going this? We have to understand when the family size is shrinking, you see the propensity to borrow goes higher.

So you are seeing that the net financial saving rates is remaining low and people want to spend more. This is the exact time where you have to create capacities where people are ready to spend more. You are talking about financialization of saving.

Government is giving you 7 lakh crores of incentive. Infrastructure spending is happening at a breakneck speed. And you are talking about 15 lakh crores of freebies and whatever you call it probably, but that money is getting in the hands of people.

And that's where I think it's a well-balanced kind of a way. And here the corporates will have to step up and discuss in their boardrooms and invest and see this opportunity that is lying ahead of us.