Markets Fall As Fresh Tariff Jitters Hit India
Tariff threats and potential follow-throughs cannot go away, regardless of what agreements are signed
On Episode 773 of The Core Report, financial journalist Govindraj Ethiraj talks to Ajay Bagga, Market Expert as well as Uday Ved, Partner – Tax services at KNAV.
SHOW NOTES
(00:00) Stories of the Day
(00:50) Markets fall as fresh tariff jitters hit India
(04:15) What lies beneath the choppiness in Indian markets?
(1639) An India-EU deal could be around the corner
(17:34) The US targets Iran but it is not clear Venezuela is a win even as oil price rise
(20:08) Businesses are looking forward to a host of tax benefits in the upcoming Union Budget
(27:29) Immigration raids pick up steam in the UK too
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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.
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Good morning, it's Wednesday, the 14th of January, and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.
And our top stories and themes…
The stock markets fall once again as fresh tariff jitters hit India.
The US targets Iran, but it's not clear Venezuela is a win, even as oil prices rise.
What lies beneath the choppiness in Indian markets?
An India-EU deal could be around the corner.
Businesses are looking forward to a host of tax benefits in the upcoming union budget. Will it come?
And immigration rates are picking up steam in the United Kingdom too.
More Tariffs
So it's Wednesday today, it was Tuesday yesterday, and we're faced with a fresh round of tariffs. Like always, details are sketchy at this point, but the United States will put a 25% tariff on any country that does business with Iran, according to President Donald Trump, who spoke on Monday on this.
The president called the order final and conclusive, but did not detail which legal authority would underpin those tariffs and no executive actions on that matter were immediately posted on the White House website, according to the Wall Street Journal, which added that Iran's top trading partner is China, according to the Observatory of Economic Complexity. Other partners include Turkey, Pakistan, Armenia, and India. Russia and Iran have also signed a free trade agreement in 2025, boosting the amount of businesses the two countries do with each other, according to the Wall Street Journal, once again, but quoting Russia's state news agency TASS.
So essentially, what this all means sitting here is that tariff threats and potential follow-throughs cannot go away, regardless of what agreements are signed. Even at this point, even if a country has a deal with the United States for an agreed tariff rate, it could suddenly end up being penalised further if it is demonstrated that they're exporting to Iran. If it's not Iran, it might be something else.
Meanwhile, because of all of this, gold prices, of course, continue to rise and stay strong. Gold and silver's upward run has started again, with gold topping $4,600 an ounce for the first time, and bigger brokerages predicting $5,000, as we've mentioned here, as those factors intensify, which is mostly safe-haven-bound investments. Spot gold crossed $4,629 per ounce on Monday, and silver was at $86, according to Reuters.
Now, gold has gained more than 6% in just the first 13 days of 2026, after, of course, hitting several highs and gaining 64% last year. So let's come to the stock markets. The Sensex and Nifty were lower after a choppy session, which also saw the indices in the positive and then going back into the negative.
The Sensex was down 250 points to close at 83,627. The Nifty was down 57 points to close at 25,732. The broader markets were mixed.
The Nifty mid-cap was down 0.2%. The Nifty small-cap 100 was now up, rather, 0.6%. A few positive economic signals, data from India's carmakers showed that sales to dealers were up 26.8% or close to 27% in December. That's last month, their biggest monthly rise of 2025, thanks to those tax cuts, which continue to trigger affordable buying. The Society of Indian Automobile Manufacturers, or SIAM, said that carmakers sold about 399,200 units in the final month of 2025.
That's almost 400,000. For the full year, sales were up 5%, which was better than the 4.2% in 2024. The day before, we spoke to the Federation of Automobile Dealers Association, as you know, that's FADA, who also spoke of strong numbers showing a 26% jump in sales, as well, in that month of December.
FADA also pointed out that rural sales were higher at about 32%, that's growth, while urban was at 23% up for the month of December. That, of course, leads to some macroeconomic questions on why rural is up. We don't have an answer for you right now on that.
Just to recap, the tax cuts that we saw in September lowered taxes on sports utility vehicles with engine capacities over 1,500cc to 40% from 50%, and small cars went from 28% to 18%. With the markets being extremely choppy, as we saw on Tuesday as well, and also looking quite desperately for fresh signals, it's perhaps a good time to take a step back and look at what are the various factors at play, including what's visible, and more importantly, what's invisible, so to speak. And that was really the first question I put to veteran market analyst Ajay Bagga, based out of Mumbai, who joined us.
INTERVIEW TRANSCRIPT
Ajay Bagga: I think geopolitically what has changed for Vindhya is a very new reality with Trump, because the standards of foreign relations don't work. Somebody who questions his NATO partners and wants to take over one of his NATO countries' big portion, that's the kind of change that's happening. And not only the Indian diplomatic corps, I think the diplomatic corps around the world are just not geared up to handle somebody like Trump and the pace of the news flow.
So that's one thing which is upsetting sentiment all around. For markets again, we had the Twitter index on Trump, which JPMorgan had set up in Trump's first administration. Now we need a truth social index on Trump, but this time around, he's so much in love with daily press conferences, daily addresses, that there's just too much news flow that happens on a daily basis.
So that's again something that's upsetting markets. But despite all this, why did emerging markets go up 34% last year? Koreans go up 70%.
Taiwan, which has got China looking at it with its grubby fingers, ready to take on Taiwan. Taiwan did very well. That's the markets.
That's the AI story. So if you cut out AI, like for the Korean market, most of the gains came from Samsung and SK Hynix, which again, for 2026, they have sold out all their memory chips already. Starting the year, their 2026 production is already sold out.
That's the kind of change that's happening on the AI front, which is carrying the whole world ahead. And India doesn't have an AI play. So that's one below the surface.
The second thing, or I would say that's two, because the first is our foreign core is not able to engage with Trump, shifting Trump. What our foreign cadre learned 20 years, 30 years back, those realities are gone. Second is the AI boom, which we have missed.
Third is India peculiarity, where our valuations were pretty high. And post the national election announcement in 2024, that four or five months of underspending, it emerged with about six, seven quarters of under delivery on the earning side. Now we are finally catching up.
I think this first quarter, Jan to April of 2026, calendar year first quarter, financial year last quarter, is going to be much better. What we will see for quarter three, that downgrades start plateauing there'll be more upgrades that will give a boost to the markets. So in the known unknowns, three things that we are looking for, what you said sentimentally, a US trade, I don't think that's coming.
So I will qualify that as an EU India trade agreement that will help also. It's a big block and having an agreement with them will help. US trade, I think it's still some time away, won't be that easy.
Second would be the fundamental booster from the earnings. Earnings this year, calendar year should go up by 14 to 15%. That will make a change.
And the third big thing is, what does the government do on the reform side? They have cut personal taxes, they've cut GST, RBI has done some heavy lifting, much more is needed. Now you've had inflation very low for the last four months, RBI should have actually had two more cuts done, because your real rates are very high, and they're holding the economy back.
And as inflation increases, the GDP deflator will go up. And so a nominal 8.7 translating into 8.2 real is going to become nominal line translating into six and a half real. Then what will you do?
All of a sudden, headline will be that GDP falls quarter and quarter. It's not that, it's that inflation deflator, which was low, which led to the, actually nominal has fallen. The budget maths was a 10.1 Govind, at the nominal GDP, we are doing 8.7. So we are underperforming. That got masked because of lower inflation and the real GDP. So these are some of the things which the markets are aware, and they're not really very enthused in coming into the market. Add to that is promoter selling 1,30,000 crores of promoter offloading last year.
PE funds are stuck around the world, nearly $107 billion Govind were raised last year in continuation fund. So you have an eight to nine-year-old fund, which is getting expired. You have to return the money, but you don't have a liquidity event coming up.
So they would raise new funds and move those companies at whatever valuation. It's not a market-based valuation. So there are a lot of suing and a lot of heartburn in investors.
$107 billion of continuity fund, it's just showing liquidity has dried for PEs. And India is a market where IPOs are being played as a lottery by the retail and even by institutions. So a listing gain lottery is happening.
So PEs have been rushing. And you have seen even foreign corporates are doing listings here because the Indian sub gets a higher valuation than the parent. And you have foreign subs being sold out by the MNC parents because they're getting 40, 50 PEs here while the parent is running at six, eight times price earning.
So they're saying this kind of valuation we'll never get. We'll come and buy back at lower levels, sell off as you can. That has also sucked out some secondary market liquidity.
So these are the things that are happening. Unprepared diplomatic corps without answers to Trump. Trump's unpredictability, his strategy of strategic ambiguity as espoused.
Our fundamentals, our flows being against us, are having a very big exit door. So people stuck elsewhere in the world have sold us and our lack of an AI story.
Govindraj Ethiraj: Right. That's pretty comprehensive, Ajay. So you're also saying that we may not be, or rather, let me put the question this way.
Will the markets be able to shake off the India-US FTA overhang? As in, can they go beyond that? Can the markets graduate from that, whether that happens or not, whenever that happens?
Ajay Bagga: See, there is rhetoric that it's small and we should know. I don't think so. And I don't think we should also because it's the biggest economy.
It's the biggest military. Our loss is Pakistan's gain, or put it another way, Pakistan's gain becomes our loss. So a pauperised economy, a military ruler is able to walk into Trump's White House, have lunch with him while we are consigned to a 50% punitive tariffs.
So it's not barriers. These are walls that the US is creating. So any rhetoric, I would be very careful.
We need to engage with the biggest economy because the second biggest economy is a sworn enemy. It will not let us progress to the extent it can. So we have to engage.
But right now, the third, I would say, the known unknown, the third unknown, which is a risk from the US mess that we are in, is the service exports. If they start putting something on service exports, like they're talking 500% bill, they're talking of goods and services. It will kill the US companies also.
It's not that they can survive with 500. But anything that touches us there, our current account deficit goes through the roof. That invisible number of 300 billion plus the remittance of 130 billion is what's keeping us anchored.
Otherwise, on a goods basis, we have a very big negative balance of trade. So it is very important sentimentally. It is very important with an eye to the future that we engage with the biggest economy, biggest military.
And they are not in the mood when 30, 40 countries have gone down on the knee in front of them. They are not in the mood for someone to preach to them. And at 4 trillion, I don't think we should be preaching to them.
We should be engaging. And wherever the red lines are there, we make them dotted pink lines and let in some amount, do some give and take, but get a deal done. Right.
Govindraj Ethiraj: And last question. So as we've begun 2026, you feel as you look ahead, at least in the near future, the overhang that we've spoken of now, will that prevent any sectors from emerging, so to speak? Or will everything be pressured down by what's happening externally and on the geopolitical front?
Speaking from a stock point of view.
Ajay Bagga: Yes, stock point of view. What I would say, there is a natural progression. So valuations are better than they were in September of 2024, slightly better than September 2025.
As we go two quarters hence, they will look slightly better. But the sentimental overhangs are too strong for flows to recover in a rush. So what I would say, we need a combination of fiscal.
So you need more tax cuts. You need more stimulus to be put in. You know, the Chinese PLI, if you look at the key industries, is an order of magnitude.
Some places it's 10 times, our PLI, some places it's 100 times. That's the kind of support they are put in. Their renewables, their rare earths.
Rare earths, anyways, nobody else makes. But just looking at their productivity, they are about one third the cost of manufacture anywhere else. So you can't become the factory of the world.
This China plus one, we should give up. Give up the rhetoric. Get very prudential.
Get very pragmatic. And see, our economy is under a big threat. 4 trillion, stop the RARA.
Because Japan also was 4 trillion in 93. And still it's 4 trillion. Those were different macros.
We have a different macro. But we should stop this continuous celebration, continuous rhetoric into more pragmatic stuff on at least unleash 100 reforms. At least tell the RBI to cut rates another one and a half percent.
Bring down the real interest rates to really kick start animal spirits. And third is the GST has to be cut even further. So, you know, I would say give autos a boost for a year.
They will really propel the economy. See which are the key areas where you can do it. You're giving 80 crore people, you're giving free food.
Why don't you see what else is in the consumption basket of that 80 crore and give them GST at zero for that? So, the rich people are not buying those same goods. I think that is needed, that to a, acknowledge that we are in some trouble.
Second, then act in a coordinated manner. I think both are missing. So, it's left to the markets and the private capitalists to bail this out.
That will take time. Private capex we are seeing. It's not coming through.
It's more the government capex. And that we have been calling that next four quarters it should start. I haven't been consistently wrong.
One is ashamed of oneself. But that is the reality. So, you need a top-down approach where at least we acknowledge the problem and we bring in fiscal, monetary, as well as the sentimental reforms.
Govindraj Ethiraj: Right, Ajay. Thank you so much for joining me and also giving us a fairly strong and prudential budget wishlist in addition to everything else. Thank you very much.
Ajay Bagga: Thank you, Govind. Always a delight.
India-EU Deal
While there is little or no action on the US front, all eyes are on a potential India-European Union deal. Now, that's not a simple one either, possibly on both sides, and surely on the Indian side, but there are, of course, no sudden grand announcements and pronouncements on social media, so things are being handled a little more calmly, if that matters.
German Chancellor Friedrich Merz, visiting India right now, said on Monday, the possibility that India and the European Union could sign a free trade agreement, which should be a landmark one, by the end of this month, a move that could obviously reshape global trade ties, even as US-India talks remain stalled. Top EU leaders would travel to India to seal the deal if negotiations wrap up in time, Merz told Reuters in Ahmedabad on Monday, after meeting India's Prime Minister Narendra Modi.
Oil Inches Up
Oil prices were up on Tuesday after heightened concerns surrounding Iran and potential supply disruptions, which overshadowed the prospect of increased crude supply from Venezuela whenever that comes. Brent futures were up more than a dollar to about $65.11 a barrel, and US-West Texas Intermediate was about $60.67 a barrel on Tuesday. Iran, which is also one of the top oil producers in the Organisation of Petroleum Exporting Countries, or OPEC, is facing considerable turmoil within in the form of anti-government demonstrations.
A government crackdown against protesters that a rights group says has killed hundreds and led to the arrest of thousands has also attracted a warning from US President Donald Trump of possible military action, according to Reuters. Trump, as we said earlier in the show, said on Monday that any country that does business with Iran will be subject to a tariff rate of 25%. Meanwhile, a report in the New York Times says that Mr. Trump's grand plans for Venezuelan oil have already run headlong into reality, starting with the apparent reluctance of the major oil companies, American oil companies, to plunge immediately into Venezuela, and the related fact that, unlike Russia or Saudi Arabia, the United States does not have a national oil company ready to do the government's bidding.
Now, of course, India has several oil companies that are owned by the government and often act in consonance with the government, as they should, but obviously the two situations are vastly different. The New York Times article also points out that Trump is waging his campaign for greater control of world oil markets in an era in which the United States is already less sensitive to shocks in the global oil supply than it was in decades past, and a report in Bloomberg quoted a chief strategy officer of energy pathways at Carlyle saying that geopolitical risk is at an all-time high, which is a recipe for a spike in prices now. Bloomberg also points out that oil has gained ground in the early New Year period, following a run of five monthly losses spurred by expectations for a glut, and obviously this has come in or rather amid U.S. intervention in Venezuela and a worsening wave of unrest in Iran.
So this rally has actually caught off guard an oil market that was generally bearish.
Tax Briefings
The union budget for the fiscal year 26-27 is expected to be presented on February 1st, 2026. That's a Sunday.
Given the uncertainty of the tariff front and the overall environment of lower investments, both by Indian and overseas companies, the budget is a good place to speed up policy measures relating to tax in specific and the economy in general. The new Income Tax Act 2025 will also come into effect from the 1st April 2026, which has simplified the law but not made any policy changes so far. To give us a sense on where we are right now as we go into this budget season which has technically kicked off, I reached out to Uday Ved Partner Tax Services at KNAV and began by asking him what the budget should focus on in the area of corporate tax.
INTERVIEW TRANSCRIPT
Uday Ved: As you know, the government unleashed the New Income Tax Bill last year and now it's a New Income Tax Act of 2025. And at that point of time, about a year back, when government was looking at reholding the entire Income Tax Act, it said to make recommendations and suggestions from various stakeholders and public at large. Finally, after all the recommendations, what turned out to be was more the language change.
It's making the Act more simple, rationalised as possible, easy to read, so that it reduces litigation. So I think there is an objective which has been achieved from that. And while the Act was finalised effective, it will become effective from April 1, 2026, that is financial year 2026-2027, the Honourable Finance Minister and the Minister of Finance clearly said that this is just a simplification and rationalisation, but all the policy-related changes will continue to happen in the Finance Bill every year.
So we're expecting some good changes. So it's not that the Act has been amended and there should not be any changes, it's for the reading. On the corporate tax front, if you look at it, there are two rates.
We have 22% normal rate with the surcharge goes to about 25.17% for almost all the companies. And if you are in manufacturing, then the rate is reduced to 15% with a surcharge, it goes to about 17%. And there was this expectation about a year back, there was a sunset close which was being put in the manufacturing sector of 31st March 2024.
And the expectation in last year's budget or in February of 2025 was that this will get extended, the sunset close. Now new manufacturing unit, which did not happen, by the way. And so there is clearly an expectation when government wants to really promote manufacturing, semiconductor, various other industries, that that manufacturing tax rate should come back to 15% and with surcharge 17%, that would be very competitive.
Whereas government has given various PLI schemes, the profit link incentive schemes, but on the income tax exemption, there has been an issue. So the new manufacturing unit, as the law stands today, after April 1st, 2024, if you start manufacturing, then you are a normal 25% tax instead of 17%. So I think that would be one key expectation in my mind, as far as the corporate tax is concerned.
And there are, of course, on the corporate front, particularly in the gift city, gift IFC, which is more a financial service centre. Again, a lot of changes happened in last year's budget, but there are certain aspects which are still pending. And I think one aspect is the minimum alternate tax.
It still applies to a branch and not to a company. And some of the sectors within gift city, like insurance, reinsurance, have to establish a branch because of the insurance regulations. The suggestion, recommendation is that there should not be mat on the branch also.
Because one way you are saying there's a tax holiday for 10 years and then you are living a 9% mat. I think there are the two basic changes I would say should happen, certainly for the manufacturing sector, which is of the interest for companies at large. One more suggestion, since you said on the corporate tax, which is really a need of the hour, this entire administration, the litigation, which is really going up and the tax corporates are really facing these issues.
There was also an ask for rationalisation of the TDS rates last year. You see, there are some 35 sections applicable, I can tell you, in income tax, various kinds of TDS rates, income, etc. Just make it three basic rates, 2%, 5%, and 10%.
Consolidate that. That was one ask which has been pending. I would believe it will come through.
And there should be certainly some good measures on litigation reduction, which government has tried, but it's really not yielded. You look at the appeal spending at various appellate levels are humongous. And that's really taking a lot of tools.
So some measures on litigation reduction would certainly be a need of the hour.
Govindraj Ethiraj: Right. If I were to ask you a slightly broader question, you know, so ever since we were hit with 50% tariffs, 25 plus 25% by the United States on exports to them, there are a bunch of initiatives and policy moves that the government has done to make it easier to do business and also more attractive. Now, from that point of view, given that the tariffs have not gone away, and we're actually now facing even more fresh tariff sets, like the latest one being an additional tariff of 25% if we export to Iran.
Now, whether or not that actually goes into force, what do you feel we should be doing if we were to take some more sort of dramatic steps from a tax point of view in order to become more competitive, more globally aligned, and so on?
Uday Ved: See, one very basic aspect is can you reintroduce the export tax exemption, which was there for exports, right? Long back, now it is gone, just because the tax rates have fallen. Can you do that for next maybe three years or so?
That's from a pure income tax, I'm saying. There's no such talk as I understand right now. There are various other aspects how the tariffs could be addressed in the form of giving some subsidy or some exemption from the rate as far as the corporates are concerned, particularly for specific sectors.
But certainly export exemption would be an ideal way to do that to get the tax benefit for the exporters.
Govindraj Ethiraj: Right. And last and quick question, what's the one thing that you would expect or hope on the personal tax side?
Uday Ved: I think there's a lot of changes which happened in the last budget for the purpose of common man at 12 lakhs, no tax, at 24 lakhs, sadly, at 3 or 4 lakhs, which is about 10 to 15% tax. But certainly there's a mid-range which has been ignored, those earning between 30 to 50 lakhs. I think there'll be a lot of tax.
The basic 30% slab starts very early. And there has always been an ask to extend the exemption limit of 30% tax beyond, say, 50 lakhs of income. That would be one ask for the people who are at the mid-range of income.
And they are key contributors. The surcharge, which is for the higher income, goes all the way up to 25 to 37%. I mean, that surcharge can be packed at 15%.
So the effective maximum rate can be 35%, which is comparable with the rest of the world at the highest level of income.
Govindraj Ethiraj: Right. Uday, thank you so much for joining me.
Uday Ved: Thank you.
UK Immigration
A crackdown on migrants working in the United Kingdom illegally has led to a surge in arrests according to a report in the BBC quoting the UK government. The Home Office has said that the number of immigration raids on businesses such as nail bars, car washes, barbers and takeaways had increased by 77% since Labour came to power with an 83% rise in arrests.
Opposition parties have warned in the UK that opportunities to work illegally in that country act as a pull factor for migrants encouraging people to cross the channel in small boats. More than 41,000 people made that dangerous journey in 2025, which is the highest number since 2022 and almost 5,000 more than the previous year. The UK government said these raids had led to more than 12,300 arrests which is an 83% rise and more than 1,700 of these people have been deported.
So the point being that it's not just the US which is arresting and deporting particularly illegal workers but other countries as well in the western hemisphere. It's just that the surround sound when it comes to the UK is much much less.
A 10% Cap On Credit Cards
Bank executives were scrambling over the weekend after President Donald Trump declared on Friday that American credit card companies would be subject to a 10% cap on the interest rate they can charge customers. The move sent shares of large banks including Citigroup, JPMorgan Chase, Wells Fargo and Bank of America down between one and three percent on Monday according to a CNBC report and other companies who are linked to the card industry like Visa, Mastercard and American Express also fell. Trump proposed a one-year cap on interest rates starting the 20th of January.
It's not clear how this would be enforced but the industry says the plan would bring unintended consequences for consumers and the American economy because the move would make large swaths of the credit card industry unprofitable especially tied to customers with less than ideal credit profiles according to banks and analysts quoted by CNBC which also pointed out that the average credit card rate nationally is 19.7% as of this month according to a weekly survey from bankrate.com in India the same figure would be above 36% and even higher for some people. The report says that rather than offering loss-making products to consumers the industry would simply stop offering access to consumers with subprime credit along with other changes around card programmes including scaling back rewards according to the industry and the consumers would either spend less or rely on other forms of unsecured debt. “We cannot offer products at a loss and there is no scenario where we would take our entire portfolio to 10%”, a senior banker told CNBC.
