Markets Lurch In Continued Search For Bearings
The markets lurched as they swung between concerns of high valuations and tariff sources
On Episode 596 of The Core Report, financial journalist Govindraj Ethiraj talks to DK Joshi, Chief Economist at Crisil limited.
SHOW NOTES
(00:00) The Take
(08:21) Markets lurch in continued search for bearings
(09:53) GST collections cross 2 lakh crore again in May
(10:43) India’s GDP growth comes in at 6.5%, what does a longer range picture for the Indian economy look like?
(24:19) Another inflation fighting move sees reduction in duties on edible oil imports
(25:31) Big IATA meet in Delhi forecasts lower costs for airlines this year
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 2nd of June and this is Govindraj Ethiraj, headquartered in Mumbai, India's financial capital. When monsoons arrived last week, one would have thought that they were here for good.
Well, not quite. After that big deluge on Monday, 26th May in Mumbai, there have hardly been any rains. As a matter of fact, it was a bright and, of course, welcome sunny day on Sunday.
Almost taking note of this fact, post facto, the IMD has now said, that's the Indian Meteorological Department, that there will not be any rains or unlikely to be any rains for the next 7-10 days. So, was Monday a one-off rather than the grand launch of the 2025 monsoons heralded as the earliest onset of monsoons in the city in the last 69 years, 16 days ahead of its normal date of June 11th? Well, this is not quite a dinner table observation on the state of our weather or the state of our weather forecasting, more appropriately, but it has a connection with how we are trying to project economic growth and more on that shortly.
The Take
As borders close, India's universities must step up. In the somewhat secluded and leafy part of Bhavdand, west of Pune city, a pretty but temporary campus of the soon to be launched Nayantha University will welcome its first graduate students this year.
The university is the outcome of a collective effort by members of the Confederation of Indian Industry or CII, who decided to move from thought and talk to action. In the words of Chancellor Dr. Noshad Forbes, also co-chairperson of the steam engineering major Forbes Marshall, there were several conversations among CII members about how India needs many more world-class institutions and that as a group of CII members, they should come together and build one themselves. Second, he says, were specific conversations within the CII system about setting up an independent institution that would maintain a close connection with CII and operate under an MOU with it.
Third and most importantly, he says, is the development focus, a compelling vision of engaging with the deep-rooted problems we see around us and involving students and faculty in solving them, making a real difference. A standout facet of Nayantha's programme is its emphasis on internships and obviously that industry connect. It will actively involve students in internships with industry, non-profits and government, so all three sectors.
Every student who comes out of the university should respect these three sectors and see them as being part of the solution and development process of India, according to Dr. Forbes. Now, Nayantha is unique in as much as it's a direct industry initiative coupled with a fairly strong dose of ideological emphasis on what students could do or should be. Presumably, even arriving at that starting consensus was not easy, but its launch could not have come at a better time.
Tens if not hundreds of thousands of students are now in limbo following visa crackdowns in the United States, Canada, the United Kingdom and Australia. Among the four, the U.S. has been the most extreme and unpredictable in recent days, putting F1, for example, visas on hold and even threatening at one point to expel all international students at Harvard. In my conversations with parents and students in recent years and with one fairly sought after university recently, there are about five to six thousand humanity seats in India that young and mostly affluent students seriously consider before opting to go overseas.
To put figures in context, just in the U.S., over 330,000 Indian students were enrolled in the last year, which was a 23% rise from the previous year. These are all students there at one point. Canada drew about 137,000 students in 2024, though that was a 41% drop from 230,000 in 2023.
The U.K. and Australia each hosted a little over 100,000 Indian students. Of course, these are not all liberal arts students. They include engineering and other disciplines, but it's clear that close to three quarters of a million students are headed abroad somewhere, including Germany and Russia, and that number may be off too.
While Germany and Russia are opening their doors wider, the big four are slamming them shut. Back home, it's often, though not always, a toss-up between heading to, let's say, an Ashoka University or a Flame or OP Jindal or going to the U.S. Now, that decision is often shaped by both parental ambitions and the peer pressure students face to study abroad. From what I could gather, the broad list of serious Indian alternatives includes, in no particular order, Flame University, also near Pune, Ashoka, near Delhi, OP Jindal University, near Delhi, Kriya University, two hours north of Chennai, St. Stephen's College, Delhi, Shivnathar University, Delhi, Azeem Premji University, Bangalore and St. Xavier's College, Mumbai, among others. There are, of course, more, but this is an illustrative list, all of strong liberal arts and humanities courses extending to law on offer. You could contrast this in some ways with G.D. Birla's Birla Institute of Technology and Science or BITS Birlani, which was set up in the 1960s. Even without an international student visa crisis, there is clearly a considerable shortage of high quality universities, particularly in the humanities.
If you look at the past decade, though, billions of dollars have been invested in edtech companies and courses, creating a glut of supply and a forced demand for supplementary skills that were not really needed or only marginally so in very few cases. Almost all edtech companies have self imploded and many continue to do as we speak. Of course, anyone observing this phenomenon from the outside could have predicted this, an ugly display of venture capital funded excess that left VCs stung, parents poorer and mostly K-12 students none the wiser.
So what's interesting is that, though, when you look at the most sought after universities amongst the newer lot, all of them have been set up or nurtured by business leaders. And perhaps that's not a surprise. Ashoka was led by successful venture capitalists and entrepreneurs Ashish Dhawan and Sanjeev Bhikchandani.
Kriya's origins actually go back to the 1970s with the founding of the IFMR Society by Narayan Waghul, former ICICI bank chairman and founder in many ways. Flame University was set up by the legendary Mumbai stockbroker Nemish Shah along with Vallabh Bansali and Manish Chokhani, all part of Enam Securities. Azeem Premji and Shivnathar are self-evident, both are technology tycoons from the IT services sector.
Though Premji's philanthropic and institutional footprint is much broader in physical scale, reach and ambition. Flame and Ashoka were both founded in 2014, Kriya in 2018, Shivnathar in 2011 and Azeem Premji in 2010. O.P. Jindal University, who's named after O.P. Jindal, father of Naveen Jindal, who runs Jindal Steel and Power, started in 2009. So it does appear, looking back, that there was a confluence of intent, a shared desire to contribute to the liberal arts space more than, let's say, engineering seats where we've seen a glut for some time over the last decade amongst those who could afford to do so and obviously at the same time. Nayanthai is in some ways a further evolved phase two of that same intent, an effort by industry leaders to fill a critical learning gap and now coming to life in 2025 or the decade ahead. So to pick up on Dr. Forbes' statement, India surely needs many more world-class universities. But India should also consider rejuvenating its once grand institutions like Elphinstone College in Mumbai, possibly by handing over their operations to the Ashokas and Nayanthas of today rather than letting them wither away in their current form. The legislative architecture for such a handover may not exist or may not be clear, but we've clearly managed far more complex reforms before. The incentive is actually simple.
Smart students will stay back and also help fund and further grow our own universities as opposed to funding overseas ones. To return to the Nayantha model, this is clearly one promising opportunity for young Indians to gain a deeper understanding of the country's challenges and opportunities. The internship model is now being actively adopted by more and more institutions and even at much younger ages.
We're also seeing new evolutions in course curricula backed by high quality teaching talent, many of them returning from overseas for some time now across these emerging universities. The internship model is now being actively adopted by more and more institutions including at a much younger age as we can see. We're also seeing new evolutions in course curricula backed by high quality teaching talent across these emerging universities.
So now it's up to our bright globally aware young minds to carry this vision forward and maybe give overseas education a pass, at least for now.
And that brings us to the top stories and themes.
The stock markets lurch as they continue to search for bearings.
India's GDP growth comes in at 6.5%. What does a longer range picture for the economy look like?
GST or goods and service tax collections cross 200,000 crore rupees again in May.
Another inflation fighting move sees a reduction in duties on edible oil imports
And a big IATA meet in Delhi forecasts lower costs for airlines this year.
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Markets
The markets lurched as they swung between concerns of high valuations and tariff sources, optimism on macro data coming and prospects of improved company performance ahead. Now the interesting thing is that many of the signals are positive as we've been discussing here and there is a good chance that cost of living is coming down at least when it comes to food. With cost of living down and cost of money down with another interest rate cut on the horizon things are well primed for a better year ahead with some caveats of course.
So the markets will however find it difficult to respond on fundamentals at this point and be driven by sentiment and flows including foreign. Last week as we said the benchmark indices the Sensex and Nifty were volatile the Nifty 50 was down 102 points to 24,751. The BSE Sensex was down 270 points to 81,451.
Though the Nifty mid cap and small cap 100 indices did better, rising about 1.3 percent each for the week. Now all these numbers are for the week. On Friday the Sensex was down 182 points and the Nifty was down 82 points.
The rupee closed weaker for the fourth straight day on Friday even as the dollar weakened after those fresh tariff threats emerged from President Trump and more on that shortly. The rupee was 6 paise lower at 85 rupees 36 paise against the dollar after closing at 85 rupees 52 paise on Thursday according to Bloomberg data reported by Business Standard. The rupee also snapped two months of gains as it weakened about one percent in May.
That's all of May and yes of course we are in June as we've pointed out it's the second of June and yet another month has begun.
GST Collections Are Up
Gross GST collections were up about 16 percent to over 200,000 crore rupees in May according to data released on Sunday.
This figure was lower expectedly after the record year-end high goods and service tax collection in April when revenues touched a all-time high of 237,000 crore rupees. In May revenues from domestic transactions rose about 14 percent to 150,000 crore rupees while GST revenue from imports which includes customs duty grew about 25 percent to 151,000 crore rupees. Large states like Maharashtra, West Bengal, Karnataka and Tamil Nadu reported increases between 17 to 25 percent while states like Gujarat, Andhra and Telangana were up about 6 percent.
States like Madhya Pradesh, Haryana, Punjab and Rajasthan reported median increases of 10 percent according to the Business Standard.
India's Economy Grows
And the big story for the day: India's economy grew about 7.4 percent in January to March more than several forecasts thanks largely to sectors like construction. The full year GDP or 2425 came in at a four-year low of 6.5 percent which of course is due to that strong fourth quarter growth. The Reserve Bank of India had projected six and a half percent GDP growth for 2425. So to put it in context 2324 that's the previous year India's GDP grew by 9.2 percent. India's growth is holding up in a growth scarce environment according to India's chief economic advisor after the release of the in a Reuters report which added that gross value-added GVA seen as a more accurate measure of underlying economic activity grew about 6.8 percent in the first three months of 2025 compared to a revised expansion of 6.5 percent in the previous quarter. GVA takes out indirect taxes and government subsidy payouts which tend to be volatile. So manufacturing output rose about 4.8 percent year-on-year in January to March the final quarter or the latest quarter compared with a revised expansion of 3.6 percent in the previous quarter while construction activity jumped about 11 percent from about 8 percent in the previous quarter. Growth in private consumer spending which represents about 57 percent of India's GDP was down to 6 percent year-on-year in January to March from a revised 8.1 percent in the previous quarter as urban spending weakened while rural demand for durables and farm equipment like tractors improved. So the question is how does 2425 look over a longer time range and building on that what is the outlook for the coming year and what will drive growth and what could be some of the concerns. I reached out to Crisil's chief economist DK Joshi and I began by asking him first how he was reading the latest numbers.
INTERVIEW TRANSCRIPT
DK Joshi: The first thing that happened was the government capex was backloaded which means that they could not speed up the capex in the first half because of elections etc and they really pushed it hard in the second half and that actually makes somewhat of a difference. If you look at the second advance estimates they were also projecting that the fourth quarter will be extremely good so it is actually in line with what was expected that the second half will do well. Well it's done better than what the consensus estimate was we were at 6.5 percent for 2425 and with the last quarter going above 7 percent so it wasn't that much of a surprise for us but yes I think the backloading of capex spending has helped although the revenue spending by the government has slowed down in the second half I mean if you look at the fourth quarter it's actually shrank year-on-year so that is one and second agriculture has done quite well and I think that is also getting reflected more in the second half that's what I feel. On top of that construction activity I think has continued its momentum construction activity throughout the year that was the only part which has remained consistently strong that broadly explains some dichotomy between the first and the second half.
Govindraj Ethiraj: So I'll come to agriculture in a second but if you were to take a few steps back and compare last year with previous years and maybe over a slightly longer time period what is the overall picture that you see in terms of the health of the economy?
DK Joshi: Well, I think in the last three years—which means that from 21–22 to 23–24—the economy grew faster than its trend rate of growth. I'm taking the trend rate of growth at 6.6 percent, which is the pre-pandemic decadal average. It grew faster because it was trying to recover from the pandemic. Government was giving a very strong stimulus in terms of capex, etc.—all that was getting reflected in GDP growth, and it actually surprised on the upside. Every subsequent revision from the NSO was on the higher side. I mean, if you take the example of 23–24, the final estimate came in at 9.2 percent, the second advance estimate was 8.2 percent, and the first estimate was 7.3 percent. Now that those positive surprises are coming to an end and the economy has reverted back to its long-term trend path of around 6.5 to 6.7 percent, I think it's in that range that we estimate. A couple of reasons for that—one is that the government itself is not spending that much on capex as it was; the speed with which it was spending earlier has kind of slowed down. And then, also remember that inflation was high in 24–25. That cuts your discretionary spending power, and it also keeps interest rates high, which also have an impact on the economy. And the global environment did not support us. The goods trade was almost flat in 24–25 when you compare it to 23–24.
Govindraj Ethiraj: So one factor, if one way to again look at it from a slightly higher level, is that government spending has been very high in the last few years—or recent years—compared to maybe previous years. And to what extent, then, is government spending a critical part of where the economy is going, and to what extent is it making up—or not—for the lack of private capital expenditure again?
DK Joshi: In contrast to the past, it is important because of two things. I mean, one—it is known to have multiplier effects, because the government is largely investing in infrastructure. I think a large part of their investments go into infra. So that is good from the near-term perspective—because of its multiplier effects—and long-term perspective, because from the supply side, it raises your growth potential. So that actually was the strategy post the pandemic, and it actually played out quite well. Now, you have to normalise it and you have to wait for the private capex to start picking up. By the way, I think there’s a third element of capex, which is the household capex, which has done quite well because of the real estate cycle recovering. Overall, what is awaited is the private capex recovery. I think government has done its part, and even now I think the public investment—or the government investment—is budgeted to grow at the same rate as GDP. So they are maintaining their thrust, although I think the momentum is softening and coming to normal, so to say. So government investment has played a big role, and now I think it's time for private investment to play that complementary role.
Govindraj Ethiraj: And I’ll come to that in a second. So when you compare agriculture growth with manufacturing growth, agriculture seems to be now growing faster. So again, two questions there. One is, how are you reading the numbers of the last year? Secondly, if we were to look at the picture over time and the contrast between agriculture and manufacturing, how do we interpret that?
DK Joshi: Well, I think the first thing, Govind, is that the share of agriculture in GDP has been continuously falling, whereas manufacturing has retained its share in GDP. So that’s the long-term trend, which means it has grown at the same rate as GDP. Agriculture, this year in 24–25, has grown faster than the normal. That also, largely, I think the momentum is coming from non-crop agriculture, so to say—livestock, etc.—which seems to be the trend going at. So I would say that agriculture growing faster than manufacturing is an anomaly this year. And I think, going ahead, you will see manufacturing retain or raise its share, whereas agriculture’s share will continue to keep coming down as we move ahead. The other interesting thing is that—well, agriculture employs more people than manufacturing. I mean, obviously, agriculture is highly labour-intensive. So in that sense, it supports rural employment. Having said that, I would say that if you take a slightly longer-term view, manufacturing is bound to do much better than agriculture. And as has typically happened in most countries, the share of agriculture keeps coming down, whereas the share of services and manufacturing continues to go up. We have seen services go up, but manufacturing has retained its share, I think, over the long run. So that's how you look at the data.
Govindraj Ethiraj: If I were to now ask you for an outlook for the year ahead, in one of your formal comments you’ve talked about consumption being projected to be strong, based on two or three things. One is normal monsoon—or good monsoon. Interest rate cuts, which are lower, may go further lower. The transmission of that may continue. And the tax benefits for the middle class. This seems to be one set. What else is there, and how is it all adding up to the outlook?
DK Joshi: Well, there are two other things that play out. Do remember that in the consumption basket of an average Indian, about 40 percent goes towards food—and food inflation has come crashing down. And that means that they will have some extra money to spend on non-food items. So discretionary spending does get a boost when the food inflation nudges down. And this is particularly true for the lower income classes because they have a higher share of food in their basket. So that is one thing that is going to play out. The other thing which might support consumption growth is the income tax cuts that have come into play from April onwards. I think we’ll monitor that, but that is a positive—I think it’s a positive nudge to consumption, although it’s not the major factor behind consumption growth. So apart from what you said, these two factors also support consumption. And I think the other nuance is that so far, I think we’ve seen rural consumption do well, and urban is kind of weak. And many of these things help the urban part of the economy more. So consumption, I think, might maintain its momentum. I would presume that it will grow at the same rate as the GDP in 24–25. It has grown faster than the GDP.
Govindraj Ethiraj: So if you want to look at again 25–26, so does it look like a normal year in that sense?
DK Joshi: I mean, to go back to your point about trend levels of growth, it's not a normal year. I mean, our forecast is 6.5 percent with downside risks. And the downside risks are coming largely from the global economy, which are very hard to predict. Even though I think tariffs—up and down—continue, the escalation–de-escalation, as we say. Tariffs may settle at a lower level, but what happens is also that uncertainty at a very elevated level for so long—I think it's going to hinder decision-making, and that's going to play out. So globally, we are seeing a downturn, and that is going to spill over to us. So that is one. And then, I think the monsoon picture is a good one because global drivers are not working at this juncture. So two things that help us: one is good monsoon, and the second, I think, is the lower crude oil prices. We should not forget that it plays out in multiple ways. I mean, apart from promoting growth, it also reduces inflation, and it also reduces your current account deficit, which is already at a very low level. So it improves the buffers in the system in that sense. So I would say that 6.5 with downside risk—we are in a data-driven age, so all forecasts are subject to errors. So you’ll have to keep updating your numbers as and when more information becomes available. As of today, on the basis of whatever information we have, our outlook is 6.5 with downside risks. I think that’s the guidance.
Govindraj Ethiraj: Right. And if I can sort of add a supplementary last question to it—so you’re really saying that the only risks, in some senses, are external and not really internal? Because the horizon on the internal economy seems fairly clear.
DK Joshi: Yeah, I think the domestic risk is always on the monsoon front. I think even if rains are expected to be normal, they have to be well distributed over time and over geography. We have some information, but let it play out. I think this is the age of climate change, and I think the weather vagaries are very much a part of monsoons now. If I take you to last year—last year, also, the rains were almost eight percent above the normal long-term period average, and even then, vegetable inflation really shot up. That’s because I think the monsoon was normal, but it was not that well distributed. There were heatwaves, etc., which played out—particularly for the vegetable category. And vegetables contributed 41 percent to the food inflation last year. So whether that kind of a scenario will play out or not—I think, fingers crossed on that. So that always is a domestic risk, because agri is about 18 percent of GDP. The second, I think, is on the private corporate investment side. I think the environment is very uncertain for private corporate investment, although they are in a very healthy state of affairs. So how much will the private capex pick up is hard to forecast at this juncture. But what is interestingly happening is that India is beginning to get some benefit from the supply chain—I think the talks of Apple coming and so on and so forth. So you might see some of that benefit. That may play out over a slightly medium- to long-run going ahead.
Govindraj Ethiraj: DK, thank you so much for joining me.
DK Joshi: Thank you, Govind.
A Fresh Tariff Hit
U.S. President Donald Trump’s weekend surprises continued, this time with a plan to double tariffs on steel and aluminium. The European Union on Saturday criticised President Trump’s move to double tariffs on steel imports, warning that it undermined efforts to reach a negotiated solution in the ongoing trade war. An EU spokesperson told NBC News that, “We strongly regret the announced increase of U.S. tariffs on steel imports from 25 to 50 percent.”
The Federation of Indian Export Organisations on Saturday also raised concerns about a potential disruption to India's steel and aluminium exports to the U.S. A report in the ET said that there was a fear that exports of value-added and finished steel products and auto components, stainless steel pipes, and structural steel components could be hit. India exported about 6.2 billion dollars' worth of steel and finished steel products to the U.S. last year, including a wide range of engineered and fabricated steel components.
All of this comes in the middle of the bilateral trade discussions going on between the U.S. and India, which also makes, obviously, one wonder how effective all of that will be since all of these bombs are being thrown into the mix while those discussions are going on.
More Inflation Fighting
India has halved the basic import tax on crude edible oils to 10% on Friday, the government said, as the world's largest vegetable oil importer tries to bring down food prices and help the local refining industry. According to a report in Reuters, the customs duty applies to crude palm oil, crude soya, and crude sunflower oil. It will effectively bring down the total import duty on the three oils to about 16.5% from the earlier 27.5%.
A director at the Solvent Extractors’ Association of India told Reuters that this is a win-win situation for vegetable oil refiners as well as consumers, as local prices will go down. My general reading of edible oil prices in the last year has been that low edible oil prices—actually, we’ve seen a reverse inflation, as if prices have gone in the opposite direction—have kept down food inflation, and thus kept overall food inflation down or prevented it from being worse.
India meets 70% of its vegetable oil demand through imports, and buys palm oil mainly from—and traditionally from—Indonesia, Malaysia, and Thailand, while it imports soy oil and sunflower oil from Argentina, Brazil, Russia, and Ukraine, according to the Reuters report.
Lower Airline Costs Ahead
The global aviation industry is benefiting from lower oil prices because they’re bringing down the cost of kerosene, according to the head of the International Air Transport Association, Willie Walsh. The reduction is, in turn, helping drive down ticket prices, he told Bloomberg Television, and said that it’s—that is, oil prices—typically our single biggest cost. So it would help to offset any weakening demand if we were to witness a slowdown. And he said this in an interview with Bloomberg Television at IATA’s annual general meeting going on in New Delhi right now.
Airlines have become increasingly cautious about demand outlook thanks to all the global economic and trade dislocations in the last few months. At the same time, that same diminished economic outlook has also depressed oil prices, providing a cost advantage for carriers. According to that report, IATA’s Walsh said that while lower ticket prices typically stimulate demand, it also clearly drives down the overall revenue for this industry.
Global aviation executives, who are part of IATA—which represents about 350 airlines, comprising about 80% of global air traffic—are meeting in Delhi over the next few days to discuss the state of this industry. This is the first time in 42 years that IATA is having its annual general meeting in India.
According to IATA, India’s aviation industry directly employs about 370,000 people and generates about 5.5 billion dollars of GDP. When indirect, induced, and tourism impact is included, the total rises to about 7.7 million jobs and about 53 billion dollars of GDP, or 1.5%.
Meanwhile, amongst the first round of deals that were announced, IndiGo, Delta Airlines, Air France-KLM, and Virgin Atlantic announced a partnership this Sunday to announce air connectivity from India to Europe and North America. The release said that, linking dozens of cities in the United States, Canada, Europe, and India, the airlines aim to meet rising demand for international travel while setting new standards for connectivity and cooperation.
IndiGo, which is India’s largest airline, is further expanding its international network, and has already announced that it will start flights to 10 overseas cities in the current fiscal—that’s ending March 2026.
