Markets Operate In Technical Territory
Several trading days appear to see buying followed by quick selling as traders and investors wait for some positive signals
On Episode 776 of The Core Report, financial journalist Govindraj Ethiraj talks to Rahul Charkha, Partner at Economic Laws Practice. We also feature an excerpt from our recent India Energy Week interview featuring Atanu Mukherjee, President and CEO at Dastur Energy.
SHOW NOTES
(00:00) The Take
(05:43) Markets operate in technical territory as they wait for fresh triggers
(05:59) WEF, Davos kicks off today but is unlikely to provide much hope to global business and trade.
(08:11) Copper hits record highs too
(09:14) How energy markets adjusted for geopolitical risks in 2025 and what that means for 2026.
(14:49) The Supreme Court ruling on a Tiger Global sale of shares to Walmart from 2018 has created a stir. What does it mean for other transactions?
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Full Interview with Atanu Mukherjee
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 Monday, the 19th of January and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.
The Take
The Union Budget 2026 is scheduled for presentation on the 1st of February. Notably, that date is a Sunday and as far as political signalling goes, it's a good one.
It suggests that India is open for business 24 by 7 and even the stock markets are breaking their weekend silence for a full trading session. And yet, for the global business and financial community or for that matter, even the Indian one, the success of this budget will be measured by more than a performative Sunday shift. The true test lies in the morning after sentiment.
Will the broader investor class see a decisive break from India's habitual linear progression or will they see more of the same incrementalism? India must decide if it is ready to sprint onto the global stage or if it will continue to feel for the stones while crossing the proverbial river of economic transition. Now, budgets are inherently about tangibles but the 2026 iteration does require a clear vision that will transcend the minutiae of tax code amendments. Traditionally, these presentations serve also as political theatre, a chance for governments to wax eloquent on past achievements and to be fair, the last year has been momentous.
Despite global volatilities triggered by policy shifts in Washington, India's domestic growth cocktail looks remarkably cheerful. Consumption taxes are moderated, inflation is low and interest rates are holding at supportive lows. Furthermore, India has shown surprising resilience against the trade headwinds generated by US President Donald Trump.
Even with tariffs currently at 50% and the looming threat of another 25% on nations trading with Iran, India's GDP growth remains steady to strong, depending on how you read the numbers. However, a troubling paradox continues to persist. Despite these robust macro numbers, private investment remains tepid.
Both global and domestic players are hesitating to sign up for fresh capital expenditure. Growth is present, certainly, but it's not yet meeting the soaring ambitions of a country wanting to lead the century. What then is the missing catalyst? For three decades, Indian industry has been offered reform in small, cautious doses.
Since the landmark 1991 budget by then Finance Minister and later Prime Minister Manmohan Singh, which dismantled the Licence Raj and lowered tariff walls, the word reform has been used so often that it's lost its edge. In 2026, we're still grappling with echoes of those same 1991 challenges, high tariff barriers, which have increased actually in recent years, and a stifling regulatory environment. Businessman Sanjay Mariwala, who recently highlighted the absurdity of this, told me on the core report that India's labour code was supposed to simplify the system, and yet companies are drowning in more than 8,600 annual compliance requirements.
In the United States, where he also does business, he said the number is 35. One illustration is India's import tariff regime. A scathing new report from the Global Trade Research Initiative says that the system is as inefficient as it is obstructive.
India's merchandise trade has crossed 1.16 trillion dollars and nearly 29 percent of gross domestic product or GDP flows through customs clearances. In that context, even modest inefficiencies now impose economy-wide costs, raising input prices, delaying shipments, and weakening export competitiveness at a time when global companies are reassessing sourcing locations amidst geopolitical fragmentation. The data reveals a system that is in desperate need of change.
Customs duty says GTRI now account for a meagre 6 percent of gross tax revenue and the distribution is absurdly skewed. 90 percent of import value is concentrated in fewer than 10 percent of tariff lines and the bottom 60 percent of tariff lines generate less than three percent of customs revenue. In short, what GTRI says is that the government is exerting massive administrative effort for negligible fiscal gain.
The GTRI recommends that move to zero duty on industrial raw materials and intermediates immediately, stop the inverted duty that taxes inputs more heavily than finished products, and of course, in general, as we also feel, it's time to take an axe to many of these outdated regimes. So while the Sunday presentation is a nice nod to the work ethic, the vision to truly unshackle Indian business must remain the priority. The ultimate goal should be so ambitious that by the time the 2027 budget arrives, the word reform is no longer necessary because the structural work is finally complete.
And perhaps once the heavy lifting is all done, we can go back to taking our Sundays off.
And that brings us to the top stories and themes…
Stock markets are operating in technical territory now as they await fresh triggers.
The World Economic Forum Davos kicks off today but is unlikely to provide much hope to global business or trade.
How energy markets adjusted for geopolitical risks in 2025 and what that means for 2026.
A Supreme Court ruling on a tiger global sale of shares to Walmart from 2018 has created a stir.
What does it mean for other transactions?
And elsewhere, copper prices have hit record highs too.
Shifting Markets
Stock markets are seemingly moving on technical grounds. Profit booking versus value buying. Several trading days appear to see buying followed by quick selling as traders and investors wait for some positive signals on the geopolitical and economic front, which are obviously not materialising. Global leaders are meeting in Davos starting today with the United States leading a massive delegation.
It is not clear what that delegation will do because President Donald Trump is expected to address his domestic audience from Switzerland, even as he presumably launches fresh attacks on Europe, which will obviously want to hear more on his plans for Greenland, which he wants to acquire one way or the other. The latest stick is fresh 10% tariffs on European imports into the US until they agree to hand over Greenland, which sits under the broad umbrella of Denmark. Trump is coming in with five cabinet members and Davos will have a USA house for the first time in over 50 years.
It has hosted the annual World Economic Forum summit. The World Economic Forum said that at least 64 heads of government or state would be present while six out of seven G7 countries would be represented by their top leadership. India is also present in strength with several chief ministers, including of Maharashtra putting up a solid show and seeking alliances as well as several memoranda of understanding.
However, unfortunately, attention will be on Trump and it's obvious, like we said, that there is very little that he will say or do that will change his present trajectory unless, of course, the Swiss mountain air has some miraculous properties in it this year. Back home, Indian stock markets ended higher on Friday thanks to IT and banking stocks. The BSE Sensex was up sharply during the day on Friday but eventually closed up 187 points at 83,570.
The Nifty 50 was up 28 points at 25,694. The broader markets were mixed. The Nifty Mid Cap 100 was up 0.1%. The Nifty Small Cap 100 index was down 0.2%. And of course, the markets will be open on Sunday, February 1st because of the union budget 2627 and it will be a regular market from 9.15am to 3.30pm. The budget session of parliament will begin on the 28th of January.
And elsewhere back to metals, gold was down on Friday after investors started booking profits. Bought gold was at about $4,592 on Friday and remember it had hit a peak of $4,642 on Wednesday. Other metals are also rising.
A quick flashback, copper prices have jumped 50% in the last year, now crossing $13,000 per tonne on the London Metal Exchange on Thursday, well above the $11,000 mark that typically justifies constructing new mines, according to a Reuters report, which also says that much of copper's recent record rally reflects temporary factors, including traders stockpiling ahead of potential US tariffs in June. Among some results from last week, Reliance Industries missed quarterly profit estimates thanks to a weakness in its oil and gas business, higher costs, and slowing earnings growth in its retail segment. It faces headwinds including maturing gas fields, tougher competition in retail, and evolving geopolitical risks that could hamper its energy segment, according to Reuters, which also reported that HDFC Bank posted a higher-than-expected profit for the third quarter on Saturday as loan growth remained strong and margins improved sequentially.
The India Energy Week Segment
With oil prices settling higher on Friday, with investors covering short positions ahead of a three-day Martin Luther King holiday weekend in the United States and continuing worries of a US military strike against Iran. Brent crude was at about $64.13, and West Texas Intermediate was at $59.44. Among other developments or non-developments, the supply from Venezuela has not become the tidal wave that was expected, according to analysts who spoke to Reuters, but crude did hit multi-month highs this week after those protests in Iran. Another Reuters report says the year 2025 in the LNG or liquefied natural gas sector will be one for history books after production and exports hit records and raked in billions of dollars in revenues across the global liquefied natural gas supply chain.
There was a 25% surge in LNG purchases by European countries, and that was the key highlight and raised hopes amongst gas sellers that further growth in gas use in economies such as Germany, Italy, and the United Kingdom is in store for 2026 and beyond. On the other hand, lower imports by three of the five largest LNG buyers in Asia have raised profit concerns. Two top overall LNG importers, China and Japan, saw LNG import cuts of 15% and 2% in 2025.
Analysts are watching rapidly expanding renewables power generation in China and steadily recovering nuclear power generation in Japan as these power sources squeeze gas out of generation mixes, says that Reuters report. LNG purchases by the fourth largest importer, India, also dropped 7% last year because of high global gas prices, which also led to a steady decline in gas-fired electricity generation in India so far this decade, also bringing down or other resulting in a sharp slowdown in spending on gas distribution and storage infrastructure. We will have more on that this week as we continue our special interviews as part of our India Energy Week series that's later this week.
Meanwhile, what is 2026 looking like in terms of energy outlook for which we have to account for what did and did not happen in global energy markets in 2025? I put that question to Atanu Mukherjee, President and CEO of the Houston-based Dastur Energy, as he looked back at 2025 and ahead at 2026 as to what were the key factors that could drive energy markets.
INTERVIEW TRANSCRIPT
Atanu Mukherjee: Certainly yes, and I think one of the things that surprised me to some degree was the fact that there's a recognition now, at a very large scale, to solve the world's energy problems and also make it as clean as possible. Renewables alone cannot do it. This is a broad recognition across swathes of population, across nations, across political regimes.
This is a reality, and we kind of talked about it for quite some time, but we didn't expect this to happen so fast in 2026. And so now, you might have seen that people are talking about, how can we make energy more affordable? How can we make power more affordable? And they saw this whole situation of Germany and UK and mostly European countries' power prices going through the roof in a period of 10 years. And so the people recognised that this is not going to solve the problem.
So the question then becomes, how do I really take different sources of generation of energy, especially with electric power, and make it affordable, abundant, and clean? So the question became not to make it clean at all costs or net zero at all costs, but to make it how much clean or clean enough so that affordability, reliability, and abundance is maintained. So that's one fundamental change, right, in terms of thinking and policy. That's one thing.
The second thing I think that kind of took me a little off guard was, typically, we have been used to geopolitical disturbances or events leading to significant disruptions and volatilities, which was not the case. If you look at it, right, last time, which is not the case, there were significant pronouncements, events, disruptions, but the system configured itself around the different elements to be able to match the consumption patterns and the supply patterns in a way which did not create those spikes that we are typically used to. And so from that perspective, there's a lot more of integration that happened over time, over the last year that we saw, which is a goodness, I think, in terms of how it's going to evolve going forward.
So I think two things, right. One is that, you know, you need to have renewables, but that's not enough. We need to have a complementary set of resources to be able to create really a good energy system.
It's not about just one element. And second is, how do I manage volatility, right, by combining supply and demand side from different regions, along with logistics and mechanisms of trade, which allow us to subdue volatility, but at the same time, make sure that disruptions don't happen to the extent that they used to be. So I think those two things are kind of like, very interesting.
Supreme Court Ruling on Tiger Global
Foreign investors have invested something like $180 billion into India via Mauritius, which is a tax haven. On Thursday, the Supreme Court ruled against Tiger Global, a venture capital company in a landmark case, saying its $1.6 billion stake sale in India's Flipkart to Walmart in 2018 should be taxed.
The judges who overturned a high court ruling which was in favour of Tiger Global earlier said that Tiger Global's deal used its Mauritius units, which were conduit firms, in a bid to make use of an impermissible tax avoidance arrangement. Tiger Global had denied these allegations as well as India's depiction of saying it had correctly used available tax benefits under the India-Mauritius bilateral treaty, though it has not commented on that ruling, according to a Reuters report. Reuters says that the ruling could give sweeping powers to India to lift the lid on corporate deals, as it means that domestic law will now allow tax officials to override any treaty benefit being incorrectly claimed via the use of such business structures, according to interviews with 15 lawyers and consultants in that Reuters report.
I reached out to Rahul Charka, partner in the tax practise of ELP, focussing on direct taxes, and I asked him to speak about what gave the buyer and seller the confidence that they were not liable to tax at that time, and second, how this could affect future investments and future deals.
INTERVIEW TRANSCRIPT
Rahul Charkha: There in fact still is a circular 789 issued by the Central Board of Direct Taxes which essentially says that if a Mauritian tax resident provides a tax residency certificate from the government of Mauritius, then the India-Mauritius Tax Treaty benefits should be granted to that taxpayer. Now, this was challenged by way of a litigation in Azadi Bachawa Ambola, the validity of the circular itself. And Azadi Bachawa Ambola and Supreme Court upheld the validity of the circular.
So, this kind of fortified the position that if a Mauritius tax resident produces a tax residency certificate, then the treaty benefits should be provided without really going beyond the tax residency certificate. That question was kind of derailed a bit in MacDowell. And Supreme Court in Vodafone's case reconciled Azadi Bachawa in MacDowell's to say that look, insofar as there is a tax residency certificate and there are structures put in place, you look at a particular structure and why it has been structured in a particular manner.
And it sort of upheld the Azadi Bachawa Ambola position again. Interestingly, the whole contention of Tiger Global in this case also was that since Tiger Global has the tax residency certificate, there should not be any questions asked and the treaty benefits should be granted. To which the Supreme Court has said that look, after the circular and after Azadi Bachawa Ambola, there have been multiple amendments that have been made in the domestic tax laws as well as the India-Mauritius Tax Treaty.
The dominant or a very critical amendment in this was the introduction of general anti-avoidance rules, the GAR provisions. The Supreme Court has essentially said that the GAR provisions would be invoked by virtue of which the tax officers of the tax authorities have the jurisdiction to go beyond the tax residency certificate. And now that the law has amended and followed a course in the last 22-23 years, since 2003 when the Azadi Bachawa Ambola decision was delivered, the tax authorities now have the authority to go beyond the tax residency certificate, look at the real substance of the transaction, see whether the Mauritius or the beneficiary of the Mauritius treaty is indeed a Mauritius resident beyond just the tax residency certificate, and only then grant the India-Mauritius Tax Treaty benefit. And in that context is where the tax officers did test the FATPATION and Tiger Global to check whether, you know, they really had enough substance in Mauritius.
Govindraj Ethiraj: Right. Okay, I think that that explains it. Now, if you were to look ahead, are there other transactions which could also be hit by this that we know of?
Rahul Charkha: Yeah, so Blackstone is litigating similar issue which is up in the public domain and their matters soon to be heard by the Supreme Court. Any private equity venture capital set up in Mauritius or Singapore, because Mauritius and Singapore were twin treaties which would go hand-in-hand prior to 2017, amendment to the India-Mauritius Treaty. Any investment through them while, you know, the 2017 amendment did give an affirmation that old investments would be grandfathered, this decision kind of costs a portion insofar as the substance requirement is concerned.
So, while the grandfathering provisions still stay, but there's an asterisk added there, that's subject to the substance being tested by the tax authorities in such matters. So, to answer your question, any investment coming into India, to the extent that a taxpayer was under a relief to say, look, you know, I've made an investment prior to 2017, so I'm covered by the grandfathering provisions and that I would produce a tax residency certificate and get through it without a question being asked, that position does get disturbed. To the extent the latter, which says that, you know, now you will have to justify substance apart from the tax residency certificate in order to get the treaty benefit.
Govindraj Ethiraj: And just to sort of, for those who perhaps have not followed this, what's the difference before and after 2017?
Rahul Charkha: So, prior to 2017, the India-Mauritius Treaty and thereby the India-Singapore Treaty said that the right to tax capital gains was with Mauritius or Singapore respectively. So, India did not have a right to tax capital gain. After 2017, the treaty has gone through or undergone an amendment by virtue of which now India has the right to tax the capital gain.
Govindraj Ethiraj: So, you're saying any deal that happened subsequent to 2017 in any case is open to, let's say, capital gains payments in India, even if it is done through similar structures?
Rahul Charkha: That's right. That's right. I'm just linking this again to the whole TRC issue as well.
Because earlier what would happen is that in order to claim this treaty benefit, typically, we would just attach the tax residency certificate as an Annexure A to a submission. And the legal position was that the treaty benefit should be granted there. Now, while the Annexure A remains, what is also required is that I will have to stand good to a probe on what is my substance in Mauritius, what activities do I do there, whether the head and brain of the Mauritius entity is really in Mauritius.
Govindraj Ethiraj: Right. Now, last question. So, therefore, what you're saying is that any deal that would have been struck subsequently would have been, of course, aware of the shifts and therefore companies would not have really used the Mauritius route to create ownership?
Rahul Charkha: That's right. So, if you see since 2017, the FDI data at least suggests that the investments in India through Mauritius and Singapore both, in fact, have reduced significantly. But there are still a lot of FIIs which would use the Mauritius route.
There are, again, aspects like dividend, the tax out dividend and interest and other things where the Mauritius treaty is still favourable. So, there are certain investors who still prefer the Mauritius route. Having said so, you're right that what has transpired over the years and this litigation has been over the last, you know, 2018 transaction.
So, since then, the investors obviously would be aware that there are shades of grey and, you know, the matter was subjudice until the Tiger Global ruling was pronounced.
Govindraj Ethiraj: Right. Rahul, thank you so much for joining me.
Rahul Charkha: Thank you. Thank you, Govind. Pleasure.
