Markets Power Up On Friday
The stock markets were up on Friday driven by financials after the RBI lowered provisioning requirements for under-construction and operational projects
On Episode 613 of The Core Report, financial journalist Govindraj Ethiraj talks to Indrani Bagchi, CEO at Ananta Aspen Centre.
SHOW NOTES
(00:00) The Take
(05:38) Markets power up on Friday, brace for Monday
(11:52) Tax collections are down
(13:23) America returns to a middle east war
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 23rd of June, and this is Govindraj Ethiraj, broadcasting and streaming weekdays from Mumbai, India's financial capital. Before we start, the core report might be intermittent this week as I am traveling and on the road and will be in a different time zone, but I will try and come out with brief episodes and hopefully longer ones as well.
The Take: As Another War Brews Abroad, India Must Still Look Within
Some 35 countries led by the United States fought the Gulf War beginning in August 1990 after Saddam Hussein invaded and attempted to annex Kuwait. The first phase of that war, called Operation Desert Shield, lasted six months until January 1991.
The second phase, Desert Storm, began in January 1991 and continued until February, which was also the combat phase, accompanied by a five-week bombing campaign and then led by Chairman of the Joint Chiefs of Staff, General Colin Powell and General Norman Schwarzkopf. Exactly five months later, on the 24th of July 1991, then Finance Minister Manmohan Singh delivered a historic speech that tore down the economic barriers India had built over decades, ushering in the liberalization process that continues in many ways to this day. At the time, he pointed out that India's foreign exchange reserves would have lasted only two weeks and were worth just around 2,500 crore rupees.
The United States returned to Gulf again in March 2003, determined to overthrow Saddam Hussein and then presumably leave. They eventually did, but in December 2011, almost nine years later. A Council on Foreign Relations report said the costs of the conflict were high, $800 billion from the U.S. Department of Treasury, with nearly 4,500 Americans and well over 100,000 Iraqis killed.
In the meantime, the United States had attacked Afghanistan in retaliation for the 9-11 terrorist attacks on September 11, 2001. An international coalition led by the United States invaded Afghanistan to essentially dismantle the al-Qaeda network after the Taliban refused to hand over Osama bin Laden, seen as the chief architect of that attack. At the height of the conflict, there were more than 130,000 NATO troops deployed.
By July 2021, nearly all NATO countries had fully withdrawn and America too withdrew later and the Taliban is now back in control of Afghanistan. From the Gulf War of the 1990s to now, India's economy has powered along steadily, largely unaffected by the wars waged outside, thanks to the sheer brute force and momentum unleashed by liberalization and a generation of entrepreneurs desperate to break free. If there were speed bumps along the way, and there have been, they were mostly financial.
The 1997 Asian financial crisis largely confined to Southeast Asia, but tremors felt elsewhere too. The 2000 dot-com bubble and subsequent market crash, the 2008 global financial crisis triggered by a housing bubble in the United States, and the most recent roadblock was of course the COVID-19 pandemic. So the knocks have been hard, but none of them have dealt any telling blows, in a manner of speaking, for of course a variety of reasons.
So what could happen now as the specter war spreads with America back in the region as an active participant? Washington's enmity with Tehran actually dates back to 1979, when Iranian students stormed the U.S. embassy in Tehran, leading to the severing of diplomatic relations. But ties were strained even before that. So now, the United States has warned Iran to stand down or risk an even more forceful response than the bunker-busting bombs that hit three nuclear enrichment sites on the 22nd of June 2025, that's Sunday.
So will Iran capitulate or retaliate at a time and place or places of its own choosing? Well, we don't know, at least here at The Core Report, and this is not an area we are in a position to speculate. But a straight reading of recent history tells us that no war is ever short, whether it's Israel vs. Hamas, Israel vs.
Iran, maybe Israel and the United States vs. Iran or Russia vs. Ukraine.
India itself saw a brief exchange of hostilities on the Pakistan border after it launched Operation Sindoor on the 7th of May, following the brutal killings of tourists in Kashmir's Pahalgam region a month earlier. Things have quietened down, but that was just a month ago. The reason India's stock markets and economy are still holding up reasonably well, despite growing war and trade tensions, is the strength of the domestic economy.
Yes, oil prices could go haywire in the short term, especially if the Middle East conflict escalates and hurt India's balance of payments. But in the medium to long term, oil prices should stabilise. And that brings us to the larger question, how should we view this period of heightened uncertainty? Well, in many ways, as a window of opportunity.
There are still industries waiting to be opened up, licenses to be freed, nuclear power comes to mind, aspects of defence production, and many outdated state and central laws that should be or could be scrapped altogether and make it easier to do business or much more easier to do business than what it is today. A prolonged war in the Middle East is in no one's interest, including India's, but we may have little say in that matter. Back in the 1990s, when liberalisation began, India had perhaps a billion dollars in forest reserves.
Today, we sit on nearly 700 billion dollars in dollar reserves. More importantly, we continue to hold vast reserves of kinetic energy, entrepreneurs and businesses still straining to start up or scale and consumers aspiring for a better quality of life. Our task now is to ensure that we keep our eyes fixed and our energies focused on unleashing these forces.
And that brings us to our top stories and themes.
The stock markets powered up on Friday, but brace for Monday.
America returns to a Middle East war.
Tax collections are down.
Markets Brace For Monday
The stock markets were up on Friday, June 20th, driven by financials after the Reserve Bank of India lowered provisioning requirements for under-construction and operational projects, making funding cheaper for banks.
The other factor is that foreign portfolio investors have returned at this point with net purchases in the last three sessions, even as domestic institutions continue to buy steadily in recent weeks. There was also that belief that the United States would not enter the Israel-Iran war. Of course, they have now, and the markets will have to compute how this new US war will impact oil prices and the global economy as a whole.
India continues to be insulated on most fronts, except, of course, oil, which is currently around $77 a barrel, up quite sharply compared to a month ago. Reuters reports that most Gulf stock markets seemed unconcerned by the early Sunday morning attacks, and they were trading on Sunday, with the main indices in Qatar, Saudi Arabia and Kuwait up slightly and Israel's Tel Aviv main index at an all-time high. A senior energy analyst at equity research firm MST Marquis told Reuters that the more likely scenario would see Iran respond by targeting American interests in the Middle East, including Gulf oil infrastructure in places such as Iraq or harassing ship passages through the Strait of Hormuz.
The United States, says Bloomberg, will have to put its troops on high alert. It has around 50,000 service members in the region, many of them being in Kuwait, Qatar, Bahrain, the United Arab Emirates, Iraq and Saudi Arabia. So, the Strait of Hormuz lies between Oman and Iran and is the primary export route for oil producers such as Saudi Arabia, the United Arab Emirates, Iraq and Kuwait.
Iran's parliament has approved the closing of the Strait of Hormuz as of Sunday evening, though the final decision would be taken by the Supreme National Security Council, according to Iran's press TV. Back to the markets, on Friday, Indian indices snapped a three-day losing streak, with the SENSEX ending up 1,046 points at 82,408 and the NIFTY 50 closing up 319 points at 25,112. As upward bumps go, this was a good one, but the question of course is, where could this land on Monday? But the problems in some ways are also slightly larger and older.
High valuations, especially in the mid-cap space, coupled with fresh supply of equity via initial public offers, are the main risks to the Indian stock markets, according to Christopher Wood, Global Head of Equity Strategy at Jefferies, in a note published on Friday in the Business Standard. The rally in the market since recent close, Wood cautioned in his note to investors, means that valuations have become an issue again, particularly in the mid-cap space. So, NIFTY now trades at a 22.2x 12-month forward earnings after rising by about 14% from its April 7th low.
The NIFTY mid-cap 100 index trades at 27x 12-month forward earnings following an almost 24% gain from its April 7th low. According to him, this is why companies are once again placing equity to take advantage of such valuations. The equivalent of $7.2 billion of equity supply was last month and $6 billion so far in June.
So, it is this supply, as the core report has also pointed out, as a cautionary case, or rather a caution against the flood of IPOs, which poses the main risk to the market. Equity supply was running at about $7 billion a month prior to the correction, which began in late September, according to Christopher Wood. There's nothing wrong, of course, in this flood that we're seeing, except that it's useful to know and remember.
Wood also said that the focus in the Indian market since the budget announcement on February 1st has rotated to plain consumption rather than investment, helped by the monetary easing context with consumer finance stocks rallying sharply. Of course, this report was written before the latest flare-up in the Middle East with America entering the war, so we will have to see how things go from here on. But Wood says the property market, now in its fifth year of an upturn, has further to run.
Pre-sales growth of the top seven developers covered by Jefferies is expected to, or rather forecast, to accelerate 22% year-on-year in 2025-26, after slowing to 17% year-on-year for 2024-2025. A lower mortgage rate, which is now at 8%, expected to fall to 7.5%, as the latest rate cuts are passed on, should help boost sales in the affordable and mid-income segments, he says. Meanwhile, on Wall Street on Friday, the S&P 500 fell as investors tracked the latest developments out of the Middle East and also looked at the path of future interest rate cuts by Federal Reserve, according to CNBC.
The broad market declined slightly, about 0.2%, to close at 5,967. This was the third consecutive losing session for the S&P 500. The Nasdaq composite was down, but the Dow Jones Industrial Average was up very slightly, closing at 42,206.
And back home, the rupee was also slightly higher on Friday, but did fall for the consecutive week, as the Middle East tensions continued. The rupee closed at Rs. 86.58, up from its previous close of Rs. 86.72.
Middle East Tensions Hit Flights
Several westbound flights were affected on Sunday following the US bombing of Iran's nuclear sites. Some flights, like a British Airways flight from Chennai to London, returned to Chennai, while others from cities like Mumbai were running late and taking much longer diversions and routes, this time north via Pakistan, unlike in the past where they would fly due west through the Middle East.
The Chennai-London flight appeared to have taken off again after a few hours. Air India said it was adjusting routes of flights bound for North America and Europe that pass through West Asia. It said that it already refrains from operating flights over the airspace of Iran, Iraq, and Israel.
All of this would lead to extended flight durations for these services, as well as select flights to and from Europe and North America, according to an Air India spokesperson. We checked out flight radar data and found that some of the flights bound for London on Sunday from Mumbai, for example, were running about an hour and a half late while in flight.
Taxes Are Down
Net direct tax collection so far this fiscal is at about 459,000 crores, slightly lower compared to the corresponding period of last fiscal as advanced tax collections have slowed according to data released on Sunday. Advanced tax collections were up about 4% to 156,000 crore rupees or 1.56 trillion rupees. In the comparable period in 2024, advanced tax collections had grown 27%.
In the April 1st to June 19th period, corporate tax collections were lower by 5% to about 173,000 crores or 1.73 trillion rupees. And non-corporate tax collections, which include mainly personal income tax, were slightly high, less than a percent to about 273,000 crores. Securities transaction tax also grew about 12%.
And overall, the net direct tax collection kitty stood at about 459,000 crore rupees during April 1st to June 19th. This was down about 1.4% from the 4.65 trillion rupees or 465,000 crore rupees collected in the corresponding period in 2024, according to a report in Business Standard. So one reason why personal income tax collections are slower are clearly because stock market exits are fewer and fewer compared to what we may have seen in the last corresponding year.
Remember, the markets have been going down after peaking in September end 2024, though they did recover in recent months.
America Joins The Israel-Iran War
The United States launched a coordinated air strike on three major Iranian nuclear sites on the morning of June 22nd, Sunday, Fordow, Natanz, and a facility near Isfahan.
The operation reportedly involved six B-2 stealth bombers deploying 30,000-pound bunker buster bombs along with 30 Tomahawk missiles launched from submarines. Reports suggest that Iran was warned in advance of these attacks and told that this would be confined to these three strikes and were not intended to bring about regime change. The United States president hailed the mission as very successful and claimed that the enrichment facilities were completely obliterated.
Iranian officials, however, downplayed the impact, reporting only limited tunnel damage at Fordow. India does not import oil from Iran directly, and most of Iran's oil goes to China. A closure of the states of Hormuz is quite likely at this point, given that the parliament in Iran has already cleared it, and that will, of course, affect oil prices and thus India.
But how does this escalation look like in a broader sense? When viewed from India, I reached out to Indrani Bakshi, CEO of Anantha Aspin Center and a columnist on foreign affairs at the Times of India, and I began by asking her how this latest escalation looks like as viewed from India.
INTERVIEW TRANSCRIPT
Indrani Bagchi: It's obviously an escalatory war. But in a sense, Trump, I think, fell for Netanyahu's gambit. Because Netanyahu literally, it was an open invitation to Trump, that I've done most of the work in softening the targets, you just get to finish it off.
And that is too tough to resist. Now, certainly Trump got sold with the idea that you take out the nuclear facilities and the nuclear program is gone. We know for a fact that that doesn't always happen.
The first order of business, I think, is to assess damage. Has it been actually obliterated? And the reason I say this, back in 2001, these bunker busters were called mother of all bombs.
They were deployed in the Tora Bora caves in Afghanistan to catch Osama Bin Laden. Bin Laden actually walked out. And well, we know what happened then.
But these are very, very secure sites. They're deep, deep underground. However, they have been hit in the last few days.
So it will not be very surprising if we find that they have been damaged beyond repair. What does this mean now for the nuclear program? I think certainly for the foreseeable future, you can see that the nuclear program, Iran's nuclear program, has been severely compromised, probably lost forever.
However, what is also on the plate, and this is something certainly that DB Netanyahu has been pushing, has been regime change in Iran. And even Trump has sort of spoken about it, said that Khamenei would be easy to replace. In the last 24 hours, we have seen Khamenei even nominating three successors.
Now the point is, he changed the regime to what? Who is there to take over the regime? The Americans have a fantasy idea that Pahlavi, the former Shah, Raza Pahlavi, his son, who lives in America, can be the one to come back to Iran and restart the Shah's reign.
I think that ship has sailed. I don't think that's really where we are right now. However, these are the things one gets to hear from Washington these days.
So that's where we are really.
Govindraj Ethiraj: Right. So from an India lens now, and I mean, Iran is a country that you've traveled to in the past as well as a diplomatic reporter. What's your sense?
I mean, where did we stand in the past? Where do we stand today? How would we respond to this, if so?
Indrani Bagchi: We have never said it openly, but we do not want Iran to get a nuclear weapon. This would be compounding the problem, the region that we live in. We literally are flanked on two sides by two nuclear weapon powers.
A third nuclear weapon power, certainly one as ideologically extreme as the Iranian are, was something no Indian government has ever approved of or would have wanted. That was one of the reasons why we stayed quiet. We also obeyed every sanction that the U.S. put in. We stopped our oil from Iran. Having said that, we do have a long history with Iran, a long history which has now diminished significantly because Iran believes we are also part of the U.S.-led sort of sphere of influence. Remember in 2008, Iranian agents attacked an Israeli diplomat in New Delhi.
That case has not been conclusively solved yet. We also have, over the years, completely transformed our relations with Israel in really, really critical areas of India's national security. We used Israeli missiles for Apsindoor.
We have refused to condemn Israel for its attacks on Iran, and that was just 10 days ago. So our relations have changed over the years. We have now become much closer to the Arab Gulf states than we are to Iran, and that has been a change that has been in the making for about the last 15 years.
Iran itself has changed. Iran has become part of the China-Russia-Turkey axis. A lot of the time, that axis has worked against India.
Having said all of that, there is a fundamental principle that India follows in its foreign policy, which is your neighbor's neighbor will never be your enemy. So Iran will never be our enemy.
Govindraj Ethiraj: Right, and I think that's a good note to end on. Indrani, thank you so much for joining me.
Indrani Bagchi: Thank you. Thank you, Govind.
