Markets Slip Again As Santa Rally Hopes Fade
The DGCA has asked Indigo now to submit a revised schedule by Wednesday
On Episode 747 of The Core Report, financial journalist Govindraj Ethiraj talks to Ajay Bhalotia, General Secretary at All India Rice Exporters Association (AIREA) and Sumit Singhania, Partner at Deloitte India.
SHOW NOTES
(00:00) Stories Of The Day
(01:02) Markets Slip Again As Santa Rally Hopes Fade
(05:18) Oil Prices Are On Standby As Ukraine-Russia Talks Falter.
(06:53) Indigo Says Operations Are Back To Normal.
(08:28) Fresh Tariff Threats, This Time On Rice, Decoding The Impact.
(14:06) Telangana Is Pulling Non Data Centre Investments
(15:20) How Big Tax Firms Are Racing To Save Your Time With Customised Llm Solutions.
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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 10th of December and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital on most days but not today as I'm in transit and it's pretty cold out there.
Our top stories and themes…
The Stock Markets Slip Again As Santa Rally Hopes Fade
Oil Prices Are On Standby As Ukraine-Russia Talks Falter, The India Energy Week Segment
Indigo Says Operations Are Back To Normal
Fresh Tariff Threat This Time On Rice Decoding The Impact
Telangana Is Pulling Non-Data Centre Investments
How Big Tax Firms Are Racing To Save Your Time With Customised Llm Solutions Or Large Language Model AI Solutions
The Rally
We were expecting that we would start seeing some relief on tariffs, well the opposite is happening with fresh tariffs threatened this time on rice imported into the United States from India and more on that shortly.
The markets are losing the relatively strong gravitational pull that we seem to see and experience until week before thanks to which they're slipping down. The big question is will there be any turn before Christmas day, well anything is possible of course but the optimism has surely faded and is fading. Remember the initial public offers or IPOs also continue to suck out liquidity at rates never seen before and the flood continues and is undeterred by as Bloomberg points out the worst market underperformance in decades 17 billion dollars in foreign investor outflows and of course that little fact that half of this year's 300 listings are trading below their offer price.
I'll repeat half of this year's 300 listings are trading below their offer price so if you've not made money on the pop then you've got a long wait ahead. Indian equity benchmarks fell for the second straight session on Tuesday thanks to IT stocks and also there was general caution ahead of the federal reserve's rate decision and the uncertainty over the trade deal which of course shows no sign of coming at this point. The Nifty and Sensex have lost about 1.2 percent so far this week and are sitting about 1.8 percent away from the lifetime highs hit earlier this month so you can see that number slowly growing.
On Tuesday the Sensex was down 436 points to 84,666. The Nifty was down 120 points to 25,839. In the broader markets the Nifty mid-cap index was up 0.3 percent and the Nifty small cap index was up 1.14 percent so it's after a bit of a gap that we're seeing this divergence between the benchmark indices and the large caps and the small and mid caps.
Gold prices were up on Tuesday as once again investors were looking out for the federal reserve rate cut that's expected and also whether policymakers could outline a slower easing path when their two-day meeting begins later or rather began later on Tuesday according to Reuters. Gold was at about 4,203 dollars per ounce.
Where Is The Rupee Going?
Now the recent bauder weakness in the rupee which has weakened almost seven percent in the last year and has meaningfully underperformed against other currencies has resulted in a larger real effective exchange rate depreciation of over nine percent according to a report from Bank of America.
The weakness it says which may persist in the near term given the latest uncertainty on the US-India trade deal and pressure on capital flows can and will impact various macroeconomic variables. The report says historically in India there are five key channels of impact that material changes in the value of the rupee both on nominal or real terms can create. All put together the weakness in the rupee can be negative in the near term but positive in the longer term as it tends to influence both consumer and producer behaviour through changes in both output and price setting behaviour says that report.
It says that the traditional challenge of impact on imports and exports from a weaker rupee persists but the coefficients are weakening over time as India's exports are less sensitive to the rupee and yet trade balance does exhibit a strong inverse relation to the rupee and should improve in the next few months if rupee weakness persists. It says on the other hand exchange rates pass through from rupee fluctuations to inflation both wholesale and retail has been declining. So Bank of America strategists say INR that's the rupee remains dependent on portfolio flows next year as many other analysts have been telling us as well after large equity outflows this year thanks to the tariff uncertainty.
Interestingly the report says it believes the US dollar would be weak next year and could support or that could support a mild appreciation in the rupee and they're also projecting the rupee to touch about 86 rupees to a dollar by end 2026. Once again in line with dollar weakness and finally on Tuesday the rupee closed slightly higher thanks to dollar sales from exporters and some inflows on the portfolio side during the day. The rupees rose slightly to end the day at 89 rupees 87 paise.
The India Energy Week Segment
Oil prices now appear to be firmly anchored to a possible Ukraine-Russia peace deal for which considerable effort is being expended but it is not clear that either side is giving in. Oil prices steadied on Tuesday after falling two percent in the previous session according to Reuters with investors now or rather once again looking closely at the peace talks and ending of the war would obviously mean that supplies would increase.
Brent was at about 62.71 cents on Tuesday afternoon that's Brent crude futures and West Texas intermediate was at about 59.08 cents. Elsewhere Reuters is also reporting that the US military said it plans to develop a fleet of small-scale refineries to produce critical minerals to make bullets armour and other types of weaponry which is aimed at developing domestic sources for niche materials that Chinese miners have long controlled. The plans which apparently have not been reported earlier are being developed by the US army alongside the Idaho national laboratory and antimony and gold miner perpetual resources with antimony being the first mineral the military aims to refine.
So one reason we're mentioning all of this is that we will have some exclusive insights on India's own critical mineral initiatives and efforts that's next week so stay tuned.
The Latest On Indigo
India's aviation regulator that's the director general of civil aviation has asked indigo to cut its planned flights by five percent after the airline scrapped about 2,000 flights last week thanks to poor pilot roster planning.
The DGCA has asked Indigo now to submit a revised schedule by Wednesday that's today and has asked it to cut flights on routes where rival airlines operate and avoid those where it holds a monopoly. It did not specify an end date for these cuts earlier civil aviation minister K Ram Mohan Naidu said the government cared for pilots crew and passengers and that they have made it clear to all airlines and also that indigo was supposed to manage the crew and roster. He said that they were not taking the situation lightly and if there is any non-compliance in future they will take action.
Meanwhile indigo on Tuesday claimed that the airline is back on its feet and operations are stable. The CEO said that lakhs of customers whose flights were cancelled or delayed have already received their full refunds. He said that earlier their expectation of normalisation was between December 10th and 15th but as of 9th it's already steady or stabilised.
He said that on 5th of December they flew 700 flights and that number went up to 1,500 on 6th of December, 1,650 on the 7th, 1,800 on Monday and on Tuesday or rather on Monday and Tuesday more than 1,800 and as of Monday the airline says it was back to all its 138 destinations in its network as well as its on-time performance.
Rice Tariffs
U.S. President Donald Trump on Monday indicated that he's considering additional tariffs on Indian rice saying that they should not be dumping the commodity in the United States.
Now Trump made those comments during a meeting at the White House where he unveiled about 12 billion dollars in fresh support for American farmers. He was given a list of countries that are dumping rice or allegedly so into the U.S. with India, Thailand and even China accused of that practise. He asked his treasury secretary Scott Besant as to why India was being allowed to do that, they have to pay tariffs and he asked whether they have an exemption that's does India have an exemption on rice.
The Hindustan Times quoted him saying that imports were challenging domestic producers having been informed of falling rice prices by rice baron Merrill Kennedy, the founder and CEO of Kennedy Rice Mills and Four Sisters Rice. I reached out to Ajay Bhalotia, General Secretary of the Oil India Rice Exporters Association and I began by asking him to give us a breakdown of India's exports destination wise and also why the Trump administration could be asking for tariffs.
INTERVIEW TRANSCRIPT
Ajay Bhalotia: In last financial year, we have exported 2.50 lakh metric tonne of the Basmati rice to the USA and 60,000 metric tonne of the non-Basmati rice to USA in last financial year. So, definitely when the US government put the tariff on 27th of August, the volumes are reduced in last three months, means you can see September, October and November, but means there is not much impact because we have exported slightly higher quantities between April to August. Definitely, if something comes new, the export will impact in the total whole year, which is 25-26.
Govindraj Ethiraj: And roughly how much of rice exports, whether it's Basmati or non-Basmati, go to the United States now as a percentage of total exports?
Ajay Bhalotia: It is less than 5%. Our total export is 60 lakh metric tonnes. And if we are exporting 2.5 lakh tonne, you can say it is less than 5%.
Govindraj Ethiraj: Right. And why do you feel that the US is saying that rice is being dumped, given that we are already being hit by tariffs at the rate of 50%?
Ajay Bhalotia: We've seen there is some confusion. Actually, the meeting in which he announced this or he discussed this, this meeting was arranged by Mr. Trump. He's announced some good package to the United States farmers.
In that meeting, we came to know some of the rice industries people also available during this discussion. And they talked about American rice versus non-Basmati rice of the world. As from last six months, non-Basmati rice prices over the world is very lower side and American rice is very expensive.
A lot of people from the Asian countries like Vietnam and Thailand are exporting rice to the USA. So, we are thinking that we already requested the government of India to take the explanation on this point. We are thinking that they are talking about the Asian exports from the USA.
And in that, definitely Trump has pointed out the India dumped rice. So, non-Basmati rice is going from other countries, less from the India. That rice is definitely available in the American markets because of the low prices worldwide and their local rice is very expensive.
So, they are discussing about this, but definitely when they are saying the rice, and we are thinking rice versus Basmati or non-Basmati. So, this confusion is there. I think they know when something is come, so they may be differentiate the HSN code for the non-Basmati and Basmati.
And on Basmati, they are not going to put any additional duty or dump duty.
Govindraj Ethiraj: Right. And if you look back at the last few months, and maybe since the time we are paying first 25% and then 50%, what has been the impact of overall rice exports to again US, particularly given that, let's say, diaspora is such a big consumer and cannot do without it. So, is it sort of our prices holding?
Ajay Bhalotia: There is not much impact on our economy because our only less than 5% volume is going to the USA. First thing is that. And definitely if we say total volume from April to October, because it's still November data is not released by the PEDA or DICS.
If we say total volume from April till October is almost equivalent to what we exported in April 24 till October 24. So, presently, there is no much downward trend to the total export to the USA. But time duration has changed because if we talk about the September or October months, total volume that has been reduced drastically because we have exported much quantity during the month of June or July, August.
So, right now, there is no impact, but definitely this duty will sustain, 50% duty will sustain. In coming months, there will be slightly fall down in the volumes.
Govindraj Ethiraj: How are you seeing overall rice production in India, which has been high and exports in the context of that, particularly as you look at the next few months?
Ajay Bhalotia:There is no decline in any importing country till this month. And we are slightly increased if we say from April to September. So, that rest of the world is demand is absolutely right.
I mean, huge demand is there as equivalent to demand to last year. Overall, if we say in the financial year, we will definitely get some additional quantities as compared to the last year.
Govindraj Ethiraj: Right. Ajay, thank you so much for joining me.
Ajay Bhalotia: Thank you.
More Investments In India
Vietnam's largest conglomerate Vingroup on Tuesday signed a MOU with the Telangana state government for a three billion dollar investment to establish a multi-sector ecosystem as it's called in that state. The projects would cover smart urban development, electric mobility, healthcare, education, tourism and renewable energy across about 2,500 hectares or 6,100 acres, the company said in a statement reported by Reuters.
The three billion dollar plan marks Vingroup's biggest potential investment outside Vietnam, surpassing a two billion dollar wind fast factory under construction in North Carolina, United States. According to that report, Vingroup already has its electric vehicle arm wind fast in Tamil Nadu or a manufacturing facility in Tamil Nadu. It also says that it wants to deploy large-scale electric taxi fleets and the projects in Telangana will feature a 1,080 hectare smart city, a 350 hectare theme park and a 500 megawatt solar farm to power sustainable initiatives.
Help For The Tax Experts
Tax from Deloitte, Tush, Tohomatsu, India yesterday launched Tax Pragya, an artificial intelligence or AI-powered tax research platform which is designed to help tax professionals navigate complex tax requirements faster. Now this is largely a B2B product aimed and designed for companies and not individuals as such.
In September, PwC India had launched something similar called Navigate Tax Hub, generative AI platform for tax and regulatory functions available to its clients using both proprietary logic and tax expertise and reference content from outside. Deloitte says this combines Deloitte's own tax expertise and has been trained on more than 1.2 million tax cases and over 5,000 technical papers, solutions and proprietary expert insights and claims that it will deliver near zero hallucinations. I reached out to Sumit Singhania, partner at Deloitte India, and asked him who this was aimed at and what were the kinds of problems that it could solve.
INTERVIEW TRANSCRIPT
Sumit Singhania: So yes, today is the day Deloitte India is launching this AI-powered tax insights platform for client access. What we have built is essentially an AI-powered insights platform which essentially combines the wisdom of public database, millions of the case laws which are court pronouncements and tribunal pronouncements, and on the top of it we have overlaid Deloitte's wisdom which is the decades of the knowledge insights and solution paper to build what we call a private LLM of sort. The use case of this is that any corporate organisation, which is many of them are clients, if they need to find the tax research at speed, right, and with a nearly no hallucination outcome, that's the first use case of this.
The second, I would say the very clear use case of this is that it is, to my mind, it is going to level up the playing field for all the tax professionals. So typically what tends to happen is that if you're a direct tax professional, you would be having a long road to learn even the basics of indirect taxes and the transfer pricing and so on and so forth. Same holds true for if you're a hardcore indirect tax professional, for you to know the direct tax details and the knowledge is very difficult.
This platform creates the fungibility of knowledge in that sense. So if let's say, if I talk about a very large corporate organisation which has a sizable tax team, while some people may be doing as part of their day job one particular speciality, whether it's direct tax or transfer pricing on direct tax, but as far as their knowledge of scaling is concerned, they could use this to train their people to become far more intelligent, far more insightful across the breadth of the tax knowledge. It doesn't have to be limited to a particular stream of the tax law. So to my mind, that is a big use case of it where it can be used as a training upscaling platform in-house.
And we are in fact doing that just to respond in a more comprehensive way. Before we even launched this to client market as of today, we have been using this as pilot for last 10 months amongst our own tax people. We have about 4,000 plus tax team and 50% of the tax team has been using this.
Part of it for doing the research faster, better in a insightful way. And part of the use case has been actually to train our people across the streams and across the service line.
Govindraj Ethiraj: Right. And just to come back to the use case. So what would be, let's say the two or three top queries or kinds of queries that your clients have or for that matter, in your own sample set of Deloitte tax professionals, they had when they were testing it?
Sumit Singhania: We are a client service organisation. We were putting as many complex queries as we can through the tests on the platform, right? I mean, from the simple queries like what's the taxability of a capital gains income to asking complex query, like what's the taxability of the redemption of preferentials and so on and so forth.
You could ask them question around what's the GST implication for let's say corporate guarantee. So I mean the whole range of query, right? So if you come into the tax world, this platform is in a way enriched with a 1.2 million case laws and judicial pronouncement that we have got. And like I said, multi-thousand knowledge solution paper from Deloitte Insights. So whatever we've done over the last several years, couple of decades for our client service, those knowledge base is sitting there right there in the bottom of the LMR. And these are key things which are questions, let's say or queries, which people would have come to you individually or in person earlier? We are not trying to use any repository of our client queries to build this platform.
What we're using is essentially our knowledge papers and knowledge solutions.
Govindraj Ethiraj: I had the same query of some taxation complex or not necessarily complex, but let's say a taxation incidents on preferential shares sale or something. Earlier, I would have called you, I would have called Sumit and said, Sumit, can you tell me? And you're saying now, don't call me.
Instead, go to our Pragya.
Sumit Singhania: That's a very simplistic view of it. But let me sort of nuance it a little bit more. By doing this, by launching this for client access, we're trying to say is that let the client become slightly more insightful, even when they're reaching out to consultants like us or even any consultant, not only necessarily Deloitte, right?
So it's a very disruptive, I would say, solution out there in market now as we launch it, right? For clients to truly use this and then become knowledgeable about the topic that they want to research. And as they were talking to their consultant already, now that conversation can become far more insightful, right?
So I give this example to put this in context that if you're a head of tax of a very large organisation and you've got a team of 20 people, right? And you ask your team to do a research on something, any tax technical research on a complex topic could take from 10 to 20 hours, any tax technical research. Now, what you're trying to do is that that 20 hours of research can be done in minutes, not even in hours.
When you're a tax director of an organisation, you tell your team that, okay, what could be the possible solution to what could be possible answer to this technical query? They come back with a lot more insightful answer with a much faster speed. And then it doesn't replace the need for a consultant.
If you still need to have a validated, truly kind of a signed off opinion, you would still go to a consultant, but your conversation would be, Hey, here is the question I have. I think this could be a possible answer set. What is your point of view on this one?
You agreed, you not agree. So we're not trying to, and we know it's disruptive, you know, but not only you're disrupting ourselves, but we're just putting it right there in the middle of the markets to disrupt the entire tax services market. But I don't think this platform is going to make either the client tax team redundant or the consultants redundant.
It's just going to level up the knowledge base on both the sides so that conversations become far more elevated for the next insights, for the next analytics, rather than just having the information peddling or information sharing. So to my mind, this is a great level setter, which makes people more intelligent, insightful, at a huge speed that was not imaginable earlier.
Govindraj Ethiraj: Will this product be offered to everyone? I mean, will it be like sort of public pricing?
Sumit Singhania: We are being very careful about how we go about doing this in the market. So today being the date of the launch and the wave one, we are giving the first 500 of our clients. It's just a curated list of 500 clients to start with.
It'll start with a 30 days free trial period, and then goes on for a subscription model. So as you ask, it's not going to be free of cost. It comes to the commercial cost to it.
But the cost is very minuscule in terms of what gets exposed to the client.
Govindraj Ethiraj: But it's only available to your clients and not others, even for a fee.
Sumit Singhania: As of now, the plan is that we'll give it to our clients in batches. End of January, it will be available to all of Deloitte India's client on a subscription model. Thereafter, we'll put this into a cloudification way such that it goes into the, in fact, more interior markets of Bharat tier two, tier three city.
Our long-term vision is that it should be available to the entire ecosystem of advisors as well as the taxpayers. But it's essentially a B2B product. We're not intending to be used by myself or let's say go with you.
We're not intending to make it a B2C Q&A because the platform is trained to answer is far more complex, right? So degree of complexity is very high.
Govindraj Ethiraj: So it's more corporate tax rather than personal tax is the point.
Sumit Singhania: I wouldn't say only corporate tax, we could also as insights on the indirect taxes and transfer pricing, but it is tuned, it has been trained and prepared in a way that it deals with a complex part of the range of the questions, not like a very simple, what's the rate of tax and so on and so forth. Another USP of this platform is that it's not a database subscription that we're offering. The number of them outside already, we're not claiming this to a database subscription, even though our database is much more rich, I would say with a 1.2 million case laws in it. But we are essentially calling this platform out to be insights platform. We are essentially exposing Deloitte's ears of the wisdom to our clients to have easy access to the insights and the knowledge base so that when they talk to us, they look for the value and an elevated sort of conversation.
Govindraj Ethiraj: And you're saying that basically the Deloitte experience layer that you've added to this LLM will make it better or richer than, let's say, what I can get through DeepSeek or Gemini Pro or ChatGPT.
Sumit Singhania: I will not take any issues with the names that you're taking, but what platform we're launching essentially is exactly what you said, by putting the Deloitte insights and the solutions on top of the publicly available case laws, etc. We have made this a very intelligent research platform. It is powered by AI, so that brings the agility and the speed to it.
Exactly what you're saying, Govinda, is that it will be far more contextual. So the whole USP of the platform is that it doesn't do a Q&A alone research. It does a contextual research.
So you can put issues, you can put facts. There are two or three sort of search boxes there. You can put your main question, you can put more facts around it to give it colour.
You can put more keywords. And then it comes out with a more structured response, like what a tax associate who has a two or three year of experience would give you as your first answer. So even if somebody calls me in Deloitte, the first answer that a tax associate will prepare who is trained for three or four years is what you will get from this.
Other element I mentioned to you is that it is nearly 99% hallucination free. So one thing that we are very confident launching this in the client market is that it will not manufacture an answer, which is non-existent. It will not manufacture a case law or a judge's name, which is non-existent.
We have seen some of those instances in the past where in the court proceeding, a case law came up that never existed. So it's a hallucination free, which has been our primary goal that we don't want to create an incorrect response when clients are interacting with this. We don't want to create a response which is hallucinated either for the sake of completing the response, et cetera.
So if there is a question for which the platform is not trained or there is no database, it will freely say, I don't know the answer rather than making up some answers based on something here and there. If I was to compare with the, let's say the open source platform that you would generally see, you will typically have a view of 270 degree. If you ask, let's say chat GPD or question, this is blinkered kind of platform.
It will only interact with what has been fed into the LLM. And if the LLM doesn't have the response, then it will say no response.
Govindraj Ethiraj: And last quick question. So, and this I'm assuming is a living database or a living being because you'll keep adding and evolving. Yeah.
Sumit Singhania: Absolutely. So currently, like I said, it's a million plus code cases, thousands of our own knowledge solution. And we'll be updating this almost on a weekly basis, if not daily basis, or the goal is to do it on a daily basis.
Anyways, it's not the static platform to be absolute dynamic platform. And there's a lot more that we are sort of hoping to build on top of it, but it'll be a absolute real time dynamic platform.
Govindraj Ethiraj: Got it. Sumit, thank you so much for joining me.
Sumit Singhania: Glad to be here. Thank you.
