On Episode 878 of The Core Report, financial journalist Govindraj Ethiraj talks to Raian N. Karanjawala, Managing Partner at Karanjawala & Company as well as Sahil Kapoor, Head of Products and Market Strategist at DSP Mutual Fund.

SHOW NOTES

(00:00) Stories of the Day

(00:50) Markets struggle to hold ground against a falling rupee

(03:10) Microsoft to roll out largest data center in India

(04:41) Trump administration dismisses criminal fraud charges against ‌Gautam Adani following a settlement, assessing the legal implications

(17:58) The charts are showing early signals, says a new DSP MF report. And why large caps make sense

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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.

Good morning, it's Wednesday, the 20th of May, and this is Govindraj Ethiraj Broadcasting and Streaming, weekdays from Mumbai, India's financial capital.

Our top stories and themes…

The stock market's struggle to hold ground against a falling rupee.

Microsoft is going to roll out its largest data centre in India, it says.

Trump administration dismisses criminal fraud charges against Gautam Adani and the Adani group, following a settlement assessing the legal implications.

The charts are showing early signals, says a new DSP mutual fund report, and why large caps make sense.

Markets, Energy and The Rupee

Petrol and diesel prices rose again on Tuesday morning by 90 paise or less than a rupee this time, as we had predicted earlier, and of course there will be more raises soon. Last week saw prices of both fuels going up by 3 rupees a litre.

The rupee continued its downward journey against the dollar, thus also erasing some of the benefits accruing by raising fuel prices so far, given that it will take more rupees to buy the same barrel of oil, whose price has been staying high in dollar terms of course. Brent futures for July were at about $110.83 a barrel, so around $111 a barrel on Tuesday afternoon. The rupee fell to a record low for a sixth consecutive day, ending lower for eight sessions in a row on Tuesday, thanks to continued pressures on the external front as well as the war in West Asia, which is keeping oil prices high and pushing U.S. Treasury yields higher.

According to Reuters, which added that the rupee closed at 96 rupees 53 paise, the record closing low, and it also touched a record intraday low of 96 rupees 61 paise, and has now fallen about 6% since the war broke out in late February. Government officials said on Monday that state fuel retailers like Indian Oil Corporation and Hindustan Petroleum Corporation, among others, have been losing 750 crore rupees every day, and it has no plans to provide financial support to them. Sources at the refining companies told Reuters that more price hikes are needed to recoup the losses.

India is the world's third-largest importer and consumer of oil and was also one of the last major economies to raise retail fuel prices after the war started on the 28th of February. In keeping with all of this, the market struggled to stay in the positive despite some scattered foreign portfolio and domestic institutional buying in recent days. The Nifty 50 and Sensex lost all their intraday gains, and the Nifty 50 was down 31 points to close at 23,618, and the Sensex was down 114 points to close at 75,200.

For all the turmoil everywhere, capital market-linked stocks did very well, with the Nifty Capital Market Index hitting a 52-week high. Stock prices of BSE, the Bombay Stock Exchange, and the Multicommodity Exchange of India, that's MCX, both hit their respective record highs, according to a report in the Business Standard.

What Are The Big Investments in India Recently?

We'll be tracking direct investments a little more closely now, given all the gloom around.

Microsoft has said it is rolling out India's largest data centre in Hyderabad this year, which means in a few months, and it's on track to open by mid-2026, its country head said on Tuesday while speaking to Reuters, even as it spends heavily to bolster its position in one of the world's largest markets for AI services. Microsoft's India president told Reuters that there's massive demand for Azure cloud services and its $30 a month co-pilot 365 AI assistant. Last year, it had said that it would invest about $17.5 billion in India and that would also make it its biggest outlay in Asia, in addition to another $3 billion that it committed at the beginning of 2025, and this includes that new data centre in Hyderabad, where it already has a significant presence.

Elsewhere, food and beverages major PepsiCo said it'll invest about 5,700 crores in India by 2030 or in the next four years, mostly to ramp up capacity of its food business, according to its India and South Asia CEO. The investment is primarily for the concentrates plant in Madhya Pradesh and snacks plants in Assam and Tamil Nadu. PepsiCo posted a revenue of about 9,800 crore rupees at the end of December and a profit after tax of about 905 crore rupees.

What does the dismissal of charges against Adani Imply?

Shares of Adani Group companies rose on Tuesday by about 5% after the Trump administration moved to dismiss criminal fraud charges against Adani Group founder Gautam Adani. The U.S. Justice Department on Monday moved to drop charges accusing Adani and associates of paying bribes to secure power supply contracts in India and Adani Enterprises separately settled allocations tied to LPG gas imports from Iran. And these are, of course, two separate cases.

One case is to do with Adani's buying Iranian sanctioned energy between November 23 and June 25. For this, Adani the firm has agreed to pay $275 million to settle its potential civil liability for apparent violations of OFAC or the Office of Foreign Assets Control sanctions on Iran. According to an official statement, the company had purchased shipments of liquefied petroleum gas or LPG from a Dubai-based trader that purported to supply Omani and Iraqi gas but overlooked red flags apparently indicating that the supplies originated in Iran, CNBC quoted the U.S. regulator saying.

In the other case, the U.S. Department of Justice said it would drop criminal charges in a bribery and fraud probe against Gautam Adani, according to a report by The Wall Street Journal on Monday. The Department of Justice move was anticipated after the Securities and Exchange Commission last week moved to settle its civil lawsuit against Adani and his nephew Sagar Adani, according to CNBC, which added that the SEC's civil lawsuit had alleged the two men misled investors as part of a bribery and fraud scheme tied to solar contracts in India, the same charges that were being investigated by the Department of Justice as well. The Wall Street Journal report said the Department of Justice reviewed the case and decided not to devote further resources to these criminal charges against Adani and others.

In 2024, a New York federal court had indicted Adani along with seven others on charges related to the quote-unquote massive bribery and fraud scheme, which the Adani group had denied as baseless. Court filings indicated Gautam Adani agreed to pay $6 million and Sagar Adani $12 million without admitting or denying wrongdoing. The BBC reported that Adani group has now resolved all three legal cases against it in the U.S. which will pave the way for them to travel to the U.S. without risk of legal proceedings.

The BBC also quoted other reports saying that the dropped charges reflect a broader move away from prosecuting foreign bribery cases under the current administration, the New York Times reported, citing sources that the lawyers said Adani would invest about $10 billion in the U.S. and create 15,000 jobs if prosecutors drop the charges against him, which was a pledge that he had made to Trump shortly after the latter won the 2024 presidential election. While the first case is to do with buying sanctioned energy and perhaps could be viewed a little more lightly, the second, of course, is an allegation of bribery of officials in India. While the case is now settled in the U.S., what lesson does this hold for the Adani group in general and for companies in specific? I reached out to corporate lawyer Raian Karanjawala and began by asking him how he was seeing the outcome of the bribery case.

INTERVIEW TRANSCRIPT

Raian Karanjawala: Let me start with putting a caveat out there, that the group is a client of mine, and Gautam Alain is a personal friend, but at no stage have I acted in this matter. So, my knowledge of the matter would be a distant one from what we can read in the papers. You know, the intricacies of what happened, what was argued is not something you'll be able to get out of me.

The first takeaway for them, obviously, is that they're in a much better position today than they were yesterday, because now, so there is no criminal case pending against them, which had been pending since I think the November of 24. Obviously, any such case has a dampening effect on the amount of business that you can do, at least internationally. So, the first thing I think is that they will now be able to again, sort of up their gear by gears by one or two notches and go full throttle, which is normally what they would like to do.

So, the first takeaway is that they have a clean slate before them, and they can go ahead and do as much business abroad and in America as they want to do without any fetter in their way. The other advantage is that once there is no criminal case pending against you, and there are no in fact, no cases pending against you in America, your ability to raise capital should obviously increase and that ability of yours should obviously be strengthened. Third takeaway would be that I'm quite sure that in these years in which they sort of had to work in America to sort of sort this matter out, they would also have become much more familiar with the American terrain.

So, in a sense, this learning, though it wasn't in the way in which they would have liked it, may well come to their benefit in the years to come when they do more business in America, if they do more business in America.

Govindraj Ethiraj: Right. And which looks like they will because they've committed $10 billion of investment. That's what I read.

Okay. I understand that the case was represented really by lawyers in America. Now, the Foreign Corrupt Practises Act, which was applied in this case, is that something that could be opened up at a later stage?

Not unless they come out with something new.

Raian Karanjawala: If they find out that something happened in another matter, then I mean, the law is always out there, but nothing under this case.

Govindraj Ethiraj: Right. In your understanding, when there are settlements like this, is there an admission of guilt? Is it an acknowledgement of an event that's happened?

Raian Karanjawala: So, from what the papers tell us, they've been very clear in saying that there is no admission of guilt. There may be settlements in which there are admissions of guilt, but this doesn't seem to be one of them. This is not obviously the only case that has ever been settled in America.

So, there may be cases where people have said, alright, I admit to this, but you know, I plead guilty, but let's settle it with a fine. This doesn't seem to be one of those cases. This is a case where they seem to have got a clean chit in, so to speak, without any admission of guilt.

Govindraj Ethiraj: So, a slightly broader question. Obviously, American law works differently, and there is the ability to compound offences. In India too, we can do that in some few cases in corporate law.

But how would the two situations work, rather the same situation in India versus America?

Raian Karanjawala: Recently, if you notice, it was quite a sort of a high-profile case. There was something So, the Supreme Court settled it and broadly quashed all prosecutions against them on their payment of certain backlog of views, etc. That's the broad understanding of what I have of that case.

And I think they used their powers under Article 142, but I'm not 100% sure on that. So, even in India, in some cases, we find that even the courts are moving in that direction. That gives you scope for a larger debate, which is that, as the years go by, as business becomes more prominent, a part of national life, should you move towards heavy fines by way of punishment rather than long periods of incarceration, or intermittent periods of incarceration where you go in and out of jail till you get bail and so on.

So, this is a debate for the future, and it may well take place in the future.

Govindraj Ethiraj: I mean, keeping with your train of thought, would you say that, you know, one of the things that many people are uncomfortable about in India is the criminalisation of many acts, including in doing business. So, you feel that the positive way of looking at it is that we should be also maybe decriminalising and allowing more compounding of offences?

Raian Karanjawala: Yeah, I think so. And I'll tell you why. Many years ago, a friend of mine told me one thing.

This was a close friend of mine. He was a finance minister. So, a friend of mine one day told me, he said, you know, you should tell Arun one thing, and I did actually.

He said, well, people who create jobs don't sleep well at night, then they won't create jobs. So, that's something you need to keep in the back of your mind when you're making policy. You know, the point is, of course, anybody who has violated the law must be penalised.

The question is to what extent, how often, and with what ferocity. And this is a debate that will go on because, you know, today, increasingly, as India becomes more industrial, as people are asked to invest more and more in the country, as you seek foreign investment, if the whole process of business in India is fraught with potential liabilities, then people are always cautious. I'll give you my own example.

I've over the years studiously avoided coming onto any board. There's one board which I recently accepted, but that's like almost like a government company. So, it's Petronet LNG.

So, that's sort of a government side to it, as a result of which it's a safer board to be on. Because otherwise, I still remember my old days, friend of mine called Darya Sudwadia, who was a partner of Crawford Bailey. As he said, he was reading the morning paper and fadak, he got an arrest warrant because some company of Ashok Birla had polluted something somewhere in India.

These are things you need to look at a little more closely and maybe from the other side of you. You're going to suddenly find people not willing to get on to panel. I remember another friend of mine said, Manik, my wife, you know, we need more women directors.

So, why don't we just put her on our board? I said, out of the question. Have you gone mad?

Something happened to my children. My daughter lynched me. You are not going on any board.

You put mom on it. It is something that you need to think through. I think a lot of these laws were made when things were not so active in so far as, you know, arrests, etc. were prevalent.

Govindraj Ethiraj: So, let me flip it around in a manner of speaking. So, the criminal charge for paying 250 million dollars in bribes by the Adanis for securing solar energy supply contracts. Now, this case does not appear in India anywhere as such, or it doesn't seem to appear.

Raian Karanjawala: I haven't gone into it, but is there any admission that they actually paid that money here? I mean, if they actually paid that money here, then you would have a whole lot of PILs saying, why aren't you prosecuting not only the guy who paid the bribe, but also the guy who took it. So, I don't think there is actually any finding or any real tangible evidence, though I've not studied the case.

I'm just speaking from a layman's point of view to show that that kind of money was actually paid.

Govindraj Ethiraj: Right. But I'm assuming there is some evidence because there was a case filed in Brooklyn. Maybe some prima facie sort of first look at, oh, I think it is kind of evidence.

It's possible. Okay. So, but my question is, I know, like, you've not appeared in this case, so neither of us know those details.

But because the American system is maybe despite the compounding or the possibility of compounding is a fairly, let's say, non-influencible system, or at least was. So, to that extent, do you feel there is a taint that's left behind because of all of this? And I'm still speaking only about this case, not the other one.

Raian Karanjawala: No, a taint on whom?

Govindraj Ethiraj: Taint on the Adani family, in this case.

Raian Karanjawala: See, frankly, what they have got is a clean chit. Now, I don't really, at least in law, they can walk away saying, we have never been prosecuted, we've never been held guilty. Now, if in social conversation, people say, no, no, but we don't believe, then I can't say.

Govindraj Ethiraj: Okay. So, what would you advise Indian companies who are obviously, you know, investing or doing cross-border investments and are likely to, you know, face some kind of scrutiny outside as well, in addition to here, which, of course, others have been too. Is there any general advice or takeaway from this case or similar cases?

Raian Karanjawala: One advice that I always give Indian industries, if they ever get down to asking me, and I remember I had given it while we were doing the Atul or Mitchell case. I remember having a long conversation with Aditya Mitchell on this. Across the spectrum, I feel that the Indian industrialist is willing to spend crazy amounts of money when he's dragged to court.

You know, they'll spend any amount of money, but they don't invest in equal measure in a legal in-house team. You know, a friend of mine, Baram Vakil, who's a partner of AZB, he once said something which I always remembered. He said, the general counsel of GE sat on the board with Jack West.

If Jack West wanted to do something and the general counsel said no, Jack West couldn't do it. I feel that the one area where the Indian industrialist doesn't pay enough attention is his own in-house general counsel and the advice that they give. You know, you have to have people of a calibre who will come forward, first who will know their stuff, and then come forward and put it to you brutally, whether you're a known or whether you're a professional, whether you like it or you don't like it.

And there should be checks and balances for the general counsel to be able to alert the board that this is something that should not be done. So there should be some internal kind of checks and balances. So when you go abroad, I think every industrialist must sort of take a leave from the foreign company.

In a foreign company, in the big corporations abroad, a general counsel's word on matters of legality is virtually final. Nobody can start saying, no, no, we'll manage this and we'll manage that because they won't. So I think that is one thing I would always advise if people were to ask me.

Govindraj Ethiraj: It's a good note to end on, Mr. Karanjawala. Thank you so much for joining me.

Raian Karanjawala: Thank you.

Why Large Caps make Sense?

A new report by DSP Mutual Fund has made a fresh case for investing in the markets via the Systematic Investment Plan, SIP, which would, of course, be expected. The report, titled Early Signals Through Charts, also argues that the Nifty's forward price to book has slipped below its long-period average, which is important because price to book is a more balance sheet-anchored valuation measure than price to earnings, especially when earnings are volatile, the report says. It also argues that average valuations are not easy to find in real time, and long-term averages include crisis-level lows, and crises, of course, are not forecastable.

The signal, the report says, is to increase equity allocation within guardrails, and this is also not a peak return on equity valuation, and corporate returns on equity in this cycle are yet to move meaningfully higher, which makes the current price to book closer to fair value and potentially more attractive if returns on equity improve from here, according to the report. I reached out to Sahil Kapoor, head of products and market strategist at DSP and author of the report, and here are some extracts from the conversation, the full version of which will be on our YouTube channel this evening.

INTERVIEW TRANSCRIPT

Govindraj Ethiraj: So if I were to look at a more practical view, if we are in May 2026, and let's say the last one year the markets have been not very good. But the four years before that, or three and a half years before that, they've done well. So where do people who've invested, whether lump sum or SIP rolling, in the last five years, where do they stand broadly?

I'm talking about an industry medium.

Sahil Kapoor: So had they invested, let's say five years ago, they'll be sitting on handsome gains, no doubt about it. Their CAGR will be upwards of 15% in most cases, if they had not made any mistakes.

Govindraj Ethiraj: And this is saying across the industry, even the worst performing funds would have delivered something.

Sahil Kapoor: I think if you look at, let's say, a normal equity fund, they have done well, just because markets have done so well. Second is that if you invested one year ago, and let's say lump sum, then you are at no gains, you will be breaking even or maybe slightly under the water. So that is where we stand today.

Govindraj Ethiraj: So which obviously brings one to the question about what is it about the next four years that could so magically change, to use your word, things and deliver much better returns than it has been for the last year?

Sahil Kapoor: Sure, I have no idea. I don't know what will change in the next four years. So how should we prepare for it is something which we can think about.

First is that recent high returns is a recipe for forward low returns. So if you are sitting, for example, let's say we said that 12% is our long term historical CAGR for Nifty. So if you are getting 20%, then let's assume that 12% is going to continue.

We don't know. But let's say, which means that you are already far away from your long term median. So if you start at that point, there is a good possibility that your future returns will be much lower.

Second is now because in the last 18 to 24 months, returns are much more muted. I think it will probably give us some confidence that at least average returns or you know, somewhere close to that is possible. So your froth is more or less absent.

Second is valuations. For a long period of time, India traded at a very, very high premium in terms of valuation, we are still not cheap. But there are a lot of buckets or pockets in the market which have become cheap.

So as an investor, you can pick pockets, be in those areas and then probably expect that over a period of time, you will come on better. We should continue to pick large caps. Maybe it is a continuation of what we wrote last year also or before that also.

The simple reason being that small and mid caps, if they trade at a premium to large caps, and they continue to show earnings growth, which is similar to large cap, then you don't need to pay a very high multiple for them. For example, if a large cap is trading at 18 times multiple doing 10-12% earnings growth has an ROE of 16-17%. If a mid cap has the same ROE profile, which very few have, and earning growth is also similar, there is no reason for me to pay a premium for it, right?

And therefore, it's much better to stick with high quality large caps rather than go and dilute yourself in a small and mid cap space. And you're saying this because of experience or bad experience? I think it's plain simple logic.

Why will you overpay for investment which produces a very similar experience in terms of shareholder outcome? So if you can buy an investment which is cheaper, you know, why not buy it?

Govindraj Ethiraj: Right. But many, I don't know about BSPM, can maybe highlight it. Many funds also have small cap schemes.

Absolutely. So in which case you are investing in them, and how are those performed versus the others?

Sahil Kapoor: I think the performance for the category itself has been muted, no doubt about it. But of course, when even when you go to small and mid caps, you need to know what type of businesses are you investing in. So if you look at the SMID universe, it's about 400 stocks.

So about two years ago, you could find less than 25% or less than 100 stocks which traded in the bottom 30 percentile of valuation. So it was not easy to find, you know, investments in that space. And if you fast forward two years, the returns are not very high compared to what they were earlier.

Today, I think that number is slightly edged up. So you might find a few more bargains, but it is not easy. So it's like, where is the easier hunting ground today?

That is how you should think about it. But yeah, of course, we run a small cap, we run a mid cap. And we've been telling all our investors to be more SIP focused in small and mid caps.

Govindraj Ethiraj: You talked about investing in SIPs as an approach to this thing, you talked about being methodical. So can you sum up for us how all of this that we've spoken of should convert into a strategy for investing today? And if you've not started already, and why SIPs make sense?

Sahil Kapoor: See, as an investor, if I'm part of the financial market, I'm exposed to a lot of noise. So first thing is that we should cut down on noise, looking at price quotes and social media or a continuous stream of news every single second, I don't think it's very healthy for your financial health. First is to cut down on that second is create a method.

So SIP is a method, it provides you automated way of investing. As I said earlier, it will give you an average experience over a period of time and average experience is very rare, as I showed you in numbers earlier. So one simple idea is a pick up a flexi cap equity fund, do a SIP and forget about it.

And let it do its work over a very long period of time. B, if you don't want volatility in your portfolio, if you're afraid of swings, go for a multi asset portfolio, which will have a mix of many assets and do a SIP in that portfolio and forget about it. I think these two are the best single methods which are over a period of time tax efficient and they can create compounding.

Govindraj Ethiraj: But multi asset at least in this structure, these structures do not let's say an overseas exposure.

Sahil Kapoor: They do a lot of multi assets do. So for example, DSP multi asset allocation fund with by structure itself, we started with a large allocation to global stocks.

Govindraj Ethiraj: So they provide you that you know, extra diversification as in that particular scheme has that outperformed the other assets in the last year or so? Yes, it has.

Sahil Kapoor: I'll tell you that 25% one year return out of that 24 came from overseas. So you can imagine that it had a very big bearing on you know what happened. So some of the companies that are being spoken about today, like an SK hynix etc was part of the portfolio about 18 months ago.

Govindraj Ethiraj: And where do you buy SK hynix?

Sahil Kapoor: Directly the stock because these portfolios are enabled to buy in Korea.

Govindraj Ethiraj: So you're saying Indian fund can buy in Korea as well?

Sahil Kapoor: Yeah, these funds were enabled for overseas investments. Yes, they can buy.