On Episode 869 of The Core Report, financial journalist Govindraj Ethiraj talks to June Goh, Senior Oil Market Analyst at Sparta Commodities as well as Garima Kapoor, Economist & Deputy Head of Research at Elara Securities (India).

SHOW NOTES

(00:00) The Take

(05:38) Markets struggle to make sense of Iran-US talks

(06:20) Inflation is creeping up

(07:27) Hyundai says sales could grow in double digits this year

(08:12) Decoding crude oil flows

(19:37) What an analysis of 19 state budgets is telling us

Check out our Live Earnings tracker: https://earnings.thecore.in/

—

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 Monday, the 11th of May and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.

The Take

Foreign direct investment may be slowing but a surge in global capability centres proves that multinationals are still betting big on Indian intellect. When oil giant Chevron monitors its global refinery operations and real-time well data, the eyes watching the screens aren't just in Texas, they're in Bangalore.

In a need of increasingly complex remote industrial management, the geographic shift of operational control is no longer a surprise. Yet, there is something striking about the reality that during a global energy crisis, the engineers and leaders determining critical energy flows are sitting in southern India. The Chevron example is a window into the profound structural shift in global business, the rise of the GCC.

For years, multinational corporations outsourced basic IT and back office functions. Today, they're also seeding and building their own captive hubs in India to drive technological change. The numbers are staggering.

There are now over 2,117 GCCs operating across 3,728 units in India. According to industry body NASSCOM, these centres generate close to $100 billion now, which constitutes nearly a third of India's massive $315 billion software services market. But more importantly, the nature of the work has moved up the value chain.

Of these centres, more than 1,200 possess advanced artificial intelligence and machine learning capabilities, with over 250 of them operating as dedicated AI or ML centres of excellence. Driven by a 250,000 strong AI workforce representing 28% of global GCC AI talent and trailing only the United States, India has now become the engine room, in this case, for AI bets. Executives at companies ranging from British Telecom to fintech giant Fiserv told me last week that some of their global AI initiatives, which could include AI-assisted engineering to complex cloud migrations, are often orchestrated out of Bangalore, Hyderabad, or Pune.

Yet, a glance at traditional macroeconomic indicators paints a seemingly contradictory picture. Net foreign direct investment into India has slowed dramatically. A recent report from Carriage Global Ratings reveals that net FDI inflows fell to historic lows in the 2025-26 financial year.

In the first 11 months of 2025-26, net FDI was just $6.3 billion, a sharp fall from the $35 billion average recorded between 2016 and 2020. Now, this decline has been driven largely by higher repatriation by foreign investors and increased outward investment by Indian firms diverges from historical trends where India's FDI has remained relatively stable, including during periods of global stress. So how do we reconcile plunging FDI with a MNC corporate footprint that is also expanding rapidly? Multinationals are setting up new GCCs in India at an average rate of one or more per week.

The demand is so high that GCCs have accounted for nearly 40% of all office leasing space in India over the last decade. Furthermore, the boom is no longer confined to traditional hubs like Mumbai, Pune, Chennai, and the national capital region, which includes Delhi. It is spilling over to emerging centres like Coimbatore, Ahmedabad, Kolkata, Baroda, and Kochi.

The answer lies in the changing definition of capital. While traditional FDI measured in physical assets on ground or direct equity investments has slowed, investment in human resources quite clearly is accelerating. A technology services entrepreneur from the United Kingdom who operates offices in Delhi and Coimbatore told me the immense untapped potential for mid-sized global companies to establish their own captive centres in India is growing.

Can this rising tide of GCCs and the high quality employment they generate substitute for traditional FDI? Well, not entirely. The economic multiplier effects of traditional FDI, such as building an automotive manufacturing plant, are vast and immediate, bringing supply chains, hardware technology, and direct consumer market investments that GCCs do not inherently provide. However, the economic impact of GCCs is compounding in its own right.

The real estate footprint is one useful illustration given the jobs and economy impact of real estate expansion. On the other hand, high-end jobs are helping train a generation of Indian professionals to operate at the highest levels of the global ecosystem, as we've already seen happen in many other cases. Rather than viewing the FDI slowed on as a strictly bearish signal, perhaps it's better understood as a market evolution.

Instead of a single stream of traditional capital inflows, India is evidently cultivating twin streams of investment, one focused on capturing the domestic consumer market and a rapidly expanding one focused squarely on harnessing its people. For multinational boardrooms, the consensus is clear. You may not be building your next factory in India, but you will certainly be building your next algorithm here.

And that brings us to the top stories and themes…

The stock markets struggle to make sense of Iran-US stocks.

Inflation is creeping up.

Decoding crude oil flows into Asia and India.

What an analysis of 19 state budgets is telling us in terms of the overall economy,

and Hyundai says sales could actually grow in double digits this year.

Markets, The War and Hyundai Sales

The markets ended in the positive for last week, but only marginally as they struggle to make sense of the latest developments in the Iran-US stocks. Summer is approaching and massive energy demand spikes are projected across the western hemisphere. In addition, buffer stocks are running low and more on that shortly.

On Friday, the Nifty 50 was down 150 points to 24,176. The Sensex was down 516 points to 77,328. The broader markets saw the Nifty mid-cap fall slightly, while the Nifty small-cap rose slightly too.

But both mid and small caps are generally looking strong, with the Nifty mid-cap 100 hitting a new high on Friday according to the business standard. Elsewhere, India's inflation has now moved closer to the Reserve Bank's 4% medium-term target in April as higher fuel costs following the war began feeding into prices, according to a Reuters poll of economists. The May 4-8 Reuters poll of 46 economists has forecast inflation rising to 3.8% in April from 3.4% in March.

Data will be released on the 12th of May. Gold prices are slightly higher now and heading for a weekly gain as optimism over a potential end to the Iran war helped ease concerns about inflation and high interest rates. Spot gold was at $4,719 per ounce, according to Reuters.

Elsewhere, the rupee fell to about Rs 94.70 to the dollar before giving up slightly to close at Rs 94.40. That's up 0.4% week-on-week, according to Reuters. The currency has declined 0.2% from the previous close, while the one-month implied volatility for the dollar rupee rose to 5.7%, the highest since mid April, according to Reuters.

Meanwhile, auto sales are continuing to look strong, unlike many other consumer segments.

Hyundai Motor said on Friday it expects domestic sales to grow 8-10% in the current fiscal and wants to invest about or close to $800 million to double capacity at its Maharashtra plant. Vehicle sales across India, particularly on the entry-level segments, have picked up sharply since India cut goods and services tax, or GST, on a range of products, including cars, last September. Rural demand has been particularly strong.

For 2025-2026, domestic sales were down 2.3% for Hyundai, though obviously sales that picked up after the GST cuts would have made up for the slowdown earlier. Exports did very well, though, at 16% for the last financial year.

Energy Security

Brent crude futures were up on Friday, a day after the United States and Iran fired missiles at each other but then lost some of those gains, even as traders hoped for a longer pause in the fighting that has shut shipping in the state of Hormuz.

Brent crude futures were at about $101 after rising slightly, according to Reuters, which added that the week saw prices fall more than 6%. A report in Bloomberg, meanwhile, said that the world has now burned through oil inventories at record speed, even as the war throttles flows from the Persian Gulf, eating into the very buffer that protects against supply shocks. The rapidly shrinking stockpiles mean that the risk of even more extreme price spikes and shortages is getting ever closer, leaving governments and industries with fewer options to cushion the impact of the loss of more than a billion barrels of supply more than two months after the closure, or rather the near of the state of Hormuz.

According to Bloomberg, what this means is that the sharp depletion will also mean the market stays vulnerable for longer to future disruptions even after the conflict ends. Morgan Stanley estimated that global oil stockpiles have dropped by about 4.8 million barrels a day between March 1 and April 25, far exceeding the previous peak for a quarterly drawdown in data compiled by the International Energy Agency. Analysts also told Bloomberg that the system also requires a minimum level of oil, which means that the operational minimum is reached long before the inventories actually hit zero.

To get a sense on where we are right now, particularly in terms of crude oil flows into Asia and India, I reached out to Singapore-based June Goh, Senior Analyst and Product Expert Asia at oil and gas intelligence firm Sparta, and I began by asking her how she was seeing flows right now.

INTERVIEW TRANSCRIPT

June Goh: First of all, I think we have to see the change of legitimate flow. Basically, the U.S. has unsanctioned Russian and Iranian oil in the first month of the crisis, and in the second month, continuing on with the Russian oil waiver. So we have seen many countries in Asia absorbing particularly Russian crude.

India is a big recipient of that. And increasingly so, many of the Southeast Asian countries are reaching out directly to Russia to also get more oil supply from them. For example, Indonesia has secured 100 million barrels of Russian oil and another 50 million barrels as a top-up if they need to.

Basically, some of this usually sanctioned oil coming back into the markets here. We also see, because in January, Venezuelan oil became available again to the market, we are seeing, for example, India absorbing more Venezuelan crude oil in the current crisis as well. Aside from that, the rerouting of flows in the market are also happening for the normal flows.

Like, for example, we are seeing more Canadian oil coming into India and Singapore. Usually, it's a trickle if any crude actually comes from there simply because of the quality. We are seeing more Atlantic basin crude.

Obviously, WTI is a huge amount going into Japan and Korea. And just to put a size of the number, Japan used to take about 1 to 5 million barrels per month of US crude, WTI or MAS. In August delivery, they have already bought 12 million barrels.

So, that's the size of the change of flows just to manage the shortfall of Middle Eastern crude in our region.

Govindraj Ethiraj: Right. And if you were to break down now the types of fuel, including what is going through refiners or refineries, how are you seeing, let's say, the consumption and demand variations between petrol, diesel, jet fuel, marine oil, and so on?

June Goh: Okay, consumption-wise, it depends on the elasticity of demand. Jet fuel, it started off with being the most stressed barrel in terms of the pricing.

Govindraj Ethiraj: It's more than doubled.

June Goh: Yes, exactly. So, we immediately saw a lot of airlines in Asia cutting flights, i.e. already curbing the demand for the oil. And we haven't seen that fully translated to ticket price in the regional rates, but basically, you see airlines doing that demand destruction already from the jet fuel perspective.

So, in most industries, it's less elastic in terms of price. However, we've seen a demand hit to certain sectors like farming. And for example, in Australia, you can see a little bit more cutback of industrial activity trying to minimise or responding to the price impact as well for diesel.

For more gas and petrol, basically, you have governments putting on vote-from-home mandates. Some countries opting for fuel rationing to manage the price increase and also the availability of petrol in the market. For fuel oil, finally, the price has gone up as well significantly.

I don't think it's doubled, but it's really, really high numbers for the bunker fuels. And that hasn't fully translated again to consumer angle. So, I'm seeing the ship owners, etc., they are the ones picking up the bill right now. But at some point, that might translate to increased goods pricing to reflect the increased costs of fuel oil.

Govindraj Ethiraj: Okay. When you look at refining capacity today, including the fact that some refineries are either postponing maintenance or going in for maintenance, how are you seeing refining capability today to meet not just the current demand, but let's say if demand starts fluctuating and the war goes on, if the war goes on and demand starts fluctuating? And I'm talking about this region.

June Goh: The issue is not about refining capacity. It's the fixed stock availability that is the constraint right now to produce the fuels that are required. Middle East, as a refining hub, they produce a lot of products which the countries in Asia have been consuming.

NAFTA, LPG, particularly, and jet fuel and diesel into Europe. So without the big refining centre in Middle East producing this amount, we are already short of products. On top of that, the Asian refineries are, I would say, almost starving of the typical fixed stocks that we have to produce the products that we typically want.

For example, the Middle East crude that we 80% of fixed stock, typically, would have been a medium sour slate, which means you produce a lot more fuel oil and middle distillates. But the replacement barrels that we're getting from the US, like the WTI, these are light sweet barrels. So they are lighter and therefore they produce less fuel oil, less middle distillate.

You will see that in the inventories very soon, where if the demand is still fairly inelastic, yet the supply that we're getting from the refineries are coming off, that creates another price reaction, which the refineries cannot respond to because they do not have enough of the right fixed stock.

Govindraj Ethiraj: Right. So that, in a way, goes back to the previous point you made. If I can add a question to that, so it's not just the fact that we're able to source as much crude oil as we were doing earlier, because we are clearly able to, but rather the type of crude that we are getting and whether that achieves the same objectives as it did before the war started.

June Goh: Indeed. So I think India is in a better position because the refining unit that India has in general can take in the more difficult crudes like Venezuelan and Canadian oil. The rest of Asia are not so fortunate because the flexibility level is much less.

So they can take Russian, Euros is probably possible if the governments allow that. Another group from Russia is also called Expo, that can also kind of fit the medium slate. But other than that, the other alternatives that can come into our region, like West African crudes, maybe 40s if for North Sea, unlikely so, but you know, possible.

These are all lighter slate, which then is something that the Asian refineries x India will need to take in replacement for medium sour crude from the Middle East and therefore not produce enough of the distillates that we require.

Govindraj Ethiraj: I'm going to come to price in a moment, but you mentioned Indonesia having found alternative to Russia and you talked about 100 million barrels. So does that mean that Indonesia is fully able to meet its consumption via Russian crude or how much of it?

June Goh: Indonesia, unfortunately, is a net importers fuel of more gas and NAFTA. So even if they have now got the crude, they need to run their own refining kits, they will still be short of these two key products in the market.

Govindraj Ethiraj: So, I mean, other way of asking the question was really, is Russian crude, once unsanctioned, now that it's unsanctioned and back in the market, able to fulfil good part or a significant part of Asia's needs? That's really my question.

June Goh: It will fulfil a portion of Asia's needs. Again, it's not entirely unsanctioned. The only ones that was unsanctioned is whatever that has been loaded prior to 17th of April, 2026.

But what Indonesia has done is gone direct to the Russian government to discuss direct deal with them. And in actual fact, this is still sanctioned oil. It's not yet allowed by the US.

This is showing you that the governments in Asia are all to say desperate enough to risk that sanction so that they can at least secure some oil.

Govindraj Ethiraj: And given all of this that we've spoken of, including the fact that supply constraints will continue even if the war stops in the next week or two, as many hope, how are you seeing prices and what could drive them?

June Goh: The price has been very weak in terms of the scale versus the scale of supply shock that we are seeing. I think most analysts would agree that the hole that we are seeing now, the 10 million barrels per day, the 1 billion oil inventory lost is real. And yet the reaction in the paper market in brand futures has been averaging $100 per barrel.

There's a lot more upside in this than what the paper market is showing. That's our view. Having said that, obviously there are many other factors that can influence the paper markets of which I will not go into.

But fundamentally, the supply shock should translate to higher prices, both in the crude price and also in refined products.

Govindraj Ethiraj: But as you look ahead, assuming the war ends in the next week or two, I know we've been saying this for now seven or eight weeks, do you feel that some of these pressures could ease, particularly in the paper market?

June Goh: Again, the amount of oil loss is that 1 billion barrels. If we are going to open a share of hormones today, the oil also does not flow immediately. And that 10 million barrels per day doesn't come back immediately as well.

There is an actual production shut-in for many of these wells in the Middle East. And therefore, the 1 billion will grow a bit more. It's not immediately relaxed.

Additionally, inventories have been drawn down. The 400 million barrels of IEA SPR needs to be re-inventorized. And you have countries that have now felt the need to increase their reserves further, like Australia, New Zealand.

They will also be there to push up demand for oil, to build up better reserves. So all this, to me, will lead to higher requirements for oil, even after the share of hormones returns.

Govindraj Ethiraj: June, thank you so much for joining me.

June Goh: Most welcome. Thank you for having me.

What do Budgets of 19 Indian States reveal about our economy?

A new report from brokerage Elara Capital analysing budgets of 19 states says that states focus on spending rose post-COVID-19 with capital outlay 51% higher than the pre-COVID trend of 2015-19. This was also supported by 23% higher revenue receipts versus pre-COVID trends.

The states in the study include all the large ones. Moreover, states are pivoting their capital spend away from roads and bridges towards housing, water supply and sanitation, and urban development. Examples include Andhra Pradesh and Rajasthan who are leading on urban infrastructure, West Bengal making a larger allocation to water supply, and Telangana a sharp jump in housing capital expenditure.

The report also says that women's cash transfer schemes are being rationalised but not wound down. While their share as a percentage of gross state domestic product has been trimmed in many cases, but the overall scale or size is still rising. I reached out to Garima Kapoor, author of the report, and I began by asking her what she saw as some of the standout aspects in these 19 state budgets.

INTERVIEW TRANSCRIPT

Garima Kapoor: These 19 state budgets are typically more than 92% of India's GDP. We normally do take another large state, which is Assam. However, because Assam was going for elections, they had not reported or not documented their budgetary numbers in run-up to elections.

But broad assessment is that if these 19 state budgets indicate a particular trend, it is true for the entire country because 92 to 93% of GDP is residing in these 19 states. They broadly help you understand the direction of revenue, spends, capital allocations, particularly sectoral, and also how should you read generally the finances at the state level because the centre finances are very easily available at one particular website. When it comes to state, we need to really collate it from different documents and align it in one standardised format.

Govindraj Ethiraj: And what stands out for you or to you as you look back in the last year?

Garima Kapoor: See, broadly, I will not focus myself only on the last year. I'll give you one positive standout in the budgets and one negative standout of the budget.

Govindraj Ethiraj: You're looking at a post-COVID period broadly?

Garima Kapoor: Yes. But then what stands out in general is that from a pre-COVID to a post-COVID era, the states have seen remarkable increase in their own tax revenues, particularly after the implementation of the GST regime. So much so that even smaller states have seen a remarkable increase of formalisation-led increase in tax revenue receipts, particularly as GST. And that kind of means that the gains of GST-led formalisation have been fairly uniform in the country and not just concentrated to the centre because that's the number that everybody tends to focus on. So one, of course, compliance and formalisation-led positive gains in terms of revenue. And the second positive trend post-COVID generally has been that states really scaled up the pace of execution of CAPEX. Vis-a-vis the pre-COVID trend of 15 to 19, that is financial of 15 to 19, post-COVID six years have seen remarkable acceleration in CAPEX.

Of course, there are some early signs that that acceleration is now hitting its plateau because the absorptive capacity the states to spend in terms of projects is now seen to be getting exhausted.

Govindraj Ethiraj: Right. And how are you looking or how does the expenditure side look? And particularly since we've seen so much of expenditure allocated or used for giveaways?

Garima Kapoor: So broadly, these giveaways, the unconditional cash transfers to women, which have become the so-called new budget entry item for almost all states that went into elections starting 2023, put together these for 15 odd states that we track closely for which these numbers are available, about 0.6 percent of their consolidated GDP. This number before the financial 2024 was not even 0.1 percent. So we have kind of seen a delta of these unconditional transfers increased by really 0.5 percent of GDP, which is quite humongous for the size of the country that we are. But in terms of other spends, broadly, we are seeing revenue expenditure being curtailed at the level of 13 odd percent of GSTP and key picks being consistently pushed at least to a level of 2.6 or about 2.7 percent of GDP. So that's one trend. So if I have to take central and state put together, central is spending about 3 percent of GDP.

States are putting another 2.5 percent. So on a consolidated basis, the country is spending about 5.5 percent of its GDP on capital expenditure.

Govindraj Ethiraj: So from a slightly broad or top down point of view, when you say that 19 states and this includes all the major industrialised states like Andhra Pradesh, Maharashtra, Gujarat, Tamil Nadu and Telangana, what does it mean for the states that are not covered and therefore constitute only about 8 percent or so of GDP?

Garima Kapoor: See for the states that are not covered are broadly because they're very small states that do not really move the needle in terms of expenses or trends of revenue. It's not that you do not want to cover that, but broadly in my assessment, what is true for the entire 90 percent or 92 percent of the economy will also be true for the remaining 8 percent of the economy because of the gains of formalisation and kicking in for even a smaller state like Chhattisgarh. I would like to believe that a northeastern state would also be seeing the similar gain.

So I would say the trends almost should mimic for the remaining 8 percent that are probably not covered in our work.

Govindraj Ethiraj: Right. So what are the takeaways from this, Karima? So, you know, as we look ahead, now clearly there is a revenue shortfall for most states.

At the same time, you're saying CAPEX is running at high levels or whatever, good levels. So what are the challenges ahead?

Garima Kapoor: See, the challenges are that while you would have budgeted relatively robust numbers on CAPEX, the state's capability, institutional capability of states to execute what they have budgeted is coming under question. For instance, in financial year 26 for the states, the financial year that the year that ended in March 2026, the data is available till February for most states. The states in consolidated basis had not even spent 65 percent of the CAPEX budget.

So clearly, one is allocation, two is capability of executing it, and third is the absorptive capacity of the country because spends on roads, bridges or irrigation seem to have peaked out. And a large state like UP, which really started on its CAPEX trend about 10 years ago, has actually seen a plateauing of absorptive capacity of CAPEX purely because there aren't any major projects left in UP per se. So last six, seven years, UP drove the CAPEX of all states put together because it was a big daddy and most cases it did constitute at least 15 to 20 percent of any sectoral spend.

If UP plateaus out in terms of what is left to spend, generally states as a whole will also plateau, number one. Number two, in financial year 27, in 26, when there was no challenge in terms of revenue and you could not even spend 65 percent of what was budgeted. In financial year 27, there are challenges of revenue because centres revenue is getting impacted because of excessive cuts.

There's going to be additional burden on the centre in terms of spends. In the future, if things do not improve on oil front, states might be compelled to also look at the possibility of a reduction on value added tax of petroleum. And the generalised slowdown in terms if war related industrial activity would mean that corporate revenues will also slow down.

So what centre shares with states in terms of devolution will also come down. So I do think while the intent of budgeting remains great, in financial year 27 also you will see states undershoot the budget targets in terms of CAPEX. And that probably has been a general feature of states capabilities in terms of being able to spend what they promise is kind of falling short consistently since probably somewhere around 2025 calendar year when these unconditional transfers started to become a much bigger portion of the pie of the budget.

Govindraj Ethiraj: Right. And how are you seeing capital spending versus non-capital spending? And are you able to draw any inference from that in how states within this sample have spent and what the outcomes have been over, let's say, a decade or so?

Garima Kapoor: See, over a decade, as I mentioned to you compared to pre-COVID era, the states have literally pulled up their socks and the rate at which the states are spending on CAPEX is now materially higher than normal GDP. If I exclude the aberration that I spoke to you about for last financial year and the likely shortfall that will happen for financial year 27. So the centre's push for CAPEX starting COVID has also been mirrored by state's push for CAPEX, number one.

Number two, that's also happened because states gained out of JST compliance-led revenue bulk up. And number two, remember, centre started to give states what was called as an interest-free 50-year loan. Some part of it was tied and some part of it was untied in terms of the conditionality.

So states suddenly had about, for instance, in financial year 26, one and a half lakh crore of incremental money available to them simply out of centre's own budget for which they did not have to make any allocation or not had to even service that particular loan because it was a 50-year interest-free loan. So part of the elevation in terms of stress despite these incremental unconditional transfers came from that. And second, generally when you look at sectorally, a broad assessment is that the spends on roads, bridges, irrigation in the country has peaked out.

Likewise, country's CAPEX trend is formidably moving towards east of India because UP has probably hit its plateau in terms of how much it can spend a percentage of its GSTP. Now we've seen eastern states like Assam, Orissa, northeastern states and now probably West Bengal after BJP comes to power will follow a similar template. So the CAPEX juggernaut of the country has shifted from north now to east.

Govindraj Ethiraj: Right, last question. So as you scan balance sheets of all these states and the 19 states that you've talked about, what are the, which states would you say have let's say balance sheets which are the most friendly in terms of your ability to assess what's going on versus others?

Garima Kapoor: I think you'll be a little surprised to hear but eastern states of Orissa and West Bengal are very clinical in the way they present their budgets and their numbers as well as the documents. We face trouble many a times in scanning documents from UP because the government largely gives their budget in still Hindi. So the ability to understand the terminology because we've been doing it for a decade now it's easy otherwise scanning the document of state of Uttar Pradesh becomes a little challenging.

Govindraj Ethiraj: Right, Garima, thank you so much for joining me.

Garima Kapoor: Thank you, Govind.