Markets Take A Beating On 500% Tariff Threat
A United States sanctions bill targeting buyers of discounted Russian oil with 500% tariffs on goods and services could technically target China, India and Brazil
On Episode 769 of The Core Report, financial journalist Govindraj Ethiraj talks to Sushil Choksey, Director, Indus Equity Advisors. We also feature an excerpt from our recent India Energy Week interview with Arvinder Singh Sahney, Chairman of IOCL.
SHOW NOTES
(00:00) Stories of the Day
(00:50) Markets take a beating on 500% tariff threat
(04:13) Inflation could come in around 1.5% for the last month
(05:09) How Indian Oil is targeting higher value realisations from retail outlets
(13:55) Why are Reliance share prices falling?
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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 Friday the 9th of January and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.
Our top stories and themes.
The markets take a beating on the 500% tariff threat from the United States.
Why are Reliance shares falling like this?
How Indian oil is targeting higher value realisations from its retail outlets?
And inflation could come in around 1.5% for the last month, still quite low.
A Deadly Intent
Even as intent goes, a US sanctions bill targeting buyers of discounted Russian oil with 500% tariffs on goods and services is totally out of whack. The bill could technically target China, India and Brazil but going by past experience will mostly target India alone if it comes to fruition.
Even as intent, this is quite worrying and signifies a fresh breakdown if not a considerable breakdown in US-India relations to levels unimaginable and unfathomable. When it comes to China, the reasons for US actions good or bad are quite clear. But when it comes to India, there has been a shroud of opaqueness that refuses to go away.
And there seems to be also no clear accountability as to what is triggering this, whether it's political or trade or something else. Not surprisingly, the markets reacted adversely on Thursday and more on that in a moment. There is some fine print to that 500% bill which is being proposed as a legislation and has to clear the Senate in the United States.
So chances of all of that happening is low. But from what it appears and back to where we started, it is the intent that is the most worrying. Also, this is a 500% tariff potentially on goods and services, which means India's IT industry incomes could be taxed at source in the US, a situation which is once again quite unfathomable.
If it is linked to oil, then India must move faster and more transparently. Ajay Srivastava, founder of the Global Trade Research Initiative on Thursday said that India must take a clear position on Russian oil imports and convey it decisively to Washington. He also says the broader contradiction is hard to ignore.
US lawmakers speak of punishing countries for purchasing Russian oil, even as Washington moves aggressively to seize Venezuela's oil assets. On Thursday, the benchmarks saw their steepest one-day fall in many months with reliance industries doing the most pulling down as uncertainty over US tariffs spurred broad selling. The markets have now fallen close to 1,600 points and fell for the fourth straight session amidst heightened concerns over US-India trade sessions.
The Nifty has fallen about 470 points in these four sessions. On Thursday, on market close, the Sensex was down 780 points to 84,180. The Nifty was down 263 points to 25,876.
And the broader market fell this time with the Nifty mid-cap 100 and small-cap 100 going down 1.9 and 1.99%. Shares of reliance industries continue to be under pressure, falling 2% to 1,469 on the BSE in Thursday's intraday trade amidst heavy volumes. More on the reliance stock coming up. The Indian rupee was down on Thursday too after a volatile session.
Despite intervention by the Reserve Bank of India, it opened at Rs.89.95, rebounded to Rs.89.75, and banker said finally ended at Rs.90.01. So it's back above or below the Rs.90 mark according to Reuters data. Traders told Reuters that the currency changes direction based on the presence or absence of the Reserve Bank of India. And then gold.
Bullish gold predictions are returning now given that the world led by the United States has entered into a fresh bout of economic and geopolitical uncertainty. HSBC said on Thursday that gold prices could rise to $5,000 an ounce in the first half of 2026, which is obviously in a few months from now, on geopolitical risks and rising debt. HSBC did, however, lower its average 2026 price forecast to around $4,587 an ounce, citing risks that rising prices could trigger a correction later in the year.
And back home, India's consumer inflation may have risen for a second straight month in December to a rate of 1.5% because of a broad base pickup in food prices and fading favourable base effects, according to a Reuters poll of 36 economists held between the 5th and 8th of January. If it does go to 1.5% in December, remember it was 0.71% in November. So all of this makes it 11 straight months below the Reserve Bank's medium-term target of 4% inflation.
On Wall Street, stock futures fell on Thursday, putting the S&P 500 and Dow Jones Industrial Average on track to pull back further from record levels, according to CNBC, which pointed out, interestingly, that defence stocks rallied after President Donald Trump called for massively increasing the defence budget to $1.5 trillion in 2027. Stocks like Northrop Grumman gained more than 8% and Lockheed Martin was also up 8%, according to CNBC.
The Oil Action
Oil prices rose on Thursday after two days of declines as investors tried to make sense of what was happening in Venezuela and, of course, reports on proposed U.S. sanctions legislation against countries doing business with Russia, which is, of course, India.
Brent crude futures were up about $0.59 to $60.55 on Thursday morning and West Texas Intermediate was at about $56.50, approximately. But oil is still on a boil. India's Reliance Industries on Thursday said, and Reuters reported, that it will consider buying Venezuelan oil if permitted for sale to non-U.S. buyers.
The company said that they await clarity on access to Venezuelan oil by non-U.S. buyers and will consider buying the oil in a compliant manner. Venezuela or not, there is general expectation of abundant global supply this year. Analysts at Morgan Stanley have forecast a surplus of as much as 3 million barrels per day in the first half of 2026, according to Reuters.
Elsewhere, Norway's offshore oil and gas output will remain broadly steady in 2026, but investments are seen falling by 6.5%, signalling a slowdown in activity and declining production towards the end of the decade, according to the country's regulator. Norway's total oil and gas output is expected to hold around 4.1 million barrels of oil equivalent per day, declining to just under 3.5 million barrels of oil equivalent by 2030, according to Norway's regulator. So to give you a backdrop once again, total global oil production is around 101 million barrels a day.
That's crude oil, of which the United States produces 21 million, Saudi Arabia and Russia between 10 and 11 million barrels a day each. And that, of course, would be the same broadly in percentage terms too, because the total is around 100. Now, while India imports more than 80% of its crude oil requirements, including for exporting finished products like diesel, there is much action on the retail front, particularly with oil giants like refining and distribution major Indian Oil expanding, as well as finding new value propositions for once fuel stations and now called energy hubs.
I caught up with Indian Oil Corporation Chairman and Managing Director Arvinder Singh Sahney at IOC's Delhi headquarters, and I began by asking him to tell us about the retail expansion front.
INTERVIEW TRANSCRIPT
Arvinder Singh Sahney: From the company side, I'll say it has been phenomenal year. For the first time, we have crossed 100 million tonnes of sales as a company for all products. For the first time, we have crossed 100 million tonnes in transporting fuel through our pipelines, maybe gas plus LNG plus everything included.
For the first time, we have increased our retail outlet reach beyond 40,000 numbers. There have been so many achievements that we have done. Plus, now we are on a resurrection path in terms of market share.
We have got some positive offshoots that we have witnessed this last year. So, it has been a great year. Plus, it all gets reflected in our profits also, which are doing pretty well going forward.
So, that is the sense that I get. In overall global scenario, you are aware that all these global activities that are having in the Middle East or in Israel or anywhere else. India-Pakistan also happened this year only.
So, these were all very exciting, but at the same time, very humbling experiences that I have gathered in last one year. That our level of service, our level of commitment, how it is important for the country's security, for well-being of our my people, that is phenomenal. That the sense of responsibility, that sense of gratitude that comes along with this responsibility, that is unimaginable.
That is wonderful.
Govindraj Ethiraj: You mentioned three points. You said number of outlets have crossed 40,000. Amount of refining is more than 100 million tonnes and movement of product is also more than 100 million tonnes.
Arvinder Singh Sahney: My pipeline lengths, spread of my pipelines, first time crossed 20,000 kilometres.
Govindraj Ethiraj: So, at a top level, economic growth is driving all of this. But if I were to go one layer below, where is this growth coming from and more specifically, what are the drivers?
Arvinder Singh Sahney: Like my MS, the petrol demand is growing at the range of say 5% to 6%. Every month we are tracking and yearly also it is in the more or less same range of 5% to 6%. That is there.
Diesel is growing at around 2, 2.5% to 3% range. Aviation fuel is growing at a phenomenal rate of more than 8%, 9%, 10%. Pet Chem is growing at a very healthy rate of around 6% to 7%.
When I say, I exclude everything. Gas, it is growing at a very decent rate of 3% to 4%, 5%. It is going there.
Natural gas primarily driven by CNG and to a certain extent by PNG also, that pipe natural gas also. So, that is also a growth area. So, combined everything, this business of fossil fuels plus petrochemicals is growing at around, I will say 3% to 4%.
So, that is one part of it. Plus the expanse that is coming now in terms of the retail outlets and openings, that is primarily driven by the number of new highways that are being put up. So, wayside amenities, we are there in almost 50% of the wayside amenities that are coming up of the new highways.
Indian oil has got 50% share in that. So, that is a big growth area that we are foreseeing in terms of fuel and in terms of non-fuel also.
Govindraj Ethiraj: And that is interesting. If I would ask you broadly about distribution, one of the things that has changed in the last few years is that you also have electric vehicle charging facilities. So, the new retail outlet is obviously much more than what it was last year or the year before that.
So, tell us about how that is looking as we go into 2026 as well.
Arvinder Singh Sahney: Today, we are calling them not only retail outlets, we are calling them or reimagining them as energy hubs. So, because now in a typical large format retail outlet, you will find beyond petrol and diesel, you will always find CNG there, compressed natural gas and electric vehicles. And in future also if some hydrogen comes or something, that will also be part of these large format ones.
So, we will have almost everything that a person would need. Batteries are also there. In several places, you must be seeing that charging stations are there and some swappable batteries are also there.
We are there also in terms of Indofast. Indofast is a company, which is a JV between me and the Sun Mobility of Singapore, wherein we are giving a very different model of electrical mobility, wherein I am giving the battery on a rental basis. You do not have to buy the battery.
I will give you on a rental basis, but a condition is that you have to keep on exchanging it in from my retail outlet. Same time, it might take me to tank of fuel, even lesser. We are clocking less than 2 minutes for changing the battery from the old one to the new one.
So, less than 2 minutes. No hassles there. That is one part of it.
And then you said the electrical charging issue that you told. Electric charging, we have put in an ecosystem in place now. So, the charging stations are available in almost 10,000 of my retail outlets, one-fourth of my retail outlets.
Every fourth retail outlet, you will find a set of charging stations. But the issue is that charging stations are not a very big revenue model for me, because I do not have a very big stake in the total value chain. The value chain starts from production of electricity to transmission of electricity, and then charging.
And plus, on other side, it starts from the minerals, and then it starts from the battery manufacturing, and then it comes to battery, and then again to charging. So, from both sides, I am not there in the whole value chain. So, I do not get that value out of that value chain, which I do in my fossil business.
So, my endeavour is that we have to be more present in that value chain. So, one part of it is coming from the power generation side. I want to come in a very big way from the renewable power side so that I have the renewable capacities, which I give to my customers here.
Plus, I want to come from the battery side. So, if I have a battery manufacturing facility, or if I have a critical minerals refining capacity or critical minerals mining facility, then that gives me a better stake in this whole value chain. But we have an understanding that this value chain is going to come further.
It has to grow. It has very good growth potential. So, we have to be part of that value chain.
We have to be part of that business moving forward, but in a bigger value stake.
Reliance Stocks
Why is the Reliance stock price being hammered the way it is in the last few days? Shares have been down for the past four trading sessions and have declined nearly 8%. And the company's market value has also gone down substantially. We've discussed this earlier in the show.
So I reached out to Sushil Choksey, Founder and Managing Director of Indus Equity Advisors. And I began by asking him specifically in his view, what was driving the stock price down?
INTERVIEW TRANSCRIPT
Sushil Choksey: I think it is not more led by the performance or quarter on quarter numbers of Reliance per se. I think it's more noise which is coming out of Donald Trump's commentary on, first it started with the Bloomberg news that Reliance is receiving two cargos of Russian oil at their refinery and then on Monday late night or Tuesday morning they denied that this cargo is being delivered somewhere else and Reliance said we have not reported we are importing, neither we are consuming Reliance oil after the Russian debacle based on Trump what India was facing.
So Reliance had stopped importing crude and most of the Indian refineries had stopped at least from the two entities which are under the ban list. So that news led to the stock, in fact it was 52 week high on Monday and then suddenly this news led to an open which was at 1520 and the stock fell and then it recovered a bit and then it didn't recover. The next day Donald Trump noise came about Modi and your good friends but we may impose anybody is going to consume Russian crude we'll have to impose some more duties.
That led to a little consolidation but not much of a movement and the price was down. Today suddenly early morning there was no noise about Reliance, stock was steady then suddenly 500% duty, the noise was there that Donald Trump is considering imposing 500% duty on countries which are importing fuel oil that is crude from Russia. Now if you look at some articles which are reported Europe and China are the main buyers of crude whereas India is importing only 16.8% as of the latest month which is reported in today's business line the crude percentage of from Russia and that's also going down which Mr Trump himself said but you know the sentiment on a large cap when it breaks the price which is a more of a technical nature then the correction starts because a long unwind happens, short also will happen. Nifty had also corrected so I think the impact on Reliance was higher because the sector was down along with other basket PSU stocks and I think it was more led to it.
Secondly add to this the outlook which came from Trent in the current quarter for the Q3 sales numbers and footfall and general data market felt that Trent is indicating that consumer may be slowing down on retail is so maybe that had a small impact so more noise coming out of US and Mr Trump and little less noise led by earning and maybe some consumer slowdown which the market is anticipating with indication of Avenue Supermarket and Trent Carrizal.
I don't see any negativity coming from any other division of Reliance in fact Jio there is a more noise that consumer base is increasing Vodafone idea has increased their tariff on post paid by 100 rupees per consumer so ARPU is likely to look up. There is more likely synergy in 26 you may hear about listing of Jio how they do it that is yet to be noted. Retail may follow later but looking at market valuation in fact Morgan Stanley upgraded the stock with a target price if I'm not mistaken of 1864 and if you look at EV to EBITDA and market cap today this year's EBITDA on Reliance is estimated at 185,180 to 190,000 crores I'm not counting the other income which came out of Asian paints but on a normal basis and if you add net debt of 110,000 crores which is indicated I don't know the current quarter numbers the EV is at 21 lakh crores and if you look one year forward 2,25,000 crores estimate and if you look market is priced well for Reliance to gain rather in next 12 months with positive outlook if listing from Jio comes the new energy division can get listed and oil to chemical is giving enough cash for the market to sustain where it is concerned so if there is any noise it's more out of the retail participation of 2025 in India and the over ownership people have been hurt in many small cap stocks so they would have sold off some large cap stocks to match the profit and more I think it is more of a technical correction led by the noise which is coming out because the post Venezuela attack what kind of impact it may have on oil sector there are two reports of CLSA which you may read up one is a theme on India and one is the model portfolio if you take out a model portfolio doesn't mean that they will not own Reliance whereas theme on India for 26 has Reliance in that report you can refer both the reports and then make a judgement on it but I don't think so anybody can ignore when you look at consumer play on India telecom retail everything what they make in oil to chemical whether it is diesel petrol no doubt they sell very little in India all plastic go for manufacturing where industrial products or consumer products are concerned so if you're looking at a pan India industrial conglomerate supporting a consumer base Reliance is a proxy I am not saying because of the size and bundling of various businesses in one company it has its own issue but I suppose that needs to be untangled over a period of 12 to 24 months
Govindraj Ethiraj: okay so here's the broader question and you referred to those ships which were supposedly bound for Reliance carrying Russian crude which eventually did not come to Jamnagar but if we were to start and Reliance has indicated on Thursday that they're looking to buy Venezuelan oil which is obviously a larger geopolitical move in sync with the government of India the cost of their crude looks like it will increase which does not just affect what they will refine but also downstream how are you reading that
Sushil Choksey: I think it will not make much of a difference because what percent today Venezuela doesn't produce 1 million barrels of oil a day you know there are 42 different countries which are supplying of 50 different variety of crudes are coming to India so there's not a single source which is adding Reliance did get the benefit of Russian oil in last 12 to 24 months but that barrel discount also had gone down second thing Saudi Arabian crude which was trading at a premium of 300 bps has been narrowed down to 25 bps I understand for Asian cargo in this quarter right now so thing is that the variety of mix and the purchase system we need to understand second thing keep in mind Reliance manufactures everything which is on import parity rupees no more at 84 86 last year's average this is at 88 to 90 range so thing is that if you are importing on import parity is everything you are processing and exporting you're gaining more second thing to replace these assets which are more in global in nature your dollar value has increased so to replace the asset today we may have 850,000 crore net worth with a gross block where it is but replacement of asset is also going so it's ultimately a beneficiary if you're looking at a long-term play I think crude mix changing between Venezuela, Saudi Arabia, Middle East distillates or Russia it's a matter of one or two dollars and oil to chemical division is doing well the margins had fallen off in 23 to 25 range but they have started recovering I think the current trend because the refineries in the west are not working on optimum basis I think they're looking up where margins are concerned.
Govindraj Ethiraj: Sushil we've run out of time thank you so much for joining me.
Sushil Choksey: Thank you.
Outreach To China
With India-US relations presently circling the drain, for lack of any other term, India's finance ministry has apparently planned or plans to scrap five-year restrictions on Chinese firms bidding for government contracts, that's Indian government contracts, according to a Reuters report.
Now, these curbs were only imposed about six years ago, or in 2020, following physical clashes between Chinese and Indian troops at the border, after which Chinese bidders had to register with an Indian government committee and obtain political and security clearances, which obviously had the effect of stopping Chinese firms from competing for Indian government contracts estimated between $700 and $750 billion. Sources told Reuters that a decision would be taken by the Prime Minister, Narendra Modi, and the plan to ease those curbs actually follows requests from other government departments, which are facing shortages and project delays due to those 2020 restrictions. One of the things that was held back because of import controls from China, that is, is the tunnel-boring machines which are being used in different parts of the country, particularly for metro projects.
And the fact that they could not make it or were not allowed to make it held back many of those projects, and those machines cannot be procured easily from anywhere else. Several economists and high-level committee members headed by a former cabinet secretary have recommended easing these restrictions, including other economists who have spoken to my colleague Pooja Mehra, who anchors the How India Economy Works podcast. Last year, Narendra Modi, the Prime Minister, visited China for the first time in seven years and agreed to foster deeper commercial ties with that country.
Following that visit, India and China have restarted direct flights, and there is promise to cut red tape to speed approvals for business visas for Chinese professionals.
