On Episode 945 of The Core Report, financial journalist Govindraj Ethiraj talks to Sheetal Sapale, Vice President–Commercial at Pharmarack as well as Gautam Shahi, Senior Director at Crisil Ratings.

SHOW NOTES

(00:00) Stories of the Day

(01:00) Markets Wilt As All Signs Point To A Forever War In West Asia

(03:28) Fitch Ratings Affirms India's Sovereign Rating ‌at 'BBB-'

(04:47) Indian Traders Lost More Money Trading Derivatives On Average Than They Did The Year Before

(08:59) Cardiac Linked Drug Sales Rise As More Indians Self-Test

(15:23) India’s Yarn Industry Is Looking At A Positive Year

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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 12th of August and this is Govindraj Ethiraj broadcasting and streaming weekdays from once again rained out Mumbai India's financial capital.

Our top stories and themes…

The market's wilt as all signs point to a forever war in West Asia.

Fitch Ratings affirms India's sovereign rating at BBB minus but reckons it could face pressure from rising concerns over youth unemployment.

Cardiac link drug sales are rising as more Indian self-test

Indian traders lost more money trading derivatives on average than they did the year before and India's yarn industry is looking at a positive year ahead.

Markets, West Asia and Fitch Ratings

No one was expecting an overnight solution to the war in West Asia either from the United States or Iran but it does increasingly feel like we're looking at a forever war that we've also been speculating about but now edging towards surety. The price signals first, oil prices are up as President Donald Trump made sweeping new demands on Iran and prices were up to or close to $90 a barrel up almost 13% from a week ago.

President Trump said demands for compensation from Iran for the people it has killed in conflicts would be part of any and all future negotiations which in turn follows Iran's requests for reparations from the war. Now possibly all of this is a tough negotiating stance or possibly not but it does surely suggest that neither side is in a hurry to end this soon which that the state of Hormuz will remain in this semi-frozen state for global oil and gas flows for some time. Persian Gulf energy producers are concluding that Iran's control over the state of Hormuz will become permanent disrupting their oil and gas exports and globally energy supplies indefinitely.

The problem is they worry the alternative going back to war would be worse the Wall Street Journal reported on Tuesday. Iran's rivals in the Gulf don't like the deal now under consideration to crack open the vital waterway that formalises Iranian oversight of inbound ships but Gulf officials said the region sees the agreement as preferable to further military action between the US and Iran which would put Arab state's energy infrastructure at risk according to that Wall Street Journal report. Meanwhile Trump told reporters on Monday the state was open now adding that the US was the only one that had control over the state of Hormuz right now perhaps not.

Back home with all of this the benchmark indices were down as it became clear that no deal was in sight as we have pointed out before Indian and other markets are now demonstrating less disappointment with the negative moves or the rise in oil prices for various reasons including significantly more optimism in local markets that's in India with better earnings and a return of foreign portfolio investors. Now on Tuesday higher prices that oil prices held sway with the Sensex falling about 388 points to 78,154 and the Nifty 50 falling 112 points to 24,471. In the broader markets the Nifty mid cap was down slightly and the Nifty small cap was also up very slightly.

Gold prices were down after hitting a two-month high earlier in the session on Tuesday itself. Spot gold was at about $4,371 per ounce after hitting its highest level since June 5th at $4,434 per ounce according to Reuters. In some macro news credit rating agency Fitch on Tuesday affirmed India's sovereign rating at triple b minus referring to robust growth balanced against still weak fiscal metrics though it reckoned it could face pressure from rising concerns over youth employment according to a Reuters report that summed it up.

Fitch said macroeconomic stability and improving policy credibility would underpin India's growth despite near-term macroeconomic headwinds from an energy shock thanks to the conflict in the Middle East. Fitch has rated India at triple b minus since 2006. Moody's has retained its BAA3 rating since June 2020 and S&P Global Ratings has upgraded India by a notch to triple b last year according to the Reuters report.

Another Reuters report quoted weather bureau officials saying the monsoons are expected to bring below average rainfall to India's western, central and southern regions in the next fortnight which could threaten newly planted soybean, corn, cotton and pulse crops. Roughly half of India's population earns its livelihood from agriculture and nearly half of farmland lacks irrigation. India has received 12% less rainfall than average so far this monsoon which started in the first week of June with some states including Andhra Pradesh recording deficits of as much as 34% according to that Reuters report.

Equity mutual fund inflows are down

Equity mutual fund inflows are down almost 15% month on month to about 24,697 crores in July from about 28,973 crores in June. Schemes continue to attract fresh investments during the month though. The moderation also comes after equity inflows had recovered about 26% in June from about 22,900 crores in May so it's going up and down.

Overall mutual fund flows were high in July. Net inflows were about 236,000 crore rupees compared to net outflows of about 52,900 or 53,000 crore rupees in June according to data released by the Association of Mutual Funds in India and reported by Money Control. Debt mutual funds were responsible for the turnaround and they brought in about 188,000 crore rupees in July reversing the 109,000 crores of net outflow in the previous month that's June.

Meanwhile, the average per person loss for those trading in futures and options in the last financial year was higher at 1.16 lakh rupees versus 1.14 lakh rupees in the previous year that's 24-25. The relatively good news is that net losses of individuals in the equity derivative segment this is the cross figure fell to about 91,000 crore rupees from about 1.1 or 112,000 crore rupees in the previous year according to the finance ministry which informed parliament on Tuesday. The number of unique individual investors in the equity derivative segment also fell from about 98 lakhs or that's 9.8 million to about 78.6 lakhs or just under 8 million in the equity derivative segment compared to the previous year.

All of this follows a series of steps taken by the regulatory body to discourage derivatives trading or make it tougher though 91,000 crore rupees is still a lot of money particularly at the median and quite likely people who earn a few lakhs of rupees a year are losing a good part of it or lost a good part of it.

BRICS Payment Systems

Members of the BRICS group of nations are discussing potential linkages between their respective fast payment systems and central bank digital currencies according to a reserve bank governor who was speaking at an event on Tuesday. According to wire services the BRICS organisation includes Brazil, Russia, India, China and South Africa.

The governor said that cross-border payments is an area of interest for all of us including the BRICS because we feel there is a lot of scope for reducing cost. He said various options are on the table but still at discussion stages including central bank digital currencies and linkages of fast payment systems. Reuters had reported earlier this year that the reserve bank recommended to the government that a proposal to connect CBDC so central bank digital currencies be included in the agenda for the 2026 BRICS summit on now.

The central bank will also continue its efforts to internationalise the rupee and promote the use of local currencies for cross-border payments and he said and also added that the reserve bank sees artificial intelligence as a capability to be harnessed and not just a risk that needs to be contained.

And some corporate news India's Godrej consumer product said on Tuesday it appointed its current CFO Asif Malbari as CEO and managing director for five years just months after it had reappointed Sudhir Sithapathy as CEO. In May Godrej had reappointed Sithapathy as CEO and MD for a five-year period effective October 18th.

The new CEO will take over on the 12th of August that's today.

Cardiac condition linked drugs are doing better

Cardiac condition linked drugs are doing better mostly because Indians are increasingly self-testing and seeking medical advice after that. Overall India's pharma industry and market grew about 12% annually in July 2026 with monthly sales now touching about 23,000 crore rupees.

A report from industry tracking agency Pharma Racks says that July performance points to a continued shift towards chronic speciality and higher value therapies and these included anti-neoplastics or broadly anti-cancer drugs, anti-diabetes, nutritional drugs, cardiac and urology which have outperformed the overall market. And then there are of course the anti-obesity drugs. I reached out to Sheetal Sapale vice president at PharmaRack and a frequent guest in the core report and I began by asking her what were the trends that she was seeing in the last month and over a slightly longer period as well.

INTERVIEW TRANSCRIPT

Sheetal Sapale: What is growing in the market today? The entire talk to nowadays happens more on the GLP-1 segment. So GLP-1 segment is definitely driving the growth of the market.

But then again, it's a niche category also addressing limited class of patient, which is the obesity category. Another category, which is driving the growth of the market quite aggressively, it is the cardiac segment, wherein we are seeing a good value as well as unit growth. I wouldn't say that the number of cardiac patients are increasing, but a proactive approach towards self-testing or going for proactive testing of your condition and then getting on to medication, that is driving the growth of the market.

Now, from this month, from the month of June, July, August onwards, since India pharma market is more season dependent and as the monsoon sets in, it will be the acute categories, which are more into the cough and cold segment, anti-infective segment. It is these categories which have shown a good growth in the month of July and would continue showing this growth for another two to three months.

Govindraj Ethiraj: Got it. And you've talked about anti-neoplastics as being the big growth driver. So what does that comprise and why is this happening?

Sheetal Sapale: Anti-neoplastics is a bigger growth driver because of the monoclonal antibodies. The monoclonal antibodies are driving the growth of the market because if you look at the type of administration and other ease of correction of the condition, these are very targeted therapies. They're expensive.

They stay in the body for a longer period of time and they give the relief or, you know, cure in a very good way. That's the reason why monoclonal antibodies are becoming more popular and they're driving the growth of the market.

Govindraj Ethiraj: Right. And you talked about GLP-1 and that obviously being a big growth segment. How is that now breaking up?

I mean, I'm sure between maybe the last time you spoke and today, there are many, many more brands which are present there.

Sheetal Sapale: So in the GLP-1 market today, the market is picked up. There was a slight lull in the last month in terms of unit growth. But then in this month, we are seeing a significant jump in the unit growth.

But I would stick to my statement which I made last month that the market in terms of onboarding of newer patients or more eligible patients who could not afford earlier, good amount of them have got onboarded. We don't see a significant exponential growth that may happen going further. There was an incident that happened this month where DRL had to withdraw some of its packs because of some quality issues.

And what happens is the moment such sort of notification comes that, you know, the packs will be withdrawn, there is somewhere a fear in the mind that the goods may not be available. So people start hoarding. So it is possible that people who are on the medications, actually they bought some more or they bought little extra doses that may have led to the spot.

But then somewhere in terms of stabilising, the market growth has more or less stabilised. The difference that we are seeing as against what we had was seen earlier in terms of unit consumption. Today, almost 80% of the unit market share is with generics and 20% is with innovators.

As far as the semaglutide section is concerned, this means that there was a good amount of untapped potential market which has now got that.

Govindraj Ethiraj: Right. And just to come back to the example of cardiac awareness or self-awareness, which you said is most likely leading to testing and maybe medication. Is this a sense that you're getting from the Doctor Medical Fraternity or is it the manufacturers who are saying this?

Sheetal Sapale: We're getting it from the Doctor Medical Fraternity as well as some of the medical companies because now this is something which gets promoted also as a marketing activity by many pharma companies. There are a lot of initiatives that are getting done by corporates wherein people get themselves checked, cholesterol level is getting checked, and testing has become easier. Earlier, one had to go to a testing lab.

But today, if you see a pharmacy guy, he comes to your house in the morning, he takes a blood sample and the reports are available in the evening.

Govindraj Ethiraj: Right. And similar to cardiac issues, is there sort of rising awareness in other areas as well? Because you've talked about diabetics, for example, growing.

Sheetal Sapale: Yeah. This GLP-1, so much noise has been made about obesity. Because of that, a good amount of awareness on diabetes and complication of diabetes is happening because of which a good amount of a proactive approach towards managing cardio-diabetic conditions is happening, number one.

Number two is as patients are also getting onboarded on the GLP-1s, other segments like the nutritional segment, the dermal segment will also show a parallel spot because the mode of action of GLP-1s is they make you feel satiated for a very long period of time. The movement of food slows down in your alimentary canal. So you eat less, so you get less nutrition.

So the nutritional category has actually started growing, but I will not attribute it completely to the GLP-1 segment. But there is some component because GLP-1 segment in terms of units is not so big that the entire nutritional category will.

Govindraj Ethiraj: Right. Last question. So are you seeing any new breakthrough or breakout drugs being introduced or lining up in the market?

Sheetal Sapale: Nothing as of now. Nothing, something revolutionary that has been launched in the market as of now. Yeah.

NoNordisk's once in a week insulin injection, that is something revolutionary and it is getting gradual acceptance. And since NoNordisk has been in this insulin segment for a very long period of time and they know what they are promoting, I'm sure this is going to be a sort of blockbuster, but it will take a little time to catch up because right now the entire noise level is around GLP-1s.

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

Sheetal Sapale: Thank you so much.

Recovery in India’s Cotton Yarn Industry

We frequently speak to representatives of the ready-made garment and apparel industry but not so much upstream in yarn. China which is India's second largest export destination for cotton yarn will see a sharp rise because of lower domestic acreage there and so will Bangladesh which is seeing a regaining of capacity according to that report. India's cotton yarn industry is expected to see a healthy recovery in 26-27 with a revenue is expected to rise anywhere between 9 to 11 percent after a flattish 25-26 according to a Crisil ratings report that studied 70 cotton spinning companies.

The uptick would be driven by six to eight percent higher yarn realisations and two to four percent volume growth as exports revive and export-orientated downstream segments like ready-made garments and home textiles regain momentum amidst easing trade disruptions according to that recent report. So the interesting turn here is that exports where revenues are expected to rise 12 to 14 percent and make up over 30 percent of industry revenue is up from 28 percent last year. So last year it was 28 percent of revenue and this year it is going to be or likely to be 30 percent of industry revenue which is exports.

The revenue recovery is also expected to help profitability with margins likely to expand by 150 to 250 basis points thanks to higher cotton yarn spreads. The report also said that recovery across export and domestic markets which we've talked about should lift cotton yarn spreads this year despite a 10 to 15 percent increase in cotton prices. I spoke with Gautam Shahi senior director Crisil ratings and I began by asking him what was driving the improved export shares.

INTERVIEW TRANSCRIPT

Gautam Shahi: You're right, essentially what we are saying in our recent report is that current fiscal should be a fiscal year of recovery for the cotton manufacturers. It will be a relatively better year vis-a-vis last year which was more flattish in terms of growth and we should see an uptick in both the realisations as well as the volume growth. More on the realisations side and probably slightly lesser in terms of the volume growth and we are also expecting a rebound in both the domestic as well as the export segments this year driven by variety of factors which are more specific to these segments and I can deep dive into that.

Govindraj Ethiraj: What are the sort of factors or rather what determine the factors of success when it comes to yarn in India right now?

Gautam Shahi: So let me first give you an overall picture. So in terms of if you look at the way industry is sized and the way industry is structured, it's a 70-30 split in terms of domestic and exports. 70% comes from the domestic segment in the cotton yarn sector.

However, this year what is propelling the growth more is exports. We see that exports is going to grow at a higher clip. It's going to grow at about 12-14% in terms of value this year.

Now if we slightly break this down further into the realisation and the volume growth for exports, realisation and volume are almost going to equally contribute. We'll see a 6-8% growth on the relation side for cotton yarn exports and similar 5-7% on the volume side. Now as you mentioned that in our report, we have clearly highlighted that there are two key markets in the export segment for us, which is China and Bangladesh and these two markets put together somewhere give us about 55-60% contribution in the overall exports.

So what is probably going to help this year the cotton yarn exporters is that there is lower acreage of the crop production in China this year because of their own plantation related issues and there is a particular region which they are more promoting for domestic consumption. So that has led to slightly lower availability overall there. On Bangladesh, we see that the situation from a stability point of view is better this year.

Bangladesh alone also contributes about 40% of the exports and given a relatively stabilised political environment there, we see that demand is emanating from that part. And I think one more important factor is the currency deposition that we have seen recently. So that also has made Indian exports more attractive.

Govindraj Ethiraj: So sort of top-down question, when we export 30% as you said, does that mean that there is no consumption in India or is other sort of downstream manufacturing sourcing from elsewhere?

Gautam Shahi: So when you look at the other 70% which is domestic, there is an element of the downstream industries also consuming this cotton yarn. For example, the ready-made garment exports, the home textile exports, that somewhere forms about 30% of the domestic 70% that we see. So clearly, those two segments are also going to benefit this year from one, the trade tariff rationalisation that we have seen.

We were somewhere hovering around somewhere between 30% to 50% of the tariff for most part of the last year, which is now down to about 10%. And it's a level playing field vis-a-vis other competing nations like Bangladesh, Vietnam, Indonesia, China, et cetera, which was a little uneven for some part of last year. So that is going to help.

Plus, I think there was a high base created because of the GST cuts last year, which led to good demand in the second half. So obviously, we will not see a lot of volume growth on the domestic side. But the pricing growth that I talked about, which we see in the global market is going to translate into India as well.

Because this is more a commodity and there's a parity maintained between the domestic and the international prices.

Govindraj Ethiraj: If you were to look ahead now, so in the context of, let's say, the recent challenges that India has been facing on account of the war in West Asia, rising input prices, and so on. So how does the yarn industry stack up? Is it affected at all?

And what does that mean for overall downstream apparel manufacturers, garment manufacturers, and so on?

Gautam Shahi: So I think good part is that this industry overall largely remains insulated from the direct impact of the West Asia conflict. And given its limited exposure to that region, that's one. And also the largely the absence of any material lands on the crude oil imports.

This is more natural fibre, which is there. So we don't see any direct impact. There can be a bit of indirect impact, which may be there, but it's not significant anyway.

And I think what is helping the domestic cotton producers is that our domestic prices are slightly trailing below the international cotton prices, if you see for the last couple of months. So that makes the yarn competitive from an export point of view. Further, as I said earlier, the deposition of the Indian rupee in comparison to the Chinese yuan in terms of Vietnamese dong has further made the Indian cotton yarn more attractive.

And some of the competing nations which export, you know, which have their own cotton production, like China, US, Brazil, we see that there is a bit of a decline in their cotton output this year, or it is almost flattish. So that gives clearly India an opportunity to export more this year.

Govindraj Ethiraj: Right. And can you give us a little bit of an insight on the industry itself? I mean, how is it sized or how is it spread in terms of large players, small players?

Gautam Shahi: If you look at, you know, the details that we have, you know, given in our report as well, what we see is about thousand odd billion of industry that we see on the organised side, at least. We have seen good amount of consolidation happening in the last few years. What we understand is broadly from the interactions that we do with our various clients, about 10 to 12% of the capacity has gone out of production last few years because of the challenges that we have seen or because of, you know, the want of upgradation, et cetera.

So that clearly has made the remaining 90% of industry slightly to be in a more opportune situation right now when we are seeing a recovery for the sector.

Govindraj Ethiraj: Got it. What's your outlook for the next six months or so, including in the context of the monsoons and the sort of uneven monsoons that we've been seeing so far?

Gautam Shahi: You're right. So I think with the impact of the, you know, potentially the El Nino resulting in lower rain, our sense is, and this is the initial sense that we have, that farmers may shift to, they will shift from water-intensive crops to probably, you know, crops like cotton, which relatively consume less water and should further boost the acreage and production. So, and this may augur well, given the fact that, you know, the kind of situation that we are overall seeing in the competing nations, cotton production, which I mentioned earlier, that again is sort of a tailwind that we see for the sector.

Govindraj Ethiraj: Got it. Gautam, thank you so much for joining me.

Gautam Shahi: Thanks.