Markets Recover On A Rate Cut
The markets cheered an interest rate hike, which was mostly expected
On Episode 745 of The Core Report, financial journalist Govindraj Ethiraj talks to Dharmakirti Joshi, Chief Economist at Crisil.
SHOW NOTES
(00:10) The Take
(06:04) The Markets Recover On A Rate Cut and Why The Markets Divergence Is Growing Wider.
(10:22) India Will Slow Down On Coal Power Plants, IEW Segment.
(12:06) What The Latest Rate Cut Means For The Economy ?
(22:13) Will A Netflix Acquisition Of Warner Sail Through ? Streaming Now.
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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 Monday, the 8th of December, and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.
The Take
IndiGo Is No Infosys
Indian business is currently witnessing a blame-shifting exercise of unprecedented intensity.
At the center is IndiGo, an airline that needs no introduction, now mired in a crisis of operational failure and evasive accountability.
To understand the present, one must examine the genesis. Founded in 2005, IndiGo was the brainchild of Rahul Bhatia and Rakesh Gangwal, holding near-equal stakes of approximately 38% and 37%, respectively.
Mr. Bhatia brought his experience from a successful travel and logistics business established in 1989. Mr. Gangwal, an aviation veteran and former CEO of US Airways, represented the technical expertise.
Their debut was audacious: a June 2005 order for 100 Airbus A320-200s at the Paris Air Show.
When operations commenced in July 2006, skeptics dismissed Mr. Bhatia as another flamboyant aspirant in India’s treacherous private aviation market.
They were mistaken. IndiGo emerged as a sharp, efficient carrier, eventually going public in 2015. Its stock performance has since defied the gravity that typically weighs down global aviation equities.
Friendship In The Air
But by 2019, the Bhatia-Gangwal friendship soured. A battle that must have raged within the boardrooms and corner offices for a while exploded in the open. Gangwal went public with his grievances.
In a complaint with the Securities & Exchange Board of India (SEBI), he alleged that Bhatia was running it like a personal fiefdom.
He accused Bhatia of several violations of SEBI norms and said he was running IndiGo like a paan ki dukan (paan shop), adding he had lost confidence in the current composition of the board and its ability to discharge its fiduciary duties, as most of them were Bhatia appointees.
Amongst other charges, Gangwal said Bhatia entered into related-party transactions with firms owned privately by him.
Bhatia’s response was that Gangwal’s complaints were an attempt to dilute the founders' rights and control, which were agreed upon. He added that all related party transactions were transparent and legally approved.
In a corporate battle, there are two sides. Of the two, Bhatia’s side has been more careful with its responses, seemingly not addressing the substance of some of the charges, like the one about running the airline like a fiefdom.
No doubt it is a subjective statement.
Fiefdom or not, Gangwal decided to exit the company and worked out a gradual exit where he pared down his stake. A Mint report from August this year said that through 15 transactions starting September 2022, he sold 32.5% and earned ₹45,146 crore.
The Excel Sheet Airline
Now to the present.
The fiasco of the last few days needs no further elaboration except to highlight that the company clearly took a decision to not abide by the new flight duty time limitations on pilots that kicked in on November 1, 2025.
The airline was effectively attempting to service an expanded winter schedule with the same number of pilots, who would fly fewer hours than before.
Pilots often refer to IndiGo as "the Excel sheet airline," a moniker that acknowledges its ruthless precision. In this instance, however, no amount of spreadsheet maneuvering could avert the collision with reality.
The Directorate General of Civil Aviation (DGCA) has issued show-cause notices to the CEO and the head of operations—both expatriates. Conspicuously absent from regulatory scrutiny is Mr. Bhatia, the Group Managing Director of the parent company, InterGlobe Aviation, and a director at IndiGo. While media coverage targets the Civil Aviation Ministry and the corporate entity, Mr. Bhatia remains shielded by silence.
Observers of Indian promoter-led businesses recognize that strategic decisions rarely occur without the owner's endorsement. It is implausible that IndiGo bypassed impending regulations without Mr. Bhatia’s knowledge. Consequently, accountability must extend to him, regardless of whether official notices are addressed to the C-suite. The board bears responsibility, but primarily as the final layer of oversight, not the source of the directive.
Boardroom Fiefdoms
While investors often tolerate autocratic governance as long as returns are delivered, the distinction in corporate structure is vital.
Consider Infosys. Even when its founders stepped back, the board maintained clear control over professional CEOs.
The governance disputes there centered on cultural values, not the locus of control.
IndiGo is no Infosys. It remains an owner-controlled entity where the promoter has not ceded influence.
While the brand has suffered reputational damage, the stock market remains bullish, implicitly betting on Mr. Bhatia’s continued firm hand.
Mr. Gangwal once accused his partner of running a corner shop; to prove him wrong, the airline must now demonstrate institutional maturity over promoter dominance.
The airline has to demonstrate now it is not one. And that brings us to the top stories of the day…
The Stock Markets Recover On A Rate Cut.
Why The Market's Divergence Is Growing Wider.
India Will Slow Down On Coal Power Plants, The India Energy Week Segment.
What The Latest Rate Cut Means For The Economy.
And Will A Netflix Acquisition Of Warner Sail Through Streaming Now?
A Rate Cut Jump
The markets cheered an interest rate hike, which was mostly expected, at least on The Core Report on Friday. Interest rates are now quite low by any standards, as we will find out shortly.
What that means for the rest of the economy is not fully clear, as transmission does take time, and sometimes retail borrowers barely feel the change. On Friday, the Sensex and Nifty rose after the Reserve Bank of India slashed the repo rate by 25 basis points to 5.25% and maintained its neutral stance and revised its inflation forecast for the current year to 2% from 2.6% earlier and raised growth projections from 6.8 to 7.3%. So with all of this, the Sensex closed at 85,702, that's up 447 points, while the Nifty 50 was up 152 points to 26,186. In the broader markets, the Nifty Mid Cap was up 0.49 and the Nifty Small Cap dropped 0.5. Now a little alert worth paying attention to in the context of narrow the recent gains in the market are.
So the BSE Small Cap Index has hit an over six month low, falling 1% in Friday's intraday trade, despite the benchmark indices rising, as we just discussed. The index last touched its 52-week high in December last year, and has corrected 12% since, according to a report in Business Standard. Meanwhile, in the calendar year, that's 2025, the BSE Small Cap Index has underperformed the market by falling 8% as against 9%, that is the rally in the Sensex, and a 0.3% decline in the BSE Mid Cap Index.
So now you know, or you can see how the benchmarks are doing versus the others, and many people or retail investors would have exposure in the mid and small caps.
The Rupee Strategy
The rupee is on a weak footing versus the dollar, whether it will remain so is an economic and perhaps even philosophical question.
Should the Reserve Bank keep selling dollars to lift the rupee, or let it float a little, as it has evidently done in the last few weeks? Because a depreciating rupee is the best available buffer, as we've just discussed against the tariff shock that Indian exporters are facing, and particularly to the United States. Now, the Reserve Bank will tolerate a weaker rupee as the country's external sector confronts multiple headwinds, including a wider trade gap and stalling of dollar inflows, according to Reuters, which is reporting basis conversations with people in the Central Bank. Now, the Reserve Bank of India, which supported the rupee through aggressive interventions via dollar sales until last month, has now allowed the rupee to fall about 1.3% in the last seven trading sessions to a record low of 90 rupees 42 paise.
The rupee is also down about five and a half percent this year, and is Asia's worst performing currency. The sources also told Reuters that by signalling tolerance for a weaker rupee, the Central Bank is indicating it will intervene mostly to curb sharp volatility or on any signs of a speculative buildup, but not defend any specific level on the rupee. Now, this is obviously something that's also, in a way, unstated government policy, given the fact that the country's chief economic advisor on Wednesday said he was not getting sleepless nights over the rupee's fall, and if there was a time to depreciate for the rupee, that is, this was it.
To come back to the sources of the Central Bank, according to them, it doesn't make sense to spend reserves when fundamentally everything is against the currency, and they also said that as and when fundamentals and real dollar demand dictates, the Central Bank does let the rupee move more than it normally would. And of course, there is the fear that speculators who are already believed to be flexing their muscles will move in more actively. At that point, the Central Bank could step in and stamp out those as needed according to those sources who spoke to Reuters.
And finally, on Thursday, the rupee did end above the 90 per dollar level after hitting a record low as dollar sales from multiple foreign banks, likely on account of inflows, helped the currency snap a six-session losing streak. The rupee fell to 90 rupees 42 paise early in the session before reversing course to close at 89 rupees 97 paise, according to Reuters.
Coal Capacity
And here's our India Energy Week segment. Oil prices were up about a percent to a two-week high on Friday, again on increasing expectation that the US Federal Reserve will cut interest rates, which could obviously boost economic growth and energy demand. And then, of course, there was the issue of geopolitical uncertainty that could limit supplies from Russia and Venezuela.
Brent was about $63.75, just under $64 a barrel. Elsewhere, India does not have any immediate plans to add coal power generation capacity beyond 2035, according to a power ministry official who spoke to Reuters. The power secretary of the government of India told Reuters that India wants to secure its energy requirements.
As on 2035, we want to have a coal capacity of 307 gigawatts. India was looking at increasing coal capacity by about 46% from the current 210 gigawatts, while doubling non-fossil fuel capacity of 500 gigawatts by 2030. The power secretary said the coal power plans are in line with the country's energy requirements and India is facing grid challenges because of integration of surplus clean energy into the grid and has curbed power output for many months this year.
The power secretary said India could take a call on adding more coal capacity after taking three years to understand how power demand is growing and more importantly, the speed of integration of clean energy.
Interest Rate Impact
The Reserve Bank of India cut interest rates last Friday, a move that was expected by some, but not all economists and Main Street watchers.
Ratings agency Crescent was amongst the few who called an interest rate cut and it acknowledged the Reserve Bank's move to announce open market purchases of government securities and a USD-INR buy-sell swap to improve domestic liquidity amidst volatility in the markets. Crescent's view is that between lower than expected inflation and higher than expected growth, the Monetary Policy Committee of the Reserve Bank of India focused on the former, which is lower than expected inflation. So the Reserve Bank has revised its inflation outlook downwards, giving it space to cut policy rates.
It also expects GDP to moderate in the second half, some signs of which are already visible in recent high frequency indicators according to Crescent. It also says it expects rate cuts to play out in the coming year as the monetary policy typically operates with a lag. Now headwinds to growth are likely to continue from high US tariffs and moderation in government capital expenditure.
I reached out to D.K. Joshi, Chief Economist of Crescent and I began by asking him what he had taken away from the policy.
INTERVIEW TRANSCRIPT
Dharmakirti Joshi: Well, I think my simple argument was that the inflation is now below the lower limit. There is some reason, rationale for giving 2 to 6%. I think if it is up more than 6%, there is a need to be worried.
If there is less than 2%, there is also, I think, some concern that arises because that means lower nominal GDP growth. So not that RBI is targeting nominal GDP growth. The point I'm trying to make is that the inflation was much below what the central bank targets.
And in the coming quarter also, inflation is likely to be lower. So there was ample reason to utilise this opportunity. Growth came in very strong.
Part of the reason was the base effect. Part of the reason was also the deflator, which was very low because of both WPI and CPI being low. In the second half of the year, we were expecting a slowdown to 6.1%, so that our forecast is 7% for the year. And RBI also is predicting a slowdown, but not that much. And all the risks that are coming from the global economy are very much there. There's very little risk to inflation right now because there is excess capacity globally.
That means goods inflation would be broadly under control. China is also exporting its deflation. So I think on the inflation front, there is not much risk, except maybe food.
Food is very volatile. And core inflation is also low. It is not showing any indication of excess demand pressure on the inflation because excluding gold core inflation is only 2.6%. I think there was ample reason to believe that there could be a rate cut, though I would call it a close call because growth was also strong. So I think that's why we were expecting the rates to be sliced by another 25 basis points because of the opportunity and also to take care of risks ahead. So it's like an insurance cut right now.
Govindraj Ethiraj: Two questions. So one is the repo rate is 5.25. The standing deposit facility rate is 5. And what does this mean to borrowers in terms of what the transmission could be, retail or institutional, and what could really change in the hands or in the books of borrowers?
Dharmakirti Joshi: Well, I think the cost of borrowing will set. I think the objective of rate cut is to transmit it to the lending rates. And I do believe that over a period of time, I think gradually the rate cuts from RBI will get transmitted.
And don't forget that along with that, the central bank has also announced liquidity infusion, OMOs, etc. So all those things are also going to enable transmission. So there will be lower borrowing cost for a number of borrowers.
I think that's how I view it. And it may not happen instantly, but it will happen over the course of the next couple of months. And I'm not expecting any rate increase in the next year also.
So I think there'll be ample time for it to transmit. So it's a growth supportive move, I mean, broadly, via lower borrowing costs for majority of borrowers. And typically, I think the rate sensitive sectors do get some support from this.
It could be auto loans, it could be housing loans.
Govindraj Ethiraj: Right. How are you seeing the current interest rates in India in the context of historical interest rates? I mean, how long or how often have we been at these levels?
And secondly, how do these compare to international rates right now?
Dharmakirti Joshi: Well, I think I would say that this 5.25 would be roughly the average of last 10 years. So it's around average. I mean, we've seen a repo rate even below these levels, but that only happens when you have too much risk to growth.
And that's not the case right now. Now, globally, I think many central banks did cut rates, I think much before they started cutting even before we did. But the scope for rate cuts is now reducing because there is the outflow of capital in general and there is the currencies have recently been under pressure in Asia and also some of the emerging markets.
So every country has its own space for a rate cut. And US interest rates, I think we believe that there's a rate cut coming from the Fed in the month of December. And I think this will be followed by some more rate cuts going ahead.
So the interest differential between India and US is not going to be bothersome, so to say.
Govindraj Ethiraj: Right. Things have not been very strong on the external front, notably the rupee, which has been depreciating. Now, the Reserve Bank, of course, seems to be now clearly saying that they will not really interfere with its direction.
My larger question is, does this, which is the interest rate cut that we've seen, have any impact or how does it connect with what's happening on the currency front? And also, if you could talk about these open market purchases?
Dharmakirti Joshi: Yeah, I think rate cut is not very good for currency, very simply put. The point is that currency behaviour is not a function of rates alone. I mean, it's a function of many other things.
I mean, the uncertainty that is prevailing. We have seen capital outflow continue for several months now. And it's good fortune that we have very low current account deficit.
So you are not too much dependent on the mercy of foreigners to finance your current account deficit. And at the same time, there is also forex reserves to push on the currency against extreme volatility. Even in the past, I think we have seen that when the rupee comes under too much pressure, I think the central bank lets it depreciate.
Global financial crisis. Right now, it's not a crisis situation. But point I'm trying to make is that you cannot swim too much against the tide.
I mean, you can only suppress extreme volatility. So I see the current moves in that context. And rupee has been under pressure because I think India is facing the highest, almost the highest level of tariff that any other country is facing.
Probably Brazil has the similar rates. Obviously, there is a huge amount of uncertainty in general. And the capital is anyway moving towards US.
I think US is heavy on investments right now. So I think all these things put pressure on the emerging market currencies. And India has seen more pressure than others, despite its very resilient external accounts.
I mean, its foreign borrowings are not that high for the government. And as I said, the current account deficit is also low. And as far as the open market operations are concerned, I think they infuse liquidity into the system.
I think when the central bank intervenes in the forex market, it sucks the liquidity out. And to compensate for that, I think you need to pump liquidity into the system. And central bank has been maintaining liquidity at a given level, which is called the ample level.
But it comes under pressure from time to time. And the open market operations will also help, I think, soothe the bond yields for the government bonds.
Govindraj Ethiraj: Right. You know, we're coming to the end of the year. What else or rather what are you looking out for now in terms of data points as you're going to end December or January, which will give, let's say, further insights into what is happening in the economy?
Dharmakirti Joshi: I think first thing from an external point, I'm looking at whether when does the trade deal conclude, because that will reduce a lot of uncertainty that is currently prevailing. Otherwise, I think the environment will remain very volatile. On the domestic front, I think even the central bank did mention that the growth is extremely strong.
But they also mentioned that there are some hint of weakness, particularly I think the industrial production data was not that strong. Right now, I think the stimulus from the GST, I think that is continuing because the prices of goods prices are low. Inflation is low.
That's going to support consumption. Now, there is one welcome change, which is visible that the private corporate investment is beginning to show some signs of revival. Now, I think we've seen false starts in the past also.
But I think that is something I would be monitoring very closely because government's ability to push investments into infrastructure, which they have been doing at a faster pace post the pandemic, I think that now will have to normalise, which essentially means that the government capex will grow at the same rate as nominal GDP. In that situation, I think the private corporate sector has to take the baton from the government. And I think there is some indication of that.
I think that is one variable which I would be very closely monitoring. The second is the industrial production data, which came in very weak, whether it is one off or it is going to continue to remain that weak. So I think that is the second variable that we need to because remember that the second quarter GDP growth was largely because of industrial production going up.
And I think the deflator had a role to play there. So I think these are two things, I think, on the domestic side that I'll be watching. And I think obviously there is some sign of the revival in the urban segment and where I think interest rates play a bigger role.
So I think that is another data point that I would be watching. And one more data point, which is very important because rural demand has been pretty strong. But right now we are seeing very low food inflation and we are also seeing many crops selling below the minimum support price.
And that's not really good for the farmers, I think, for their incomes, etc. So I think these are some of the things, four or five things that I would be focused on as we step into 2026.
Govindraj Ethiraj: That's a very useful sum up. DK, thank you so much for joining me and sharing your views.
Dharmakirti Joshi: Thank you, Govind. It's always a pleasure.
Netflix, Warner By May Face Hurdles
The Netflix and Warner Brothers discovery deal came together quickly apparently, but its paths to regulatory approval may not be as speedy according to CNBC.
Netflix took the media industry by shock on Friday when it announced its proposed $72 billion to acquire Warner Brothers Film Studio and streaming service HBO Max. And that combination would bring together two of the most popular streaming platforms. Netflix had about 300 million subscribers that's global as of late 2024 and HBO Max had about 128 million as of three months ago.
Netflix says 46% of mobile app monthly active users and global streaming are theirs according to data from market intelligence firm Sensor Tower quoted by CNBC. Combined with HBO Max that share would rise to 56%. Now the size of the deal apparently makes it ripe for scrutiny from both industry insiders and US lawmakers.
CNBC said on Friday that the Trump administration is already viewing the merger with heavy scepticism. Senator Elizabeth Warren, a Democrat from Massachusetts said that the deal looks like an anti-monopoly nightmare and Netflix Warner Brothers would create one massive media giant with control of close to half the streaming market threatening to force Americans into higher subscription prices and fewer choices over what and how they watch while putting American workers at risk. The merger would obviously give Netflix control over the Warner Brothers Film Studio which would obviously mean further consolidation in the cinema space and raising concerns that the number or typical windowing of popular releases could shrink according to CNBC.
