On Episode 1026 of The Core Report, financial journalist Govindraj Ethiraj talks to Ambareesh Baliga, Veteran Market Expert; Sid Swaminathan, CEO at Jio Blackrock; and Indrani Bagchi, CEO at Ananta Aspen Centre.

SHOW NOTES

(00:00) Stories of the Day

(00:41) Markets, Oil And The Rupee

(05:58) How Are Indian Markets Going To Respond To The Outcome Of The US Midterm Elections?

(10:19) Impact On Global Investing Themes And AI Investments

(18:44) The Geopolitical Impact Of The US Midterm Election Outcome

—

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 Thursday, the 5th of November, and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.

Our top stories and themes…well, we're focused almost entirely today on the outcome and impact of the US midterm elections back in India, politically, economically, and of course, for the stock markets.

US Midterm Elections, Markets, Oil and The Rupee

The big news is from Main Street in the United States this time, and we'll come to Wall Street 2 and the US midterm elections, which are a reflection of shifting electoral preferences, though they do not affect the presidency of Donald Trump directly.

Voters punished the president on a scale not seen since the post-Watergate election of 1974, shifting leftward across demographic groups and regions, The Washington Post said. A democratic wave in the congressional elections on Tuesday amounted to what the New York Times called a stinging rebuke of a deeply unpopular president. President Donald Trump had told voters while campaigning to pretend, He said it not once, not twice, but 47 times.

And more than any of his predecessors, Mr. Trump deliberately made the midterm contest a referendum on himself, only to pay the price, The New York Times said. The electoral backlash extended even into the deep red states and indicated that Mr. Trump had lost his hold over the coalition that lifted him to the White House twice, The New York Times said, adding that the continuing war with Iran, high gas prices, and allegations of corruption appeared to be the key reasons for many voters to switch. As of Wednesday morning, the democratic margin of victory in the overall national vote for House seats was expected to be about 13 percentage points, the largest that either party has lodged in a congressional election since at least 1976, according to estimates by The New York Times.

It would draw off even the margins that the Republicans won in their two big landslide victories of modern times when they defeated congressional Democrats when Bill Clinton held the White House in 1994 and Barack Obama was president in 2010, The New York Times said. CNBC said Democrats decisively took control of Congress on Tuesday night, delivering a stinging rebuke, well, rebuke is the common theme I've been hearing all day, to President Donald Trump and his economic record as voters voiced deep frustration with rising prices, government corruption, and the AI data centre build-out. The election also sharpened the political fight over data centres and artificial intelligence infrastructure.

Texas is a major centre for planned data centre construction and Gina Hinojosa, who defeated three-term governor Greg Abbott, making her the first Democratic governor of Texas since 1995, had campaigned for a pause on new projects until the state adopts tougher rules. Her victory gives Democrats more influence over Texas' approach to the build-out, though the state legislature remains in Republican hands, the CNBC report said, adding that the results delivered a blow to the tech billionaires and corporate interest groups that poured hundreds of millions of dollars into backing Republican candidates who might be friendly to the massive AI data centre projects they hope to build around the country. Elon Musk, the world's richest man and the cycle's largest individual political donor, spent record sums in a failed effort to help Republicans retain power, including in Texas.

Interestingly, stock futures, which were down overnight, reversed and jumped on Wednesday as markets appeared to look beyond the latest political developments in the United States. The Trump administration-friendly Wall Street Journal said that rarely in American politics has a president traded away so much political support so quickly. A war of choice with Iran and tariffs imposed on U.S. trading partners betrayed his promise to avoid foreign entanglements and tame inflation, the Wall Street Journal said, adding that his extraordinary interventions in his party's primaries left Republicans with a set of unusually weak candidates.

Voters he believed would stick with him instead walked away, handing Democrats control of the House and Senate and producing losses that either party could have barely imagined a year ago, the Wall Street Journal said. And on Wall Street, futures tied to the Dow Jones Industrial Average were up 800 points on Wednesday morning, and oil prices had also fallen during the day in anticipation of some easing of the U.S.-Israeli war on Iran. Whether that actually happens or not, we will have to see.

Brent futures were down to $101.85, so just under $102 a battle on Wednesday morning. With all this in the backdrop, India's benchmark indices ended higher for the fifth day, tracking sharp gains in consumer products, reality, and metal stocks. They also posted their longest winning streak in nearly five months, and foreign investors bought stocks worth about $820 million in the last few days of November, trimming their net outflows this year to about $30.6 billion, a Reuters report said, which also obviously provides some insight as to why markets were stronger in the last few days.

The Sensex was up 383 points to 77,301, and the Nifty 50 was up 149 points to 23,960. In the broader markets, the Nifty mid-cap and small-cap hundreds were up 1.5 and 2 percent each. The rupee was also higher on Wednesday thanks to a weaker dollar and lower oil prices, closing at Rs.

94.64, up slightly from Rs. 94.74 from the previous session. The forecasts for the rupee are still not very bullish.

The rupee is likely to give up its recent gains and slip again over the next few months, according to a Forex strategist polled by Reuters, who pointed to a volatile external environment, which continues to put pressure on the currency. The median forecast of 37 strategists, polled between November 2 and 4 for the rupee, currently trading near Rs. 94.70, said that it could weaken to about Rs.

96 by end January and Rs. 96.33 by end April.

Indian Market Response To the Outcome of the US Midterm Elections

Before we go ahead and get a sense of the geopolitical impact from Indrani Bagchi, what do the latest developments mean for the market, and how are Indian markets likely to respond in coming days, and what are the other factors that are playing on prices, I reached out to Ambareesh Baliga, veteran market analyst, and I began by asking him how he was reading the latest moves.

INTERVIEW TRANSCRIPT

Ambareesh Baliga: The expectation has been there that Democrats will sweep the house. Based on that, there was also an expectation that there could be some positive outcome, like West Asia front. So based on that, we have seen the markets bouncing back.

Because if the West Asia solution is found, it will have an effect on the oil prices. And if oil goes below levels of about 75-80, I think that will be extremely positive for globally and especially for India, because inflation will start coming down. And if inflation comes down, you will have the interest rates coming down.

So the interest rate hike cycle, which had just started, I think that will reverse. And all this will help the rupee to appreciate. I mean, we have seen a decent depreciation in the rupee.

So if all this happens, we will clearly see the markets in a completely different orbit. Because thankfully, the earnings haven't really got too affected because of the geopolitical issues. I mean, we have seen a decent number of earnings better than expected, although they were mixed.

But looking at the geopolitical issues which were there, I think the earnings were quite decent. I mean, if you look at the other macro numbers, they've also been quite good. I mean, we have the GST numbers, we have seen record numbers.

Auto sales haven't really got affected. Auto sales still continue to surprise. So overall, I think the scenario has been extremely good despite the sort of a situation we are in.

So like I said, in case the West Asia issue gets sorted out, I think we should see a fresh bull run starting for India.

Govindraj Ethiraj: Right. And how are you seeing domestic flows and domestic sentiment? Because a lot of what you said is really externally driven.

What's the internal sentiment like apart from the macro factors that you pointed out?

Ambareesh Baliga: The domestic sentiment will change with the market. I mean, if you look at the negative side, the SIPs, which I think has started even five years back, are not giving you better returns than what a fixed deposit would give you. And quite a few SIPs are in the negative.

But if the market starts improving from here, I mean, we've seen an extremely good sort of a move in the last few days. I mean, although it was more of the large caps and the mid caps, I mean, if you see an overall market rally going ahead, I think all these negative sentiments that you're talking about will all disappear. You'll again have people coming back to the markets, again, investing in SIPs, again, investing directly in the markets.

So I mean, it's the outcome of how the market is. That itself will add to the momentum. Right.

Govindraj Ethiraj: And, you know, the large caps had obviously taken a backseat. And though there seems to be some revival, thanks to Reliance and so on in recent days, are you seeing any other shifts like that in either linked to these external developments or otherwise?

Ambareesh Baliga: No, I mean, the other shift will start happening. Because once that external development happens, you'll have most of the sectors again, coming back on stream, except maybe IT. I think IT could take a while longer.

But then most of the other sectors, I think, should see a decent bounce back. Like something like FMCG, which has been down in the dumps for a while. I mean, when you listen to the management commentary, clearly it is positive.

We are talking of high single digit growth. Right. And what else is looking interesting to you as we look ahead, Ambareesh?

Surely across various sectors, speciality chemicals have been positive on and we are seeing that the earnings are also slowly improving for most of the speciality chemical companies. I mean, we should see auto-auto ancillaries continue to do well. I mean, especially the auto ancillary ones.

Defence and railways. I think we have seen a decent amount of underperformance from this sector for a while. I mean, although the audible position has been extremely good, there were execution issues and that's also getting sorted out now.

And the valuations have come to quite decent levels. These are the two other sectors which I think should do decently well. I mean, going ahead.

Pharma, that's the other sector, which I think it is just not defensive in a bullish market. I think it can outperform going ahead. Other than that would be the infraspace.

I mean, our focus clearly is on infra and will continue to be there, at least in the foreseeable decade. So, infra and infra-related should also do well.

Govindraj Ethiraj: Right, Ambareesh. Thank you so much for joining me.

Ambareesh Baliga: Thank you.

How will Global Investing Themes and AI Investments Change?

While Wall Street is looking steady for now, could there be some shifts in global investing themes, thanks to the outcome of these elections, for example the likelihood of a slowdown in AI investments, particularly data centres. Many investment experts have argued for diversifying beyond India, and there are several vehicles new and upcoming for that. I spoke to Sid Swaminathan, CEO of Jio Blackrock, a part of Blackrock that manages $15 trillion of assets around the world.

Jio Blackrock just launched a scheme called the Jio Blackrock Advantage World Equity Fund, IFSC direct plan, essentially a gift city route. I began by asking Sid how he was seeing the world post the big election results in the United States, and I also asked him to respond to some of the questions investors have been asking recently in the context of outbound investing, particularly in the tax context via India's gift city in Ahmedabad.

INTERVIEW TRANSCRIPT

Sid Swaminathan: Interesting times for all of us, for sure, literally just kind of digesting the results from the US midterm elections. I think when we take a step back and think about everything that's happened and that has been happening, you know, I think the volatility and uncertainty to a certain extent that we're seeing in the markets is going to carry on for at least the next sort of a few months is our view. So in that kind of scenario, where we're seeing some of the investors kind of as well is on exposures that diversify portfolios.

That's the big theme that we're seeing. I think when you think about Indian investors as a core, a lot of them are invested in equities. That's kind of where the starting point is.

Now, we still see growth in equities and that's because there's a huge amount of people who haven't invested at all. So they're getting started on that journey. But for the ones that have been investing for a while, they're looking for alternative exposure.

So the kind of growth that we've seen in products like the SIF, that's one example of diversification from investors. And also getting to kind of somewhat more topical points for today, international investing is just seen as another diversifying asset class for investors. So I think that's the dynamic that we're seeing more and more play out for the investors who have been investing for a while.

Govindraj Ethiraj: Right. And, you know, geopolitics was a key driver in the way many of these products were structured in the last year or two, and will continue to be, I'm sure, but there has been a shift after these US election results. Now, my question is more to do with the opportunities that you see.

Do you continue to see similar opportunities or is that cause for some strategic rethinking in the global basket that you're looking at?

Sid Swaminathan: Yeah, look, I think one of the things I have been saying a lot recently, I feel is that when it comes to investing here, time is generally your friend, timing is not always your friend. So when we look at things like international investing, it should always be seen as a portfolio diversifier. It's not the core of your portfolio.

As an Indian investor, I think as an Indian investor, the core of the portfolio should still continue to be India. There's tremendous growth opportunities still in India. So it's a diversifier.

So when you then come into that kind of a lens, timing it or necessarily trying to chase returns is typically not the best way to approach it. So you think about what is the right starting point firstly for an international exposure. And we think given that the primary kind of let's call it exposure here already is equities, also looking at international equities as a natural kind of diversifier.

Once you've kind of gone on that journey and done more of international investing, then you can start looking at maybe a bit more the thematics or any of those kind of exposures. But right now, I think the starting point for majority of the people, and that's the other thing to remember, right? When you look at the overall universe here, it's tough to get the exact numbers, but it's probably only one to one and a half percent that's invested of the overall portfolio in international investors.

And that's already pretty lumpy in terms of who's doing that. So it's not a lot. Typically, these kind of allocations would start at around the five to 10 percent, and they could even go up to 20.

So there's a long kind of way to go. So getting started, keep it simple. Don't try to time it.

Don't try to be too cute about it is the recommendation for me.

Govindraj Ethiraj: Right. So I guess that answers the question on whether one should be worried that AI stocks may not necessarily be the flavour of the month for subsequent months. And that story will continue.

Sid Swaminathan: Yeah, exactly. So AI is a good example of this, right? Like you look at AI as a team.

And yes, it's as any team, it kind of has its ups and downs. And I think we spoke about this the last time I was talking to you as well, Govind. There are going to be winners and losers in AI.

So even within that team, you're going to be exposed to people who are doing and adapting much better than others. So that's the key skill to have. And especially that the fact that these are all predominantly companies that are outside of India, that means that that expertise of global markets is going to be really important in identifying the winners and losers.

Broadly speaking, if you take several steps up, still think AI as a team long term is something that is going to change the way we live and operate, still going to have a major impact only at the beginning of it. But along that journey, there's going to be a lot of winners and losers. So actually having a bit of active management is going to be key there.

Govindraj Ethiraj: Right. So let me come to your Advantage World Equity Fund, IFSC, which is really the gift city fund. So there has been some concern amongst investors about what the tax treatment could be for income earned through funds invested through this route.

Maybe there was no concern a few months ago, but there have been some reports about some funds not maybe getting the treatment they thought they would from the tax department. So I guess investors would want to know what is the path.

Sid Swaminathan: Some of these can get into the nitty gritty from an investor perspective. So I would still say if there's that much concern, someone should consult their tax advisor. But I can talk about the fund about.

Right. So this is where, again, we try to keep it as simple and clean as possible. So the fund itself is a funder fund.

So it's a fund that's domiciled in gift city. That's the Geo BlackRock fund and is buying an underlying usage fund, which is the BlackRock World Advantage Active Equity Fund. That's a fund that's been run and managed by the team at BlackRock for over eight years with a strong track record.

So what that structure kind of simplifies, at least, is that from the rebalancing portion of it, so the actual changing of the stocks underlying, that's happening at the fund level. So that's happening inside the fund. There's no impact to the end investors from that.

So whereas if you had like more of a direct equity kind of holding, like these kind of things become more complex for end investors. By having this funder fund structure, that piece is simplified. So really the main kind of tax impact is going to be from the actual buying and selling of the units themselves, which again, most people are used to.

And that has, you know, the short term, which is sub 24 months for these funder funds right now, add the slab rate, and then the long term is at the 12.5%. That's the crux of it. But I think some of the nuances around rebalancing, we're simplifying because it's inside another fund.

Govindraj Ethiraj: Right. So you're saying from a domiciled investor, that's India domiciled investor, broadly, the treatment of capital gains should be the same as any other asset management investment or mutual fund investment?

Sid Swaminathan: Yeah, similarly, I think there is the SES and a few charges that get added on top. So I think there's a little bit on that. TCS is something to keep in mind.

So that only applies to more than 10 lakhs in a year right now. That's something to keep in mind, which is different, obviously, for domestic investment, the typical like minimums on these are lower. So for example, our fund is at $5,000, which is actually less than five lakhs or doesn't really apply.

But that's one thing to keep in mind.

Govindraj Ethiraj: Right. And we've talked about this somewhat in the past as well. But the managers who manage this particular fund are sitting in India or not sitting in India?

Sid Swaminathan: No, they're not. And that's a very kind of calculated decision that we took to do this because of two reasons. One, thanks to our lineage, we have the manufacturing available to us already through BlackRock.

So kind of the expertise that BlackRock has in these markets, the fund management team, the investment process is very different. It's a systematic data driven process. We've actually brought that to India as well for our funds here.

So that's something unique that BlackRock has to offer. So we're benefiting from that. Related to that is the challenge of setting up an actual manufacturing function in GIF.

It works in some markets, but we're trying to do global markets, which has so much complexity, so much nuances. The fund managers there aren't necessarily in the know of a lot of the flow. So that's a challenge.

And a lot of AMCs would face that challenge. We are fortunate we don't need to really deal with that because we can just wrap the underlying fund and take advantage of the expertise.

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

Sid Swaminathan: Thank you for having me, Govind. Always a pleasure.

The Geopolitical Impact Of The US Midterm Election Outcome

So what do the latest election results in the US mean for India-US relations, which have been dominated almost entirely by President Donald Trump and his way of doing business? Ajay Srivastava, founder of the Global Trade Research Initiative in New Delhi, said in a note that the adverse midterm results will not change President Donald Trump's trade direction because both Democrats and Republicans now favour economic nationalism, domestic manufacturing, and strong supply chains.

He said that since democratic lawmakers also support protective tariffs for local union workers, America's overall trade posture will remain intact. To act without Congress, the president will continue to rely on existing powers like Section 232 and Section 301, using executive orders, treasury sanctions, and USTR rules to apply unilateral trade pressure, he said. Ajay Srivastava also pointed out that with foreign policy leverage failing against Russia, China, and Iran, Trump needs a quick win, and he said that expect heightened pressure on India for a trade deal to prove America's clout.

I also reached out to Indrani Bagchi, CEO of Ananta Centre and foreign affairs columnist with the Times of India, who is in New York right now, to get a sense on how things are looking on ground and how things might go from here, particularly through an India lens.

INTERVIEW TRANSCRIPT

Indrani Bagchi: I think there's a lot of relief, a lot of kind of America is back kind of thing. There's a lot of relief in the average people in this because I think the MAGA had gone way too far. In fact, you can see that there's some cracks are forming in that MAGA coalition anyway.

Although President Trump, I heard him in his first sort of interview took Fox News where he said MAGA is 100% of the Republican Party and I have 99% of their support. So this win is not going to be a non-contentious win. There will be battles ahead.

So as you saw, it's what I call a blue Nami has happened in the US and it's bigger than what the polls predicted. In a sense, you know, I was here two years ago when the elections happened. That was a swing.

That was a fairly distinctive swing. In a sense, it was a sweep by President Trump. You are now seeing the needle moving back very decisively.

I look at this a lot more as an anti-Trump vote. This is literally a repudiation of the biggest policies of President Trump. A key issue being affordability and you have to distinguish this from the state of the economy because the American economy is not doing badly at all.

But there is an affordability crisis and the affordability crisis is for the regular American. There is also a fuel crisis which sparks the affordability crisis. The affordability crisis is not just the Iran war.

It is also the tariffs. The tariffs have contributed massively to the affordability crisis and has impacted people in heartland America. Trump in his speeches, in his rallies, two things.

One is Trump displayed a bit of an insensitivity to the crisis, to the everyday crisis for the American voter. That was one. But although he said yesterday, I was not on the ballot, for the last two months, all his rallies, he has been saying, pretend I am on the ballot.

So everybody did pretend that he was on the ballot and voted against it. So that's one. Congress, I mean, entire the Senate and the House have gone blue, which basically means there will be political fistfights on the hill.

There will be investigations. There may not be impeachment. I don't know if there will be impeachment efforts, but there will certainly be investigations.

A number of Trump officials, administration people, etc., are all either left or they're preparing for suits against them. In fact, I think one Democrat senator actually said to the Trump administration, lawyer up, that you will be facing a lot of cases against Biden. So this is going to be contentious.

However, I also saw President Trump taking a slightly more conciliatory approach, saying that, you know, we can make a deal, we can work with the Democrats. He was surprised at how much the votes swung against him. But he continued to say that he'd done the best job on Iran, on tariffs, on trillions and trillions of dollars flowing into America, on stopping immigration.

So all of this. That's literally where we are this morning.

Govindraj Ethiraj: Right. And how do things stand from an India lens or through an India lens? But given one is, of course, the trade talks, which we don't know whether they're going to happen soon, but in general, would this or could this shift the needle on our relationship?

Indrani Bagchi: Yes and no. India was not a problem in that sense. However, immigration was a problem and immigration remains a problem.

It's not like the Democrats care much more about immigration than the Republicans. So the whole closing of the border, please remember, Biden tried to do it, did it imperfectly, but Trump did a much better job of closing the border and getting the illegal immigration out. How does it impact the trade deal?

I'm not sure it impacts the trade deal very much unless because, see, where is it stuck? It's stuck at the point where India wants greater predictability in terms of its tariffs, particularly with regard to its competitors. The Americans have very weirdly asked for a timeline on reducing the trade deficit.

It's not like India wants to sell less. India wants to sell more. So that mismatch is going to remain for a bit unless Trump decides that he needs a good news story.

These are not insurmountable, but they need that political push. I'm not sure how that will happen. On H1B, which was the other thing, H1B is dead forever.

Across the board, there is no support for H1B. There is no support for the whole tech that goes from India, even though they may be the most educated, they are better off, they're more successful. There is no support.

So a lot of the Indian companies have, I think, walked back from the H1B. You'll have to wait to see how many of the American companies walk back or how they deal with it. But politically, there is no support across the board.

I think what everybody will be looking for would be to see how he deals with the Iran war. Oh, the other thing that I think will not affect India very much positively is the Russia factor. I mean, Trump was much more amenable to President Putin and Russia.

Democrats are not. So there was a pushback against the diesel deal that President Trump did with Russia. I suspect Russia and the war is going to be back on the plate, and India will remain a very convenient whipping boy on that front.

The other thing that has changed in America has been the US-Israel relationship. President Trump, I think, announced that they would stop the $4 billion annual aid to Israel. Honestly, $4 billion is not that much.

And Israel can negotiate that with access to greater technology, all of that. And I don't think anybody would have so much of a problem with that. There is a political issue of the newer generation being much more pro-Palestine, much more anti-Israel than the previous generation.

How they deal with that is going to define a lot of their domestic politics as we go forward. The Europeans will be happy. Europe parties that thought that they would be sort of hitched their waggon to the MAGA are now rethinking.

I think Europe sees this as a way to get back the old relationship with the US. How far that will happen? I don't know.

But yes, this is a bright spot for the US-Europe relationship. Even the US-Canada relationship, by the way. I think you will see overtures by the administration to Mark Carney and his government in Canada.

Govindraj Ethiraj: Right. So let's hope some peace returns and stays that way. On that note, Indrani, thank you so much for joining me.

Indrani Bagchi: Thank you very much.