On Episode 852 of The Core Report, financial journalist Govindraj Ethiraj talks to Amit Goel, Co-founder & Chief Global Strategist at PACE 360 as well as Dharmesh Trivedi, Founder at Dharmesh L Trivedi & Co. and Founding Member at PEVC CFO Association.

SHOW NOTES

(00:00) Stories of the Day

(00:50) The markets are back on standby as negotiations between the US and Iran are held off

(06:51) The RBI is easing rupee derivatives after cracking down on them

(08:06) What can we take away from the way gold prices have moved in the last two months?

(16:35) Why is the RBI wanting AIFs registered in GIFT City to be treated as Indian residents?

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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 Tuesday, the 21st of April, and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.

Our top stories and themes…

The stock markets are once again on standby mode as negotiations between the United States and Iran are held off.

The Reserve Bank of India is easing rupee derivatives after cracking down on them just a few weeks ago.

What can we take away from the way gold prices have moved in the last two months?

And why is the Reserve Bank of India wanting alternate investment funds registered in the gift city to be treated as Indian residents?

Markets, Peace Talks, India-South Korea, and MNCs

Iran is playing strategically hard to get and is also wary of the United States, for good reason given how recent events have evolved. Not surprisingly, as a negotiating tactic or otherwise, Iran has shown reluctance to send diplomats to Pakistan for a second round of peace talks. Now, matters escalated over the weekend after the United States maintained its blockade of the state of Hormuz and fired at and seized an Iranian ship.

Now, the talks should start today if everything runs on schedule, which does not seem to be the case right now. Iran has no plans to attend the potential negotiations, which would aim for an agreement to formally end the seven-week conflict, though a final decision hasn't been made, Bloomberg quoted Foreign Ministry spokesperson Ismail Bagheei telling reporters on Monday. He said that there were various indications that there is no seriousness on the U.S. side in advancing diplomacy.

Iran is reviewing a U.S. proposal delivered during a visit by Pakistan's Army Chief Asim Munir, he added, according to the semi-official Iranian Students News Agency quoted by Bloomberg. Meanwhile, the markets appear to belatedly recognise that fact, which is that U.S.-Iranian negotiations were not going anywhere and retreated from their highs on Monday. We are speaking, of course, of Indian markets.

The U.S. markets, among others, are on a different planet, and we will visit that shortly. The Nifty 50 and Sensex were off their days highs, with the Nifty 50 ending 11 points higher at 24,364 and the Sensex ending 27 points higher at 78,520. Elsewhere, India continues to build new alliances, as are other countries, following the uncertainty with and around economic relations with the United States.

India and South Korea said on Monday they would boost their economic ties by expanding cooperation in energy-critical minerals, shipbuilding, semiconductors, and steel, as they set a doubling of trade to $50 billion by 2030, according to a Reuters report, which added that both countries also agreed to resume and step up negotiations to give new energy to their 2010 trade agreement, as India wants the trade to be more balanced and Korea wants greater market access to India. Korean companies like LG and Hyundai have listed their Indian subsidiaries in the last couple of years, being amongst the first multinationals to do so after decades of no multinational listings in India. Speaking of multinational listings, Pernod Ricard, the maker of Absolute Vodka and Jameson Whisky, has begun working on a potential IPO of its Indian business, according to Bloomberg, which reported this news on Monday.

Pernod Ricard is a major player in India's alcohol market and competes with Johnny Walker and Diageo in the domestic market. Pernod Ricard is the biggest Western spirits group after Diageo, according to the Bloomberg report. Now, to revisit the question we've been asking on trying to answer in the last few days, why are markets zooming like this at a time like this in the United States? Investor and academic professor Scott Callaway had this to say.

First, he says, thanks to its geographic isolation and insulation, wars aren't that bad for U.S. markets. Quite the reverse, as we'll also discover in an upcoming conversation on gold. Historically, the average U.S. stock market declined during 30 major geopolitical events since 1939 was just 4 percent, and stocks typically bounced back within six weeks, according to the professor.

Second, company earnings are strong. The S&P 500 just posted its fifth consecutive quarter of double-digit earnings growth, and the last time that happened was 2018. Third, he says, rising gas prices may be affecting big companies and consumer spending less than expected.

In the 70s, spikes in oil prices triggered a recession, but since then, the U.S. economy has grown less dependent on oil, GDP has tripled, and oil consumption has stayed about the same. Moreover, consumer spending now hinges more on the wealthy than the middle class, and high-income consumers are obviously less affected by energy costs. And he says that, and this is important, the top 10 percent of earners account for half of consumer spending, or a third of GDP, and the highest-income quintile spends only 2 percent of their budget on gasoline.

And that's compared with low-income households that spend about 20 percent of their budgets on gas. And finally, says Professor Galloway, and this is, by the way, also valid in other markets, including India, that investors are experiencing a timeline fatigue, something we've referred to here but have not used that term. So the Iran story has produced, as he says, plot points with no resolution, ceasefire, no ceasefire, blockade, no blockade.

Trump says negotiations are going than they don't. At a certain point, he says, investors just give up trying to interpret the headlines. And when they stopped looking at the geopolitics, they looked at the fundamentals.

So, earnings are strong, guidance is strong, Microsoft and Nvidia are trading at some of their lowest forward multiples in years. And suddenly, Professor Galloway says, the math was simple, big tech is executing, multiples are attractive, and let's buy. And back home, the rupee logged its steepest one-day fall in a week on Monday, declining to Rs.

93.12 against the dollar, its steepest fall since April 13, according to Reuters, which also pointed out that overseas investors have already net sold about $20 billion of assets between March and April. All of this is, of course, keeping and putting pressure on the rupee.

The RBI and Rupee Derivatives

Speaking of the rupee, the Reserve Bank of India on Monday rolled back restrictions on certain types of rupee derivatives trades, which it had initiated earlier in April to arrest the currency's slide to successive record lows, according to a Reuters report. As part of its clampdown on arbitrage trades that had accentuated the rupee's volatility, the Reserve Bank of India on the 1st of April barred lenders from offering clients non-deliverable forwards and also barred users from rebooking cancelled forward contracts. It also stopped authorised dealers from entering into any forex derivative contract involving the rupee with their related parties.

Now, the first two restrictions, says Reuters, have been withdrawn entirely, and the central bank has tweaked restrictions on related party deals to allow cancellation and rollover of existing contracts and transactions undertaken with a non-resident entity on a back-to-back basis. Now, all of this, of course, is a rollback, but also an acknowledgement that the markets do need some speculation and speculative activity to maintain balance, and either the Reserve Bank of India knew that it was going to use that as a temporary measure or is responding to criticism of its moves.

Gold

Gold demand during Akshay Tritya, the second biggest gold-buying festival after Dhanteras, stayed muted because of high prices.

On Sunday, jewellers told Reuters the sharp rally in prices curbed jewellery demand, and in volume terms, buying was lower as consumers held back, though in value terms it was higher because obviously the prices are higher. Gold is at about $4,800 right now per ounce, but had hit $5,594 per ounce on the 29th of January this year. So, what can we take away from gold and silver price movements in the last few months, and what can we interpret from those takeaways as we look at markets and prices ahead? Remember, gold and silver have not seen such volatility in recent memory.

I reached out to Amit Goel, co-founder and chief global strategist at Delhi-based Pace360, and also someone who was early to caution against the high valuations in gold and began by asking him how he was seeing the last few months and how he was using those learnings or what he could share from those learnings.

INTERVIEW TRANSCRIPT

Amit Goel: So my understanding is that, and we pretty much had this understanding when the war began and gold prices went up initially, it was our understanding that in this particular round of geopolitical tensions, gold and silver are not going to do well. And the reason was very clear, that the safe haven buying in the world either happens in US dollar or it happens in precious metals. And this time, because of the fact that crude oil and gas prices went up, and euro and pound, and even yen, they weakened when oil and gas prices went up because they are dependent on imports for a large chunk of their gas and oil requirements.

So obviously, dollar went up. And when dollar goes up, there are very little chances that there would be safe haven buying in gold and silver, but that's not the only reason. Another very big reason is that a bubble of monstrous proportions, which is how we choose to define what happened in January.

This was indeed, in my opinion, a bubble of monstrous proportions, which was blown in gold and silver and some other precious metals and some other commodities as well. And we were very clearly of the opinion that this is a once in a multi-decade kind of bubble. And whoever buys at the top of this bubble will have to wait for a very, very long time to see their prices come back.

And we are pretty much of the same opinion now. Though we turned bullish on gold and silver about two, three weeks back because there was just too much of panic a few weeks back. And dollar index is probably not going to go much beyond 101.

And we thought that gold and silver have been literally, silver had come down by 50%. That was, I think, also uncalled for to have happened in just about seven weeks from the peak of the bubble in January. So I think the lessons are very, very clear for any investor that you should not buy any asset class if the price is moving in a bubble-like behaviour, irrespective of what the reason that is being ascribed to that price movement.

That is the single biggest takeaway for every single investor in the world. And I hope that whenever a bubble of this kind of magnitude is blown in any asset class, people would hopefully refrain from buying big on that asset class next time onwards.

Govindraj Ethiraj: You've drawn a link, as most people have, between gold and the dollar or the dollar and gold. And you said that dollar had already reached 101, the dollar index, and therefore the chances of gold appreciating or depreciating further were lower. So is this a correlation that you see continuing in future as well?

Amit Goel: Yes, I do see that correlation continuing in future as well. For example, we were clearly of the opinion a couple of weeks back, and I have personally appeared on multiple media channels in this period, you know, to sort of put forward this view that dollar index is peaking out. And whenever there is a solution to this Iran war situation, then gold and silver will go up.

It sounded pretty paradoxical to a lot of people that why should gold and silver go up when the geopolitics is getting resolved? And why has it gone down when the geopolitical tensions were at their peak? But then this is classic gold and silver.

And we've got data going back to last 30, 40 years, you know, when dollar becomes a very important factor in determining the direction of gold and silver. But I think you cannot just solely depend on this factor alone. For example, between July and October, dollar index was actually not going down so much.

Particularly post-September, dollar index was actually moving up. But yet, gold and silver continue to go up till the third week of October. So these are broad directions, but this is not the only factor.

At what stage we are in the bubble, and what are the economic factors, and what is the overweight age or the underweight age being given to that particular asset class globally by investors and fund managers? So there are a lot of factors. You cannot simplify it to just one factor and just base all your decisions based on that.

But I think you will need to see multiple factors. But at the moment, I am of the opinion that there is a direct correlation, which is inverse in nature between precious metals and dollar. So when dollar index goes up, everything else remaining the same, you should expect gold and silver to go up, and vice versa.

Govindraj Ethiraj: Right. And as you look ahead, what are the factors that you feel will determine prices or demand for gold and silver? And are there similarities with the past?

I mean, for example, central bank buying, or could we see some new forces at play?

Amit Goel: That's a very, very good question, Dhawan. So central bank buying, of course, much has been talked about over the last few years. And we know that the central bank buying, the best years were 2022, 23, and 24.

In 25, we could not manage to go beyond 1,000 tonnes. In fact, we remained short of 1,000 tonnes of central bank buying in gold. And this year also has not started on that greater note, because in the first three months, while some of the central banks like Poland have invested a lot, but at the same time, there have been some central banks like Turkey and Kazakhstan who actually sold some of their gold holdings.

So my sense is that central bank buying is something which everybody watches. In my opinion, that is not going to be that big a factor. It is going to remain a factor, but not maybe as much as what people think it is going to be.

In my opinion, dollar index is one factor. The other factor is the fact whether the world is going into a, whether it's a reflationary world or it's a deflationary world. In my opinion, it is still last stages of a reflationary cycle, which started COVID.

In my opinion, this cycle is very close to peaking out, or it may peak out over the next few months. And after that, my opinion is very, very clear that everything that I've studied in macroeconomics and history over the last, going back and tracing data, going back to last 500 years, tells me that AI is going to be a deflationary factor, like every major technological revolution that has happened in the world in the last 300 years. And because of the excess debt situation, I see a deflationary spiral in the world, starting maybe in the next few months.

And if that were to go in, then gold and silver will go down a lot over the next one, one and a half years. So right now, of course, I am still bullish. I do believe that gold could go up to $5,100, $5,200.

And I do believe that silver could go up to $90, $95, even $100 over the next few months. But beyond that, I think once the world shifts from a reflationary world to a deflationary world, we will see very, very big cuts on gold and silver. And in my opinion, that world could last for about a year and a half to two years before it becomes a deflationary world again.

Govindraj Ethiraj: Right. Amit, thank you so much for that fairly wide view of how prices have moved and the historical-cum-economical impact on both gold and silver. Thank you so much.

Amit Goel: Thank you so much for having me on, Govind. It's always my pleasure.

IFSCA, GIFT-IFSC, AIFs and the RBI

Three years after the framework for setting up family investment funds were introduced by the International Financial Services Centre's authority, or IFSCA, in Gift City near Ahmedabad, a foreign family office has received approval to set up an FIF, according to Reuters. Purnam Asset Management IFSC, with roots in the United Kingdom, has received approval from IFSCA, and this is the first such registration as an FIF under the IFSCA Fund Management Regulations 2025, according to Reuters.

Reuters says that this is noteworthy because this is the first such successful registration after earlier attempts by several Indian family offices. FIFs allow deployment of family wealth in global jurisdictions through fund structures within the Gift IFSC. Meanwhile, the Reserve Bank of India apparently mandated last month that alternative investment funds at the Gift IFSC must be treated as resident Indians when reporting foreign assets.

Now, of course, this sounds unusual for several reasons. In a letter to the Department of Economic Affairs dated 10th April reported by the Mint newspaper, the AIF Chief Financial Officers Association flagged what they called a critical regulatory overlap triggered by the Reserve Bank's mandate for filing foreign liabilities and assets, or FLA returns, saying it conflicts with the specialised status usually granted to funds in the international zone. Now, Gift IFSC is a regulatory zone within Gift City that's treated as a foreign jurisdiction for financial transactions.

The Association asked the Union Government to start a dialogue with the Central Bank and issue a joint clarification circular exempting IFSCA-registered entities from that FLA return rule. I reached out to Dharmesh Trivedi, Promoter and Director of the AIF CFO Association, which has 250 members and represents 125 funds, and began by asking him what the impact and the significance of this move was.

INTERVIEW TRANSCRIPT

Dharmesh Trivedi: In 2022, when ISCA was set up, it was set up as a single unified regulatory authority, which means that all permissions, whether it is RBI, SEBI, etc., everything you need not employ separately, you will have to just apply to one single authority. And for all practical purpose, it will be treated as a foreign jurisdiction, as far as FEMA is concerned. And as far as income tax is concerned, resident individual.

So now suddenly in now in 26, when we say for reporting purpose for foreign investment, why should that be treated as a resident individual, when the government itself has declared that GIFT-CT to be a foreign jurisdiction for the purpose of inbound and outbound investment both. So that is number one. Secondly, the point would be that we are concerned because there could be over-reporting, which means already funds coming into India through GIFT-CT into the domestic funds, the domestic funds are already reporting that in their FLA, because it's coming from a foreign territory.

And if even GIFT-CT funds have to report it, so it will amount to a double reporting. Secondly, some of the funds are directly receiving from outside India, and investing outside India. So if that is also to be reported, now that means you're asking report, even if you had set up in Mauritius or Singapore, you would also have to report that also.

Like now whatever funds are being outside India, which are a foreign jurisdiction, no reporting is being done by any EIF. So these are the two areas where we feel, one being a unified regulator, why should there be a double reporting? Obviously, data that would get fetched up would be double reporting.

So clarity in this respect would be much better highlighted. And funds coming directly from GIFT-CT into the company, the envy form would be filed, which is the company receiving the funds directly, the portfolio company will be able to file the envy. So that is already getting reported.

So get a fund reporting will obviously get connected to a double reporting in that way.

Govindraj Ethiraj: So what's the larger concern here? The physical effort involved in reporting to multiple authorities, or is it the spirit? One, it is the spirit.

Dharmesh Trivedi: And secondly, it will give wrong numbers. So when things are getting double reported, so what will happen is that without any clarity on what should be reported, data would be filled up by randomly between different, because people will speak to the consultant, they will speak to the trustees, etc. Each person will give their different opinions.

So there will not be any uniformity in that.

Govindraj Ethiraj: So can you give us an example, like if you take a $100 million EIF in GIFT-CT, so what could happen?

Dharmesh Trivedi: So supposing from Dubai, if 100 million has come into a GIFT fund setup in GIFT-CT, now GIFT-CT will show that as an inbound investment. Now that 100 million exactly would get again invested into a domestic semi-registered fund, being a master fund over here. Now the master fund also will say, okay, money received from foreigners itself, which is that GIFT-CT fund.

So 200 million will get reported to RBI, which will be an inbound investment. Whereas actually the money that has come in is only 100 million within India. So that is one concern area.

So if clarity is given, okay, either you report at the master level or at the company level down, where the investment has gone, or you report in the EIF level and don't report at the domestic level. Otherwise it will lead to a double reporting.

Govindraj Ethiraj: And what's the spirit here? I mean, the spirit is that obviously when you're in GIFT-CT, it's an international finance centre, and therefore you are being exposed to, yeah.

Dharmesh Trivedi: And secondly, what is happening is that already data for inbound investments and outbound investments are already collected by ISCA on a regular, on the forms, etc. So it will also mean an additional burden on the people to report, etc. Because right now what is happening is ISCA is giving all the reporting formats, collecting all data, etc., publishing on a regular basis as to what are the inbound investments, which funds have come, which funds have set up, etc. So really, we feel there is some clarity is needed that why this data needs to be built up by the EIF set up in the GIFT-CT. For an investor who would say, on one side you are saying foreign jurisdiction, and again, on one side you are saying as a income tax purpose, people are confused, why for income tax also it is treated as a resident one. But that people have accepted because PAN number is not insisted and now returns are not to be filed by the foreign investors.

But if log keeps on changing in terms of consistency, people will be fearing as to why these reporting are happening.

Govindraj Ethiraj: Right. And what are the other sort of longer term concerns about this structure of using GIFT-CT or are there any other longer term concerns, which may be now highlighted because of this?

Dharmesh Trivedi: As it is, GIFT-CT is now very well poised. With Dubai now becoming into a global problem of the geopolitical thing, GIFT-CT can really attract funds to set up over there. In such a scenario, if such stands are taken, and there is a concern around the global investor community, then that would mean that they would again think why India, then they can go to Singapore or any other country where they can set up without any burden of reporting etc.

So, India has to take an advantage right now with the geopolitical situation. So, all funds which were coming now to Dubai can directly come into GIFT-CT from the various jurisdictions. So, investor confidence is of prime importance and we should not allow that to be really concerned about them.

With great efforts, GIFT-CT has really picked up in last 2-3 years. You must have seen that data.

Govindraj Ethiraj: Yeah. There have been some cases about substance. I mean, whether funds which are located in GIFT-CT have the officials sitting there and so on.

I mean, is that an issue at all?

Dharmesh Trivedi: The only issue was over there, the talent. But now I think that is also getting sorted out because they have tied up with many universities. They have tied up with ICI, they have tied up with ICSI.

Exams are also getting conducted. So, talent was an issue initially 1 or 2 years back, but that is getting slowly sorted out. So, people are willing to move etc.

because they are seeing that it is an upcoming territory, much more things to be learned etc. So, people from even Gujarat and Rajasthan and down south from Hyderabad, Bangalore are willing to shift over there right now, which earlier was not there. For an infrastructure, now it is getting created.

So, people were earlier scary as to infrastructure, what will be the infrastructure over there, where will I go to fetch my dairy needs etc. But now with schools and parks coming up, hospitals have already started operational, hotels are available. So, that is not a concern right now.

So, employees shifting, it is going to be individual choice. But the talent issue is really getting solved and with so many courses getting conducted and AI awareness is coming up. So, over the period, that issue will get sorted out.

And they have given much more relaxation now in terms of appointment of the KMP, which was earlier only based on approval. Now, they are saying, okay, you appoint and you intimate to us. So, relaxation in terms of the experience and in terms of both qualification and experience.

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

Dharmesh Trivedi: Thank you.