Trade Chaos Sweeps The World But India Is Shielded For Now
Trade chaos reigned on Friday across the world, notably in Europe which responded with shock and horror to the new 15% uniform tariff
On Episode 806 of The Core Report, financial journalist Govindraj Ethiraj talks to Jairaj Purandare, Founder Chairman of JMP Advisors.
SHOW NOTES
(00:00) Stories of the Day
(01:00) Trade chaos sweeps the world but India is shielded for now
(04:35) More MNCs capitalise on India valuation premiums with listings, mostly with secondary sales leading to capital repatriation
(07:05) Did tax and other savings from last year go into speculation?
(07:41) A new French-India tax treaty could lead to some disappointments among large investors
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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 Tuesday the 24th of February and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.
Our top stories and teams
Trade chaos sweeps the world after the new 15% tariff regime in the United States but India is shielded for the moment.
More multinationals are capitalising on India valuation premiums with potential listings mostly with secondary scales leading to capital flight.
Did tax and other savings from last year go into speculation in derivatives?
A new French-India tax treaty could lead to some disappointments among some large investors.
Markets
Trade chaos reigned on Friday across the world, notably in Europe which responded with shock and horror to the new 15% uniform tariff regime that America is trying to put on now all countries. Europe had just one question, what happens to our deals that we struck earlier? Remember, no deal like in the case of India is just about tariffs, there are all kinds of inclusions and exclusions.
Trump's move came after the US Supreme Court on Friday struck down his global tariff policy implemented last spring that had upset the long-standing global trading order. He initially announced a new universal 10% levy using a different legal framework for the data tariffs and then increased it quickly to 15%, the legal maximum which can be in place for 150 days before congressional approval is required in the United States. CNBC reported officials in Europe and London expressing alarm and consternation at the latest upheaval in global trade relations saying Trump's new tariff policy could append trade deals signed with the United States last year.
They also asked for more clarity from the White House as to what the new tariff policy framework means in practise for their respective trade deals which saw most EU exports to the states hit with a 15% duty and those from the UK at a 10%. Not surprisingly, Wall Street futures were down on Monday, Dow Jones was down so was S&P 500 and Nasdaq futures. Gold prices were up as the new tariffs quite evidently heightened market uncertainty about inflation and global growth.
Spot gold was up more than 1%. CNBC reported adding that oil prices were down with Brent crude futures going down to $71.37 and Bitcoin was also down at one point going below $65,000 before recovering to $66,000. Back home, the Indian benchmark indices were up for the second session thanks to PSU Bank and healthcare stocks amongst others.
As we pointed out yesterday, India does stand to broadly benefit from the current round of tariff announcements and it was quite expected that Monday would be an optimistic start to the week. Whether that will continue or not depends on what we will see overnight. This is, after all, an equalisation of sorts with other countries who are also exporting products as similar to India to the United States.
So the Sensex was up 479 points to 83,294. The Nifty 50 was up 141 points to 25,713. The broader markets were mixed.
The Nifty mid-cap was down 0.4% and the NSE small cap was up 0.3%. Indian IT stocks continue to be downgraded by brokerages and investors as AI fears refuse to go away. As many as six IT majors, including TCS Exaware, Emphasis, LTI, Mindtree, HCL Tech, and Infosys have been downgraded by Jefferies, the stock brokerage firm, on Monday with their respective price targets being cut by up to 33%, along with a cut to their earnings per share estimates by anywhere between 1% to 4%, according to several reports. Jefferies wrote in a note that according to reports said that AI may structurally change the business mix of IT services companies towards consulting and implementation while shrinking the portion of managed services.
This would therefore not only increase the cyclicality, but also require a change in talent and operating models, thereby adding to the risks. It also said that despite these stocks falling up to 16% on a year-to-date basis, there was still a higher downside potential compared to upside.
MNCs
Elsewhere, more fresh multinationals are listing in India or hope to list equally as secondary sales, or rather with secondary sales, which means capital will transfer from Indian investors to the parent companies of these multinationals overseas. Bloomberg is reporting that brewing company Carlsberg has begun preparations for a potential listing of its India unit that could raise as much as $700 million and a draft red herring prospectus could be filed as early as May. The offering is expected to consist of a secondary share sale by the parent company and other details including size could change.
Other multinationals who have done or followed a similar path, which is driven by higher local valuations compared to their parents, include Hyundai Motor, LG Electronics, and Carrero India, all of which have listed in the last two years in India. Hyundai Motor trades at 11 times estimated earnings for this year, that's the parent, compared to about 32 times for its India unit, according to Bloomberg data. Elsewhere, the Reserve Bank has said it's sticking to its guns on rules for bank financing of proprietary traders and brokers, the governor said on Monday, that's the governor of the Reserve Bank.
In rules released earlier this month, the Reserve Bank raised the collateral requirements for bank guarantees to brokers and barred lending for proprietary trading by them. All of these changes will kick in on the 1st of April. Shares of stockbroking firms had fallen last week on concerns these rules would impact brokers' profit margins and reduce trading volumes, and brokers had sought a review.
Bloomberg, in a more lengthy official report, captured official fear that in a sharp downturn, losses could spill beyond trading accounts into household budgets amplified by credit lines and unsecured personal loans. Household debt stood at about 41% of GDP as of March 31, 2025, according to Reserve Bank data. Nearly a quarter of household financial assets are now held in stocks and mutual funds in India, according to data.
So the government, via the regulators, is going after the leverage that fuelled some of this explosive growth in the derivatives market, where average daily notional turnover had touched $5.2 trillion by the end of last year. Retail traders lost about $33 billion in derivatives in the four years through March 25, Bloomberg quoted a SEBI study of the Securities and Exchange Board of India study saying. And here is something I'm sort of encountering for the first time.
Bloomberg is additionally reporting that finance ministry officials have fielded complaints from families nursing losses and are concerned that some of last year's tax breaks and welfare aid may have been used for speculative trades.
Impact of Trump’s New Tariffs
So what's the impact of the new 15% tariff going to be on India? Well, we don't know, except that negotiations that were to be starting this week have been pushed for now. That's with the United States and between the trade representatives on both sides.
Finance Minister Nirmala Sitharaman Monday said it was too soon to comment. And on the trade, particularly aside from the Indian economy in general, the Commerce Ministry, she said, is reviewing the situation. The delegation will have to take a call on when they're going to go for further negotiations, so it's a bit early.
India and France Revise Tax Treaty
India has revised its three-decade-old tax treaty with France, which will help major French companies save millions of dollars in dividend levies, while it also broadens India's powers to tax certain transactions. Reuters reported the finance ministry saying on Monday, under the new rules, French companies holding at least 10% in an Indian entity will pay a 5% tax on dividends, which is down from 10% earlier. For minority French shareholdings of under 10% in Indian companies, however, dividend tax will rise from 10% to 15%.
All of this could have implications for large French portfolio investors, as well as companies like Capgemini, Accor, Sanofi, Pernod Ricard, Danone, and L'Oreal, all of whom have large presence and have expanded in India in recent years. The revised pact, and this is the interesting part, also gives India the right to tax capital gains and impose tax on any French entity's share sale, even when it holds less than 10% of an Indian company. This, the Reuters report says, could impact France-based foreign portfolio investors that owned about $21 billion worth of shares in Indian companies as of January 2026.
It also scraps the so-called most favoured nation MFN clause following a landmark Indian Supreme Court decision in late 2023 that led to disagreements on how to interpret the clause. So, while this announcement pertains to tax relations between India and France, what are the larger ramifications going beyond these two countries and for the overall comfort when it comes to international investors investing in India, whether direct or the portfolio route? I reached out to Jayraj Purandre, Chairman of JMP Tax Advisors based out of Mumbai, and I began by asking him how he was reading the latest agreement and what implications it had from a broader tax perspective.
INTERVIEW TRANSCRIPT
Govindraj Ethiraj: Jairaj, thank you so much for joining me today. So, I'm picking up on the recent development of India amending tax treaty with France and also cutting the dividend tax for larger or major investors. So, this is a three decade or 30 year old tax treaty and which should help presumably all sides.
So, what have you understood from it?
Jairaj Purandare: During the visit of President Macron, India did amend the India-France double tax avoidance agreement. So, they have issued a protocol, signed a protocol which amends the treaty in respect of four or five key amendments. While we haven't actually seen the text of the treaty, a press note has been put out, a press release has been issued by the CBDD.
So, the four or five key changes that are proposed are, one, that earlier there was no capital gains tax if the shareholding by a French company in an Indian company was less than 10 percent. They have now amended this to say that if any French company owned any number of shares of an Indian company, the resultant capital gains will be taxable in India. We'll come to the implications later.
The second change relates to the MFN clause, the most favoured nations clause, which basically says that if after the signing of the French treaty way back in 92, if there are other treaties signed with OECD member countries, then if there are beneficial clauses in those treaties, the same benefits should be given to a French company as well. Now, there is a Nestle's case which Nestle lost because of certain notification not having been made. But what they've done now is they've removed and done away with the MFN clause, but have actually brought in the definition into the treaty itself of what is the meaning of fees for technical services.
And the change they have made is to update it along with other treaties that India has with countries like US, UK, to say that FTS or FIS, fees for the included services, are taxable in India only if the services make available the knowledge to an Indian company. So this is a favourable change for taxpayers from France that in many cases, they will not be now taxable as fees for included services in India. They've also brought in the concept of a service fee, which was not there previously in the India-France treaty, which means that if there are people coming in from France and working in India, then subject to conditions, they could be taxed in India, that French company could be taxed in India because of a service fee being caused in India.
As you rightly noted, they've also changed the dividend taxation, they've brought in now 5% and 15%. So 5% if it's less than 10% and more than 10% and you know, otherwise 15% for any, all of the cases. So all these changes have been made.
They've also updated the exchange of information article, you know, and broadened it to include collection of taxes and so on. What this really means is that India in all its treaties is now receiving information from other countries on a regular basis every year at least. So very little place to hide for taxpayers who want to avoid paying tax on perhaps assets which they have not declared or are outside India, etc.
So this just strengthens all of those procedures, makes it far more transparent. But overall, they've updated the tax treaty to more current treaties that India has with other countries.
Govindraj Ethiraj: Right, you mentioned other countries. So what does this mean in contrast to other countries? I mean, if let's say foreign portfolio investors domiciled in another country in Europe or somewhere else in the world, are they better off or are they not better off compared to this?
Jairaj Purandare: So you know, most other countries the you know, holding by that country's company into an Indian company shares would typically be taxable in India for the capital gains that they made. France had a very good clause for French companies. And this was used by typically by FPIs and FIIs in the past after Mauritius treaty got amended effective 1st April 2017.
And when you know, Mauritian companies became liable to pay tax. So French companies provided they held shares less than 10% of an Indian company, which many FIIs, FPIs would do. Then if they sold the shares, there was no capital gains tax liability.
That has now changed. Effectively, any shareholding in an Indian company could result in a capital gains tax, which would be taxable in India. So in that sense, it would certainly have an adverse impact for FPIs who are investing through France into India.
So that would be somewhat of a backward step, Jayraj? Yes, from a taxpayer's point of view, it seems that India wants to tax FPIs, their capital gains, which is a big discussion going on for a long time, whether we should be taxing FPIs who make capital gains from sale in India or not. It looks like India wants to tax it, although many other countries don't.
So this could obviously have an effect on investments coming into the country. And we've been seeing in the last few months that lots of FPIs have pulled out from the capital markets in India for a bunch of reasons, not just the tax reason, but maybe tax reason too, a whole lot of other reasons. Although the treaty press release does talk of boosting investments into India, by the way.
Govindraj Ethiraj: So what is the net impact of this? And what does this say in terms of where we are vis-a-vis taxed FPIs in general and investors comfort with them?
Jairaj Purandare: So I think the main thing is that India seems to be upgrading its treaties, but upgrading them and trying to make them consistent throughout. The view that seems to be emerging is that if there is a sale of shares of an Indian company, those capital gains should be taxed in India, even if they're by an FPI or by a more prominent investor, FDI, if I may call it. So it looks like India is heading in that direction.
I'm not sure that's the best because I think India certainly needs a lot of capital currently. Look at the plans we have to make investments and capital investments are going to be scarce. So I would have thought that the country would want to do everything it can to invite more and more foreign capital into the country, whether by way of FDI or FPI.
This change doesn't quite seem to be in that direction. The other changes in terms of FDIs and FIS are good, I think, because all technical services will now not be taxed in India unless they make available that knowledge and capability.
Govindraj Ethiraj: So at this point of time, was France the only country with that exception for taxation not happening in India?
Jairaj Purandare: It's not that there are no other countries, there are a few, but I think if I remember right from the European, UK, Europe side of things, probably the only one.
Govindraj Ethiraj: Last question. So if we've done this with France, if you were to follow the path of reasoning or the path of thought in the way the tax law is being applied or sought to be applied, do you see any other changes coming whether in the context of Europe, France or anywhere else?
Jairaj Purandare: Well, India seems to be negotiating, I think, more from a position of power in more recent times. I think, believe they have better negotiating capabilities. So it's quite possible that treaties which have clauses, which may provide that country's companies benefits, and those benefits are inconsistent with what the Indian government or the Indian tax authorities want to see, then we might see a few other treaties being amended as well.
Govindraj Ethiraj: Right, Jairaj Thank you so much for joining me.
Jairaj Purandare: Thank you, Govind.
