On Episode 953 of The Core Report, financial journalist Govindraj Ethiraj talks to Dr Kishore Jayaraman, OBE, Group CEO at UK India Business Council as well as Abhishek Bisen, Head of Fixed Income at Kotak Mutual Fund.

SHOW NOTES

(00:00) Stories of the Day

(01:14) Why Indian Markets Are Drifting Down

(04:46) The Govt Steps Up Incentives For Piped Natural Gas Consumers

(07:06) Global Bond Markets Are Extremely Volatile, What That Means For India

(16:36) Why The US Is Still The Most Resilient Export Market For India

(17:09) A Month On, How Is The India-UK FTA Shaping Up And Early Signs

Sign up for our Daily Newsletter: https://www.thecoredaily.in/

EVENT: Spotify x The Core's "Building Wealth for a Longer Life" with Saurabh Mukherjea of Marcellus Investment Managers. Register Here

—

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 20th of August and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.

Our top stories and themes…

Why Indian markets are still drifting down

The government steps up incentives for piped natural gas consumers

global bond markets are extremely volatile and what that means for India

Why the US is the most resilient export market yet for India

And a month on how is the India-UK free trade agreement shaping up and early signs that we can take away.

Markets, Oil and FPIs

It's bittersweet news on the markets. India has replaced Indonesia as Asia's least preferred stock market in a survey of fund managers by Bank of America, suggesting increased caution towards a market that's already rated as one of the world's worst performers this year. The lack of a clear AI exposure remains the key concern for Indian equities with weak growth emerging as the next most important risk, according to the survey, showed that 32% of respondents were net underweight on India.

Lack of reforms and high valuations also emerged as reasons for the bearish outlook on the fourth largest equity market, according to reports from different wire agencies. In contrast, sentiment improved for Indonesia with 27% of fund managers saying they were net underweight on the market compared with 32% in July. So that is where India is now at 32%.

Taiwan and Japan remained investors most preferred regions. A total of 98 panellists with 272 billion dollars of assets responded to the survey's questions between August 7th and August 13th. And that of course gives you a sense, but on the other hand, we have been seeing somewhat positive inflows though yet muted.

And we're talking about foreign portfolio investors. Meanwhile, Reuters quoted Abacus investment managers saying that while robust profit growth for India's nifty 50 companies has brightened the outlook for domestic markets, local risk aversion and a strong IPO pipeline could temper a broader rally in the near term. You may recall us talking about the day before that NSC or the National Stock Exchange's IPO could be valued at about 55 billion dollars or over 500,000 crore rupees, which could also make it the largest IPO.

The benchmark nifty 50 and Sensex are down about 7.9 and 9.8% year to date, and there have been about 25 billion dollars in foreign outflows. Peers like South Korea and Taiwan are up about 50% each in the same time. And of course, these markets have very few stocks and it's those few stocks which tend to sway the benchmark indices.

Now, Abacus, which manages about 5.2 billion dollars of assets, sees elevated crude prices, rising global yields and volatility in the AI trade as key external risks for Indian equities. The head of equities of alternates at Abacus AMC told Reuters on Wednesday that domestically, consumer demand and corporate profitability is strong as seen in the better than expected Q1 results. But globally, they are not.

They do feel that after a weak first half, India should perform emerging markets and Asian peers relatively even as the overhang from global risk sentiment with crude and the AI trade are set to continue. They also estimate that 40 to 50 percent of capital may therefore be absorbed by IPOs and offer for sales, restricting a broader market rally. On Wednesday, oil prices were at a three-week high as uncertainty over shipping routes through the state of Hormuz and supply disruptions continue to affect the outlook for oil.

Brent crude futures were at about $91.79, so just under $92 a barrel. And Brent crude hit its highest level since July 30th. And Indian markets, of course, continue to be weighed down by those higher oil prices, which usually tend to send the benchmark indices down.

The Sensex and Nifty fell for another day, the Sensex falling for the fourth straight day as it fell about 325 points to close at 76,909. The Nifty 50 fell about 76 points and fell for the seventh straight session. In the broader markets, the Nifty mid-cap and small-cap were down 0.2 and 0.5 percent each.

The government’s Continued PNG push

The government has announced a new incentive scheme starting next month, wherein city gas distribution companies will get an additional 200 standard cubic metres of cheaper domestically produced gas for every household that they connect to, which starts using and paying for piped natural gas, according to a Reuters report. The scheme will incentivise city gas distributors to turn unused pipe connections into active paying customers and extend the pipeline network to reach new households, according to the Ministry of Petroleum and Natural Gas. India is the world's second largest liquefied petroleum gas importer and has been attempting to speed up the shift to piped gas in a bid to cut down imports of liquefied petroleum gas or LPG and spending on subsidies, according to the Reuters report.

Now, LNG, which goes into piped natural gas, comes from oil fields, while LPG is produced in refineries as a refining byproduct of crude oil processing. The government also said that the extra gas will help reduce overall gas sourcing costs and also help distributors recoup their investments in new connections in about three years, down from roughly 10 right now. So, India has about 17 million domestic piped natural gas connections, according to the government, and that compares to about 331 million active household LPG customers as of July 1st.

Active LPG customers obviously source their supplies in the form of gas cylinders, which are transported in and around the country. India meets about 60% of its LPG through imports and shipped in about 22 million tonnes of LPG in 2025, mostly from the Middle East, according to the Reuters report.

Government Borrowing Costs are Going Up

A sell-off in global bonds is driving up borrowing costs for governments, businesses, and families across the developed world, and bond yields are now at 19-year highs, and investors are blaming the rout on everything from the continuing U.S.-Iran conflict, which has led to inflation worries to a deluge of tech company bonds who are trying to debt fund cash, according to the Wall Street Journal. Yields on government bonds, which rise when bond prices fall, have reached multi-year highs in recent days, with a 30-year U.S. Treasury bond touching 5.3% for the first time since 2007.

And the 10-year yield, which is the main benchmark for borrowing costs, has also come to its highest level since early 2025. So far, the Wall Street Journal report says the sell-off has been limited to bonds. Stocks are hovering near record highs, and corporate earnings are still strong, signs that higher interest rate payments are not affecting economic growth.

Still, a sustained move higher in yields will have consequences well beyond Wall Street, says the report, and one of the most direct victims is the government itself, which will be forced to pay higher interest rates on its rising pile of debt as older bonds mature and are replaced by new ones. The markets are also anxious about budget deficits and a lack of clarity from the Federal Reserve Chairman, according to the report. Most analysts also seem to concur that none of these conditions are likely going away soon, and what's more, many feel that there's something larger driving the sell-off, the economy's resilience in the face of interest rates that were once considered high enough to slow growth significantly, the Wall Street Journal said, adding that if the 2008-09 financial crisis ushered in an era of ultra-low interest rates, then the current market conditions might mark a return to the way things were before that downturn.

Now, in the U.S. again, even before the run-up this year, interest on debt was consuming a bigger slice of the government's budget. Now, nearly one in five dollars of revenue goes to interest rate payments, according to the Wall Street Journal. So, if you are tracking those figures, in the last 50 years, federal interest rate costs were at about 2.1 percent of GDP.

That could hit about 3.3 percent this year, on its way to 4.6 percent in 2036, according to the Congressional Budget Office. Publicly held U.S. debt is now at about 100 percent of GDP, nearing records set after World War II, according to the report, and that debt load makes the U.S. more sensitive to rate moves. A mere 0.1 percentage point rate move above forecasts in all rates would add about 379 billion dollars in net interest expenses, according to the Congressional Budget Office.

So, how do we, or can we, view this from an India lens, and what it means for global flows that may or may not touch India? I reached out to Abhishek Bisen, head of fixed income at Kotak Mutual Fund, and I began by asking him how he was reading these latest developments.

INTERVIEW TRANSCRIPT

Abhishek Bisen: See, as far as India is concerned, when you start pricing a risk, effectively bond markets are pricing a risk, right? So there are two parts to it. One is the global context, another is the local context.

So if you observe carefully in terms of local context, we are fairly placed and fairly priced. In fact, somewhat cheaper at certain parts in corporate bonds and government bonds, etc. The yields are fairly attractive.

But the moment you connect the cord with the global context, suddenly you find that the risks are not probably priced in the way it could be, given what is happening into the global markets. So what is happening in the global markets? Global markets are pricing in significant amount of macro disturbances, which are caused by potential conflict in the West Asia or general economic issues, which the government is facing higher debt and so on and so forth.

Inflation, which has been slightly stickier, central banks have got it wrong a few times in terms of understanding how and what and why, and so on. Markets have started effectively pricing in a fair amount of higher amount of risk, which is there, which is not getting priced in the bond yields. So they started demanding a fairly high amount of premia in absolute yields, and in the term premia as well.

If you look at the 10 year yield in the US, which is trading at around 470, which is a fairly high from a historical perspective. But the 30 year is trading at almost close to 530. So which is a good, if I round it about 60 basis point, steeper or a higher term premia.

So what exactly it is saying? It is saying that even 10 years down the line, the yields or the repo rate is likely to remain elevated for a fair amount of period of time. Understanding the kind of risk it is pricing is significantly higher.

Govindraj Ethiraj: What is the significance of that? I mean, before we come to India, then, what does this mean for the way capital is flowing around the world right now?

Abhishek Bisen: Yeah. So effectively it says that these damages, which has been done so far by higher debt and undertone inflation, which is looking like more structural and probably taking more time. Such episodes are going to get repeated in future.

Therefore, we need a higher term premia and the government is effectively paying somewhat testifying that probably, yes, you may be justified in asking such kind of higher term premia. And it is despite the fact that the significant amount of borrowing is in treasury bills. Had it been in the data and government securities, probably this premia would have been much, much higher.

Govindraj Ethiraj: And to come to India now, you said that, I mean, right now and this other analysts have been pointing out as well, that we are somewhat disconnected from this phenomenon, but at what point could things connect and could there be other, let's say tangential impacts?

Abhishek Bisen: Yeah. So see, typically these things are connected from a currency rule. We have already seen significant amount of pressures emerging into the INR.

And if we look at purely from currency point of view, I think we have priced in reasonable amount of, we can say bearishness or risk the way you want to look at it. We have priced in, if you look at the currency from a relative peer side basis, it is pricing in the required risk and it is relatively cheaper from a historical perspective. But the same thing is not yet reflected in the bond just from probably the participation of the FPIs is not significant, is very minimal.

So had it been a significantly higher weightage, somewhat like Indonesia or any other emerging markets, probably things would have been much different. Since we are just beginning and they are just taking exposure. So probably it'll probably take some amount of time, but the government and the regulators are playing this equation fairly safe.

Therefore, these volatilities is not yet impacted Indian bond markets.

Govindraj Ethiraj: Right. I mean, we've now seen the closure of the FCNR scheme as of the end of this month, and obviously we've had very good flows there. Are you seeing any impact of that on or what's your sense of that on liquidity and so on?

Abhishek Bisen: This was a fairly good move while not touching any monetary measures. They took this FCNR route to address the currency and BOP related issues. Prematurely closing doesn't have any meaningful impact or doesn't have an impact at all because you were anticipating around $75 billion, give or take 10 billion here and there.

The same amount would have come in by September is likely to come in by month end. So in a way it is a good news. Participation is fairly robust.

Demand is fairly good. So nothing negative just because it is getting closed. But having said that, I also want to put it here very clearly that the underlying issue needs to get resolved before we call it that, this has been a success.

Because unless and until we solve the underlying issues from an FPI, FDI perspective, we are likely to be in a tough spot sometime down the line because we are a trade deficit country and large amount of goes towards gold and some other non-productive assets, which creates problem in times like these when the FDI and FPI are not coming in. And if you look at services exports also, that is also not growing. So that makes the equation even more trickier.

So either you maintain your trade balance at the trade level itself, curtail it, which economy like India will find it difficult to maintain because we are 140 billion people and consumption driven economy and manufacturing will not pick up so soon. Therefore, we need to take certain measures, which kickstart the FDI and FPI process and some good amount of flows come in from that side. Unless and until that happens, it will be difficult for the central banks to manage this equation in a short span of time.

Govindraj Ethiraj: How is your, or rather what is your sort of more near-term outlook on the fixed income side back home?

Abhishek Bisen: Near-term outlook is fairly okay. Corporate bond spreads are decent. As I said, domestic risks are fairly priced in terms of rate hike, etc.

If you look at the curve is pricing in more than 50 basis points, somewhere 75 basis points as well. So more than that, we do not anticipate also too likely to get delivered. From that perspective, we have fairly priced people who can't take volatility advice to stay at the shorter end, which is decent in absolute sense.

But at the same time, longer end is also attractive, as I explained it to the steep curve, etc. Therefore, something what we know as barbell strategy, some at the short, some at the long, remain at a mid duration kind of strategy, not going extreme here or long or short, is likely to deliver results in 6 to 12 months. By the time we have clarity on the work and what is happening to the crude oil prices, and how are we going to shape up in a trade and BOP, then probably we can take a final call on long term rates.

Govindraj Ethiraj: All right, Abhishek, thank you so much for joining me.

Abhishek Bisen: Thank you.

U.S. Treasury ramps up buybacks

The U.S. Treasury, unexpectedly, on Wednesday, announced it's ramping up buybacks of long-dated government debt, taking the action in the wake of yields on such securities hitting the highest in years, according to Bloomberg. Just two weeks after releasing its planned schedule for buybacks this quarter, the Treasury Department on Wednesday said it's increasing by at least double the size of liquidity support buyback operations for securities dated from the 10- to 30-year sector.

Yields on the longest bond dropped nearly 10 basis points to 5.18 percent, again going back from their highest level since 2007.

Updates on the India-UK FTA

India's shares of exports to the United States remain largely unchanged despite a year of President Donald Trump's punitive tariffs and India's efforts to diversify its trade, including with a set of new free trade agreements with other countries.

An analysis of trade ministry data for the last 12 months through July by Bloomberg says the U.S. continues to account for about 20 percent of India's exports.

Now, in this period, as we know, Trump has put tariffs as high as 50 percent on Indian goods at one point, effectively an embargo, before dropping it to 18 percent in February this year, and now there is a 10 percent tariff rate thanks to the U.S. Supreme Court. Now, exporters, including the many we've been speaking to, have been exploring newer markets to reduce risk, but clearly the U.S. share has remained steady, highlighting the challenges of switching to other markets or the ability of other markets to absorb Indian exports and thus away from the U.S. market. It will take two to three years for market diversification to show meaningful results, according to the head of the Federation of Indian Export Organisations, who spoke to Bloomberg, adding that the share of exports to the U.S. has grown from about 17 and a half percent three years ago to about 20 percent now.

India has also broadly maintained its share of exports to other major markets, according to that same 12-month data. In the past year, India has inked a trade deal with the United Kingdom, which took effect in July, as well as agreements with the European Union, Oman, and New Zealand. And that brings us to the U.K.-India Free Trade Agreement, earlier known as the Comprehensive Economic and Trade Agreement, or CETA, pitched by both countries as one of the biggest trade deals of modern times.

It's now around 30 days since the FTA kicked in from 15 July 2026. As a backgrounder, U.K. and India total trade was worth about 48 billion pounds in 2025, and 99 percent of Indian goods entering the U.K. and 90 percent of U.K. goods entering India are either duty-free or reduced in tariffs. Many sectors were expected to benefit, including automotive manufacturing, consumer goods, creative industries, and medical technology.

In the long run, the deal was expected to boost bilateral trade by about 25 billion pounds, Indian GDP by about 5 billion pounds, and U.K. GDP by about 4.8 billion pounds, according to a from the U.K. government. So, it is indeed early days, but where do we stand now and what are the early signs? I reached out to Kishore Jayaraman, Group CEO of the U.K.-India Business Council, who took over last year after a long stint heading Rolls-Royce Engines and G-Energies India operations. I began by asking him what the early signs were looking like.

INTERVIEW TRANSCRIPT

Dr. Kishore Jayaraman: One of the things of this EIF happening is, first of all, it's a clarion call for the two countries to enhance the trade and economy. As we know that the EIF was a strong message saying that, look, we are now in business. So when the FTA happened last year or the CETA happened last year, everybody was wondering, okay, we got a year to go, so let's all, you know, see, wait and watch and see what's going to happen.

But with the EIF happening, I think it's all coming to full flow. The first steps in the full flow is that, look, the interest level that I've seen of businesses both UK side as well as India side has been extremely high. You know, everybody I talk to knows about the FTA or the CETA.

They basically say that, look, we would like to see what are our opportunities here. And most interestingly, if I look at the SMEs, and the small also, I have not seen much of an attraction yet, but the medium enterprises, I think, you know, they are really looking at what can be done more for them to become an export-orientated organisation. So the questions have varied from saying, look, can UK IBC go in there and do business development for us?

Can UK IBC go in there and help us with, you know, what sort of help can you provide us in the UK? This is from the Indian companies and the UK companies are saying, okay, so now that this is coming to effect, what is it that we tried to do before that worked or did not work? And what is it we need to do more to get in line with India, right?

And I think the other part of the things is larger scale, large banks like HSBC, Standard Chartered, Barclays, as well as some of the finance organisations, investment companies, they're all looking at India saying they've been doing things in India. So what does this really mean for UK and India trade and economy, which is a very interesting way to look at things because now they are saying, here is what stopped me from doing more before. And I stopped doing things because, you know, okay, there was really no motivation for me to do more.

The governments were not engaged. Now with the CETA coming to effect, they're all saying that, well, the governments are now engaged. So what is it that I need to raise to the government in order to enable a level playing field?

So I see these kinds of activities happening in small, medium and the large enterprises.

Govindraj Ethiraj: Right. Any sectors that stand out or verticals that stand out from either side? I've had a lot of interactions with the financial services sector.

Dr. Kishore Jayaraman: I wouldn't say services, all forms of financial sort of development of digital tools to capability enhancement to GCCs. I've seen a lot of movement in that space, people asking questions in that space. The other one is on the tech and digital side as to see how the collaborations can increase.

Interestingly, aerospace and defence has gone into a different momentum curve. And if you look at the recent announcement by Rolls Royce and Reliance, it is a co-creation project that was in the anvil as to how to do it, how to partner, where to partner for well over a decade now. And I think you look at what's happening, it is a first step in the right direction for Reliance as well as Rolls Royce to enable the Indian Combat Engine Programme.

Govindraj Ethiraj: So would you say the Reliance-Rolls Royce partnership is the first sort of major outcome of this FTA? I wouldn't say it is an outcome of the FTA or the CETA.

Dr. Kishore Jayaraman: It has been in the works for quite some time. It is a very major step in the right direction for both nations.

Govindraj Ethiraj: Right. And as you look ahead, what are the newer areas apart from aerospace and defence that you mentioned where you feel the reduced trade barriers on both sides could actually spur trade or spur more imports or exports as the case might be? I think there are spaces that have not been totally explored.

Dr. Kishore Jayaraman: I mean, the capital goods segment, it comes to machinery, automation, manufacturing, plant processing, etc. And food and beverage is another sector that will benefit a lot from this CETA agreement. Agricultural sort of innovations on both sides will be very useful.

I think the education sector will get into a revamp mode on both sides. Leave alone the services business. I think the services business has been doing well, but I think services will also be enhanced with the FTA.

What is most important, what people are looking for, in my view, is the ease of doing business. So what does it really mean to ease of doing business? And I think that is the implementation piece of the CETA.

The second part is, how do I come into India? And with the first part of ease of doing business, how does it make me establish myself in India easier? And these are the areas that UK IBC is focused on.

And what we're doing right now is basically looking at the last mile connectivity and saying that if it is a medium or a small enterprise in the UK, how do we provide them a launchpad in India? For Indian companies, they're also looking and saying, what is it I need to do in order to get my business going in the UK? And we are trying to figure out what is that bridge that we've got to establish for them or a reverse launchpad from India to the UK.

So I believe there is a lot of conversations going on in the implementation of the FTA. And there's also a lot of conversation going on about what does it really mean? So we have enabled that to start with the implementation manual, which UK worked with DGFT in partnership with HSBC.

It's a beginning. It's a living, breathing document that shall allow companies to understand the CETA in its full details, ask the right questions, and grow their businesses.

Govindraj Ethiraj: Right. As you look ahead, what are some of the challenges or unfinished agenda, if so? For example, in many of these cases, or at least some of these cases, the tariff barriers will still take time to come down.

So there is a path to it. What else, apart from that, needs to be done or could be addressed? It may fall outside the FTA and may form part of the regular UK IBC agenda as well.

Dr. Kishore Jayaraman: Now, I think the most important thing is, look, there is a euphoria about the whole FTA being signed right now. And it's a major accomplishment for both nations. And I think that euphoria is only going to be continuing on based on the implementation of this particular agreement.

And the implementation of this agreement is only going happen through communications and the support of the governments in eliminating the challenges and the barriers that will come up. There are plenty, like the rules of origin, people need to understand it very clearly. They still need to understand what are the regulations and the rules of operating businesses in either of these locations.

What are the taxes, especially the tax implications, the financial side of the business is something everybody would be very keen to understand and sort of remove the obstacles going forward. But there is going to be more challenges coming up. There's going to be more obstacles coming up.

But with the CETA agreement in play, at least the intent is very clear that we want to enhance the trade. I am very, very hopeful that, you know, as we go forward, this is going to sort of allow us to think about these challenges and eliminate them as we move forward through the CETA agreement implementation.

Govindraj Ethiraj: Right. So for Indian businesses who are looking at the UK and a lot of business owners and leaders listen to us, what would you say are the areas that they could look at in terms of exploration, in terms of conversations, outreach and so on?

Dr. Kishore Jayaraman: Education is a major piece of things. I think both nations will benefit in terms of the collaborations in the education space, whether it be research partnerships, whether it be faculty partnerships, whether it be student enablement, mobility. I think there'll be a lot of work that will happen in the years to come.

And I think when we look at the tech and digital space, there'll be a lot more coming out. I think there's a lot of capability opportunities from the UK needs. They have the creativity and they've come up with products and technologies that are very beneficial for both countries.

India has the capability and the capacity and bridging these three C's would actually help both nations. And creativity on the Indian side and the digital payments, I think India is way ahead of every nation in the world in terms of digital payments. And I think implementing those mechanisms into the rest of the world will only enable the world to be more productive.

And then the third piece I would say is on the financial services area, investments on both sides. How do we make investments on the Indian state side and in the region side in the UK? It is not about Delhi versus London or Mumbai versus London.

I think there's more to India than Delhi and Mumbai and there's more to the UK than London. So I think there's a lot of interest from the regions in order to build the regions. And we are working very closely with the regions to bring a delegation here, hopefully very soon.

And if that happens, then I think it'd be a major step in the right direction of mapping sectors to the different regions in the UK to the different states in India.

Govindraj Ethiraj: Right. That's very useful. Kishore, thank you so much for joining me.

Dr. Kishore Jayaraman: Very good. Thank you very much for the opportunity.

An Experimental mRNA-based vaccine for cancer

An experimental mRNA-based vaccine succeeded in preventing cancer from coming back or spreading of high-risk melanoma patients, according to Moderna and its partner Merck, on Wednesday, thus paving the way for a potentially new life-extending treatment for thousands of people diagnosed with that deadly skin cancer each year, according to the Wall Street Journal. The study looked at people who had surgery to remove a melanoma. The point of the treatment was to reduce the risk of it coming back.

The company said the late-stage study, which tested the personalised cancer vaccine in Tismarin in combination with Merck's blockbuster cancer immunotherapy Keytruda, met its main goal of extending the time before cancer returns in high-risk patients and also met the secondary goal of preventing the disease from spreading to different organs. A vice president of oncology at Merck said that, I have a feeling that this is just the beginning of a new field, adding the goal is for patients to give them longer without having to worry about treatments for cancer. Moderna shares were up 60% in early trading on Wednesday and Merck's stock was up 7.3%. The companies did not provide specific details of how long patients taking the combination drug lived without their cancer progressing or how long they lived on average.

More details are expected in a medical conference later this year, according to that Wall Street Journal report.