On Episode 1006 of The Core Report, financial journalist Govindraj Ethiraj talks to Amit Goel, Co-Founder & Chief Global Strategist at PACE 360 as well as Bhavesh Jain, Managing Director & CEO at TransUnion CIBIL.

SHOW NOTES

(00:00) Stories of the Day

(00:50) Why Indian Markets Jumped A 1,000 Points On Thursday

(05:35) Could There Be More Cross Border Energy Deals Between India And The US?

(16:05) How Oil Transport Costs Are Spiking And Now In Focus

(18:33) Direct Tax Collections Are Up, So Are Refunds

(19:39) A Quick Glance At India’s Credit Health With TransUnion CIBIL

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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 Friday the 16th of October and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.

Our top stories and themes…

Why the markets jumped a thousand points on Thursday

Could there be more cross-border energy deals between India and the United States

How oil transport costs are spiking and now in focus

Direct tax collections are up and so are refunds

And a quick glance at India's credit health with TransUnion CIBIL.

Markets, Gold, The Rupee and Oil

Brent crude prices were down slightly on Thursday on reports of likely U.S. moves to ease restrictions on Russia's Shadow Fleet tankers.

Meanwhile, fresh attacks on ships in the Middle East and Ukrainian strikes on Russian energy infrastructure kept the pressure up on prices and despite that, the benchmark, which is Brent crude, lost a little more than a dollar to about $104.90 or under $105 on Thursday morning. More on oil shortly but the lower prices did help Indian equity benchmarks post their biggest single-day gain in four months on Thursday. The larger theme was a prospect of India regaining some global shine even as global AI-linked stocks took a beating and more on that shortly, foreign portfolio investors have yanked out about $32 billion of equities this year, which is also making it the worst for the benchmark Nifty 50 since 2011.

The benchmark up sharply today as we said, the Sensex rose about 1,533 points to close at 74,315 and the Nifty 50 was up 374 points to close at 22,997. In the broader markets, the Nifty mid-cap and small-cap fell 0.36 and 1.31% each. IT results continue to be strong, at least in rupee terms.

TechMahindra announced a 32% increase in net profits and a 15% increase in revenue, including an interim dividend and a 1-1 bonus issue, while Wipro announced a 1.4% drop in net profits, though revenue was up 9%. This is all Q2 results and broadly better than what analysts were expecting. Reliance Industries' Jio platform's IPO is fairly valued, leaving room for a listing day pop, analysts told Reuters, with future gains linked to the company's ability to monetise its large telecom customer-based digital and AI services.

Jio is a part of Reliance Industries and is seeking a valuation of about $108 billion from its roughly $3.2 billion IPO, which will be India's biggest as it stands. The share sale will open on the 21st of October and will start trading on the 28th of October. The offer is expected to be priced between Rs 1,065 and Rs 1,119 per share.

The rupees strengthened for the fourth straight session on Thursday, thanks to a broadly weaker dollar, lower oil prices and a rise in stock prices, and a possible Reserve Bank of India intervention ending at Rs 95.05 according to Reuters, which added that the rupee has now risen about 2% this week after coming close to record low levels last week. India has used up about half of more than the $140 billion it mobilised through various measures, including the foreign currency non-resident scheme, to boost its forex war chest, according to economists and forex traders from six banks who spoke to Reuters. Elsewhere, gold prices were up on Thursday as the dollar and U.S. treasury yields remained under pressure.

Spot gold was up about 1.3% to $4,156 per ounce, Reuters reported. Elsewhere, there are fresh jitters about AI stocks, which of course is helping Indian stocks right now. Strong results from major AI firms are failing to lift investor spirits, The Wall Street Journal pointed out on Thursday, adding that Anthropx revenue grew strongly in the third quarter and TSMC, which is the largest contract chip maker, saw another record profit, even saying that there was no ceiling for its profitability.

Despite all of that, Nasdaq 100 futures were down on Thursday and stock prices of cloud computing company Coreweave, which has borrowed heavily to finance data centre buildouts, was falling further on Thursday after falling about 15% on Wednesday. In Asia, on Thursday, South Korea's Kospi index was down 7%, Japan's Nikkei was down about 5%. Broadly, treasury yields are falling back after the tech sell-off triggered a flight to safer assets, reversing an initial jump on the back of a hot September inflation report on Wednesday, according to The Wall Street Journal.

Memory chip stocks have taken a particularly bad beating this week, CNBC pointed out, adding that two concerns are adding to the pressure. The debate over whether Chinese competition is threatening memory incumbents and speculation about when the market could become oversupplied. SK hynix has fallen 26% in the last five days, Samsung 22% and Micron 11%.

It must be noted, of course, that we've seen similar falls and then subsequent rises too. And we've gone through a few rounds now of AI jitters and then not AI jitters. Back home, India's banking system deposits have hit a record high of about 284,000 crore rupees, which is about roughly $3 trillion.

In the second half of September, data from the Reserve Bank quoted by Reuters said deposits rose by about 21,000 crore rupees in the first six months of the financial year, with most of the increase between June and August, when the Reserve Bank's discounted swap window to attract dollar inflows was in place.

More Cross Border Energy Deals Between India And The US?

US Secretary of State Marco Rubio is expected to meet Reliance Industries Chairman Mukesh Ambani next week, underscoring Washington's engagement with the conglomerate, This, of course, comes in the backdrop of Elon Musk's recent public trolling of the Ambani's on X, suggesting the latter was blocking Starlink's entry into India. Rubio will travel to Jamnagar in Gujarat, where Reliance's refineries are located, and presumably meet with them there.

Reliance runs two refineries with a capacity of around 35 million tonnes, roughly half for the domestic market and the other half for international markets including Europe and US, which is also tagged as a special economic zone. Is Rubio looking for more petroleum product from Reliance or more investments into the US? Additionally, remember, diesel prices in the US are at record highs and the US is cowering the world to source additional diesel, including, of course, striking controversial deal with Vladimir Putin of Russia to source diesel from Russia. Earlier, President Donald Trump had announced that Reliance Industries is backing America First $300 billion Texas oil refinery project, which was touted as the first new refinery in 50 years, located at Brownsville Port with 164,000 barrels per day capacity, processing US shale oil exclusively under a 20-year fuel purchase agreement with Reliance.

Now, that project has been under a cloud of sorts with a lot of questions about its specific size and dimensions, which have not been answered. Nevertheless, energy is going to be a key discussion point, one way or the other, in this meeting next week. I spoke with Amit Goel, co-founder and chief global strategist at Pace360, a portfolio and alternate investment fund manager based out of Delhi who also tracks commodities closely.

I began by asking him about India's overall refining capacity and status and then asked him about Reliance.

INTERVIEW TRANSCRIPT

Amit Goel: India's total refining capacity as on date is somewhere between 5.4 to 5.5 million barrels per day and out of that our domestic consumption is about 4.6, 4.7 million barrels per day. So which leaves only about 0.7, 0.8 kind of a number million barrels per day as an export surplus. We also incidentally import some refining products but those are not middle distillates.

We import LPG and all, some lubricants. So that is about 0.8 million barrels per day. But then that is an altogether separate category and the Indian refiners usually want to refine crude oil into petrol and diesel and of course jet fuel because these three products give them the maximum refining margins and profits.

So it is only when LPG supply is inhibited like it was for some time and in a way it still is, then the government of India sort of asks them to produce more LPG. But most of the refining capacity is basically for petrol, diesel, ATF and you can say kerosene.

Govindraj Ethiraj: Right. So now we are seeing a lot of geopolitical shifts happening right now. We saw the U.S. trying to sign up with Russia for diesel imports and obviously India is already exporting diesel and jet fuel to Europe and maybe some countries in Southeast Asia. So what's your sense on how this could go and could Indian refiners benefit from this in terms of present or future opportunities?

Amit Goel: So Indian refiners are benefiting from this. The GRMs have gone up, Govind. So the Singapore GRM margin right now is about five and a half to six dollars a barrel and you'll be surprised that in U.S. that number can be 30 to 40 dollars a barrel which is just absolutely crazy. So if the Indian market were not as tightly controlled and regulated, my suspicion is that the refining margins in India may also have been higher, but they are broadly kept in check by the government as well. And of course, as far as the export is concerned, the margins are better because most of the exports go to Europe. And in Europe, the prices of petrol and diesel are significantly higher because their own refineries are not able to source enough crude to be able to run at higher capacities.

And plus their running costs are also more. So because of that, the overall margins are pretty high. And if I, let's say, talk about industry leader Reliance Industries, for example.

So Reliance is about 25 percent of the total refining capacity in India and their EBITDAs are right now on the O2C business. Their EBITDA upon sales is one of the highest in last many, many years, at least the last four, five years. And this is in spite of the fact that petrochemical margins are exceptionally low right now.

So had it not been for the petrochemical drag on the overall O2C business, the refining business on a standalone basis is just doing extremely well, not just for Reliance, but for all the other refiners in India. And which is why we have noticed that many of the homegrown refiners, which are only refiners like MRPL and Chennai Petro and the like, they have done extremely well. Their stocks have literally gone up by like 50, 60, 70 percent in the last few months.

Govindraj Ethiraj: And if you look at Reliance, for example, and since you mentioned it, and they also have a large or a good part of their capacity, which is aimed only for exports since it's a special economic zone. And there are other manufacturing, oil manufacturing companies who are obviously more inward facing, oil marketing companies whose output is more inward facing. What's your sense on how a company like Reliance could use this phase to improve their own realisations or improve their long-term contracts?

Amit Goel: So first, Govind, all refineries in India are operating at 100 percent or more capacity utilisation. So a Reliance refinery is built in a way that they can sometimes go even as high as 115, 120 percent. So it's a very, very efficient refinery and it was built to take in a high sulphur crude and the heaviest crude possible and still deliver the products as per the specifications.

So because of which they have traditionally enjoyed a higher margin than what just the GRMs will suggest. The O2C business had an EBITDA of about 17,000 crores in the previous quarter, which was one of the highest figures ever in terms of O2C. And that is in spite of the drag of the petrochemical business, which is, of course, not doing well at all.

There is huge overcapacity there. So I think what they are effectively what they are doing is that they are by running at higher capacity, particularly on the export side, they are trying to export as much as possible. Of course, this is a regulated and a controlled sector.

So considering that we have pretty high domestic requirements and it would not be easy to import petrol or diesel by anyone right now because of the huge shipping problems that you have. So to transport one barrel of crude oil, for example, right now the shipping cost is $24 a barrel, which used to be like $1 a barrel, $1.5. So obviously the logistic costs are so high that you cannot be importing and exporting at the same time because everything will basically go to the shipping company and nothing will come to you. But they are operating at higher capacity to export as much as possible where they are getting better realisations.

The realisations are actually better overseas than they are in India. So this is what they are trying to do.

Govindraj Ethiraj: Right. As you look ahead, where do you see all of this settle down? So a lot of the capacity that was built in India was really built to meet domestic demand except for Reliance where let's say half of its capacity was always meant for export.

But do you see the need for more capacity? Do you see that we need to think differently in the way we are expanding our refining output?

Amit Goel: So Govind, it's probably to set up a greenfield refinery at this stage, we are probably late in the game because it would take nothing less than seven to eight years, you know, to get the first drop of petrol diesel out. And you know that there is an energy transition in place which has actually been expedited by the Gulf crisis and the state of Abu's problem. So my sense is that nobody is going to be putting up a huge refinery starting from scratch right now.

But there is an opportunity, for example, in buying the refineries in Europe, for example, in many cases because of fact that their refining margins are actually the lowest in the world right now. So while US is operating at $30 a barrel, especially the ones on the Gulf coast, many refineries in Europe are working at like $2 to $3. So because of that, they are hardly able to break even.

But still, I think it might be a better idea to acquire some existing refineries in parts of the world where 1 million barrels a day is going to cost you something like $40 to $50 billion. So obviously, I think there is an opportunity to acquire some refineries in troubled parts of the world. And this is based on the assumption that the current wars will not go on forever.

And Russia, Ukraine will probably settle down. And even the Iran war at some stage is going to settle down. So vis-a-vis the rest of the world, the European refineries will start doing better.

Of course, I'm talking about the larger and the integrated ones. The smaller ones and the standalone ones are not so viable. So I think the opportunity clearly lies in buying some existing refineries in troubled parts of the world, including West Asia and Europe.

You cannot buy anything reasonable in US. You cannot buy anything reasonable in India today. So I guess that's where the opportunity lies.

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

Amit Goel: Thank you so much for reaching out. And it's always a pleasure to speak to you, Govind.

Govindraj Ethiraj: Likewise.

How Oil Transport Costs Are Spiking And Now In Focus

While oil prices are still reigning high, the focus has shifted to shipping costs. Reuters quoted the example of an oil supertanker sailing from the United States to Japan in late November with about 2 million barrels of crude.

The journey will cost $81 million as opposed to $9 million last year on average. That shipping cost translates to about $40 per barrel, which is about 9 times last year's rate. Freight rates are now more than 40% of the price of US oil, based on Wednesday's price of $95 per barrel, that's West Texas Intermediate, compared with 7% on average in 2025, according to LECG shipping and oil price data quoted by Reuters.

Analysts said that countries reliant on imports, including India, the Philippines and Indonesia, bear the brunt of these soaring costs and record oil tanker rates are already squeezing Asian refiners' profits, according to the International Energy Agency, which put out its comment on Wednesday. Meanwhile, oil giant Saudi Aramco's headquarters in Tehran in Saudi Arabia suffered extensive damage following that attack by Houthi rebels on Tuesday, with fires spreading across several floors, Reuters reported. The roughly $105 billion Saudi Aramco is the world's largest oil producer and the world's most profitable company.

Meanwhile, the first phase of a India-US trade deal is in the final stages of drafting, India's trade minister said on Thursday, and also said that India would only proceed if it secures an advantage over competing exporters. It's going through the final contours, the legal drafting, and we hope to be able to finalise that soon and operationalise that once we get comparable advantage or competitive advantage over our peer countries, the statement from the office of India's trade minister Piyush Goyal said. Now, of course, that does not mean there's been any specific progress because we have heard similar statements earlier too.

So best is to wait and watch.

Widening Of India's Merchandise Trade Deficit

Sticking to trade, India's merchandise trade deficit widened to $30 billion in September as the rise in imports outpaced that in exports, though a rise in outbound shipments and trade deals could narrow the balance in coming months, a Reuters report said. Merchandise exports were at $44 billion in September from $43.8 billion.

In the previous month, imports rose to $74.6 billion from $70.6 billion. India's trade secretary told media that export growth was broad-based, reflecting strength across sectors including petroleum products, and that comes back to where we were earlier, meat, dairy, poultry, electronic goods, handicrafts, and engineering goods.

Direct Tax Collections Are Up, So Are Refunds

The country's net direct tax collections have risen about 13% as of October 14, thanks to strong corporate tax receipts and a sharp increase in securities transaction tax.

Even as refunds accelerated, according to provisional data released by the Income Tax Department, gross direct tax collections were up about 15%, refunds increased 24%. Corporate tax collections were strong with gross collections rising 17%, with net collections rising 20%. Non-corporate tax collection, which is mostly personal income tax, grew at a slower pace as refunds increased, according to a report compiled by Business Standard.

Non-corporate tax accounted for roughly half of gross direct tax collections, marginally higher than corporate tax's share of 47%, and securities transaction tax and other taxes accounted for the remaining share. A note from Grant Thornton Barrett said the sharp increase in refunds had impacted net collection growth. It is also indicative of a more efficient refund processing by the tax administration, particularly in the case of non-corporate taxpayers.

A Quick Glance At India’s Credit Health

A new report looking at auto loans from individual rating agency TransUnion CIBIL has pointed out that the average passenger vehicle loan size in India has risen almost 50% to Rs 8.2 lakhs, and an average tenure has risen to 62 months. Moreover, the report says that premiumization is moving beyond metros, with 51% of higher-value car loan borrowers now coming from semi-urban and rural India. Two-wheeler loans are no longer just first credit products, with 42% of borrowers now having more than two years of credit history.

And interestingly, vehicle loans are becoming part of a longer credit journey. Young and Bharat borrowers, as TransUnion CIBIL says, continue to anchor two-wheeler finance, with 64% of borrowers from semi-urban and rural geographies, and 43% aged 30 years or younger. Non-bank finance companies are key and important to vehicle finance.

They account for 73% of two-wheeler loans and 37% of passenger vehicle loans. I spoke with Bhavesh Jain, Managing Director and CEO of TransUnion CIBIL, and I began by asking him to tell us about the overall credit health of Indian borrowers at this moment.

INTERVIEW TRANSCRIPT

Bhavesh Jain: The macro credit market right now looks healthy. The retail credit delinquency for most of the retail products is at a decade low, and it has consistently reduced over multiple quarters across secured, unsecured, and even for MSME, the portfolio quality has improved considerably. In fact, for retail, it has come down to as low as 1.3 odd percent. For MSMEs, it's in the range of 1.7 odd percent. So the portfolio quality has improved considerably, and it is diversified across semi-urban and rural locations, as well as what we see is an emerging trend of consumers going for gold loans. So last two years, gold loan continues to be the fastest-growing credit product in the country.

Govindraj Ethiraj: Okay, you said that we are at a 10-year low. So what's the key driver for that or set of drivers that have brought us to these levels of delinquencies?

Bhavesh Jain: So multiple factors. One is obviously the policy intervention. Second is all the credit institutions tightening their underwriting norms, their processes, policies, all of them.

Third is also the availability of fresher data. Today, a lender is able to see a borrower's information which is as fresh as a week. So you know the borrower's information at the best possible freshness or frequency.

And a very interesting aspect is also the awareness level among the consumers on maintaining a good credit history. And why I'm saying is that today, a large percentage of the consumers do self-monitoring, which means that they want to know how to manage credit, and they are ensuring they are paying on time. You can have the best risk management frameworks, you can have the best data, but what if the consumers decide still not to give it?

So I would also give credit to the consumer along with all the other aspects of the whole, I would say, credit growth and portfolio quality improvement. Right.

Govindraj Ethiraj: And on an approximate basis, if you were to look at the total loan book for retail or MSME 10 years ago to today, what would be the difference in quantum?

Bhavesh Jain: So let me in fact take a bigger period, is that 25 years, and there is a reason I'm talking about 25 years, because that's where the private banks got licences and actually started the journey. 25 years back, the credit market was 4 lakh crore, now it's 308 lakh crore. So 75x growth in the credit market over the last 25 years, with a delinquency of 1.3% on the retail side, which would be on par with most of the developed countries, and better than most of the emerging economies. And that applies to retail and MSMEs, if we have that? Yes. Why I'm calling out retail specifically because it's a very diversified, I would say, customer base.

Govindraj Ethiraj: Okay, so let me come to auto. So the average passenger vehicle loan size has gone up to 8.2 lakh rupees, and the tenure has also increased to about five years. So what does that mean?

And what is the time period that we're looking at? When I say time period, I mean, since when to when have we seen this transition?

Bhavesh Jain: So from pre-COVID to post-COVID, say 2019 to 2026. So the passenger vehicle market have gone through a few changes. One is the underlying asset cost has gone up, which we all know, the cars have become a higher price point.

But at the same time, the preferences of consumers moving from entry-level cars to entry-level SUVs and feature it. So the preferences along with the increase in the prices have made sure that the ticket size goes up. Second is that 90% of the vehicles actually are financed today, which means that the private mobility in India now is actually credit enabled.

And when you say 95%, you mean both four and two wheelers? No, so 90% is four wheelers and 60% is two wheelers. And I'll talk about a few aspects around the four wheeler and then talk about the two wheeler.

Four wheeler, another interesting aspect is that the delinquencies have gone down to as low as 0.5%. Okay. So the average delinquency of the retail trade market is 1.3% and auto loan specifically is 0.5%. Okay. Another interesting aspect is that majority of the auto loan growth have happened in the semi-urban and rural locations.

So I'm saying that what we are seeing is that the youngsters are going for the first car, but they are credit established borrowers. They already have one of the consumption loan, which is a consumer durable credit card personal loan, and then they are coming on to auto loan. And after taking an auto loan, they are going again for one of the consumption lane products, which is credit card personal loan or two wheeler.

So the preferences are very clear. And also that one out of the two auto loan customer has a consumption loan, which is one of the three products, which is credit card, consumer durable or personal loan. And after a consumer spends five to seven years or more, they then move to their second car loan.

So there is a, I would say if the Gen Z and the millennials go for the first car, I would say relatively older millennials would go for the second car after they have, I would say done with their first purchase on the auto loan site. So that's a brief on the auto side going. And there are some interesting aspects around two wheeler and the correlation between two wheeler and auto.

Two wheeler growth has been actually higher than auto over last seven years from the pre COVID to the current time. And what's interesting is that six out of the 10 two wheeler loans have happened in semi urban and rural locations, which is a very interesting data point as well as also what's happening is that in terms of the first product, again, two wheeler, six out of the 10 are credit established borrowers. At pre COVID time, the new to credit customers is to come to two wheelers.

Now that largely comes from consumer durable and two wheelers have a 60% proportion of established to credit borrowers. And same way, two wheeler delinquencies have gone down considerably. It's at 1.4%, which is very similar to the overall retail credit market delinquency of 1.3%. So and the ticket size have gone up because the two wheeler prices have gone up largely.

Govindraj Ethiraj: If you were to take a slightly, maybe 10,000 feet view between let's say a car which is being swapped or flipped after maybe five or six years, and other purchases, including let's say mobile phones or other things. What's the credit view of average Indian customer looking like at any point of time?

Bhavesh Jain: I would say the velocity of Indians changing phone is higher than vehicles for various reasons because of the usage and the model upgrades and the ticket sizes. So that's consumer durable or phone is higher. But the vehicle loan or the four wheeler specifically, it's after only five, five and a half years, because that's the average tenure, which you have seen 62 months for the auto loan for two wheeler.

Interestingly is that the two wheeler after taking the two wheeler, especially in the metro and urban locations, may not immediately go for another two wheeler. Actually goes for either a phone loan or a personal loan or a credit card. Why I'm highlighting is that because the product preferences are changing a bit in two wheeler, where the growth is coming for two wheeler in semi urban and rural customers.

But the credit activity is coming in two wheeler from the metro and urban customer. So there's a bit of divergence in terms of the consumer preferences of two wheeler customers in rural and urban locations. And at the same time, a very small proportion of the two wheeler customer actually migrate to auto loan.

So we see two wheeler customer moving to consumption loan, auto loan customer still going for the second auto after five, seven years. And auto loan does also have a good proportion, like one in two has consumption loan. And there is a small percentage of customers who migrate from auto to home loan as well.

Govindraj Ethiraj: At what point do you typically see the home loan acquisition starting or acquisition of homes and therefore home loan starting? At any point of time for particularly sub 30 years, usually people having three loans running at the same time or two loans or how is it from your vantage point?

Bhavesh Jain: So go and let's break it into different age groups. Okay. So 60% of the customers who take two wheeler are less than 35 years.

Okay, that's very much in line with the average age of India. Auto first time buyer would be in their 30s. The second time auto buyer is in their mid or late 30s.

But interestingly, the average age of mortgages is 42 years. Okay, which means that the consumer is pacing things in terms of link to the ticket sizes. So it's a combination of the age and the ticket sizes, where the consumer is pacing and scheduling their lifestyle decisions, if I may say.

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

Bhavesh Jain: Thank you so much.