On Episode 1004 of The Core Report, financial journalist Govindraj Ethiraj talks to Madan Sabnavis, Chief Economist at Bank of Baroda Research as well as Amir Durrani, President Global Application, Business Process Services and Data practice at NTT DATA Inc.

SHOW NOTES

(00:00) Stories of the Day

(00:50) Why IT Stocks Are Bouncing Back

(01:32) Talk Of A Revisit Of Capital Gains Tax Rates On Investors Boosts Markets Again

(06:03) What Could The Future Indian IT Services Companies Look Like?

(14:36) What The Nobel Prize For Economics For This Year Recognises And What Does It Mean From An India Lens

(23:09) Anthropic Says AI Is Months Away From Replicating Across Home Devices

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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 Wednesday, the 14th of October and this is Govindraj Ethiraj, broadcasting and streaming weekdays from Mumbai, India's financial capital.

Our top stories and themes

Why IT stocks are bouncing back

Talks of revisit of capital gains tax on investors, boost markets again

What the Nobel Prize for Economics for this year recognises and what it means from an India lens

What could the future Indian IT company look like, and Anthropic says AI is months away from replicating across home devices.

Markets, Capital Gains Tax, IT Stocks and The Rupee

IT stocks have recovered from a seeming slumber and are headed for their biggest jump in 17 months as the markets were treated to a fresh rotation out of AI trades elsewhere in Asia. The NSE Nifty index was up close to 5% with HCL tech and data consultancy leading the show.

Korea's chip-heavy Kospi index fell more than 5% after Broadcom Inc's chief executive likened the sentiment around AI investing to betting in a casino, a Bloomberg report said, which also quoted a portfolio manager at Samsung Asset Management, saying that Indian IT stocks now pick up whenever there is a slump in the AI trade, but that alone is not enough and there needs to be sustained pickup in earnings and share prices for foreign investors to return, he said. Elsewhere, a comment by Finance Minister Nirmala Sitharaman at the Bloomberg New Economy Forum in Delhi, where she said that she would be keen to hear market participants' views on long-term capital gains tax and securities transaction tax, calling such debates healthy, sent up stocks in Monday's trade. Now, the statement is in no way a suggestion that the government is doing anything on these taxes, except that it's listening patiently to the many appeals that have surely been coming its way in recent months, if not years.

What the government did do on Tuesday was to postpone a tax or merchant fee on small transactions through the banking system or UPI payments, and we will come to that, though the move or the likely move to postpone had been reported by many a day or two ago. Oil prices fell on Tuesday as traders weighed the supply risks from a tax on Saudi Arabia and additional diesel supplies from Russia into the United States. Brent crude futures were down to about $105 a barrel on Tuesday morning.

With all this in the backdrop, the Sensex was up 1,109 points to 73,033 and the Nifty 50 was up 358 points to 22,721 on Tuesday. The big gainers in the Nifty 50 were HCL Tech, Tata Consultancy, and Sriram Finance. In the broader markets, the Nifty mid-cap and small-cap were up 1% and 0.1%. Each coming back to IT stocks, HCL Tech was up about 8% on Tuesday, on track for its best day since April 25 after stronger-than-expected margins, robust deal wins, and growing AI revenue helped offset concerns about weaker software revenue numbers, according to Reuters.

The results renewed optimism in India's $315 billion IT services sector, Reuters reported after adding that market leader TCS and India's largest IT services company also saw its stock price rise last week after it reported higher share of AI revenue. So the conclusion for now seems to be that larger outsourcing companies are managing the shift to AI better than expected, maintaining profitability even as they build new AI-driven revenue streams, and more on that in a bit. Finance Minister Nirmala Sitharaman on Tuesday also said that the central bank, that's the Reserve Bank of India, would continue to take steps to prevent excessive volatility in the rupee, attributing much of the currency's recent weakness to global factors.

Speaking at the same forum, that's the Bloomberg New Economy Forum, she acknowledged the extent of the rupee's depreciation over the past year and said that it has been significant and most of it was due to challenges. She said the Reserve Bank's focus was on limiting excessive fluctuations in the rupee rather than keeping the currency at a particular level and referring to the rupee's depreciation over the past 18 to 24 months. She also pointed to the country's strong foreign exchange reserves and economic fundamentals as factors supporting the country's stability.

Meanwhile, the global AI boom is benefiting India as well. The strong demand for AI has bolstered growth in China, India and other Asian countries and outpaced the overall growth in global trade. The International Monetary Fund's new chief economist Silvana Tenreiro said on Tuesday, global trade would have grown at a far slower rate without the AI boost, she told reporters at the annual meetings of the IMF and World Bank in Bangkok, Thailand.

Updates on the MDR on UPI

The National Payments Corporation of India has deferred the levy of a merchant discount rate or MDR on some UPI transactions until after Diwali, which is next month, just two days before it was due to take effect and said the new date would be notified separately. Now, the fee had come in for strong pushback, particularly from traders and small businesses who are also an important constituent for the government. The levy was originally scheduled to kick in on the 15th of October and it's a fee paid by a merchant to the bank and payment company who processes the digital transaction.

The MDR would have applied to UPI transactions made to merchants above 2000 rupees, it was set at 0.4% and capped at 300 rupees and some categories including bill payments, fuel and education would have attracted a flat fee of 5 rupees. Reuters reported that retail trade associations had called for a no UPI day on the 2nd of October to protest the proposed fee but withdrew the protest after meeting the finance minister last month. UPI recorded a record average of about 802 million transactions a day in September with an average daily transaction value of about 97,000 crore rupees.

Transaction volumes had risen about 22% from a year earlier in September and value of transactions had increased about 18%.

What Could The Future Indian IT Services Companies Look Like?

Back to IT services, while IT stocks appear to be benefiting from a rotational move out of AI and also a rising acknowledgement that their role as AI implementers or integrators is somewhat secure, what or how could markets perceive Indian IT services companies in coming days? I got a sense last week when I spoke to NTT data on how IT services ecosystems are increasingly seeing competition from multiple angles and companies who were at different starting points. As a backdrop, the 30 billion dollar NTT data is the world's third largest data centre provider and it operates about 160 data centres in more than 20 countries and regions including of course in India.

But NTT data which was set up in May 1988 as a subsidiary of Nippon, Telegraph and Telephone Corporation in Japan also offers consulting and industry solutions and thus competes with Indian IT services companies in consulting, systems integration, cloud migration, application development, data analytics and essentially what is known as full-stack capabilities. Now all of this is of course not new. NTT data already has some 40,000 people in India and continues to expand.

I spoke with Amir Durrani, the Boston-based president global application business process services and data practises at NTT data and I began by asking him of course about the AI applications and AI expansions.

INTERVIEW TRANSCRIPT

Amir Durrani: As you probably know, we invest over $3.5 billion a year in innovation. And over the last 18, 24 months, right, a lot of that innovation is being directed towards AI and how AI can enable our clients to be successful in their business and make an impact in their business. So if you look at all our service lines today, including, you know, applications, BPS, and data, you know, they're all native AI driven now, right?

So they have been rebuilt, grounds up around native AI. Offerings are based on outcomes rather than FTE-based. And then also, you know, more importantly, the focus is more and more around, you know, how we evolve a client's environment, client's business, and lead them to a better outcome.

Govindraj Ethiraj: Right. So at one level, there is obviously a lot of investment happening in data centres, including in India and including by you, that's NTT data, and you've both invested and acquired in countries like India. And you're also investing around the core data centres, which you just talked about. So tell us about how this investment is shaping up as in data centres.

One of the reasons they exist or will exist is to serve AI. And what you're talking about obviously is making the data centres themselves more efficient to serve what clients work by using AI. So how is this whole thing evolving?

Amir Durrani: So over the last few years, right, NTT has invested over $3 billion in India. Part of it or majority of it is around the data centres. And we plan to invest another, you know, billion and a half or so over the next couple of years in India.

So India continues to be a strategic location for us, not only in terms of an offshore centre, which obviously it is, but more importantly, from the local market perspective, right? For us, the local market is growing, and we are very much focused in developing the local market. Now, specifically around data centres, as you also know, the demand for data centres is skyrocketing because of the consumption of AI.

And our global data centre business, right, has never seen the growth that we are seeing today. You know, Doug Adams, who runs that business for us, as he would say, you know, before he even starts digging, right, the data centre is sold. So, you know, it's a good business to be in.

So we are one of the few companies going where, if you look at our portfolio, right, we have a combination of IT services and this global data centre services, right? So IT services obviously includes applications, BPS, data, you know, cloud and security. But then when you look at the data centre business, right, so that includes data centres, marine cables, fibre optics.

So that's a part of the business that also drive our global P&L, right, which is very unique in the market today, right? And so if anytime we have to balance the portfolio based on, you know, the market conditions, right, we have the leverage to move our portfolio or our focus from one to another in order to address the market chain, right? So that's our full-stack play.

So you probably have heard about that. NTT is the only full-stack player in the market today. And when I say full-stack, it's exactly, that's what I mean, where we have the capability to build data centres, to deploy fibre optics, marine cables, and all the way to high-end, you know, business consulting.

Govindraj Ethiraj: And if I look at the Indian companies, since I'm sitting here, companies like TCS have announced their data centre investments. Others are looking at that. So IT services companies are now investing in data centres.

And what you're saying is NTT is offering similarly, but you've come the other way. You've started with data centres and then gone on to IT services. So is this where, or is this the future of the consulting plus services stack plus infrastructure looking like?

Amir Durrani: So Govind, we are the third largest data centre organisation in the world and number one in India, I believe. And that is very deliberate. It's not by chance.

So that, you know, what we are seeing in the market today, the full-stack play that we bring to the table, which includes, you know, development of data centres, management of data centres, et cetera, all the way to consulting, it is clearly creating a unique proposition for us in the market. In the sense where the clients are looking first to create the funding that they need to transform. And that funding generally comes from the run business.

So, you know, a lot of these clients, they have data centres, which might be legacy. We are one of the few companies in the world that has the capability to transform those assets and be able to provide that cost benefit to the clients, which they use in turn to, you know, transform their business. And so it's a full cycle, right?

We are the partners generally to help them transform also as we help them extract the savings from their business.

Govindraj Ethiraj: And what are the kind of areas or potential partners that you're looking at in your role as heading business process services and data practise?

Amir Durrani: So all the big players in the industry today, they are our strategic partners. So all the hyperscalers, whether you look at AWS, Google, Microsoft, you know, we are the fastest growing partner for Microsoft. Then also on the data side, you know, you have the Databricks, you have the Snowflakes, you know, on the AI, OpenAI, Anthropic.

So these are all our strategic clients. You know, we continue to strengthen our partnership with them. And obviously, one of the main reasons why the hyperscalers, for example, are very much interested with NTT is because of the full stack play that I just mentioned, right?

Because as soon as you talk about data centres, the hyperscalers become really, really interested. Right.

Govindraj Ethiraj: And as you look ahead from where we are right now, this is more of a global question as well. How are you seeing the growth of data centres in terms of, we've obviously seen a lot of announcements, but we are also seeing some resistance in different parts of the world, and maybe some calibration of how these investments will play out. But what's your sense as from someone within the industry?

Amir Durrani: As the demand for AI increases, we continue to see a demand for the data centres also. I think that demand will continue. As I said, our global data centre business is thriving.

We have not seen growth rates like what we have in the past. You know, there are some challenges right now in countries like, for example, US and somewhere in Europe also where, you know, there are concerns about water consumption and all. But the good thing about us is that we have a global footprint again, right?

So we can provide the global data centres capabilities across the globe. And it becomes even more important going when we talk about sovereign, right? Because the whole concept of sovereign data centres, sovereign data is becoming more and more critical.

And, you know, having that capability across the globe, again, makes us uniquely qualified to address those needs in the market.

Govindraj Ethiraj: Right. That's a good note to end on. Amir, thank you so much for joining me.

Amir Durrani: Thank you, Govind.

What The Nobel Prize For Economics For This Year Recognises

Yesterday we spoke about how U.S. academics Robert Hall and Michael Woodford won the 2026 Nobel economics prize for decades of work developing ground-up models currently used by central banks and finance ministries across the world to stabilise economies. One key insight from their work is that economies could only be kept on an even keel by taking into account the millions of decisions made at a micro level by households and businesses rather than by using top-down theories of how economies work.

Woodford had said at a news conference reported by Reuters that authorities should not view stabilisation of the economy as an exercise that's simply conducted by people pulling levers to control the economy independently of what people in the economy understand about this. In contrast to the oil shocks of the 1970s when central banks struggled to combat sky-high inflation, Woodford said the new framework was useful during the global financial crisis of the late 2000s to bolster traditional tools of monetary policy. I spoke with Madan Sabnavis, chief economist of Bank of Baroda and I asked him to walk us through the importance of the work that these economists had done for which they received the prize and also to analyse their work through an India lens.

INTERVIEW TRANSCRIPT

Madan Sabnavis: So actually if you look at work which Hall and Woodford have done, for which they have been given this particular award, it revolves around how do you actually get hold of macroeconomic stability. So you know what we do is that it's more a case of reviving the Keynesian principle of saying that economies are to be guided by the government in different forms. When Keynes had come up with the theory, he had spoke about how you do so with lower interest rates and higher government spending.

Now that particular theory was sort of discarded in the 1970s when we had the oil crisis where there was high unemployment and inflation. At that point of time the government spent money but it actually led to hyperinflation. So then Keynesian economics was sort of kept to the side and was spread out that the markets should actually provide solutions.

Now what Hall and Woodford actually argue is that markets do not self-correct. It is necessary for governments and central banks to intervene and the way they put it forward is that the current situation is not as important as the expectations of the future. So the way they have modelled it is that they use the micro underpinnings to explain the macro phenomenon which means that you're seeing how individuals like households decide on their spending decisions not based on the current income but on their future flow of income.

So this is where actually they tell that during the Lehman crisis when you had a problem, people were not really worried about the current income but they were saying that okay I'm not going to get an income tomorrow so therefore I will cut back my spending and that led to certain kinds of problems. Similarly when you're talking of firms who are taking certain pricing decisions, they take their decisions based on what they expect in the next maybe three to six months and that's how they set their prices. So these are actually micro issues of firms and households which you aggregate becomes the macro picture and this particular macro picture is something which requires intervention from the government and or something.

They spoke of authorities which refer to both governments through fiscal policy and central banks for monetary policy. So when you're looking at the Lehman crisis that's something that they have actually spoken of in their work. They said that that kind of situation had called for certain special steps to be taken because the interest rates have come down to zero, you can't go to negative.

So therefore there was this whole case of quantitative easing which came through and that was how the economies were stabilised and they got back from the effect.

Govindraj Ethiraj: Right and how would this apply to India in terms of the current economic decision making and does that acknowledge some of this work?

Madan Sabnavis: No absolutely because today if you look at it I think central banks all across the world including Reserve Bank of India have played a pivotal role in terms of providing economies. The reason is that see after Covid it was a case of saying that lots of governments spent a lot of money in order to make sure that things were normalised which was fair enough just after Covid. But the issue is that the problems which we have seen today in terms of tariffs, in terms of the wars, in terms of oil prices going up, commodity prices going up, it requires intervention not just from the government.

Governments can do it from the point of view of policy but given the fiscal constraints they have I think the onus actually falls on central banks and RBI has been doing this heavily. So if I take very contemporary issues like say for example we saw the war has led to our import bill rising, balance of payments disequilibrium, we had seen pressure on the currency so what does the RBI do? They came up with the FCNR scheme.

Now today we have a situation where the monsoon has probably not done as well as what one had expected, the kharif crop would be failing, food inflation is already up so therefore we see the Reserve Bank of India intervening in the way of increasing interest rates. Now this is being done by all central banks because inflation is predominant but we have seen that what other central banks are doing Indian central bank also has been doing and also given that the currency fluctuation which we saw the volatility is not being caused by factors specific to India therefore there was a reaction coming from the RBI through the policy intervention. So this is what actually the work really talks of to get macroeconomic stability we do require a lot of affirmative action to be taken by governments and central banks which is what we are seeing today.

Govindraj Ethiraj: Right and is there a counter to this as in is there a approach that banks may have taken or central banks or some central banks may have taken which goes in the opposite direction which is really let's say more top-down control?

Madan Sabnavis: No not really because if we see central banks everywhere are following this policy of inflation targeting because that's the main major goal of monetary policy so I think in terms of tackling inflation I think all responsible central banks when I say responsible central banks I'm not talking of countries maybe in Latin America or Africa who are not strictly following the monetary policy targeting but if you're talking of the developed countries and even the larger emerging economies I think this has been done everywhere. I think what is specific more to India like I mentioned about the currency so we've seen targeted kind of intervention by the president bank of India because you can't let the markets decide what the exchange rate will be. We have seen that a lot of speculative forces come and leave it to the markets because everybody is trying to second guess what the monetary authority will do and that itself leads to enlarged volatility.

So this is where we see the RBI playing an important role as far as India is concerned.

Govindraj Ethiraj: Okay. Madan, last year the Joel, Mokher, Philippe, Guillaume and Peter Howitt won the Nobel Prize for Economics for their work on creative destruction and how technology and production methods can boost growth and living standards. This year we've talked about ground-up models and Robert Hall and Michael Woodford.

If you had a wish list in terms of what you feel is an area that economists could work on or should be working on and could potentially win the Nobel Prize maybe next year or after that, what would that area be?

Madan Sabnavis: No, I think there's one area, Govind, which I think we don't see too many economists talk about is about how do you generate employment. Okay, because I think if you have seen most of the awards in fact I would say almost all the awards are given to economists who have actually worked in the United States or maybe some of the European countries and never really from the emerging markets. Even when we had, even from the emerging markets, there are people who have actually studied and teaching in the American universities.

So it's basically the Western dogma is something which tends to dominate. But I think there's a large section of the world which has this problem of employment. I mean, we don't have enough jobs.

If you look at the entire African continent, for example, we need to have more directed action to make sure that people become, their income levels go up and for that you need to create jobs. How exactly do you make sure that the natural resources which exist out there are better utilised by governments which are, tend to be a bit totalitarian, but it's difficult. But we need to have these kind of models constructed because there's a large part of the world which has actually not really received the kind of attention which probably they should have from the point of view of economists.

We normally tend to be having the Western view when it comes to economic policy. For example, when all of us say that you should not be running high fiscal deficits, you should not be giving freebies. Now I think lots of nations do actually require such kind of affirmative action if they had to make progress in this uncertain world.

So I think this is one area which I think, I'm quite sure lots of work has been done by economists in these geographies, but somehow they tend to get left out when you're talking of the Nobel Prize.

Govindraj Ethiraj: Got it. Madan, thank you so much for joining me.

Anthropic Says AI Is Months Away From Replicating Across Home Devices

AI major Anthropic said on Monday that small AI models were months away from developing the capabilities needed to replicate themselves across internet-connected devices in the home, marking the latest warning from the lab about the technology's potential safety risks. A report in CNBC quoted Anthropic describing how AI models could potentially infiltrate internet-connected devices like smart ovens or Android TV boxes and use their computing power to run themselves and spread to other devices without relying on expensive data centres. The AI model would be challenging to shut down, Anthropic said in a blog post, since there is no centralised point to shut off.

The company also said that this is not yet a fully rogue replicator. Agents are however becoming increasingly capable of completing the individual steps in the replication chain and passing on their adaptations to future copies of themselves according to Anthropic in that report in CNBC.