Why Playing Trump Tariffs Is Dangerous
It's a wobbly week as we called it the day before as the markets searched for direction and cues
On Episode 592 of The Core Report, financial journalist Govindraj Ethiraj talks to Victor Vanya, Director and Co-Founder at EMA Solutions. We also feature an excerpt from our extended interview with Algorand’s Anil Kakani and Nikhil Varma.
SHOW NOTES
(00:00) Stories of the Day
(01:09) Why playing Trump tariffs is dangerous when valuations are tight and growth is slow
(05:21) India must be transparent in terminating business contracts like Celebi
(07:28) Build on Blockchain
Tesla sales dive again in Europe by 49%
India’s energy markets are going haywire because of unseasonal rains and lower than expected demand
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 [email protected].
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Good morning, it's Wednesday, the 28th of May, and this is Govind Raj at Sri Raj Headquartered and broadcasting as well as streaming from Mumbai, India's financial capital, where it's not rain as much on Tuesday as it did on Monday. So, our top stories
Why Trump tariffs are dangerous when valuations are tight and growth is slow.
India must be transparent in terminating business contracts like Celebi.
Tesla sales dive again in Europe by 49%
India's energy markets are going haywire because of unseasonal rains and lower than expected demand.
Catching A Falling Knife
It's a wobbly week as we called it the day before as the markets searched for direction and cues. On Tuesday, the markets swung quite wildly, gaining and losing more than 700 points each way before dropping further. Indian markets also tracked Asia to some extent as uncertainty over US trade policies returned to the fore.
It is clear to some extent that it's mostly short-term investors and speculators who drive markets up and down or have been doing so world over in recent weeks and months given the way markets respond to each Donald Trump threat followed by the carrot of a deal. As the latest Economist magazine puts it, its wild escalation often followed by reconciliation in the political space. It also points out that Mr. Trump, after stoking crises, seldom succeeds in solving them. His tactics of escalating then negotiating will have diminishing returns as other countries conclude that America is bluffing and the world leaders who flatter Mr. Trump in public are quietly making plans to be let down by him. It says, some of his deal-making will succeed but at the expense of fomenting broad and long-lasting instability. The idea of highlighting all of this here and right now on the core report is to point out that markets are not the most predictable right now for all these reasons and therefore it is a tricky place to be in.
On Tuesday, the main indices fell, pulled down by selling in financials and information technology stocks even as the broader Asian markets as we just pointed out were down thanks to uncertainty over those trade policies. It's interesting that Wall Street was up though on Tuesday morning and I'll come to that. The Nifty Index had risen about 1.6% in the previous two sessions thanks to foreign inflows and easing of those trade tensions between the US and the European Union and back home a record dividend from the Reserve Bank of India to the government. The Sensex closed at 81,551 down 624 points while the NSE Nifty 50 was down 175 points to 24,826. The Nifty Mid Cap and Small Cap Index were both up by about 0.1% each. That's the Nifty Mid Cap 100 and the Nifty Small Cap 100.
So what are the cues to watch for? Well, there is of course the March quarter GDP data which is expected to be slightly higher and the Reserve Bank of India's decision where there is expectation of a rate cut or there still is expectation of a rate cut. On the other hand, there is a fresh dump of initial public offers coming which is bound to depress demand as it has in the past as it always does when markets peak.
The markets may have peaked in September 2024 but the momentum of IPOs that began before that is still carrying on and over and onwards I guess as IPOs which had begun the process of listing continue to either wait or jump in the moment they see an upturn as they are right now. Three initial public offerings aimed at raising about 6,500 crores or about 750 million dollars are currently open for subscription according to Reuters. So while the Sensex has risen almost 10,000 points since its lows in April, Nifty fourth quarter earnings growth is only under 6% now year-on-year, something we touched upon yesterday.
So a market up move from these levels at least on fundamental grounds will need stronger earnings tailwinds or alternatively something that is more flows driven. Current valuations are about 21 to 22x forward price to earnings which means there is a need for a more strong earnings story. A fund manager at Kotak Mahindra Asset Management told Reuters that Q4 earnings season is turning out to be muted yet again in absolute terms with 5 to 10% earnings growth depending on sectors.
Meanwhile, after falling last week two stock futures jumped on Tuesday morning on Wall Street after President Trump's statement over the holiday weekend that he agreed to delay tariffs of 50% to the European Union. The Dow Jones industrial average futures were up about 520 points. Trump on Sunday said he would push back the 50% levy deadline on the EU to July 9th following a request from Ursula von der Leyen, the President of the European Commission.
Back home again, the rupee was down slightly on Tuesday. We're down by a rebound in the dollar index and oil prices along with a fall in domestic stocks. The rupee closed weaker at Rs.
85.34 against the dollar after ending at Rs. 85.09 on Monday as per Bloomberg data.
Wait for the Courts
The Bombay High Court on Monday passed an interim order that restricts Mumbai International Airport from taking a final decision to replace Celebi, a Turkish ground handling services firm.
The order has caused MIL to pause on its move to invite tenders to replace Celebi till June, which is of course not far away. A vacation bench of the High Court said that no final decision shall be taken on the tenders till the pleas filed by Celebi are heard post the reopening of the court in June. Last week, Celebi's subsidiary which operates at the Mumbai Airport moved the High Court against the revocation of its security clearance and subsequent termination of its contract with Mumbai Airport.
Three petitions were filed by the firm challenging the centre's decision to revoke security clearances and terminate the contract. The abrupt termination is the backlash against Turkey from where Celebi hails for supporting Pakistan during Operation Sindhur. The Aviation Security Regulator, the Bureau of Civil Aviation Security in India revoked the security clearance of Celebi Airport services on grounds related to national security with immediate effect and it applies to their associated entities in India across other airports too.
A few weeks ago, two other Celebi subsidiaries moved the High Court against the revocation of security clearance and cancellation of contracts by Delhi Airport. As the court report pointed out earlier, this is a test case because the courts must be convinced there is a security-related issue. Now, while it is possible that there is a security-related issue, evidence has not been presented publicly as yet from what I can see.
Now, India has taken similar steps with Chinese companies too, for example, the banning of TikTok even as it has continued to do business on other fronts including imports as well as allowing Chinese companies to operate and manufacture in India. The only takeaway at this point is that a decision to shut down a firm because of its nationality, if it has to be done, should be in a transparent manner so other foreign investors can see the merit of the case and not be frightened off by what they could perceive as arbitrariness.
Build On Blockchain
And shifting gears, welcome back to Build on Blockchain where we explore how emerging technologies are reshaping access, infrastructure and opportunity from the ground up.
Last week, we were joined by Mirai Chatterjee of SEWA who spoke about the use of blockchain to help secure digital health and identity records for women in the informal economy, making public programmes easier to access even while protecting personal data. This week, we turn to another critical piece of the financial puzzle, loans and remittances. For many low-income workers and micro-entrepreneurs, these lifelines are essential but also complicated, expensive and slow.
How can blockchain improve the flow of capital, both borrowed and earned, especially across borders and rural areas? Joining me today to talk about that are Nikhil Verma, Technical Lead for India at Algorand and Anil Kakani, Vice President and India Country Head.
INTERVIEW TRANSCRIPT
Govindraj Ethiraj: Loan is a classic problem to solve because it's this amount of paperwork to get a loan and we had to physically sign, you know, and all of that could become a token and one token which someone can access and say, okay, this part of the authentication verification is done. So, now let me just apply my mind power to see whether this person deserves the loan or not. I mean, or even that could be, of course, I mean, technology could allow us to determine that.
So, let's pick on a few other examples and use cases where you feel that, let's say, the opportunity to apply blockchain is high in India or similar sort of emerging markets.
Nikhil Varma: See, one area which we absolutely see is parametric insurance. I think parametric insurance will bring in insurance to the masses, right? We have a good KYC system in India.
We have the DigiLocker, the Aadhaar DigiLocker interface would create an amazing, amazing approach to be able to set up a parametric insurance. That's one of the things. The other thing which I was recently reading is that the government of India is actually exploring the fractalization of shares.
And I mean, it was quite intriguing in a country where, you know, so many people were probably the largest population in the world. There's about, I might be wrong on the data, but something around that is about three to seven percent of the people actually are investing in shares, right? Imagine you are able to bring the shares to the masses by fractalization.
Blockchain can be an amazing tool there because from a regulatory perspective, the government can have clear oversight as to who's buying, whether there's a certain number of shares that has to stay afloat, a certain number of shares. So, all the regulatory things would be more transparent. As of now, they're kind of translucent and opaque.
So, these are just two areas which I think, but the biggest opportunity which I think we should just go now, I think it should have been done yesterday, is India has the maximum payment remittances from people living outside. Yeah, it's more than 110 billion dollars, it's a record in itself. Exactly.
And that we, on an average, pay about five percent transaction fees to be able to get that money in. That five percent transaction fee is way over the United Nations SDG goals, which is about three percent. And if we are able to bring in a blockchain-based remittance system, which is very traceable, by the way, which is very clear, which would actually provide a clear kind of path of money sending, there are different ways of implementing it, it would probably bring it down to less than one percent.
Just imagine the amount of money that could be saved by payment remittances since people were sending money inwards towards India. And both the people, both the parties, both the sides could benefit from this. I think that's an opportunity that should be…
Govindraj Ethiraj: And if I can drill a little into that. So, let's say, if you were to send a hundred dollars through JP Morgan Chase branch in New York to my HDFC bank branch in India, today there are two branches, there's a SWIFT system in between, all of them are obviously going to take their transaction fees and so on. How does a blockchain system get around that?
Well, it doesn't get around that, it is different…
Nikhil Varma: It works on the same principle. So, what it's going to do is, we are just going to tokenise whatever is being sent on the other side into a stablecoin. So, the stablecoin now kind of is something which carries your…
make sure that there is no risk. If you tie it to a crypto asset, then there's a problem. Now, the stablecoin can be regulated by the government.
So, the number of stablecoins, which could be easily monitored. So, essentially… And why is it called stablecoin?
Stablecoin is pegged to a currency. So, if I say, suppose, we'll transfer money in Bitcoin, you know, Bitcoin fluctuates by the hour, what's going to happen? You might be lucky, you might lose money.
But if you put it in a stablecoin, the fluctuations are much limited, that's what we usually do. So, essentially, that currency, I suppose, is tokenised into a USDT, USDC, whatever be the stablecoin. And then that carries the value.
Over here, we have liquidity from a stablecoin over to that INR, right? Again, the government has clear insight of the remittances, where the money is coming from.
Govindraj Ethiraj: And so, who would I transfer the money to… where I am in, let's say, New York versus… and who would I receive the money from here in India?
Nikhil Varma: It could be peer-to-peer, it could be a banking system, it could be a remittance place, like, you know, we have a very interesting use case in our platform called Hisapay. And Hisapay is doing remittances to people in war-torn areas. So, essentially, where there is no banking institution, right?
So, essentially, these women had to carry money, somebody would take the money from them, all kinds of things, yeah? Of course, we are into digital India, so there's no problem with that. And we can integrate with an UPI system also.
Sorry, I just missed that part, that's important. So, now, what happens with Hisapay is that United Nations benefits are passed, transferred directly to the wallets of these women. These women carry that money in their wallet, that they pay for the electricity bill, they pay for the grocery, they pay for a multitude of things.
And this is transforming lives, right? The money is getting transferred, you know, we call it equals to zero, which means the moment it's sent, it gets there. When you send money in the current system, it's t plus two, right?
So, there's a lot of time factor also for the money to arrive. So, all these things kind of coupled together is, I think…
Govindraj Ethiraj: And to the consumer, all they're seeing is the Hisapay app, and that's where they are doing their… Yes, they have a Hisapay app.
Nikhil Varma: Outbound and… Right. Actually, an app which has the wallet, essentially.
Govindraj Ethiraj: And that's all they see, and I mean, there's no further complication in their lives.
Anil Kakani: There's no blockchain, we refer to it as a back-end revolution, right? The experience should be no different than a Web2 experience for an individual.
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This segment was part of our special coverage, Build on Blockchain, brought to you and supported by Algorand.
Tesla Sales Fall Again
European sales of Tesla vehicles fell in April amidst rising competition and brand perception challenges. Tesla sold about 7,200 cars in April, down 49% year-on-year, according to the European Automobile Manufacturers Association, quoted by CNBC, which also said that the drop came even as overall battery electric car sales rose 34% annually in April. Tesla has faced brand damage over the past few months because of Elon Musk's political involvement in the United States, with protests erupting at Tesla dealerships across Europe in March.
Tesla sales fell nearly 40% year-on-year over the January-April period. The company launched an upgraded version of its Model Y sports utility vehicle this year, but its overall lineup of cars is still aging, with no new mass-market offering unveiled to date. At the same time, Tesla continues to battle rising competition from traditional automakers as well as aggressive Chinese players.
Last week, data showed that Chinese auto giant BYD sold more pure electric cars in Europe than Tesla for the first time, CNBC said, and also adding that European customers are showing a preference for hybrid electric vehicles, similar to India, and hybrids are essentially cars with a battery which also run on fuel. Hybrid electric vehicles account for about 35% of total European car sales, according to ACA, a data quoted by CNBC. Tesla does not have any hybrid electric cars on the market.
There is no fresh signal of Tesla's arrival in India, though it must be imminent because showrooms have been finalized, though there is no specific launch date that we know of. India is also seeing strong demand and not enough supply in hybrid cars, a market dominated by brands like Toyota and Suzuki.
Wavering Energy Demand
Unseasonal rains are creating problems for electricity markets across the world and in India.
A report in the Economic Times says unpredictable weather and a surge in wind and hydropower generation have sent electricity prices tumbling in India's real-time power market, with prices falling 19% year-on-year in May 2025. According to IEX data, India Energy Average real-time market prices between May 1st and 21st stood at about Rs 3.75 per unit, compared to Rs 4.63 per unit in the same period last year. Here's the interesting thing, peak power demand stood at about 231 gigawatts till May 21st, below the projected 270 gigawatts and marginally lower than the 234 gigawatts in May 2024.
This year, like last year, the government had made efforts to ensure that there was enough coal supply and other aspects of power generation ensured so there would not be any hit at peak summer. But the figures seem to suggest that we've reached nowhere near the projected numbers and are even below the numbers that we saw at peak last year, which was 234 gigawatts. On the other hand, a rise in renewable energy output has further softened the market, with average daily wind generation rising 24% and hydropower also increasing 5%.
So I reached out to Victor Vanya, energy market expert and director and co-founder of EMA Solutions, and I asked him why this was happening and how the markets were navigating this.
INTERVIEW TRANSCRIPT
Victor Vanya: We expected the summer to be very hot, well up to severe summer temperatures. And the government has already issued instructions a month back that summer is going to be severe and then we need to be prepared and asked the generators to be prepared and we started importing coal and we started stocking. Because if you look at the coal stock situation in India, where our average coal stock is around 21 days or 22 days to be specific.
And the highest is in North India. With the North Indian power plants, we stocked about a month's coal stock and then we are ready with all the requirements to meet the peak load India has. And we also reduced our outage levels to around 33,000 megawatt up from 50,000 on average.
So we kept everything ready. But now what the issue here is, now we saw unexpected rains coming early, the monsoon kicking in early and then there are scattered rains across the country. Which are unexpected and then the cool down, the temperature gone down and then the load also has gone down.
If you look at the load scenario, across all the regions, North, South, West, we see a drop from 10 to 20% of drop. Especially if you look at North Indian state, we saw around 15 to 20% of load drop in the last one week itself. So that's unexpected.
Because of that reason, we see that the exchange prices have gone below 1 rupee level. One of the lowest in the summer season. If you look at the buy and sell bids on the exchange, we're getting around 35,000 megawatt of sell bids during the solar hours.
That means mostly during the peak afternoon hours, 12 to 2. In that range, if you see around 35,000 megawatt is the sell bid on the exchange. While on the buy side, it is only 6,000 megawatt.
So that's the supply demand gap, especially in the day hours. That again, around marginal increase. Because if you look at one week back, our buy bid on the exchange is also more or less 6,000 megawatt.
But now with the 30,000 sell bid, now we have 35,000 marginal increase. The key factor also, one of the key factors which contributed to this increase is also the increase in hydro generation and wind generation. So wind and hydro have their own annual cycles.
May is the month where we expect hydro and wind to start increasing the generation. So if you look at one week or 10 days back, let's say I'll take the example of hydro generation. So 10 days back, we had around 461 MUs of generation per day.
Now we have around 530 MUs of generation. Look at the wind generation, we have 200 MUs per day. Today we have around 440 MUs per day.
It's almost double the generation we had 10 days back. And this coupled with the drop in load and cooling off, which is unexpected, and we have a lot of coal stock and all the coal plants running fully operational. So now we have landed ourselves in an unexpected scenario where the prices have dropped drastically.
Govindraj Ethiraj: If you were to look at the overall power distribution situation in India, how much of power prices are already fixed? As in preset because of distribution contracts and so on with state electricity boards and so on. And how much is actually available in percentage terms is being bought and sold on the spot market?
Victor Vanya: Actually, we expected a severe summer. From April onwards, most of the RISCOMs have done short-term trades. They've booked everything, all their deficits for the month of May, June and all their purchases at very high prices, ranging from 7 to 10 rupees.
Expecting a higher deficit scenario. That is one of the reasons, again, a lot of surplus left and many of the generation, much of the generation we are backing down. Most of the RISCOMs have around 10 to 20% of the vacuum, usually large generators, large RISCOMs, that they purchase on the exchange markets.
Or they just leave it for weather uncertainty. And if there is a plus or minus difference, which is there, they come and purchase on the exchange or the very short-term market signals. But now what happened is that plus or minus 10 to 15% has gone down.
Now they have their already pre-booked capacity already available, which is again driving many of the RISCOMs to sell in the market. And then if you look at the desperate sell, the bids on the exchange below 1 rupee, 10 days back we have around 3000 megawatts of generation capacity, which is mostly hydro, wind and solar, which we cannot back down and we have to sell on the exchange. But now if you look at, we have around 8000 megawatts of sell bid on the exchange who are ready to sell below 1 rupee.
So that's the desperate sell coming into the market. Mostly the RE generation, as we said, the hydro and wind has increased. Those capacities are pushing it up.
Govindraj Ethiraj: So 8000 megawatts could power a city of what size, roughly, in terms of population today in India?
Victor Vanya: Well, I'll give an example or a comparative figure. So 8000 megawatts is, if you look at Karnataka, their daytime load is around 8000 megawatts. So that much of generation is available at below 1 rupee in the market.
Govindraj Ethiraj: In a situation like this, at one level, I guess it's good that there's less energy being consumed. But what you're pointing out is that it doesn't mean that less energy is being produced or generated. So who loses in this or who are the losers in this kind of situation?
Victor Vanya: Solar investment, because the price is going below 1 rupee, that too in the summer season is a very negative signal, which goes for mostly primarily for solar generation and as well as investment, which is going to come. So experts in the sector already know that there's a lot of overcapacity being built, solar capacity. As I said, around 30 gigawatt or 30,000 megawatt of surplus cell is coming on the exchange.
Buyers are only 5,000 to 6,000 megawatt. So that's the kind of capacity we are building. So this is primarily this goes negative.
This is a very negative news for the solar track investors.
Govindraj Ethiraj: If you look ahead, if there are rains, which means solar generation would be proportionately lower because obviously it's raining. There are clouds.
Victor Vanya: Yeah, there's a marginal drop in solar generation. That is around 5% of drop we see in the solar generation these days. Again, outpaced by the increase in hydro and also the drop in our load.
Anyway, even if solar generation drops, as we said, there's a lot of excess solar capacity already in the day hours. So it's not impacting anything.
Govindraj Ethiraj: Victor, thank you so much for joining me.
Victor Vanya: Thanks.
