Markets Hold A Recovery
Most market participants were holding their breath to see whether the benchmark indices would hold their recovery
On Episode 482 of The Core Report, financial journalist Govindraj Ethiraj talks to Uday Ved, Partner-Tax Services at KNAV CPA India.
(00:00) Stories Of The Day
(01:00) Markets hold a recovery
(03:44) Gold prices are inching up
(04:11) The rupee’s best performance in 7 months
(05:33) Oil markets are still on the edge following Russian sanctions and BP steps up in Iraq
(08:18) Indian promoters may not get the salary hikes they do if small shareholders had greater say.
(11:26) How a liberal tax policy can help boost manufacturing
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 Thursday, the 16th of January and this is Govindraj Ethiraj, headquartered and broadcasting and streaming like always from Mumbai, India’s financial capital.
Our top stories and themes
Markets hold a recovery
Gold prices are inching up
The rupee’s best performance in 7 months
Oil markets are still on the edge following Russian sanctions and BP steps up in Iraq.
Indian promoters may not get the salary hikes they do if small shareholders had greater say.
How a liberal tax policy can help boost manufacturing.
Markets Hold Recovery
It was yet another day of breathless action in the stockmarkets, only because most market participants were holding their breath to see whether the benchmark indices would hold their recovery on Tuesday.
Turned out they did, closing in positive territory for the second consecutive session on Wednesday.
The 30-stock Sensex was up 224.45 points to settle at 76,724.08 while the NSE Nifty50 was up 37 points to close at 23,213.20
The fear index, which gauges volatility in the markets, ended 1.37 per cent higher at 15.26 points.
Not something we track usually unless the markets are moving wildly but worth noting once in a way.
The Nifty had hit a 7 month low on Monday, the lowest point in the current wave of correction.
The Nifty Midcap100 and Nifty Smallcap100 were up slightly, with gains of 0.41 per cent and 0.56 per cent, respectively.
FIIs are still skittish about India.
Overseas investors have pulled out over $4 billion from local stocks and bonds so far this month, adding to the near $11 billion of outflows in the previous quarter, a complete turnaround from the $30 billion worth of buying witnessed between January and September 2024, Reuters computed.
US stockmarkets were up Wednesday overnight.
In the US, The consumer price index increased 0.4% on the month, putting the 12-month inflation rate at 2.9%, the Bureau of Labor Statistics reported Wednesday.
Economists surveyed by Dow Jones had been looking for respective readings of 0.3% and 2.9%.
Much of the move higher in the CPI came from a 2.6% gain in energy prices for the month, pushed higher by a 4.4% surge in gasoline. That was responsible for about 40% of the index’s gain, according to the BLS. Food prices also rose, up 0.3% for the month.
U.S. inflation picked up last month as gas prices rose sharply, though price gains for other goods were more muted.
Earnings season is officially in full swing, with robust results from several of the biggest names in U.S. finance. And inflation data is adding to the market optimism.
Profit at Goldman Sachs more than doubled, while JPMorgan and Wells Fargo both posted hefty, forecast-beating profit rises for last quarter. For its part, Citi swung to a profit and per-share earnings beat consensus expectations.
Wednesday's other big theme is inflation. The December consumer-price index showed prices rising 2.9% in the past 12 months, matching forecasts, while core prices were up by a slower-than-feared 3.2%. Bonds and stocks rallied, and the dollar swooned.
Gold Is Up
Gold prices were up on Wednesday as the U.S. dollar and Treasury yields fell back somewhat while markets stood by for U.S. inflation data to get potential insights on the Federal Reserve's interest rate strategy.
Spot gold was up to $2,683.62 per ounce, Reuters reported.
The dollar index’s easing has made bullion more attractive for other currency holders.
The Rupee Jumps
The Indian rupee jumped on Wednesday, after falling to a lifetime low in the prior session, to log its best day in over seven months.
It was helped among other things by a softer dollar.
The rupee closed at 86.3625 against the U.S. dollar, up 0.3% on Wednesday, its best single-day percentage rise since June 3, 2024, Reuters reported.
The INR had declined to an all-time low of 86.6475 in the previous session.
The dollar had earlier hit a two-year high. The rupee has weakened around 3% since Donald Trump's victory in the U.S. Presidential elections in November, which sent the dollar soaring.
A weaker currency means more inflation including imported inflation via higher payouts for oil of which we import more than 80% of our requirements.
And in such a situation, there is a point of view that India should not be lowering interest rates or cutting them at this point.
The central bank is also expected to use its foreign exchange reserves more judiciously as it looks to quell market volatility amid persistent headwinds, Reuters reported on Tuesday.
Oil Still On The Boil
And here is our energy segment via the IEW.
Oil prices rose slightly on Wednesday as the market tried to gauge the extent of supply disruptions from sanctions on Russian tankers.
Brent crude futures rose 29 cents to $80.21 a barrel on Wednesday morning.
As we discussed on TCR on Wednesday as well, the latest bombshell like U.S. sanctions on Russian oil could disrupt Russian oil supply and distribution significantly, the International Energy Agency (IEA) said in its monthly oil market report on Wednesday, adding that "the full impact on the oil market and on access to Russian supply is uncertain".
A fresh round of sanctions angst seems to be supporting prices, along with the prospect of a weekly U.S. stockpile draw, analysts told Reuters.
On ground, tankers carrying Russian crude appear to be struggling to offload their cargoes around the world, analysts said.
Taking a step back, the EIA has trimmed its outlook for global demand in 2025 to 104.1 million barrels per day (bpd) while expecting supply of oil and liquid fuel to average 104.4 million bpd.
It predicted that Brent crude will drop 8% to average $74 a barrel in 2025 and fall further to $66 in 2026 while WTI was projected to average $70 in 2025, dropping to $62 in 2026.
Elsewhere, Energy and geo politics continue to be linked as always.
BP, erstwhile British Petroleum and the Iraqi government have agreed the majority of commercial terms toward reviving Iraq’s Kirkuk oil field on Tuesday, Bloomberg reported.
BP brass signed off on those terms with the Iraqi Prime Minister in London on Tuesday.
“The teams will now work to define the remaining details, ahead of a fully-termed agreement” in 2025, a BP spokesperson said in a statement.
BP is scheduled to provide a company-wide strategy update in February, where its Iraq plans are expected to be key to the company’s upstream future.
Kirkuk is estimated to have around 9 billion barrels of recoverable oil remaining.
BP’s presence in Iraq dates back a century and originally helped discover Kirkuk in the 1920s, producing oil from the Rumaila field, Bloomberg reported.
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This segment was supported by India Energy Week 2025 scheduled from February 11-14, 2025, in New Delhi and you can register for the same using the link in the show notes.
Are Promoters Overpaying Themselves?
A study of remuneration resolutions for promoters of Indian companies by the Institutional Investor Advisory Services based in Mumbai of 893 remuneration resolutions for promoters presented between 2023 and 20241 shows that only 10 resolutions were rejected over these 21 months.
Remuneration resolution means permission being sought from shareholders to typically award or increase salary for the promoters of the company, in this case listed companies.
The twist is this.
If these resolutions had been subject to a majority of minority vote an additional 216 resolutions - 24.5% of the total - would have been rejected, IIAS says.
This would suggest that investors remain concerned about the absolute level of compensation, its structuring, and the adequacy of disclosures in resolutions on promoter pay.
This also means that promoters control a majority of the shares as is the tradition and are thus in a position to pass resolutions in their favour which may or may not be something that minority shareholders want.
The involvement of some promoters as members of the Nomination and Remuneration Committee further heightens the conflict of interest, IIAS says.
Regulators must mandate majority of minority voting on promoter remuneration and set minimum disclosure requirements while seeking shareholder approval.
Trade Deficit
India posted a narrower-than-expected merchandise trade deficit in December at $21.94 billion on Wednesday, even as import figures for April-November were reduced following an unprecedented miscalculation in gold shipments.
Economists had expected the December trade deficit to be $27.33 billion, according to a Reuters poll.
Merchandise exports stood at $38.01 billion in December, while imports stood at $59.95 billion.
In December, India imported $4.7 billion worth of gold and $15.2 billion worth of oil.
The trade ministry has yet to release the revised figures for November, which had over-counted gold imports by $5 billion, boosting the trade deficit to a record high.
As part of the correction, India sharply lowered its April-November 2024 gold import estimate by $11.7 billion.
Bond Figures
Mining mogul Anil Agarwal's Vedanta Resources has raised $ 1.1 billion through a new bond offering to prepay existing liabilities, the company said in a Singapore exchange filing.
Vedanta Resources Finance II plc, a wholly owned subsidiary of Vedanta Resources, raised $1.1 billion through a new dual tranche issuance in international debt capital markets.
Vedanta Resources Ltd (VRL) has raised $ 3.1 billion in $ bonds since September 2024.
Billionaire Anil Aggarwal's Vedanta Resources has deferred the company's $1.2 billion bond issuance following volatility in the market after the US justice department, in a report, charged Gautam Adani and others with $250 million bribery. The Vedanta dollar bond issue was to be priced on Thursday.
As per the exchange filing, the latest bond issuance consists of two tranches - a $ 550 million tranche of 5.5 years tenor at a 9.475 per cent interest rate and a $ 550 million tranche of 8.25 years tenor at a 9.850 per cent interest rate.
Tax Calls
There is no doubt that the Government has to be liberal on taxes in the coming Union Budget, particularly if it has to increase purchasing power in the hands of the middle class, who have been facing income stress and rising inflation.
Uday Ved, Partner, Tax Services at KNAV, CPA in India and ex KPMG veteran says the expectations from the Finance Minister are high for a boost to manufacturing and thus create jobs and lower taxes for individuals.
He argues that the highest slab of 30% tax should be beyond the taxable income of Rs 50 lakh which will increase disposable income and also increase consumption in an economy seeing a slowdown.
I reached out to him and began by asking him to describe how the manufacturing sector could get a tax boost.
INTERVIEW TRANSCRIPT
Uday Ved: Union budget 2025-26, this is the first full year of the budget after the elections were over last year, right? And the government now has full four or five years term together to make an impact. India traditionally has been a service-driven economy and last eight or 10 years giving more focus on the manufacturing.
Very, very important to make India manufacturing in terms of what's happening globally. And India can only benefit from that. So, you know, if one looks at it in 2019, the tax rate, corporate tax rate for the new manufacturing units was reduced from 25% to 15%, which searches about 17%.
And there was always a sunset or a deadline by which you should start manufacturing. And last year, exactly this time, it was of course interim budget just before the election. When we are talking, the deadline was to start manufacturing by March 31, 2024 at that point of time.
If you want to avail that, concessional rate of 15% or 17% with such as. And it didn't get naturally no change in the interim budget. Nobody was expecting it, but certainly there was some expectation when the new government took over and on July 23, 2024, we had a budget.
We didn't get that extension. So, as it stands today, only if one had started manufacturing by last year, March 31, 2024, then that concessional rate of 15% is available. I would believe that there is clearly an ask in this budget to extend that manufacturing deadline because a lot of people would have put in manufacturing plants, started doing it.
There's always ask, you know, are Indian corporates, promoters investing in, you know, in capital intensive new manufacturing units. They've already started it, but they may not have begun, completed rather the production by March 31, 2024. Certainly it would be an ask not to change the rate.
The rate would be 15% is okay. Absolutely fine. Very competitive globally, but certainly extend the deadline to not only March 31, 2025, because there'll be only three months left, but possibly extend it up to March 31, 2026.
I think that will be the first ask. And that's very easy because that will really give boost to the manufacturing and coupled with PLI scheme, which has been successful in few sectors, it will help a lot in terms of, you know, people trying to put the projects completing and new projects also to be put into place. I think that would be the first ask, which will give boost to manufacturing as it rightly may be put in that.
It also creates a lot of job creation because of the manufacturing. There is also an associated provision in the law, which is more theoretical in my mind to say that if you increase the job by an X number of people, then on the additional, you should, you know, you get 30% under 80 JGA of the different, the additional cost that was incurred. Now that is more theoretical, make it more practical to achieve that.
So coupled with the manufacturing, job creation and incentive related to that may be introduced in this budget.
Govindraj Ethiraj: Right. Okay. So let me pick up on a couple of tax administration issues now.
So linked to all of this obviously is the fact that most entrepreneurs, businesses, industries would want more efficient tax administration. And there are several aspects which are top of mind, including around litigation. What are your key asks there?
So clearly there is something called views.
Uday Ved: I've said it for many, many years, something called policy and something called implementation or administration is always the gap in implementation. Things have improved a lot, but still there is a lot which can be done. What investors want is a certainty.
Certainly foreign investors who want to invest in India, foreign capital is quite welcome. They want certainty more than the reduction in tax rate sometimes, many times I would say. And in that situation, there are a couple of things which can be done.
This is not a new ask, an extension of what's going on for the last few years and ongoing thing. But like last year's budget did some restoration on the capital gains tax. Now this time it could be a TDS, the tax deducted as well, which is really quite a painful process, particularly for the resident corporate taxpayers.
When one resident pays to another, I think the tax liability is always determined, right? And TDS has been used more as an advanced tax collection, more than the mechanism. So TDS restoration should be on the top priority.
Maybe there are so many 25, 30 kind of provisions or more than that, which are different, different rates. And that can be just rationalised to make it one for the salary, which is okay, which is going on based on the compensations. But all of the TDS payments like technical fees, professional fees, contractor, that can be just one rate.
And which is the ask by many people, it's not a new ask by me, like say 5% rate should be done. And within that, even within residents, there is no sense for having TDS, I would say. Okay.
Only for the non-resident, you try and keep it because the money is going out of the country. And one more part I would say, there is also TDS in certain situations, there is TCS on e-commerce transactions. That has really not served any purpose and tracking has been there with other laws.
So TDS and TCS should not exist together. 194R is another provision, which has created so much furore in the last two or three years since it was introduced, right? That the free requisite or concessional requisite, which has been given to directors and promoters.
Then FAQs, which have created more confusion and problems. So TDS and TCS, TCS, you clearly don't need it in my view. TDS should be one rate, I would say.
That really will help rationalisation, it will add to a less compliance, which is the need of the hour today. And I don't think there's going to be any, in terms of the tax collection is going to be impacted. The corporates will always pay the tax, even without TDS.
Govindraj Ethiraj: Right. Let's come to the common man and you're arguing for higher exemption limit. And do you feel that's more from an administration point of view or more in terms of putting more, let's say, purchasing power in the hands of people?
Uday Ved: No, clearly putting more money in the hands of a common man, the salaried class, the SME, businessmen, and everyone, I would say. The tax rate, I think the new tax regime, which has been introduced is working well, I would say. But there are eight crore filers today.
There are hardly one and a half crore people who are paying tax. More than one crore will be even less than a lakh of people, I would say. Very less.
So more in terms of extending the slab rates, maybe a better way of putting more money, like 30% slab rate comes at 15 lakhs or something like that. Make it, you know, maybe 25 lakhs, I would say 50 lakhs. But that would really put more money in the hands of common men, professionals, SME businessmen.
Average 15 to 20% tax rate in the hands of individuals is a good rate. And collect it, which you have been doing it from high net worth individuals. You know, you have a tax rate all the way going up to 39%.
Collect it from there. That is one ask, putting more money. And second, which is across everything, you know, we have basic rate, which is 10, 20, 30, or even for corporate 22.
And then there is surcharge. Now, that surcharge, honestly, the whole objective of surcharge is to be introduced in some emergency situation where there is a natural calamity or something. It started some very few decades back, and that has become part of the tax.
So, if you say, what is the tax rate? 30%. No, tax rate, even the highest rate is not 30.
It goes all the way up to 39, with surcharge, which is, I think, very high. And I would believe that surcharge should be removed totally. Again, this has been asked, to what extent it is feasible from a collection perspective, one has to see.
Last point I will make it, that if you are in a treaty situation, because treaty puts a rate on, that's more for corporates. When, say, a payment for royalty or FTES, which for technical services made, say the tax rate is 15%, there is no surcharge there. When you're making a payment to a non-resident in a treaty situation, why do we need surcharge?
Just remove surcharge, I would believe. So, I think that certainty would add money to the common man. Then, in addition, there could be other ask in terms of give some deduction for the housing, that will interest deduction, which has been there for a number of years, even in the new regime.
So, I think those are some of the things, but slavery and expansion would be, I think, one of the key ask, which will really add money into the common man. Most of the money is going to be spent in the economy, it will come back.
Govindraj Ethiraj: Right. Uday, thank you so much for joining me.
Uday Ved: Yeah, my pleasure, always a pleasure.
