The Markets Gain as FII Selling Slows and Eyes On Federal Reserve
The Indian markets focus appears to have shifted to what the Federal Reserve might do on interest rates
On Episode 494 of The Core Report, financial journalist Govindraj Ethiraj talks to Riaz Thingna, Partner at Grant Thornton Bharat LLP. We also have an excerpt from an interview (part of our energy special series for India Energy Week 2025) featuring Arun Kumar Singh, Chairman and CEO of the Oil and Natural Gas Corporation (ONGC).
(00:00) The Take: When Was India’ Sputnik Moment
(05:57) The markets gain as FII selling slows and eyes on Federal Reserve
(08:25) The rupee closes flat, holds steady.
(09:40) ONGC’s journey from being an oil exploration company to an energy major.
(15:33) Moody’s makes case for policy revamp in India.
(18:05) Air India to resume Tel Aviv flights
(18:31) Direct tax expectations
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].
—
Good morning, it's Thursday, the 30th of January and this is Govindraj Ethiraj, headquartered and broadcasting and streaming like always from Mumbai, India’s financial capital.
The Take: When Was India’s Sputnik Moment
On October 4, 1957, the Soviet Union launched the earth’s first artificial satellite, Sputnik-1.
Sputnik’s launch is widely regarded as the shock that propelled the United States to rush its own space programme, though the first satellite launched by NASA a few months later exploded on ground.
A few months later, the first successful launch by the USA followed but by which time the Soviet Union had launched two more, including one that carried a dog into space.
The term Sputnik moment refers to a technological wakeup call or shock that has in the past spurred nations like the United States to fight back with resources and determination…as America did and eventually put a man on the moon in 1969.
The Sputnik moment is also being used to describe the launch of DeepSeek, the Chinese AI software that has apparently been developed at a fraction of the cost and resources of America’s AI and ChatGPT.
“DeepSeek R1 is AI’s Sputnik moment,” tweeted venture capitalist Marc Andreessen in a post on X on Sunday.
Questions are now being raised on whether India should also be in this race and how.
There is some debate on whether India should even be in this race, though that debate was predicated on the over $500 million (accumulated) investment attributed to OpenAI and not the $6 million that DeepSeek appears to have spent.
Infosys Chairman and co-founder Nandan Nilekani last month urged Indian artificial intelligence (AI) companies to shift focus from developing large language models (LLMs) to crafting practical AI applications.
He had said that India's AI trajectory should be less about competing in LLM development and more about building an infrastructure to gather and utilise data, driving meaningful innovation across various sectors, highlighted the publication.
“Let the big players handle that. We should instead prioritise synthetic data generation, small language models, and training tailored for real-world challenges in India,” he had said.
But at $6 million, this is not a big player game but a smart player game.
Which brings us back to the Sputnik moment.
First, India’s Sputnik moment actually came after Russia’s Sputnik, almost at the same time it hit the Americans.
Credit goes to Dr Vikram Sarabhai, seen as the father of India’s space programme who convinced the Government of the day of the importance of a space programme for a developing country like India.
Sarabhai hailed from a family of industrialists who supported many of his efforts including setting up the Physical Research Laboratory in Ahmedabad in 1947.
The Indian National Committee for Space Research was set up in 1962 of which he was the chairman. The INCOSPAR later became the Indian Space Research Organisation or ISRO which we know. The first satellite went up in November 1963.
So is this Sputnik moment for us like some - not all - in the US are seeing it ?
Well in a different way.
Deepseek demonstrates the power of frugal engineering - going by information we have now - that India has always been known for.
ISRO is perhaps the oldest, best known example of frugal engineering.
Remember the stories of India launching satellites at a cheaper cost than Hollywood films made on space exploration, like the film Gravity.
The stories are true.
ISRO also demonstrated the coming together of the country’s best talent and setting and aligning with a national goal which further aligned with a global race of sorts.
ISRO by the way has just achieved its 100th rocket mission.
So it is frugal engineering coupled with the best technical talent in the country of the time.
Should the Government jump into this challenge then ?
The problem is that the Government’s involvement works in very few areas of technology innovation today.
Innovation in cutting edge technology is best left to the private sector to do and to determine whether to do, weighing the cost and benefits, like it happened in China.
China’s own Sputnik moment, columnist Thomas Friedman has pointed out, happened in Donald Trump’s first term when the flow of technology and semiconductor chips from America started slowing down.
As Jim McGregor, author and business consultant who lived in China for 30 years told him. “He woke them up to the fact that they needed an all-hands-on-deck effort to take their indigenous scientific, innovative and advanced manufacturing skills to a new level.”
India’s Sputnik moment lies not so much in cutting edge technology like AI systems because we can benefit from cheaper systems wherever they are but in traditional manufacturing, including areas like automotive.
India has been steadily losing share to a host of countries in apparel exports for example.
Bangladesh’s share of apparel exports to the US is 9.3% versus India’s 6%. If you think Bangladesh is an exception, note that
Indonesia is just behind at 5.4% and Cambodia whose share is rising is at 4.8%.
All three countries are much smaller than India.
Of course all can sound utterly boring and bereft of glamour..imagine equating a weakness in garment manufacture to a Sputnik moment.
But unless Indian industry becomes more competitive and faster and we find bottom up solutions to become world leaders in some if not many areas of manufacture, Donald Trump’s tariff threats will be the least of our problems.
And that brings us to the top stories and themes.
The markets gain as FII selling slows and eyes on Federal Reserve
The rupee closes flat, holds steady.
ONGC’s journey from being an oil exploration company to an energy major.
Moody’s makes case for policy revamp in India.
Direct tax expectations..
Air India to resume Tel Aviv flights
Markets
The Indian markets focus appears to have shifted to what the Federal Reserve might do on interest rates, as in will it cut further or leave as it is and what clues it provides on the likely direction ahead.
At least for now, the spotlight is not on domestic cues like growth, earnings and a falling rupee, all of which are not positive.
On the other hand, the markets quite likely look more attractive to longer term investors particularly in large caps than they did until recently.
The Nifty and Sensex are down about 11.5% each from record high levels hit on Sept. 27 and are on course for their longest monthly losing streak in 23 years.
IT stocks picked up, along with technology stocks globally as traders digested the impact of DeepSseek, the low cost Chinese AI model.
The small-caps and mid-caps gained 3.3% and 2.3% respectively, snapping a three-session losing run.
On Wednesday, the BSE Sensex and NSE Nifty50, continued their rise for the second consecutive session.
The 30-share Sensex rose 631.55 points to close at 76,532.96 while the NSE Nifty50 added 205.85 points to close at 23,163.10.
ITC Hotels stock listed on the bourses on Wednesday, following its demerger from ITC's other businesses.
The broad markets did better than the benchmarks, as the Nifty Smallcap100 index settled higher by 3.32 per cent and the Nifty Midcap100 ended with a gain of 2.31 per cent.
Its results season and several larger companies have now released their results.
We will come back with more composite looks in a few days though the first cut of 400 plus companies by Crisil had already projected a slowing topline.
Bajaj Auto (BAJA.NS) rose 2.7%, while TVS Motor jumped 5.5% after they reported higher quarterly profits and forecast healthy demand and export growth.
Maruti Suzuki declined 1.2% after its quarterly profit fell short of market estimates due to bigger discounts.
Meanwhile, Westlife Foodworld, the operator of McDonald's in India, reported a 59 per cent drop in third-quarter profit on Wednesday, attributed to consumers cutting back on discretionary spending.
RUPEE
The rupee closed nearly flat on Wednesday after facing some pressure early in the session, as traders awaited the U.S. Federal Reserve's monetary policy decision, Reuters reported, adding it closed at 86.54 against the U.S. dollar, barely changed from its close at 86.5225 in the previous session.
Oil on the Boil
Oil prices are still weak, falling on Wednesday, thanks to a rise in U.S. crude stockpiles, Reuters reported.
Brent crude futures were down 59 cents to $77.90 a barrel.
"Crude prices keep dancing to the rhythm of Trump's tariff orchestra, with Canada tariffs going into effect on Saturday potentially lifting U.S. prices then," the head of commodity strategy at Saxo Bank told Reuters.
Canada supplied 3.9 million barrels per day of oil to the U.S. in 2023, roughly half of overall imports for the year, while Mexico supplied 733,000 bpd, according to data from the Energy Information Administration (EIA).
—
On the subject of oil, I caught up with Oil and Natural Gas Corporation or ONGC Chairman Arun Kumar Singh ahead of the India Energy Week to be held on February 11 in Delhi.
In a close to 40 minute interview that touched on several aspects of ONGC’s portfolio of energy activities and also how young aspiring engineers could view ONGC, I asked him to describe what was ONGC’s strategic view and direction as a traditional oil exploration company, what was changing and what lay ahead.
INTERVIEW EXCERPT
Arun Kumar Singh: So gradually what is happening globally if you see oil and gas companies are trying to become energy company. That happened in Europe in a big way because if you see they entered through gas then they went to the power distribution then power generation because one of the thing is also true for our country is that our electricity need will be far faster growing than the petroleum need. So if that be the case and the wherewithal of two three things are advantage to ONGC in terms of renewable one is that it has in a financial muscle to invest.
Second is round the clock RTC power can be a combination of gas as well as you know solar because other options are working but it is at much slower pace and third thing is that country needs more power and fourth thing is that ONGC has tremendous project execution capacity. It has been spending thirty forty thousand crore for donkey years. So unless the organisation has that inbound capacity it could not have done it.
So therefore if you see if leave any and fourth very few people know ONGC owns OTPC that is a power company ONGC Tripura power corporation where we produce around 800 megawatt of power from our gas and sell it to you know local northeast and also to Bangladesh. So the capability of ONGC inherently in some pocket of ONGC is existing for power generation even for transmission. It runs it has a small transmission company which runs power transmission of course that is JV with power grid which is northeast.
So ONGC is present everywhere in energy value chain today only the size is different in different buckets. So this capability and that you know that is strategic question of course that others may differ with this. Earlier the natural hedging for oil and gas company was to be in all three sectors ENP, middle stream, midstream and downstream.
And naturally if upstream does not do well downstream will do well if downstream does. So it was a and that is the reason for all these years for centuries only international oil companies survived because they had full integrated value chain. In part if you exist you may not survive for long because one bad time comes and you are wiped out.
So this is something that was ENP that same thing now in my personal opinion I am not saying it is you know that everybody should follow this. Same thing will hold true for oil and gas company that sooner or later they have to get into the other forms of energy because otherwise if you are only in ENP today oil and gas and oil and gas takes a back seat then of course you have you know you have a maybe having a short self-life. But that will not happen in India because Indian context may 30, 40 years oil and gas is going to kick.
But if you take a long term view oil and gas company has to ultimately become energy company. Energy from comes from whatever source even nuclear power, even CBG, even the ethanol, even the you know oil and gas even you know so entire energy basket energy whatever primary energy basket today exists in the world any source you should be in all the place for to survive for centuries. If you want to survive for few decades then it is a fine you remain segregated.
Govindraj Ethiraj: And and how does the let us say management time get divided between searching for new sources of energy or exploring new options like the ones you said you talked about coal based methane for example and there are many others as well versus let us say the traditional.
Arun Kumar Singh: So, my personal time I have taken account 92 percent in last year has gone to conventional ENP because OVL is run independently by MD OVL. So, if there is a separate board only I sit in chairman board meeting non-executive chairman. I am non-executive chairman of MRPL, I am non-executive chairman of OPAL.
So, these do not take much of my time and fortunately management is very competent in all the subsidiary. So, they run on their own, but overall you know you know say overarching situation that I am aware of, but my personal time goes in still ENP and in that particularly at least 40 percent of the time goes to you know if something can we can do great in exploration and also in enhancing production from our existing fields. Like lot of time has gone into you know stitching this tie ups and all that and that is in between conditionality from both side.
So, time wise we are fair, but one other thing that we still continue to focus on ENP. Renewable also does not take much of my time because we have created a company called ONGC Green Limited. It is run by that management and only they come to ONGC for money because ONGC has the resources.
So, that role I perform in the board meeting nothing more than this.
---
Moody's Makes Case For Policy Revamp
India needs to change its fiscal and monetary policy to achieve a 6.4 per cent GDP growth in 2025 amid a weak rupee, declining foreign investment and volatile inflation, Moody's Analytics said on Wednesday.
Moody's said that while India had one of the fastest-growing economies in Asia in 2024, GDP growth waned over the first three quarters.
Moody's Analytics said it expects the 2025-26 Union Budget to support domestic demand, particularly investment while aiming for a fiscal deficit of less than 4.5 per cent of GDP for the next fiscal.
In 2023-24, the fiscal deficit was 5.6 per cent of GDP, which is estimated to come down to 4.9 per cent in the current fiscal.
"India is facing a bumpy road in 2025. A weakening rupee, declining foreign investment, and volatile inflation are the areas of greatest economic risk. Changes in fiscal and monetary policy, likely in the first half of the year, is needed if India is to achieve 6.4 per cent growth," Moody's Analytics Associate Economist Aditi Raman said in a report quoted by Business Standard
"The slowdown versus 2023 sets a cautious tone for 2025. With interest rates staying higher for long, domestic demand will moderate.
Moody’s is however seeing limited impact of potential Trump tariffs.
"Potential US tariffs on Indian imports will make for a challenging export environment that hampers growth. However, that won't be too influential, given India's relatively closed economy,” Moody's said.
Moody's Analytics said the rupee has weakened significantly since the start of the US Federal Reserve's easing cycle in September.
Donald Trump's win in the US presidential race only put more pressure on the rupee as investors sold Indian assets, jumping on a greenback rally.
"Although the rupee hasn't weakened as much as some other developing economies' currencies, we expect it to keep depreciating over the long term as a growing middle class increases the country's reliance on imports. The central bank will be hard-pressed to offset that pressure on the currency," Moody’s said, adding India faces a challenging 2025; growth is slowing, the rupee looks set to tumble against the greenback, and headline inflation is far from the midpoint of the central bank's target range.
Aluminium
Aluminum prices rose on Wednesday on reports that the European Union is firming up a plan to gradually ban imports of the metal from Russia.
The plan is part of a broad sanctions package ahead of the third anniversary of the Kremlin’s invasion of Ukraine, Bloomberg is reporting
The package — which has been circulated among member states this week — also proposes sanctions that would cut more banks off from the SWIFT banking system, and actions targeting more than 70 dark-fleet vessels involved in shipping Russian oil, the people said.
The plan would allow European buyers to import 275,000 metric tons of the Russian metal under a quota system for a one-year period, before a full ban comes into effect, Bloomberg reported.
There have been calls for the EU to ban Russian aluminum ever since the invasion of Ukraine, and Russia’s shipments to the bloc have fallen steadily as manufacturers have sought out alternative suppliers.
Air India Tel Aviv
And in a sign of some normalcy returning to both geopolitics and aviation and travel, at least in the middle east, Air India has announced it is resuming its non stop services between Delhi and Tel Aviv, 5 times a week on a Boeing 787-8 Dreamliner aircraft.
The services will start from 2 March, the airline said yesterday.
A Direct Tax Wishlist
The Union Budget is the day after tomorrow and there is much expectation around direct taxes, including the administration of them.
It is quite likely that a new Direct Tax Code will not make its debut as expected because work is still on with 22 sub committees and some 6,500 suggestions received.
I reached out to Riaz Thingna, chartered accountant and partner at Grant Thornton Bharat LLP (GTBLLP) and asked him to give us a glance on how tax collections have done in the last year and what he foresaw from the Union Budget and his wishlist.
INTERVIEW TRANSCRIPT
Riaz Thingna: Firstly, yes, the trends are pretty robust. So, the overall collection of direct tax which was budgeted at about 22 lakh crores is likely to exceed by at least 70 to 80 thousand crores for direct tax level. At the same time, even GST collections are expected to rise by 9 to 10 percent over the previous year.
So, overall the tax to GDP ratio which is about 11.85% this year and direct tax at 6.81% are both significantly higher than the previous year. So, I think overall the robust collection and with overall increase in GDP there may be a little bit of a fall as far as tax buoyancy is concerned but overall a very very good collection. One additional thing I would like to talk about is that within direct tax there has been a good nuance that the non-corporate tax has been rising as compared to corporate tax and the difference is widening.
So, there is greater emphasis on non-corporate tax.
Govindraj Ethiraj: So, when you say non-corporate you mean personal tax?
Riaz Thingna: Personal income tax and partnership firms etc that is rising and now when that is rising there is scope for the finance minister to try and see how to boost consumption by giving some reliefs on that side.
Govindraj Ethiraj: If you were to now look at the budget specifically let me ask you two kinds of things. One is administrative areas that you feel the budget needs to address and then we could come to any specific clause or section within the tax that you feel we need to look at closely.
Riaz Thingna: Yeah, that's an interesting question because on the administrative side one thing clearly which is top of mind is how do you clear the backlog of litigation. The controversy management is a nightmare. Now, that is where we need some steps taken.
Number one just increase the capacity at the CITAP level at the tribunal levels to bring down the burden and the backlog. Second will be codify some of these time limits into the act itself so that they are strictly followed. You know the six months and one year limits should be strictly followed which is another thing.
Thirdly and this is a long-standing demand we try and bring in some tax mediation and that is really going to help and I think that would be one of the best practises to follow also. The tax mediation would definitely help in reducing the burden. So, I think these are some of the areas where we need to take steps and reduce the level of litigation that is going on.
Govindraj Ethiraj: And when you say tax mediation can you expand on that? I mean what do we have today as of now and what we need to do?
Riaz Thingna: So, as of now there is only an appellate process. So, you have a disallowance, you go into appeal whether it is a commissioner appeal or thereafter the income tax criminals or thereafter the courts. The other alternative would be that wherever there is interpretational issue and whether the arguments you have committee a panel which can sit across and discuss what should be the ideal way forward and what would be a fair way forward.
So, you don't even get to the controversy state that would be the mediation process that we are looking at. And it could work in a number of situations where there are genuine interpretational issues and not any evasion of tax.
Govindraj Ethiraj: And this is something that obviously many countries already have in some version or the other.
Riaz Thingna: Absolutely, US being the first example. So, we do have tax mediation. I think that is something that we need to focus on.
Govindraj Ethiraj: Right and are there any specific areas within the tax code? Now, of course, the tax code itself may not necessarily come in the way that was anticipated because there is still work going on. But anything within the tax code or the tax act?
Riaz Thingna: Yeah. So, you know the tax code process has started, various subcommittees have been set up or I think about 22 subcommittees, 6500 inputs have come in from various stakeholders etc. So, the focus of this tax code, it's a comprehensive review of the existing tax code.
So, the focus there, it's not a new code. So, when you say that, the focus will be on simplification and rationalisation. So, while a lot of work has to be done, we could expect that during this budget, you could have some of those elements which are identified introduced towards that rationalisation simplification process.
Govindraj Ethiraj: What's an example that for you is, let's say, typifies the problem with the current code or the current act?
Riaz Thingna: There are certain settled interpretations of the issues which we know that we can put an end to the litigation because there have been decisions of the Supreme Court. So, that can be codified. There can be a reduction of the cross-referencing of sections because when you have all these cross-referencing of sections, you definitely have more doubts created.
But we can have a certain simplification of rates, TDS being the prime example. At TDS, we today have about 40 odd sections on TDS alone. Now, TDS was initiated with a dual purpose.
One was to plug tax leakages and the other was to create a documentation trail. Now, today, the documentation trail part is not important with all the digital tools available with the government. So, it is only about plugging tax leakages.
For that alone, 40 sections of which about three or four sections contribute to over 85 percent of the collections. Why do we need that many sections with varying rates from 0.1 percent to 40 percent? And, these rates just create a lot of confusion, create a lot of non-compliances.
So, I think towards that, we need something that reduces the number of those sections, number one, and at least brings in three or four different rates and not these multiplicity of rates. That is an area which can be looked at at this point of time. Then, of course, tax rates for individuals, bringing it on par with corporates, etc.
Those are the kinds of things that one can expect.
Govindraj Ethiraj: Riaz, thank you so much for joining me.
Riaz Thingna: Thank you. It's a pleasure.
