Sonia and I discuss 2:19 Geopolitics and Trade 4:21 Trump vs NATO Allies 8:00 Whither the Global Trade War? Global trade is growing faster than global GDP 10:20 Effects on Markets 14:29 Silver as an Investment? 18:55 Potential of Metals in 2026 27:03 Large Cap Equity Performance 30:47 Economy Reviving? 36:42 Indian Economy & Collateral Damage
Transcript:
Intro
0:00The rules-based order that was established in 1945 uh clearly is not in the interest of our viewers.
0:09Following the rules of the game, it is impossible to corner China. See what Trump has done in Venezuela is not very
0:15different from what Obama did in Libya. Is this the start of a global trade war? Well, that’s not a trade war. So, that
0:22would be an actual physical hot war, right? So, you’re saying all of this is just posturing at the end of the day. It is
0:27the role of a politician to stay in the limelight to make a lot of noise just to show that it’s all about you. So you
0:33would think that with all of this disruption that somehow trade has come to a standstill. It is not. Between silver, gold, copper and all the
0:39others, zinc minimum potential now and our equity markets have done
0:45nothing. There’s a lot of volatility. Precious metals have picked up in a big way. So what do you see as the contagion
0:51effect of this geopolitical you know issues? So the Indian market has not
0:56done that well. I think primarily because of the fact that earnings have continued to get downgraded. One big
1:03fear that people have had that the US tariffs will affect Indian economy significantly. What happens if US 50%
1:11yawa we are seeing uh credit growth revive very strongly. Now if something that
1:18significant happens it’ll show up in GDP growth because no one borrows money to keep it in their their pockets right? So
1:23they they end up spending it, investing it. So uh so I’m I’m reasonably confident. Uh of course uh it’s a large
1:29and complex economy. You can always get surprised. Hey guys, I’m happy to be a part of
1:35Zerodha’s media network. Together, Zerodha and I plan to bring to you simple yet effective and impactful news
1:42and views from the best minds in the financial world.
1:53Hey guys, welcome to the money mindset. Now there’s so much happening in the world of geopolitics that it’s sometimes
1:59hard to catch up. So we decided to invite our favorite economist Nil Khan Mishra, chief economist at Access Bank
2:05here to do a quick catch up with him to understand what’s really happening with world politics and geopolitics more
2:11importantly. Nilan, thank you so much for being here. Thank you for having me again. I think since the last time we spoke the world
2:17has almost turned upside down. There is a lot that has happened. Have you made
Geopolitics and Trade
2:22sense of it all? Yeah. So, it’s a continuation of the same old pattern. uh see the the
2:28rules-based order that was established in 1945 uh clearly is not in the
2:33interest of the US and uh see when you are 56% of world GDP
2:39which is what they were in 1945 it makes sense to set up a system
2:45that everyone is aligned to uh and let the world grow because that’s the only
2:51way for you to grow fast u Given what had happened in the first
2:57and second world wars, I think they had also realized that if you corner some people too much, it ends up in war and
3:03which is much more damaging for everyone. So I think people were tired the world got set up that way. Now I
3:09think what they have realized and perhaps Venezuela was a was a was a symptom of that
3:16following the rules of the game it is impossible to corner China. So whether it is trade rules u whether
3:25it is uh rules of capital flows um and and therefore even the sherad
3:32that had to be put up see what Trump has done in Venezuela is not very different from what Obama did in Libya. It’s just
3:39that Obama and his administration at least tried to put lipstick on a pig. Uh that it should you know you at least try
3:45to make it sound logical. I think the Trump administration has now realized even that sherad is no longer necessary.
3:52So um uh so yeah so I think now we are coming closer to the realization uh that
4:00there is a severe power conflict which is unon um and uh effectively uh people’s
4:09intentions I mean made very clear so um so in a way it is a continuation of some
4:16of the major themes we discussed in the in the last podcast. So you’re saying the rulesbased order now doesn’t hold
Trump vs NATO Allies
4:22anymore? No. That’s interesting because what Trump is doing with the NATO allies, for example,
4:28you know, putting tariffs on all of the NATO allies doesn’t make sense to me. I mean, it will eventually result in all
4:35the the allies going against the US and working out, you know, relationships
4:40with other countries. We’ve seen what’s happened with Canada and China, for example. Um would wouldn’t that be a
4:46self goal in a way for the US? it is um I I think the uh the use of tariffs I
4:53would say overuse of tariffs uh and I’m frankly surprised that the Supreme Court in the US has not invalidated the IPA
5:02tariffs yet. Um they will I I think it’s very high likelihood that they will
5:08declare that these reciprocal tariffs are are unconstitutional uh that you can’t have country specific
5:13tariffs. uh now Trump uh because that’s his instinct. Uh it is very clear to
5:19anyone and I’m sure there are people in the administration who believe the same that uh tariffs actually end up damaging
5:26the US but he’s going ahead and doing it because there are no checks and balances around him. Um so see uh
5:35some of these tensions and some of these readjustments are beyond individuals.
5:41The attack on Venezuela would not have happened without the Pentagon’s wish.
5:48See, a lot of what happened in uh Venezuela was about throwing the
5:54Russians and the Chinese out. Uh there was no polite way to do it. U and uh I’m
6:01sure uh the the defense establishment in the US had been wanting to do it for a while. It is just that under President
6:09Trump they found a regime which was happy to go along. Um and so they they you know the the the
6:19slightly jovial but of course this is very serious stuff uh example parallel that I give is that suppose you are a
6:25you know a high schooler you know you’re very good at integral calculus and differential calculus and uh some brrawy
6:35bully comes and sort of troubles your girlfriend your calculus is not going to
6:40help you there. So, so the fact that the Chinese can manufacture cheap electric
6:46vehicles and solar panels and are now beginning to catch up on semiconductors
6:52uh is one thing, but they can’t execute the kind of military maneuvers that the US can and uh and therefore if you want
7:00to make sure that uh Chinese are out of your uh neighborhood
7:06uh you can use muscle. So, so this this u the fact that the Pentagon would have
7:12wanted to because they would have been observing that these things are happening that they’re building bases, they’re building business uh uh presence
7:18there uh and and there was no way to throw them out while pretending to
7:25follow the rules of United Nations and all that and therefore uh this attack happened. uh what’s happening in Iran or
7:32I think the fact that they don’t know how to establish a new regime
7:39uh which will not destabilize Iran and thus disrupt the 3 million barrels a day
7:45of oil production is perhaps the only reason why they haven’t done more in Iran. uh because uh making sure that
7:52using muscle you can somehow restrict the benefits that China is getting u is
7:58is what they’ve descended to. Okay. So fair point, but you know my question is that is this the start of a
Global Trade War?
8:04global trade war? Because if America is now cornering the western hemisphere as we’ve seen with what they’ve doing with
8:10Venezuela, with Greenland, what stops say China from attacking Taiwan and then
8:15restricting chip supply to the US and then the rest of the nations from doing the same. So are we looking at the start
8:22of a big global trade war? U well that’s not a trade war. So that
8:27would be an actual physical war, right? So uh I think that’s well
8:34look history is not very comforting on that front. Uh so whenever these major
8:40power resets happen people don’t willingly seed power or seed space
8:48u and agreements happen only after people are tired of the bloodshed and
8:54the deaths and the destruction. Um the uh but at the same time uh look at least
9:03when it comes to the Chinese they have don’t have a lot of hot war experience.
9:10The last one they had was in Vietnam which they lost late ‘7s. Um and uh
9:18there I think the next aircraft carrier is still a few years away. Um though as some people say the aircraft carrier has
9:25gone from being the queen to the king meaning the queen was where in the chess board on the chess board you can move
9:30and kill anyone now the aircraft carrier is something that you have to protect like a king u so I don’t know how useful
9:36it is but there are many such things that uh perhaps are still not in place
9:41there are some uh game theorists who say that um the US is pretty much provoking
9:50the the Chinese to get involved in Taiwan so that they can get caught up there u and and therefore deplete
9:58themselves. So um so yeah so it’s it’s a complex thing but I don’t think we are
10:04we are likely to see a hot war anytime soon. Uh I mean a big conflration um
10:10anytime soon. Uh but uh history says that any of these big power resets in
10:16the past have not happened without significant bloodshed and they’ve not gone down well um in
Effects on Markets
10:22terms of even like there’s been a large contagion effect across the world right I mean sitting here in India you only
10:28get to read the headlines but as an investor you are facing the brunt as well I mean our equity markets have done
10:33nothing there’s a lot of volatility uh precious metals have picked up in a big way so what do you see as the contagion
10:40effect of this geopolitical you know issues have on asset classes like say
10:46equities precious metals etc. So um okay so the Indian market has not
10:52done that well I think primarily because of uh the fact that our earnings
10:59uh have continued to get downgraded. Um uh I think and uh that we are most of
11:06that is behind us but some of the early earnings reports in this quarter have
11:12not been very encouraging. um uh December we had two big companies
11:18uh airlines and autos uh which had substantial earnings cuts. So so December was also not pretty good. So
11:25you can keep saying oh no it’s only one company or two companies but the nifty EPS the downgrades continue to happen.
11:30So that’s clearly disappointing. On the other hand you have a significant
11:36shortage of semiconductors coming up. So memory is clear shortage. uh people
11:43are starting to ration memory chips. You see the uh renting rates on uh some of
11:51the cloud platforms for the some of the most advanced GPUs. Apparently there’s some up 30 35% yearon year. Uh which
11:58means that the demand for compute is rising faster than the supply of semiconductors.
12:04Uh which means that there is a very strong cyclical uptick. So some of the semiconductor majors are seeing strong
12:11upgrade. So, so the world or or look at defense talks in Europe. Uh, and now that finally uh it looks like uh the US
12:20has provoked the Europeans enough to to get them to stand up and say no visa fee
12:26travel and that we will also start exploring tariffs on the US. Uh which
12:32suggests that finally some uh spine is being shown. But uh you look at European
12:38defense talks uh they’re absolutely flying because uh the administration
12:43there will now be forced to spend on defense. So there are many such themes which are emerging out of this new
12:49environment. The the story on India which is of a pure macro uh
12:55macroeconomic recovery because we had overtightened on the fiscal and monetary side is uh not yet fully clear uh to
13:04others. I mean I can I can almost see it happening in the next 12 months but uh clearly you need evidence if you’re
13:10looking at global markets of whether the this will show up in earnings or not. Uh
13:17once it starts showing up I think the Indian market should start recovering as well. On precious metals I think the
13:24challenge is slightly different. Uh, of course, uh, war and uncertainty never helps because it means that there will
13:31be even more fiscal expansion. But for most long-term allocators, the
13:38challenge now is um that uh a dollar decline sometime in the next 3 to 5
13:44years, a sharp dollar decline is inevitable. There’s no other way that
13:50debt to GDP is sustainable or their economy can really survive and compete.
13:55So uh if that is the case then uh you know currency debasement people start
14:02jumping into precious metals. Some of the stuff that is happening on silver and other base metals is a corollery of
14:09what’s happening to gold or is a is a you know after effects of or let’s say
14:16side effects of gold going up. Um uh so that’s even if the warlike scenario was
14:23not emerging uh it would it would still be um uh that that would still be
Silver as an Investment?
14:29happening. So which side of the fence are you on when it comes to silver? Do you see more upsides and it’s still being a lucrative
14:36opportunity for investors or do you think that the best is over? So uh yeah so I’m not a precious metals
14:41expert. Um I just view things from a macroeconomic perspective. Um I think
14:48the market’s instincts on silver are somewhat mystigial. Uh
14:54meaning there was a time when u gold and silver I mean many countries
15:00had dual dual uh currency kind of system where silver was for day-to-day
15:06transactions and gold was for more higher value transactions and at that time gold and silver used to be in a you
15:12know fixed ratio. uh that era is long gone 150 years 135 40 years uh but still
15:20that vestigial instinct remains. So people look at the gold silver ratio and say oh god it’s gone so high so now
15:25silver has to catch up. Um the difference between gold and silver is that gold is inelastic to demand. Uh the
15:33prices uh the the supply and demand are inelastic to price. Meaning that even if prices go up it’s not that a lot of gold
15:40will suddenly appear out of somewhere. uh and uh there is some period of
15:46digestion but gold prices go up after a while people kind of adjust to the higher prices and uh and so demand
15:53doesn’t get that badly affected. Silver has a lot of industrial use so if prices
15:59go up demand goes down. Uh and silver also is much more available than gold is
16:06and therefore um as prices go up supply goes up. So,
16:11so supply uh so therefore uh I think silver is less uh of a metal than gold
16:20when it comes to acting as a proxy for currencies. uh but at the same time you know when
16:28the crowds are rushing in uh they can push up prices so prices go up because everyone else thinks that prices and to
16:35some extent gold is in a similar boat but uh uh uh silver uh therefore for me
16:41I mean the striking thing was that after I mean till till a month back it had recovered its 1990s levels uh so that
16:50there’s a big lesson in that comment uh that you can have very speculative
16:55upturns. Uh it is completely speculative. You have to be very sure of
17:02that you will be able to exit at the right time. Um and so yeah, so I’m I
17:07but in this case silver is not as speculative, right? Because there is definitely higher demand than there was 10 years ago. Everything now needs
17:13silver, whether it’s EVs, whether it’s solar cells and all of this didn’t really exist in such large quantities
17:18say 10 years ago. So it’s not speculative in that sense. It’s more demandled, right?
17:23Um, not really. So, if you look at the the
17:29uh well, there is a lot of merit in what you say that there are uh new uses of silver that have come up. Uh but when
17:37you so think about as a comparison to gold, uh it’s mostly uh that is silver a
17:44proxy to a currency because that’s the trade that that people want to play. uh
17:50and uh in see the the demand supply argument on copper is much stronger
17:56because copper usage is actually going up and uh uh by a substantial sum in
18:02gold. So, so maybe silver lies to me somewhere in the middle that in gold uh
18:09say if if uh Indians are buying 550 to 750 tons a year or central banks are
18:15buying 800 to 900 tons a year uh all of that is currency proxy
18:22uh in silver u I’ve forgotten the global volume of silver being sold but I won’t
18:28be surprised if the actual industrial use demand uh is is maybe less than 10% or 5% of
18:36the incremental demand for silver that is being seen almost all of it is speculative uh the rest of it uh which
18:42is that you you’re buying it because it can go up or that gold has gone up too much so let me push up silver now u uh
18:49so yeah so I’m less of a fan of silver not to say that silver prices start tanking tomorrow um
Potential of Metals in 2026
18:55so if you’re an investor in 2026 and you want to take some allocation to precious metals because of what’s happening not
19:01precious metals metals in general between silver, gold, copper and all the others uh zinc where do you see maximum
19:08potential now? So um look I think gold and copper uh would be
19:16my uh uh preferred bets. Uh again I must give a disclaimer that I’m I’m used to
19:21be a metals analyst. I’m no longer one. So my instincts are not as finely tuned
19:26as they used to be. Um now the reason why I say so is that the debasement
19:33trade is going to run for many years. So uh it’ll be many years before we can
19:39safely say that gold is done for this cycle. Uh whether 46 4700 per is the
19:46peak uh for this year or not is a harder call to make. Uh that’s not something that I’m very u uh sort of trained for
19:54or track regularly. My colleagues think that it can touch 5,000 this year uh which could happen but uh when everyone
20:02around me is doing the same thing my market instincts tell me that it’s the wrong thing to do.
20:07Your contrarian hat. Yeah. Exactly. So uh but sometimes you know just because you and I think or the
20:15uh 500 people that I that I meet uh maybe every month are all you know sort
20:22of I would say the financial elite. Maybe they are not the big buyers. Maybe there is there’s a much deeper penetration of that information before
20:30gold really peaks out. So uh but gold is a is a is a precious metal which I think
20:35in the next 3 to 5 years uh there is significant further room for upside because currency debasement there is no
20:41alternative. So can you tell me a little more about currency debasement? Is it similar to what we spoke about earlier about
20:48ddollarization? Yes. Yes. Well, it’s not dolization. Uh it is it is the fact that um
20:56uh the the US uh does not have a way out of its economic issues without significantly
21:03devaluing the dollar and the challenge is that because their real effective exchange rate is too
21:09high. uh I mean simple parallels uh in common world parliaments uh uh you know
21:16someone wrote that it’s cheaper now to fly to Disney World in Japan spend a day
21:22there and fly back than to spend one day in Disney World Florida.
21:27Uh it is uh you know Four Seasons Hotel apparently in New York is $120 a night.
21:34It’s in it’s in China. In China it is $250 a night. most of East Asia, North Asia, it is at those levels. So,
21:40but that was always the case, right? Not always the case. Uh so, uh the the
21:46there is a clear I mean so this kind of uh differential um even on things so so
21:54you need to then really start doing really high-end stuff uh which frankly is not something that
22:02the US is gearing up for by destroying its research and all of that. The second aspect is the primary income which is uh
22:12as a country what do you pay on your foreign liabilities and how much do you earn from your foreign assets? Uh they
22:18used to have a positive primary income despite having more liabilities than assets. Now it has become negative. The
22:26only way uh minus 90% of GDP worth of uh
22:31uh excess liabilities can be corrected is by devaluing the currency. So there are many arguments which warrant uh that
22:38that decline and the only challenge right now is that if you want to devalue
22:45your currency against whom? Because the Japanese are on a different tangent u so clearly fiscal and you know
22:54so so Takisan with the new election she wants further support and you can see that in where the yen is headed. Uh the
23:01Europeans need to get their act together. uh so who will they fall against and therefore there is
23:06effectively now uh uh competitive currency debasement and will the Chinese
23:12allow their currency to appreciate a lot uh you know one or 2% change is not going to solve the problem which is what
23:17they do and everyone starts celebrating but uh the USDC is not the the right
23:23proxy so uh so if the if the Chinese currency does not appreciate strongly
23:29against the US dollar then we are in a game where everyone is trying to devalue against everyone else. Uh and then
23:36people try to find proxies like gold uh which uh more than just the tech bros
23:41who want crypto uh you know it’s a conventional and therefore because more people believe in it the more it goes
23:47up. So precious metals there’s a strong story uh over the next 3 to 5 years one year I’m not so sure on uh on on non-
23:55gold precious metals again I mean I think the fact that there is um there is
24:01actual industrial usage is a negative uh because that usage that demand will come
24:06off if silver has gone up so much imagine using silver for any actual product um and there is adequate supply
24:14like you know lead and silver are found together so you have a lot of silver. So all of the lead miners are now ramping
24:20up the silver lead output because they can get more silver out um on the base metals which are financially traded like
24:29LME uh traded copper, aluminium, zinc, lead, tin, nickel. Um there is uh there
24:37will be an impact and which we are seeing now that uh the financial impact
24:42uh or where people try to hedge the the debasement trade through purchasing
24:48large sums of these metals. So that will and has already started showing up in some of these prices. The only challenge
24:55for some of these metals is that uh there are fundamental drivers of the
25:01change as well. So for example, aluminium is effectively like packaged energy.
25:06So the whole competition between the US and China is going to be bring down energy prices uh so that you can that
25:13the Americans can be more competitive. Uh as of now of course because of the winter in Europe, gas prices have gone
25:20up. But uh one of the reasons possibly for the US to want to end the Russia
25:26Ukraine war is to get Nordstream 2 restarted. So, so you can get uh one of the reasons to not disrupt Iran more is
25:33so that oil prices don’t go up further. So, so if energy prices are going to be contained then there’s enough boxide in
25:40the world. U frankly I think aluminium at 3200 doesn’t make a lot of sense to me. Uh copper is different. copper u you
25:49know the overgrade that you now need to mine it’s the cost curve a lot of other things and the demand increase that is
25:54happening because of all that we see um on uh so similar stories on zinc lead
26:00nickel tin I think there are stories there on on the ferris metals um
26:08there is less of speculative interest because the volumes are much higher um
26:13at their peak of course the Chinese had managed to speculate on that also uh because you know to keep one ton of
26:19iron ore you need a lot of space uh and and meaning not one ton $1 billion of iron ore you need a lot of space right
26:25because it’s just $100 a ton um so so it’s very hard to speculate in that um
26:31we are currently going through an inventory restock cycle in India and the rest of the world so so steel prices are
26:38holding up uh there is a trade there but uh once the monsoons hit in US China and
26:44India the summers and so there’s a lot of so you have to trade around steel on
26:50um on on seasonal and and cyclical terms there’s no secular upturn that you can
26:57expect just because there is debasement of currency happening that uh steel prices will go to thousand
27:02will go higher okay so that’s on metals right and on of course commodities in general but coming back to equities this
Large Cap Equity Performance
27:08has been a very frustrating painful period for Indian equities if you take the last one two even three years I was
27:14looking at some of the data most of these large caps these bluest of blue chips right reliance ITC HL Infosys TCS
27:24have done nothing three four 5% maybe in the last 3 years uh I’m talking about
27:30stock performance even if you look at earnings singledigit earnings growth now we seeing what hap what’s happening with
27:35IT companies etc so for a normal average retail investor it’s a it’s a period
27:41where they’re kind of losing trust in equities and now with precious precious metals going up. A lot of people even
27:46talk about moving the equity portfolio to precious metals. I know there is a recency bias which is hitting a lot of
27:52people as well. But what’s your what’s your take? Do you think that there could be a lot more pain before things get
27:58better in equities? Um another couple of percent point drop in the nifty is is possible u because in
28:06the near term you know how the herd behaves is very hard to say. But uh as I was saying earlier, I think the
28:14the economic recovery that is underway uh is should be uh supportive of
28:22roll forward gains in earnings. And this is something which is worth uh
28:28reiterating. I mean I I often talk about it that look in January 26 we are
28:37uh we have 3 months of FI26 and 9 months of FI27. The 12 month forward earnings
28:42is is structured this way in um January 27 if nothing else changes uh we’ll have
28:50or so we’ll have 3 months of FI27 and 9 months of FI28. So as of now FI27 is supposed to be 15%
28:59higher than FI26 uh nifty EPS and 28 is 14% higher than 27. So give or take you
29:08should be 14% higher if nothing else changes. The problem has been that
29:14between October 24 and October 25 we saw a 13% downgrade in index EPS for
29:22any given year. So all the roll forward gains were offset by uh so imagine that
29:28FI27 from current levels is brought down by 14% and 28 also is brought down by
29:3314%. So then you will be in Jan 27 and your 12 month forward EPS is the same.
29:39There’s no justification for the nifty to go up from here which is kind of what has happened. So the period that you’re
29:44talking about the ultimate painful period is a period where uh your your
29:50forward EPA just stopped growing. So, so you’ll see there’s a nice upward slope and then there’s a flat line. Now, the
29:57expectation I have is that uh with the economy now reviving uh and picking up
30:03momentum, the uh the earnings cuts are not necessary going forward and
30:09therefore uh what appears as a 14% growth if things don’t change is deliverable. So
30:16if you are uh even if say the nifty remains at 25,500 one year down one year
30:23out uh and you are you know currently at say whatever 21 22 times forward uh you
30:29will be at 18 19 times forward uh even if the market has not done anything which means that it is much cheaper and
30:35more attractive and some stocks will be much more attractive. So uh at least that that uh you know time correction
30:41would have happened. Uh the painful part about the last 15 months has been that nothing has happened.
30:46Nothing has happened. But that’s your base case is that the economy is reviving. But what makes you say that because it doesn’t feel like
Economy Reviving?
30:52that on the ground. I mean jobs is an issue. Uh you know growth has barely picked up. Look at this quarter’s
30:57earnings corporate earnings not great. The December quarter cement volume growth was 8 to 9%.
31:05Now the thing about cement is that you can’t eat it, you can’t store it, you
31:11have to use it. Now uh so so if you’re using it, you’re using it with sand,
31:18with steel, with labor, with equipment. So if so much of cement is being
31:23consumed, all the other things are happening as well. So it’s like a barometer of growth. Yeah. So it is it’s a very strong
31:29parameter of construction and which is why GDP also uses cement volumes as a good proxy. Uh we are seeing uh credit
31:37growth revive very strongly. Now I think the second fortnight of December the
31:45reported numbers of course jumped up atrociously. Uh so I think 14.4% was the
31:50number. So from a 12 handle you went to a 14 handle in like one fortnite. there were one-offs there meaning
31:58uh the last 3 4 days of the quarter generally a lot of credit growth happens in every bank it’s like the classic
32:04sales push that happens in any organization so that happens in in every bank as well uh so so the fact that this
32:11time the RBI shifted to a a calendar month end normally they would do
32:16fortnite as a weekend this now they’ve said that no we’ll do 15th and 30th or 31st so so that I think played a role
32:24there’s been some share gains uh versus the bond market, ECBS, external commercial borrowings, but by and large
32:31uh there is now good demand for credit coming up uh from the large corporates and the MSMES. Uh and you are seeing all
32:39of this excitement in uh foreign interest in NBFCs and banks. You’ve seen
32:45very large transactions. So I think that there is uh significant scope for system
32:51credit growth to accelerate. So u so my team believes that uh system credit so
32:57which I’m talking about not just banks but also NBFC’s bonds ECBs all put together can be uh can go from 13% this
33:05year to 15% next year. Uh now if something that significant happens it’ll
33:10show up in GDP growth because no one borrows money to keep it in their their pockets right so they they end up spending it investing it. So uh so I’m
33:18I’m reasonably confident uh of course it’s a large and complex economy. You can always get surprised. U one big fear
33:26that people have had that uh the US tariffs will uh affect the Indian
33:31economy significantly now we have evidence that I mean we have been saying that for a while was you
33:38know it’s not going to affect yeah because people are saying 50 60 basis points oh what happens if US 50%.
33:45So September, October, November just to give you numbers FI22 to FI25 U
33:53export growth in goods in India was annualizing at I think 1.3%.
34:00So it had slowed substantially. So FY 20 to22 it’s uh so of course there was
34:05COVID year and then the postcoid recovery was very strong. uh but after that things kind of stagnated
34:12uh despite the tariffs uh in the September to November period the growth was 3% yearon year um and even to the US
34:22the export growth is actually better than what used to be last year so I mean
34:27I frankly and once you start digging into the the causality or at least sector by sector analysis what you
34:34realize is that there are sectors where uh the the Indian exports to the US are
34:41exempt uh meaning electronics, pharmaceuticals, petrochemicals
34:47uh uh like data center inputs and all that. Um there are sectors where India
34:52does not have a specific disadvantage which is what they call the section 232 tariffs where the the US says that every
35:00country will be at 50% import tariff then India doesn’t have a specific disadvantage. So so long as the Americans can’t produce it, Indian
35:07companies can go and sell. Uh like steel, you would have seen how US farmers are the worst affected
35:13because farm equipment became more expensive. Uh and and because steel has become more expensive. So on there on
35:20those sectors also India is not badly affected. the stuff that was pure commodity like
35:25shrimps or or uh ores and minerals or uh
35:31or even commodity like inputs like say apparel uh there is already evidence of
35:36significant diversification meaning that u what shrimps were being sold in the US now going to Europe going
35:43to China to Japan uh the shrimp exports were up 16% year on year uh so when I so
35:51there are some segments which are somewhat affected uh but even there like look at auto components if you’re
35:58selling to a global major uh it’s unlikely that you were the only supplier sitting out of India I mean
36:03that that that there are other suppliers from the rest of the world so what if if
36:09your factory was used to target some US factories uh they will target some Thai
36:15factories and the Thai component can then go out to the US so see the businesses are much more robust fast and
36:23and and creative than than states. So uh so putting all this together uh I think
36:29some of and and services exports continue to grow double digits. So u putting all this
36:35together I see no reason why uh we should be unduly worried about India’s economic progress. So India’s domestic
Indian Economy & Collateral Damage
36:42economy okay the it’s still growth is still quite stable but coming back to where we started right um putting your
36:48economist hat on and looking at it from your vantage point if um this entire
36:55growth you know this whole piece sort of comes apart through 2026 because of
37:00what’s happening with the tariffs and with the uh the allies and you know if if growth suffers do you think there
37:06could be a contagion effect across the world and will that drag India down with it as well.
37:12Um first I don’t think those disruptive changes are um are likely meaning that
37:21what we have seen over the past year is that the political establishment
37:28in both China and the US which are the principal protagonist. I mean the rest of them are kind of uh uh collateral
37:35damage or roadkill as they say. uh though of course now no one is dying here. Uh the the the both of them seem
37:44to have limited appetite for uh economic pain
37:50and therefore uh there will be a lot of posturing a lot of shouting but um when
37:56it comes to actually things that hurt you uh because the US is has the midterm
38:02elections this year I think their appetite for significant economic disruption is very low. So there’ll be a
38:07lot of posturing. See, if you’re a bully, you you say, “I’ll do this, I’ll do that.” But the moment someone
38:13barking dog. Yeah. Exactly. So, uh, and and therefore, and that was my first question to you. If there are midterm elections, if
38:19they’re they’re coming up, then why would the US why would Trump make all these statements? It’s almost seeming
38:24like a self, right? It the US has more to lose.
38:30That that’s that’s logical. What you’re saying is absolutely logical. But what he’s playing to is is his support base.
38:39So the uh from what I gather and maybe my information is not correct but
38:46apparently Maduro wanted to just escape and said you guys do what you want to.
38:52Uh we are because they had put a whole armada in front of his small country and
38:57he knew what was coming. So he said you know just give me a safe exit and things will be fine. You can do what you want.
39:03But he uh the US administration wanted that drama because it it makes them feel
39:09strong and it it feeds into his approval ratings with a mega crowd. So uh almost
39:16all of it is about domestic politics. So uh and and given that on Greenland u
39:23there is um there is some history of the
39:28Greenlanders not being h happy with Denmark. uh that that the US has tried in the
39:34past to acquire it. Uh and again 59,000 people and neither here nor there. So it
39:39becomes more like symbolic. Uh it for him to make a move, I’m not
39:45saying it is doing the right thing and I think it’s completely immoral, immoral. Um but uh the fact that he’s doing it I
39:53think limited damage uh and uh you know if it comes down to
40:00uh say spending a million dollars saying saying telling all 59,000 Greenlanders give you a million dollars each and give
40:06you make you US citizens uh it cost $60 billion they all vote in a referendum
40:12and you know so what I’m saying is this is uh this is just again a lot of noise
40:19which actually has very limited global economic impact. So when we think about in fact that’s a very important um uh
40:27message that I would like to uh leave your listeners that uh you know there will be it is the role of a politician
40:34to stay in the limelight to make a lot of noise make a lot of song and dance so
40:39that to just to show that it’s all about you uh but in reality uh the world doesn’t
40:46move like that uh so you look at global trade to GDP has risen this
40:53So we do a global trade aggregate uh in the month of October.
40:59Global trade in nominal terms is growing faster than nominal GDP.
41:04Now whether it is China dumping somewhere or someone importing from somewhere whatever happening trade is
41:09happening. So you would think that with all of this disruption that somehow trade has come to a standstill it has not. So uh
41:17you’re saying all of this is just posturing at the end of the day. Well, there is some uh uh you know changing
41:25geopolitical dynamics u uh and coming back to the basic question of uh US and
41:31China sort of creating space for each other. Now have they come to a G2 agreement where the the Trump
41:39administration says you know what this is mine uh it’ll never be declared as
41:44this is mine. It will be more signaling that uh look I do what I want. uh in the
41:51western hemisphere uh and I can’t leave everything in the eastern hemisphere to you but if you want to sort of go and
41:58acquire some parts of Siberia if you want to uh sort of take over Taiwan uh
42:04establish more points in the South China Sea East China Sea go ahead I will not
42:10counter it uh so so there are people who fear that u or that maybe when they went
42:16in met in Korea perhaps they they they discussed some of Yes, which I think is unlikely. I mean there are people
42:22alleging that. Uh but uh so there is stuff which is moving but it is moving
42:27way more slowly uh than then it’s out out in the media. Yeah. Yeah. Exactly. So it feels like oh
42:33my god something is breaking apart but you realize that uh therefore in our outlook note this year we had no
42:39discussion of global geopolitics, no discussion of global trade deliberately. It’s not that we don’t track it. It’s
42:45not important. So what is important according to you for investors who are you know tracking their portfolios and
42:51constantly worrying about what what to do. So um how quickly can we get credit
42:57growth up? Uh how quickly can we get the this periodic liquidity disruption?
43:05See this sounds very nerdy and but these are very important issues like you know in the month of January we have the
43:12liquidity cost spiraling up. So last year there’s a measure of liquidity we call it the CDI spread but I’ll spare
43:18the nerdy jargon there but it’s it’s like you know the the if if markets have
43:25sufficient liquidity then that cost should be 50 basis points. Uh it is it was at 150 March 25 and we all said oh
43:31my god so high and March is the tightest liquidity month of the year. In January this year that is now 175 basis points
43:38and a large part of that is because the government’s cash balances are bloated. um the government’s uh issuance is so
43:46bad that long-term costs are too inflated. So there are many of these uh uh you know seemingly technical but
43:53extraordinarily important developments that we need to adjust for uh the the
43:59pace at which land is getting cleared, the the pace at which uh national highway tendering is happening. Can you
44:05believe that in the first 9 months of this year uh there’s been less than 2,000 maybe less than 2,500 km of
44:12national highways bid. So that tendering can be accelerated. There is so much of
44:18uh urban infrastructure projects that need to get done. So there are many levers that can be pulled. Um and what
44:24is remarkable and very positive is that the government both center and state uh
44:32are out and out for reform. So, so there are remarkably positive shifts that are
44:37happening. Um the like you know state governments
44:42seven states last year allowed women to work the night shift. Now imagine that if you’re expanding a modern trade
44:49outlet um to sweat the real estate you need to keep the shops open till 10:00 11 p.m. And you couldn’t hire women
44:56legally. I mean I’m sure many people were still hiring them and by bribing the labor inspector but uh now you are
45:01legally allowed to do it. uh you can expand beauty salons, restaurants and hire more women to to run the shop and
45:09uh the the the penalties, the decriminalization, a lot of momentum is there. So there are quality control
45:15orders being rescended. Uh so these reforms uh are really structural basic
45:22stuff which perhaps should have been done 20 years back but it’s finally getting done and uh it’s unlocking a lot
45:28of potential in the economy. So I would be quite positive um in terms of data points you know uh we see one or two
45:34more months of this credit growth and I think there will be significant comfort that at least the momentum is
45:41there. Okay that’s important but thank you so much for joining us. It was really um
45:46wonderful to learn from you as always and like you said right a lot of the a lot of times it’s just a smoke screen
45:52and it’s a kind of a facade or maybe posturing so don’t take it too seriously
45:57when it comes to your portfolio I think looking inwards looking to the domestic growth that’s I think the better way to
46:03look at it for from a retail investor standpoint correct correct okay thanks a lot for joining us thank you thank you Sonia