On Episode 795 of The Core Report, financial journalist Govindraj Ethiraj talks to C S Vigneshwar, President of the Federation of Automobile Dealer’s Association (FADA) as well as Amit Goel, Co-founder & Chief Global Strategist at PACE 360.

SHOW NOTES

(00:00) Stories of the Day

(00:50) Foreign portfolio investments are keeping the market steady, despite whiffs of negative news

(02:21) Investments in gold ETFs overtake equities, what does that mean

(10:16) Action in the high seas picks up as shadow tankers are seized by India

(12:35) Bangladesh gets a leg up with a preferential deal for garment exports to the US

(14:54) The interesting reason why entry level car sales have shot up

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NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on [email protected].

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Good morning, it's Wednesday the 11th of February and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.

Our top stories and themes…

Foreign portfolio investments are keeping the market steady despite whiffs of negative news.

Action in the high seas picks up as shadow tankers are being seized by India.

The interesting reason why entry-level car sales have shot up the way they are

And Bangladesh gets a leg up with a preferential deal for government exposed to the United States

Investments in gold exchange-traded funds overtake equity mutual funds. What does that mean?

Steady As They Go

For all the chinks and warts in the India-US tariff deal, which is unveiling or unravelling as we see, the markets are still holding, presumably taking greater comfort from the fact that foreign portfolio investors have turned positive and that's because the larger sentiment on the India-US tariff deal is still positive.

So Indian equity benchmarks climbed for a third state session on Tuesday, the indices have gained nearly 1.2% each in the last three sessions, more than 4% in the sixth session since the deal. Foreign investors have bought shares worth about $248 million on Monday, according to data, and about $1.7 billion since the beginning of February, after about three consecutive months of selling, according to Reuters. So there is a clear shift and turnaround.

The Sensex and Nifty were higher also because of strong third-quarter results by companies like State Bank of India, which declared better-than-expected results on Monday. At close on Tuesday, the Sensex was up 208 points to 84,273. The Nifty 50 was up 67 points to 25,935.

The broader small caps and mid caps have also added about 5.6% and 5.3% in these six sessions, according to Reuters. The rupee strengthened as well, thanks to those portfolio inflows. And the US dollar is also a little weak.

The rupee is now at about Rs. 90.57 and has been in that range since the deal was announced a week ago.

It's Gold

Flows to gold exchange-traded funds have more than doubled from the previous month to about Rs. 24,000 crore, putting them ahead of equity flows for the first time, according to data from the Association of Mutual Funds of India. Net flows into Indian equity mutual funds fell about 14.3% or about 14% month-on-month to about Rs.

24,000 crores. But that total figure is a little less than the gold figure that we just referred to. And for equity mutual funds, this is the second straight month of decline.

So investors, as we can see, are still buying gold and metal despite the heightened volatility in recent weeks. However, we are looking at January numbers and we are now in February. Just to remind everyone, gold rose about 65% last year and silver rose about 147% last year.

That's 2025. Gold ETFs are obviously easier to buy and hold than physical gold and India is one of the world's largest markets for it. The larger point is that this is a fundamental shift for gold and silver.

And even if it does not last in terms of prices going up, they can also show or they have demonstrated that they can swing very wildly as they did in recent weeks. And this is a phenomenon that one would have not associated with gold and silver, at least in recent history. So what should investors on the sidelines or otherwise do or how should they be looking at it in a sort of macro view? I spoke with Amit Goel, co-founder and chief global strategist of Pace360, who we've spoken to in the past on gold and he's always been a little cautious.

INTERVIEW TRANSCRIPT

Amit Goel: So see my understanding is that there is still a frenzied buying happening in gold and silver ETFs and in fact not just the ETFs but also on gold and silver bars, coins and in whatever form people can lay their hands on. There is frenzied buying happening in the world and I think collectively what at one point of time was a haven has become like a bubble. So you know when any asset class in the world if it becomes everybody's safe haven and everybody flocks towards that asset class then you can be very sure that a bubble is being created and this is exactly what is happening to gold and silver whether it is any geopolitical event or a crisis, any economic crisis, anything to do with U.S. fiscal deficit, anything to do with dollar debasement, anything to do with resurgence of inflation. It seems that the only solution and the only playbook which people have for each one of these problems is to buy gold or silver either through ETFs or bars or coins or whatever and my sense is that gold and silver both have made their tops.

Silver made its top at $121 about let's say one and a half weeks back and gold made its top at about $5,600. My sense is that we are not going back to those levels anytime soon and over the next one to one and a half years I believe that gold could easily go down by about 50% from its top which was made in January end and silver could easily go down by about 65% from its top again which was made in January end.

Govindraj Ethiraj: Right and I think you were fairly bearish the last time I spoke to you and that was when I think we were still in the 4000s when it comes to gold and we got feedback saying that you know your guest is being over bearish and anyway so I think you've been partly right on your projections but my question also is to do with the volatility that we are seeing which is I guess unusual for this market that's the gold market or the silver market. So how would you caution investors or advise investors whether they're small or large at a time like this?

Amit Goel: So I agree with you that it is not just the extent of the frenzy which is in terms of buying volumes but also the sheer volatility has just gone up to the point that we haven't seen this kind of volatility in precious metals in decades. So my sense is that any market which comes such a long way in such a short period of time close to the end of the journey on the way up the volatility does go up and there are literally dozens if not hundreds of precedents of this across asset classes across time zones and across geographies. So my sense is that the volatility is also close to its peak just like gold and silver have made their peaks the volatility also in some ways has peaked out.

My sense is that the volatility over a period of time will go down maybe the current relief rally in gold and silver because you know that silver went down to as low as $64 only about three four days back. So from those levels both gold and silver have rallied and silver has rallied back to about $83 $84. So my sense is that volatility going forward is going to be less than what it is.

The rally may extend a little the relief rally may extend a little and maybe silver can go up to $90 $95 and gold can maybe go up to $5,200 $5,300 but I'm very very clear in my mind that this is a very big bubble which has been inflated. Gold and silver in January and represented and I went on record on various electronic and digital channels saying that this is the biggest bubble that we've had in any asset class in decades and I still maintain that that the bubble has started deflating but this is going to be a long drawn-out process for the bubble to deflate. It's going to take another one one and a half years and in the meanwhile what investors should do I think they should sell on every rise whatever they have accumulated over a period of time.

They should book their profits over the next few weeks and not buy into them anytime soon till the time there is a very very deep correction they should keep out of gold and silver and there would be enough opportunities in other asset classes for us to avail and we should not buy an asset class when it is showing as bubbly a behaviour as gold and silver have over the last two months.

Govindraj Ethiraj: Right so last question the fundamental argument to that is that you know the intrinsic demand for both these assets is still strong. I mean with gold it's central banks it's safe haven buying because of all the uncertainty emanating from the United States and for silver it's a combination of this plus demand from let's say industries like electric vehicles or electronics as a whole which obviously are growing. So how would you respond to that?

Amit Goel: See as I mentioned before while central bank buying is something which has actually gone down if you see the central bank buying in 2025 for the first time in four years we did not cross the level of thousand metric tonnes. So central banks have reduced their buying speed ever since the prices took off in such a big way over the last six to eight months so this is one. As far as the haven buying is concerned I think what is everybody's haven is definitely everybody's bubble.

So when everybody is flocking to the same asset classes because they think that they are solutions to every financial economic political geopolitical fiscal problem in the world then you can be very very sure that this haven this so-called haven is now the biggest bubble and there are enough precedents of that happening in the previous many years and decades. So I have no qualms in saying that this safe haven buying will continue for some time but when people will realise that the prices are coming down irrespective of whether there is a risk on in the world or there is risk off in the world they will realise that they've gotten into a wrong asset class and that's the time when they will probably start selling or they will at least stop buying and that will in itself pave the way for a big beer market in gold and silver and I am absolutely steadfast in my opinion that this is a very very big bubble that has been inflated and this bubble will get deflated over the next one to two years until that time I'm going to stay completely out of them and the only game left in them is that whatever you've accumulated over a period of time book your profits on every up move and try and get out of them within the next few weeks in my opinion.

Govindraj Ethiraj: Right Amit thank you so much for joining me.

Amit Goel: Thank you for the opportunity and thank you.

Excitement In The Seas

We said yesterday that the coming days and weeks would see considerable excitement in the high seas as tankers carrying oil from Russia or elsewhere could be tracked down, given the heightened scrutiny of the source of oil. On Tuesday, the Indian Coast Guard seized three tankers it said were involved in oil smuggling and this is the first sign that India is taking a tough position on these so-called dark fleets. The three ships were taken in the waters off Mumbai on Friday by the Coast Guard, which said in a post on X that it had busted an international oil smuggling racket and that the vessels had been known to change identity frequently.

A report in Bloomberg says this is the first time India has taken such action and comes as the US and Europe lead an effort to get tougher on vessels moving sanctioned oil. Many dark fleet tankers says that report have substandard documentation, improper or fake flag registrations and poor maintenance posing security and maritime safety risks. The US of course has mandated India to stop buying Russian crude as part of a deal to cut import tariffs from 50 to 18 percent.

The Coast Guard did not name the vessels it had seized but shared pictures of them in that post and the pictures matched past images of ships that could be found on marine traffic or ship tracking intelligence platform Bloomberg said. Adding that ship intelligence platform tanker tracker.com identified the same vessels through their unique seven digit IMO numbers and all three ships were sanctioned by the United States last year for links to Iranian oil trade. The three vessels are being escorted to Mumbai for further investigation and there are some 1,500 shadow fleet or dark fleet tankers that carry Russian, Iranian and Venezuelan oil around the world.

The Bloomberg report also said that Malaysian authorities released two ageing tankers earlier this month that they had detained for conducting a ship-to-ship transfer of oil without permission. Meanwhile, oil prices edged up on Tuesday as traders waited to see the likelihood of supply disruptions after the United States put out an advisory for vessels going through the Straits of Hormuz. Brent crude futures were up slightly to about $69.41 on Tuesday afternoon.

Analysts told Reuters that the market is still focused on the tensions between Iran and the United States.

Cotton Tensions

Bangladesh on Monday secured a reduced 19% tariff under a trade agreement with the United States that allows zero tariff on textiles and garments manufactured with US materials.

This also brings Dhaka's total tariff from the earlier 20% to now 19%. According to that agreement, Bangladesh's ready-made garments made from cotton and synthetic fibres imported from the US will enjoy zero reciprocal duty and obviously that would make them much cheaper giving them a competitive edge over countries like India and Vietnam. A Business Standard report quoting the US State Department said US goods import from Bangladesh stood at about $8.4 billion in 2024 and about half of that was textiles.

There are other components to this Bangladesh deal which also mandate importation of US wheat, soya bean and LNG apart from Boeing aircraft. Bangladesh's garment sector accounts for about 80% of its export earnings and employs some 4 million workers, mostly women, and contributes to about 10% of GDP according to this report. Prabhu Damodaran, convener at the Coimbatore-based Indian Text Proners Federation told the court that Bangladesh exports about $44 billion of garments of which about 80% that's $35 billion are cotton garments implying about $17 to $18 billion of yarn and fabric but its domestic spinning and fabric capacity can support only about $3 to $4 billion.

His point was that even for the US market the spinning sector in Bangladesh cannot fully pivot to US cotton also because of entrenched exposure to the Europe and UK markets. At best only 20 to 25% of yarn and fabric demand can be met internally and the balance must be outsourced to India and Vietnam if that's possible. He said the recent signals suggest the US is allowing flexibility to sustain cotton exports but that could also open an opportunity for India and that India should push for zero-duty concessions on garments made in US cotton converting this gap into a competitive edge for Indian apparel exports.

So that's where things are right now but we are of course following this development closely to see where Indian garment exporters stand in a competitive context.

Auto Sales Are Up

The domestic market for cars particularly entry-level cars continues to do well so much so that the industry is now feeling the momentum should last several more quarters if not longer.

There are of course other interesting demand shifts including growing rural contribution to sales. So passenger vehicle sales were up about 7.2% year-on-year for the last month and the mix remains urban-led at 59% and rural at 40% or 41% rather but the growth is really coming in more non-metro areas. Rural passenger vehicles were up 14% as compared to urban at 2.75% according to data from the Federation of Automobile Dealers Associations or FADA.

Moreover inventory levels for passenger vehicles are now at about 32 to 34 days says FADA which is a constructive indicator of healthier channel discipline and improved working capital efficiency. Last year we had reached points where inventory levels were at almost 80 days. FADA also says dealer confidence is constructive for the coming months with 80% of respondents expecting growth and only about 2% expecting degrowth.

I reached out to FADA president C. S. Vigneshwar based in Coimbatore and I began by asking him to give us a sense of demand and market shifts since September end when the price cuts came into being.

INTERVIEW TRANSCRIPT

C S Vigneshwar: I hope this trajectory continues because it seems to be on an upward spiral, if I can call it, and it doesn't seem to be slowing down. This is exactly what we talked about from FADA. Our thoughts were when we started off four months ago with the GST 2.0. We were questioned regarding how long this is going to last and most people used to think or used to comment saying that this is going to be a festive phenomenon for a couple of months and it's going to flutter out. For us in FADA, we believe that the GST 2.0 is one of the boldest reforms which has been undertaken by the country and it's nice that all the parties in India, different political parties, actually came together to make it happen because it wouldn't have been possible without the states and the centre putting on this and it's jolly good they did it because we've been seeing a growth which has been unprecedented. The growth until October, I mean just before October, was about 2-3% overall and then this just got into a turbo boost mode, if I can call it that.

The last quarter alone, markets grew at about 25% and even when you look at it, until last month, the YTD sales until December, which was for nine months, the overall growth was at about 9.5% and after that, let's say the YTD for January, the growth is at about 10.85%. So I think the growth has been pretty strong. This is not slowing down, this is in fact gaining pace. We don't know how long the pace gain would be there, but definitely there would be a large gain in terms of year-on-year and month-on-month performances for a few quarters to come, if not for a few years.

Govindraj Ethiraj: Okay, so if we were to now go deeper into the numbers, clearly there has been a resurgence in small cars, but can you break that down further for us?

C S Vigneshwar: We don't have data specifically on segment wise, perhaps in the future, but right now we don't have the numbers where we can break things up, but we are seeing from whatever we talk to members and also what I see in my own showrooms, there's been a huge resurgence in the small car segment. Primarily this is because the GST 2.0 has taken the prices of small cars to 2019 levels. Of course, the OEMs also contributed a good discount for their products, coupled with the GST reforms, I think products have become really affordable for the entry level.

Govindraj Ethiraj: And when you say 2019, what's the average ticket price that you're referring to?

C S Vigneshwar: Typically, we are looking at the entry level small cars, which are at about four and a half to five lakhs. And I think they have become really affordable. And because there was a huge increase in these prices in the last four or five years, because of emission norms going up, because of safety norms going up, and general inflation really took it away from the customer in terms of an option to buy.

But the latest reforms have really brought this back into the fold of the customer so that they could enjoy their first.

Govindraj Ethiraj: You feel that other factors like financing, which were also a little tighter until recently compared to let's say a year or two years before, and that has not changed and that has remained constant or has that also eased up?

C S Vigneshwar: The financing norms, banks and NBFCs, they have tightened the purses, they have loosened the purses, and it's like a cycle which happens every year, six months, it's different. So keeping that aside, without taking that into consideration, because that will again change in six months or every. So I think the market has been doing well and the price reductions have really helped boost the market and more people are walking into buy.

Govindraj Ethiraj: Okay. The other, I guess the shift in demand centre has been between urban and rural. Can you walk us through that?

C S Vigneshwar: The urban-rural split has been quite interesting for us because traditionally we have seen the two wheelers do well in the rural segments and we've seen the rural segments in the two wheeler be as high as 60% in 2024. Of course, this has been going up and down and the rural markets have always been doing well, especially in the last two, two and a half years. They've been driving the industry forward with much higher growth compared to urban.

Urban, we have seen that there are a lot of price pressures, salary pressures, cost of living pressures, which affected urban markets, but this has been to a vehicles being where urban markets have been traditionally stronger. Yeah. And we see much better market share for urban markets, not by much, but by a decent amount.

But we also seeing rural economies participate better. And we have seen that there's been a two or 3% drop in terms of urban market conceding the buy to rural markets in the last couple of quarters.

Govindraj Ethiraj: Right. And as you look ahead and you did say that you feel things are going to remain strong or are looking like they're strong for the next few quarters. Do you see the same composition of sales performance, for example, small entry-level cars continuing to drive sales for the next few quarters, or could that change?

C S Vigneshwar: That could change from the point of view that not only the entry-level segment is doing well, also the premium segments are doing well. And a lot of customers are going for a more premium variant of the car they want to purchase, which is great, which means better safety, better features, and also better profitability from the commercial aspect of things. Also from the point of view that we are seeing a lot of seasonal buying, a lot of buying for festivals, but it is also spilling over to non-festival months and non-celebrating months as this weekend.

This is good for the industry because when you look at evening out of sales, we are also using our resources better. Otherwise there are a couple of months of very, very high sales, a few months of decent sales and six months of low sales, which means all our resources are always framed during high sale months. But when you're looking at this gets linear over a period of time, we also are able to offer better services to our customers.

Govindraj Ethiraj: And you're saying that this is happening only now or this kind of uniformity?

C S Vigneshwar: Yes, we are seeing specifically in the last four months, different places where there are high seasonalities, low seasonalities, all of them are being evened out in high season throughout.

Govindraj Ethiraj: So therefore the lower rates are clearly triggering purchases regardless of whether there is a festive season or not.

C S Vigneshwar: Yeah, right.

Govindraj Ethiraj: Okay.

This is a slightly more conceptual question. We've obviously been seeing a lot of developments on the trade front, both with the India-EU free trade agreement being signed, which will operationalise a year later, and the India-US agreement, which is not a free trade one fully, but definitely allows for 0% imports. Now the fine print on that is still awaited, but what could potentially happen from your vantage point if, let's say, there was freeing up of automobile imports from the US?

C S Vigneshwar: That's been covered by quite a few experts from the automobile sector, saying that there won't be much reduction in prices. Perhaps there would be more choices for the customer by getting more CBUs in. Even when you look at the fine print, it talks about luxury cars.

I mean, anything less than about, I think, 60 lakh rupees is what has been spoken about is not going to get affected. And not many cars are sold above 60 lakh rupees, in India at least. I mean, that's not where the market lies.

Govindraj Ethiraj: But this is 60 lakh is what could have been 30 lakh earlier, which was, let's say, 100% duty. But 60 lakh car technically could be just 60 lakhs in its price at origin.

C S Vigneshwar: Correct. So these duties are just one part of it. There's also something like your food taxes, there's a GST component to it.

So it doesn't really work out to be much at the end of the day. So probably components will get cheaper, probably certain parts of the car would, I mean, certain countries specialise in, so their costs would be cheaper. It won't come down by much, because there is, of course, an import duty component, there's a road tax component, there is a component of GST, and then the cost of the car.

It is not going to come down by much. But what is going to happen is this free trade agreements mean that there is going to be more economic activity, a lot of exporters are going to export these products. I mean, it could be so many products, there's a huge list there.

So all these would, of course, lead to better employment, better pay, the circulatory of money is going to work for us. And the budget has been fantastic in terms of commitment to infrastructure spending. So infrastructure spending perhaps is one of the best ways to boost an economy.

So that's where we from the automobile sector are looking very, very positive towards this year, because the trade deals have been cleared out, you have a great spending infra from the budget, and we already have the tailwind from GST. So I think we're going to have a bumper year. And yeah, hopefully we ride it.

Govindraj Ethiraj: Wonderful. Thank you so much, Vignesh, for joining me.

C S Vigneshwar: Thanks so much, Govind.