'Rising Oil Prices Will Impact Our Inflation And Hence Interest Rates': Nilesh Shah To Rajdeep

Added: 2026-05-12

[00:00:00]2 days after the prime minister gave a call for austerity and tightening of belts. Well, the markets are not responding well, the Sensex is down once again. In fact, for the last four consecutive days, the Sensex has lost more than 3,400 points. And today too, the Sensex was down by almost 2% as was the Nifty.

[00:00:22]We're seeing a major change, a drop in the markets. What explains it? What lies ahead? People are worried. Why is the prime minister's austerity message spooking the markets? Let's go and meet my next guest.

[00:00:39]So why has Prime Minister Modi's austerity appeal spooked the markets and what lies ahead? Joining me now is Nilles Sha. He's a member of the Prime Minister's Economic Advisory Council, also managing director at Kotuk Mahindra's mutual fund. Appreciate you joining us. Uh Nilles Sha. uh 3,400 points the Sensex in 4 days and particularly since the prime minister spoke of austerity and the need uh to tighten the belt the market seat does don't seem to have taken that kindly what do you believe is happening is there panic in the market after what the prime minister said I >> think market is more focused on emerging and developing geopolitical situation undoubtedly India is vulnerable able to shocks coming from geopolitical side.

[00:01:31]Oil prices have bounced back into triple digit. Rupee has depreciated.

[00:01:37]FBI selling is continuing. Put all these things together, markets have corrected.

[00:01:48]Now you're calling it a correction, but it's much more than a correction. And since the prime minister made that appeal amidst the geopolitical tensions, the concerns are growing that growth could slow down, inflation could rise, we could have a oil price hike in a few days from now. All of that is adding to the uncertainty. Do you believe that the prime minister's appeal in a way as I said at the outset has spooked people?

[00:02:13]It would have spooked certain jewelry stocks as prime minister appealed for avoiding unnecessary purchase of gold.

[00:02:23]But it's not as if market was unaware that there is a fiscal burden building up because of higher oil prices. My feeling is that market is more focused on what President Trump is doing and as he mentioned that Middle Eastern ceasefire is on life support. Market had to react to tripledigit oil prices now. So it's interesting you're saying that the focus is on what Donald Trump does or does not do. But you just mentioned gold and you've interestingly in the past written that you believe the gold assets uh could be monetized in in some way. Do you believe the prime minister saying don't buy gold for example? Is that again sending out the wrong message? What does one do given that Indians do have this pension to save gold or to buy gold?

[00:03:19]>> So essentially there are multiple ways in which we can monetize gold. One thing which has taken off quite nicely is financing against gold. We have seen about six lakh cr worth of outstanding and gold loan financing where small businessmen's pledge their gold take short-term money and whenever business need is met they unpledge the gold. Now can we move towards gold recycling? We are one of the largest owner of gold in the world. Can gold be recycled? Can gold be like stock put into lending and borrowing mechanism or can there be gold monetization scheme? So apart from deferring or delaying the purchase of gold, we should also focus on monetizing the existing stock of gold which is lying in the country.

[00:04:17]Now you're saying we should focus on monetizing the existing stock of gold lying in the country. But when the prime minister says don't buy gold, trying to sort of reduce dependence on gold imports again, does it not send mixed signals that the crisis perhaps is far deeper? Our foreign exchange reserves may appear on the face of it uh uh strong over 600 uh billion. But the feeling is that amidst is there something we should be worried about going into the future? Is that isn't there a sense that now there is a concern over what happens next?

[00:04:52]So should we be worried about rising oil prices? Answer is undoubtedly yes.

[00:04:58]Rising oil prices will impact our inflation and hence interest rates. It will widen our current account deficit and hence rupee and if the burden is shared with corporate India and consumer India, it will slow down GDP growth and hence equity market. So overall it will be fair to say rising oil prices does impact India's macroeconomic variable.

[00:05:24]>> In the past like the early 90s when oil prices went through sky we had to pledge gold to borrow money and we were on our knees.

[00:05:33]>> Compared to that we are in a far better situation at $690 billion of reserves.

[00:05:39]But should we stop spending unnecessarily on let's say foreign vacation or on purchase of excessive gold or on consumption of petrol and diesel? Answer is undoubtedly yes. Every other country which is dependent on oil import is taking corrective action. Some are declaring holidays during the week.

[00:06:03]Some are requesting their citizens to avoid unnecessarily wastage of fuel. So this is all corrective measure because there is a 10% drop in the global oil supply and we are one of the largest buyer of oil in the world. If there is a shortage, if there is a drop in the supply, we need to take corrective action. Mhm.

[00:06:29]No, but what Nlesh Nlesh you're calling corrective action people will match that against the fact that we have at least 10 months of import cover the the reserves provide India with 10 months of import cover then why send out these panic signals don't buy gold don't go on foreign travels all of this as you know the worst thing you can do is is make people panic and that's what seems to be happening people are now worried that the crisis could be far worse than may have been imagined So essentially it is our job to give data to people and facts to people and show them this is tightening the belt.

[00:07:08]This is not necessarily panic reaction.

[00:07:11]We have foreign exchange reserve but the world is running short of almost 10 billion 10 million barrels of oil a day.

[00:07:20]No matter what price we are willing to pay that 10% shortfall in quantity will remain. So we need to take corrective action. If through efficiency and productivity we can reduce our oil consumption by 10%. Life will be as good as it was when the oil supply was higher.

[00:07:43]You see the worry dish is and you know this better there's been an FI outflow.

[00:07:47]FDI hasn't been coming in uh to the extent that it was in earlier times.

[00:07:52]It's not just about what's happening in the Gulf. Even predating that there was fii outflows. The question is is there a what explains this? Is there a lack of confidence? Is there concern? What explains the fact that it appears that there are mixed signals coming out about the health of the economy? Macroecon economic fundamentals seem strong and yet there is this outflow.

[00:08:18]>> So the FBI outflow can be attributed to multiple factors. First, our valuations were running ahead of expectations. We were trading at almost 100% premium to other emerging market, way above our historical average. Then the artificial intelligence investment trend started.

[00:08:38]Unfortunately for India, we neither had a play on AI hardware nor we had a play on AI LLM. After that, the third thing which happened was this oil shock. We were vulnerable to oil and the crisis came right at our vulnerability.

[00:08:56]Most importantly, FBI's were sitting on profits in India. And unlike many other countries where going in is easy and going out is difficult. In India, we provide revolving door. You can come in as well as go out. Put all these things together, we have seen major outflows from FBI for last three years. Just one caveat over here.

[00:09:20]This is not only selling by long only FBI. This is also profit taking by high frequency traders.

[00:09:28]>> In many parts of the world, high frequency traders don't get as open ground as they are getting in India.

[00:09:35]>> So they are also making tons of profit and taking some money out. It's a combination of long only selling for variety of factors I mentioned plus HFT trading.

[00:09:50]So let me ask you in conclusion, at least in the short run, do you believe things could get worse before they get better starting with a fuel price hike in a few days from now? Do you believe the consumer in particular is in for difficult times? And that's what the prime minister was almost forewarning people about.

[00:10:08]>> Undoubtedly, consumption will get impacted as fuel prices at pump level are likely to increase. We also need to be careful about the El Nino's impact on monsoon and potential fertilizer shortages. Now this may not happen but it's better to prepare for the worst.

[00:10:26]And finally we also have to overcome this entire AI challenge. 4 cr Indians work directly or indirectly in IT related sector. That has been the growth engine for consumption. Now if well-paying job creation doesn't happen in that sector there will be impact on consumption. So we have our work cut out. We have to manage the geopolitical crisis then the monsoon and then the AI challenge.

[00:10:57]>> Mhm.

[00:11:01]Let me leave it there. Nlesh Sha, I think you've given us a sense of what what explains the fact that investors in particular at the moment appear so concerned and how they're reading the prime minister's remarks. Thank you very much for joining me on the show tonight.

[00:11:17]Thank you.

[00:11:18]>> Thank you.