Do it yourself

The current results season (1QFY26) has been rather underwhelming so far. The market expectations for this quarter were already muted. The consensus estimates projected 1QFY26e Nifty50 revenue and profits to grow around 5% yoy, while the broader market earnings were expected to grow at a better 11-12% yoy rate. However, the results declared so far indicate an aggregate revenue growth less than even the nominal GDP growth of ~10%.

Antimicrobial resistance becoming ominous

Antimicrobial resistance (AMR) is fast emerging as one of the most ominous health concerns at global level.

As per the World Health Organization (WHO), “Antimicrobials – including antibiotics, antivirals, antifungals, and antiparasitic – are medicines used to prevent and treat infectious diseases in humans, animals and plants. Antimicrobial Resistance (AMR) occurs when bacteria, viruses, fungi and parasites no longer respond to antimicrobial medicines. As a result of drug resistance, antibiotics and other antimicrobial medicines become ineffective and infections become difficult or impossible to treat, increasing the risk of disease spread, severe illness, disability and death.

AMR is a natural process that happens over time through genetic changes in pathogens. Its emergence and spread are accelerated by human activity, mainly the misuse and overuse of antimicrobials to treat, prevent or control infections in humans, animals and plants.

Antimicrobial medicines are the cornerstone of modern medicine. The emergence and spread of drug-resistant pathogens threaten our ability to treat common infections and to perform life-saving procedures including cancer chemotherapy and caesarean section, hip replacements, organ transplantation and other surgeries.

In addition, drug-resistant infections impact the health of animals and plants, reduce productivity in farms, and threaten food security.”

Please note that AMR is not a future threat. It is unfolding now—insidiously, incrementally, and globally.

Wolf may enter the barn unnoticed

There’s another kind of resistance building—this time in global financial markets.

President Trump is seeking to alter the global terms of trade through tariffs. In a massive exercise his administration is undertaking a review of the US’s trade terms with all countries (except perhaps Russia and North Korea), regardless of the size of their economy and quantum of trade with the US.

Initially, the global markets were reacting with a good deal of volatility to each tariff related announcement coming out of the White House. The Trump administration would take note of such volatility and take a step back. Of late, something has changed - Markets have "priced in" chaos. Markets are becoming immune to such announcements, assuming the proposed tariffs will not be implemented, as has been the case previously. Taking advantage of this market complacency, the US administration has already implemented some tariff proposals, including a 50% tariff on copper imports into the US. Trade deals have been reportedly signed with key trade partners like UK, China, Vietnam, Japan, Indonesia, and Philippines, materially altering the US’s terms of trade with these countries.

It's a classic “boy who cried wolf” dynamic playing out. Markets are becoming resistant to all threatening news, be it trade, geopolitics or climate.

The question to be examined is whether this resistance is materially different from AMR; or it is similar and would eventually weaken the resilience of markets, making them susceptible to sudden collapses?

As of this morning, I have no view on markets susceptibility to sudden collapses, but I do believe that mindless use of Antimicrobial in India (both through prescription and self-medication) is fast assuming epidemic proportions, and could have catastrophic consequences.

For decades, the United States has held a unique place in the global imagination — as the land of opportunity. Its greatest strength may not lie in military might, financial depth, or diplomatic reach, but in its remarkable ability to attract and absorb the best minds from across the world — including from adversarial or war-torn nations.

The most striking evidence of this is visible in America’s talent pool. Professionals of foreign origin — Indian, Chinese, Iranian, German, and more — dominate leadership roles across top corporations, academic institutions, legal systems, research labs, and even sensitive government-linked establishments like NASA. Many of these individuals come from countries that have historically suffered at the hands of U.S. military or economic policy — yet they thrive in the American ecosystem, contributing to its innovation, productivity, and geopolitical leverage.

This magnetic pull continues despite periodic political rhetoric against immigration, restrictions on student visas, and debates around birthright citizenship. Talented people, especially in emerging fields like artificial intelligence (AI), continue to gravitate towards the U.S. in pursuit of better opportunities and freer expression.

Global AI brain drain

Take, for instance, the migration of AI professionals. Between 2019 and 2024, over 12,000 Indian AI researchers relocated to the U.S., according to migration and academic datasets — second only to Iranian researchers. Over 90% of AI PhD graduates from U.S. institutions have stayed back to work in American academia or industry. Many of these individuals were educated at premier Indian institutions like the IITs, whose costs are borne by Indian taxpayers.

China, however, seems to be bucking this trend. In 2019, only 10% of top-tier Chinese AI researchers remained in China after graduating. By 2022, this figure had grown to 26%, thanks to improving domestic research infrastructure and better-funded universities — six of which now rank among the top 25 globally for AI research.

This trend might just be the beginning. Recently, Canadian mathematician Joshua Zahl, credited with major advances on the century-old Kakeya conjecture, announced his move to Nankai University in China as a full-time chair professor. If such high-profile migrations become common, it would mark a structural shift in the global knowledge economy — one that the U.S. may no longer dominate unchallenged.

Opportunity as a national strategy

What sets the U.S. apart is not just that it welcomes immigrants, but how it integrates and enables them. Many other nations — Australia, the UK, Canada, Germany, and France — have also absorbed millions of immigrants over the past three decades. Yet, none have reaped the economic and strategic benefits at the scale the U.S. has. One reason could be that these countries often pursued immigration for social balancing (aging population, refugee resettlement) while the U.S. positioned itself as a platform for economic opportunity and personal advancement.

This distinction is critical.

India’s blind spot

India, meanwhile, continues to suffer from an unchecked exodus of both talent and wealth. Not only do our brightest minds — trained at the cost of the exchequer — leave in search of better prospects, but increasingly, our wealthiest families are choosing to settle abroad, relocating their capital and potential job-creating capacity with them.

While we celebrate our ancient heritage, digital prowess, and rising geopolitical clout, the hard truth remains: India is still not seen as a land of opportunity — neither by outsiders nor, tragically, by its own elite. We are yet to hear of a rich or highly skilled professional choosing India as their destination of aspiration.

This is not just a branding issue; it is a systemic failure. From bureaucratic hurdles and inconsistent policy to inadequate research funding and a stifling regulatory climate, we are often indifferent — if not hostile — to the very people we need to retain or attract.

Time for radical rethinking

The continued erosion of India’s human capital advantage must not be dismissed as collateral in a globalized world. It is a serious strategic risk. We need a radical rethinking of our talent, research, and immigration policies — including steps like:

·         Creating elite research institutions with global faculty and unrestricted funding

·         Offering residency and startup incentives for global entrepreneurs and returning Indians

·         Reforming academic governance and expanding autonomy

·         Reimagining urban centers as global innovation hubs, not just tech parks

It’s time we recognize that global competitiveness today is not just about trade or missiles — it's about minds. And talent goes where it feels valued, not just needed.

In the classic Hindi film Sahib, Biwi Aur Ghulam (1956), the old aristocracy is shown flying pigeons while their estates crumble around them. There’s a metaphor in that. India must not fall into the trap of living with hubris, celebrating ancient glories while losing out on the future.

(Note: This post has been edited with the help of ChatGPT)

In my middle school Hindi book, there was a thought-provoking story titled Haar Ki Jeet (Victory in Defeat) written by Sudarshan. The story was about a compassionate priest, Baba Bharti, living in a village temple. Baba’s only worldly possession was his horse, named Sultan. A notorious dacoit, Khadag Singh, took fancy for Sultan and vowed to take it from Baba. He offered to buy Sultan from Baba. But Baba refused to part with Sultan, whom he had raised like his son.

Overcome by desire, Khadag Singh deceitfully stole Sultan from Baba. Kind Baba, did not resist the treachery of Khadag Singh, letting him take Sultan. He, however, requested him not to reveal this incident to anyone. Khadag Singh was baffled by this unusual request of Baba. He asked Baba, “why would you request so?” Baba politely said, “if people come to know about this incident, they may hesitate in helping people in distress”. Moved by Baba’s words and overwhelmed by guilt, Khadag Singh quietly left Sultan in his stable in the temple that night.

The moral of the story is that serving the broader social good is far more important than serving one’s own vested interest. You are a winner if you fight for social good, even if that comes at your personal cost.

I remembered this story last night while reading about the report of Viceroy Research LLC, a Delaware (USA) based investigative financial research group, on the UK based Vedanta Resources Limited (VRL), a holding company of NSE listed Vedanta Limited (VDL).

What reminded me of this story was not just the act of perceived betrayal or the quick reactions it triggered, but the broader impact such actions can have on the trust fabric of society.

Viceroy, in its report, highlighted that the entire structure of VRL is “financially unsustainable, operationally compromised” and that it is susceptible to default on its debt. It also termed VRL a “parasite” living on resources of VDL. The stock market reacted to the report in a knee jerk fashion. The stock of VDL initially fell 8%, but ended the session with a smaller cut. This was in contrast to the market reaction to a similar report by the US based short seller Hindenburg Research LLC, on Adani Group of India, in January 2023. In reaction to the Hindenburg report, Adani group stocks had crashed more than 50%, and many of the group's stocks are still not fully recovered to the pre-January 2023 levels.

The reason for a muted market reaction to the Viceroy report, might arguably be that Hindenburg could not substantiate its allegation, and in the process negatively impacted the credibility of investigative research. From anecdotal evidence gathered in the last one week, I find that the market participants are significantly less willing to accept any such investigative research post Hindenburg episode.

I am not commenting on the merits, or otherwise, of either Hindenburg or Viceroy reports. My concern is about the process. If you make some allegation (of throw and run kind) just to gain from short selling, without possessing ability, or holding an intent, to substantiate such allegations in a court of law, you destroy faith of the society in the institution of investigative research and put the entire investing community at risk of being defrauded by unscrupulous businessmen.

This might also apply to the enforcement agencies which make unnecessary arrests or register frivolous cases, under political pressure or for some other reasons. This practice allows building a narrative that enforcement agencies are “caged parrots” and their actions are always motivated by extrajudicial purposes. This obliterates the stigma of being arrested, motivating fearless white-collar crimes. The criminal conveniently plays the “victim of vendetta” card and gathers sympathy instead of being blemished. Five motivated arrests make ninety-five genuine arrests futile.

The criminals come out smiling and uttering a famous dialogue of 1993 Shahrukh Khan starrer movie Baazigar, “haar kar jeetne waale ko Baazigar kehte hai" (those who win after losing are called Baazigar). Baba Bharti would obviously not like it.

(P.S.: Short-sellers like Hindenburg or Viceroy do spark necessary scrutiny, even if not immediately substantiated in court, by exposing potential risks to investors. Also, in most cases enforcement agencies are not politically driven. But the point is that sometimes even one case could be enough to erode the credibility of the entire process.)

Continuing from yesterday…(see In search of Leadership)

As I see it, the current settings of the Indian economy and market are as follows:

Macroeconomic conditions are stable – inflation is under control, fiscal balance is improving, primary deficit is improving faster leaving room for further fiscal stimulus (may be GST rationalization on the top of income tax concessions already announced); terms of trade may improve as more bilateral trade agreements and free trade agreements begin to yield results; monetary policy is growth supportive – liquidity conditions are comfortable, rates cuts have been frontloaded, and current account position is stable.

Financial stability – The health of the financial system is very good. Bank’s balance sheets are stronger than ever with adequate capital and excellent asset quality. Corporates balance sheets are also stronger with accelerated deleveraging in the past 3 years. The government balance sheet is also improving, against the global trend. Settings are thus good for credit and investment cycles.

Growth moderate but stable – The Indian economy is expected to grow at a steady 6.5% annual rate in FY26e. Corporate earnings are expected to grow in the low double digit, accelerating to high teens in FY27. This may not augur well for significant new capacity addition; but nonetheless may keep employment conditions stable.

Consumer demand outlook improving – There are several factors that support an improvement in the domestic consumption demand in the next couple of years. For example, the southwest monsoon that is critical for rural income growth is progressing well. Two, the fiscal stimulus in the form of an effective tax rate cut is beginning to show an impact, as the advance tax collections have shown a decline. Third, the GST rate rationalization on essential household consumption is expected. Fourth, 8^th pay commission recommendations are expected to be implemented wef FY26, substantially increasing the disposable income of government and public sector employees. Fifth, the soft commodity disinflation is under progress, making staples more affordable. Sixth, the consumption demand has lagged for the past couple of years, hence providing a favorable base for growth.

From an investor’s viewpoint, these settings, in my view, imply-

·         The market should trade with an upward bias for most of the 2HFY26 and FY27.

·         The participation should be broader, with most sectors participating.

·         Financials, especially consumer finance, may remain in the lead.

·         Exports may do selectively well, depending on the contours of the trade deals. A global growth recovery in FY27 may improve broader outlook for exports.

·         Domestic consumption growth accelerates. Earnings of the consumer sector that have been on a downward trajectory during the past few quarters, should reverse and become positive. Discretionary consumption (Textile, alcohol, beauty, personal care, healthcare, white goods, etc.) may improve. Up-trading in staples may also be witnessed. Mobile data, budget fashion, food delivery services, quick commerce service, and budget international travel are some areas of consumption with stronger outlook.

·         New capacity addition may not be in focus. Capex may be focused on modernization, optimization (debottlenecking) and automation. Power T&D and mining are the two sectors with high capex visibility.

Consumption may be the new leader

From the above summary, it is reasonable to conclude that consumption could be the dominant theme for the next market up move. I find the following consumption ideas worth closely examining:

Consumer finance – NBFCs, private banks

Aspirational consumption – Mobile data, budget fashion, IMFL, and budget international travel, health insurance, preventive healthcare

Consumer services - food delivery, quick commerce

Also read

In search of new leadership

The benchmark indices in India have been directionless for almost two months now. In fact, Nifty50 has yielded a return of less than 2% in the past one year. Broader market indices have also not done any better. However, there has been a significant divergence in the sectoral performances. Some sectors like financials (+13%) and pharma (+8%) have outperformed the benchmark indices in the past one year, sectors like Media (-17%), Energy (-16%), Realty (-13%), FMCG (-7.5%), and Auto (-7.5%) have materially underperformed.

It is a common adage amongst the financial market participants that “When America sneezes, the rest of the world catches a cold”. The origin of this belief is the global market turbulence in the aftermath of 1929 Wall Street crash. In the past 100 years, whenever the US economy or markets have faced any serious problem, most of the global economies and markets have witnessed elevated volatility and erosion in asset prices. The prime reason for this correlation of the US economy and markets has been the disproportionately large size of the US economy and markets; dominance of the US dollar in global trade; and over-reliance of emerging markets on the US for investment, development assistance and humanitarian aid.

In the past couple of years, serious concerns have emerged about the sustainability of the US public debt and fiscal deficit. The overall GDP growth has been aligned to the average of the post global financial crisis (GFC) period. The efforts to accelerate growth have not yielded much results.

Since January 2025, when the incumbent President (Mr. Trump) assumed charge, things have been rather volatile. Mr. Trump has presented some radical ideas to tackle the economic problems distressing the US economy. These ideas include renegotiating terms of trade with all the trade partners; drastically reducing the budget for global development assistance and humanitarian aid programs; optimizing the size of US administration; and reducing the US commitment to strategic alliance (e.g., NATO); multilateral institutions including the UN and IMF etc.

The impact of these measures, whenever these are effectively implemented (or abandoned), may be felt in the US economy and markets, as well as the global economy and markets. Till then expect the markets to remain tentative and sideways.

Trump Plan

Notwithstanding the theatrics of Mr. Trump, a method in his madness is conspicuous. As I see it, the primary problem of the US is its unsustainable debt. At last count the US public debt was out US$36trn (appx 123% of its GDP), entailing over US$1trn in annual interest payments.

The conventional way to reduce this debt is to use a judicious mix of —

(i)    Curtailing government expenses;

(ii)   Increasing revenue;

(iii)  Inflating the economy to reduce the value of money

(iv)  Weakening the currency; and

(v)   Lowering the debt servicing cost through lower rates.

Mr. Trump is trying to achieve through tariffs (higher revenue and inflation); lower expenses (reducing the size of government, cutting foreign aid, lower clean energy subsidies, etc.); additional revenue (higher VISA fee, new taxes etc.); weaker USD; and coaxing the Fed to cut rates.

How much success he gets in his endeavor, we will know in the next 6-12 months. For now, I see nothing to worry about whatever is emanating from the US. In the next 12 months, the situation will either be the same or significantly better. I shall stay hopeful, though.

 India’s external debt hit US$736.3bn by March 2025, a 10% jump from last year, with a significant portion (over 41%) of the debt maturing soon. As the US threatens 500% tariffs on countries buying Russian oil, including India, investors need to evaluate: Can India afford a confrontation with the US, China and other major trade partners, and could it withstand a covert economic embargo? Here’s my take, may be naïve and ill informed, but nonetheless relevant.

India’s External Debt

According to the Reserve Bank of India (RBI) latest release, India’s external debt stood at US$736.3bn at the end of March 2025, with a debt-to-GDP ratio of 19.1%. Key highlights of the data are:

Long-Term Debt: US$601.9bn, up US$60.6bn from last year, with commercial borrowings and non-resident deposits driving growth. About 77% (US$568bn) of this debt is owed by non-government entities. The non-government debt is almost equally divided between financial institutions (US$271.3bn) and non-financial corporations (US$261.7bn).

Short-Term Debt: US$134.5bn, representing 18.3% of total debt and 20.1% of foreign exchange reserves.

Components: About one half of external liabilities (US$251bn) is loans and debt securities, 22% currency and deposits and 18% trade credit. The rest 10% includes IMF SDRs and intercompany lending by MNCs.

Maturity: 41.2% of the external debt (about US$305bn), is due to mature within the next 12 months.

Debt Sustainability: Foreign exchange reserves cover 92.8% of total debt, down from 97.4% a year ago, signaling a slight decline in buffer capacity.

Refinancing challenge

With over 40% of long-term debt maturing soon, India faces a refinancing challenge, particularly if global financial conditions tighten or trade disruptions escalate. India’s reliance on Russian oil, which accounts for 35-40% of its crude imports (2.08 million barrels per day in June 2025), has put it in the crosshairs of a proposed US Senate bill. The “Sanctioning Russia Act of 2025,” backed by Senator Lindsey Graham and reportedly supported by President Trump, proposes a 500% tariff on countries importing Russian energy to pressure Moscow over Ukraine. India, alongside China, buys 70% of Russia’s oil exports, making it a prime target.

Economic Impact: A 500% tariff on Indian exports to the US, India’s largest export market, could affect US$66bn (87% of India’s US exports), as per Citi Research estimates. This could disrupt key sectors like pharmaceuticals, IT, and textiles, potentially triggering inflation and job losses.

Oil Dependency: India imports 88% of its crude oil, with Russia offering competitive discounts. Switching to costlier suppliers like the US or Middle East could raise import costs significantly, straining India’s trade balance.

Can India Afford a Confrontation?

India’s economic fundamentals offer some resilience but also expose vulnerabilities.

Forex Reserves: At US$703bn (as of recent data), India’s reserves cover 92.8% of external debt, providing a cushion to manage maturing obligations. However, refinancing US$270.9bn in long-term debt within a year could pressure reserves, especially if US tariffs disrupt export revenues.

Trade Dynamics: The US accounts for a US$45.6bn trade deficit with India. A trade war could prompt reciprocal tariffs, but India’s 12% trade-weighted average tariff (vs. the US’s 2.2%) limits its leverage. Negotiations for a trade deal to cut tariffs on US$23bn of US imports are underway, signaling India’s preference for diplomacy over confrontation; notwithstanding some recent comments of senior ministers that suggest otherwise.

Oil Alternatives: India has diversified its oil imports, with the US supplying 6.3% (439,000 bpd in June 2025) and West Asia 35-40%. While switching from Russian oil is feasible, it would increase costs, potentially impacting fuel prices and inflation.

Can India Sustain Virtual Economic Sanctions?

Virtual economic sanctions, such as the proposed 500% tariffs, or Chinese embargo on export of critical components, chemicals, human resources etc., would act as a severe trade barrier.India’s ability to sustain them depends on several factors.

Energy Security: India’s strategic reserves (9-10 days of imports) and diversified suppliers (US, Nigeria, Middle East) provide short-term flexibility. However, replacing Russia’s 40% share at higher costs could strain refiners and consumers.

Economic Resilience: The RBI’s Financial Stability Report (July 2025) highlights strong banking sector metrics, with declining non-performing assets and robust capital buffers. This suggests India’s financial system could absorb some shocks, but prolonged trade disruptions could erode confidence.

Need for caution

India’s debt remains manageable for now, but over 41% debt maturity in 12 months calls for vigilance. Investors in Indian bonds or banking stocks should monitor refinancing risks.

A US tariff war could hit export-driven sectors like IT and pharmaceuticals hardest. India’s diplomatic efforts to secure a trade deal or tariff waiver will be critical. A successful negotiation could stabilize markets, while failure could spark volatility.

Conclusion

India’s US$736.3bn external debt and looming maturities pose challenges, but its reserves and diversified oil sources provide a buffer. A full-blown confrontation with the US seems unlikely, given India’s diplomatic push and economic stakes. However, sustaining virtual sanctions would strain India’s trade balance and energy costs, making de-escalation the smarter play.

The 41% of external debt (US$305bn) maturing within 12 months is significant, requiring substantial refinancing or reserve drawdowns. India’s US$703bn forex reserves provide coverage, but a US tariff war could reduce export revenues, complicating debt servicing.

Sustained 500% tariffs would disrupt exports, weaken the rupee, and increase debt servicing costs. The RBI’s strong banking sector provides some stability, but prolonged sanctions could erode investor confidence and slow growth.

India’s neutral geopolitical stance and trade deal negotiations (aiming to cut tariffs on US$23bn of US imports) indicate a strategy to avoid sanctions. A waiver or partial exemption is possible, given India’s strategic importance to the US.

Read with US$703bn may be just enough

The Reserve Bank of India holds US$702.78bn in foreign exchange reserves. In the popular macroeconomic analysis, especially in the context of the equity market. this piece of data is often used as one of the points of comfort by analysts.

This data could be viewed from multiple standpoints. For example –

Is it adequate to pay for the necessary imports in the near term, assuming the worst-case scenario of no exports could be made and no remittances are received. Currently, India’s monthly imports are appx US$67bn. However, a material part of these imports is crude oil and bullion. A part of the crude oil and bullion is re-exported after refining/processing. I am unable to figure out the precise net import number for domestic usage, but it would be safe to assume that about three fourth of US$67bn, i.e., US$50bn is for domestic usage. Allowing another 20% for “avoidable in emergencies” category of imports, we have appx US$40bn/month import bill payment obligations. By this benchmark we have sufficient reserves to pay for appx 18months of imports. This is a very comfortable situation from conventional yardsticks.

However, we need to consider interest payment and debt repayment obligations also to assess the adequacy of the foreign exchange reserves.

As per the latest RBI release (see here), India’s total external liabilities stood at US$736.3bn as on 31^st March 2025. 41.2% or appx US$305bn of this debt is due for repayment within the next 12 months. Assuming an average interest rate of 5%, another ~US$35bn would be needed for interest repayments. This implies about half of our foreign exchange reserves are needed for debt servicing in the next 12 month. This matrix raises some questions on the adequacy of our US$703bn reserves.

It also highlights the importance of remittances (appx US$135bn in FY25), foreign portfolio investment (FPI) flows (appx US$13.6bn in CY2024, including equities and bonds), and net foreign direct investment (US$3.5bn in FY25). An adverse movement in any of these flow matrices could materially affect the external stability. This brings in the factors like geopolitical stability, internal political & law and order situation, relative valuations of Indian equities and bonds, market stability and integrity, domestic investment climate, foreign investment policy framework etc. into the picture. Any policy mistake, strife in foreign relations, civic unrest, overvaluation, fraud, scam etc. could adversely impact the external stability.

The news headlines like - “China restricting export of critical components and chemicals to India, withdrawing expert manpower from India” that can adversely affect exports or increase the cost of imports for Indian manufacturers; the US considering to impose tax on the outward remittances”, ‘the US considering 500% duties on countries importing oil from Russia”, etc., - makes one cautious about the external stability of the country.

The experts need to analyze the latest RBI data on India’s external liabilities. In particular, it needs to be assessed whether India can withstand a trade war with the US; a covert geopolitical confrontation with China; frequent cases of market manipulation; policies and procedures that make India a less attractive destination for foreign investments; worsening law & order situation on parochial issue like language, religion, regionalism, etc.

…more on this tomorrow 

 1H2025 was marked by stressful events, high volatility, and uncertainty. In geopolitics, several conventions were breached and new doctrines established. The war between Russia and Ukraine continued. India and Pakistan had a brief but intense conflict. The US entered the Middle East (Israel-Palestine) conflict by attacking Iran.

Climate wise, India had a mild winter followed by a mild summer, impacting crops. Europe continued to witness warmer weather, while the US, Canada, UK, Korea and several other countries in Africa witnessed intense and widespread wildfires, causing immense damage to the climate, lives of people and economy.

Politically, the US witnessed one of the most boisterous power transitions with Donald Trump taking over as the President (POTUS). He started his second term in the White House with radical changes in immigration, trade, and climate change policies. This put the US administration on the path to confrontations with citizens, judiciary, major trade allies (e.g., Japan, EU and China), strategic partners (E.g., Mexico, GCC, Canada and India). Towards the end of 1H2025, however things appear somewhat calming and progressing towards sustainable resolutions. The process of developing a new world order based on new ground realities and future prospects took a few more strides.

Technologically, Artificial Intelligence (AI) entered the lives of common men with Google and X (Formerly twitter) launching their user-friendly models. China launched DeepSeek to compete with ChatGPT (Open AI) and most social media platforms, search engines, financial and other services providers, integrating some sort of AI interface for the users.

Markets were volatile as the forces of hope and fear took turns to dominate the participants’ sentiments. In the end, the forces of hope appear to have emerged stronger. Most markets have recovered their losses and are progressing well on the path to growth.

In India, the economic growth returned to the normal pre-Covid trajectory, as the base effect of FY20 and FY21 low growth tapered off, and external challenges mounted. Equity markets settled close to their all-time high levels recorded in 3Q2024.

The following are some of the highlights of the performance during FY25.

Equity Markets

The Indian equity market managed to end 1H2025 with strong gains, despite yielding negative returns for three out of the six months. Indian equities performed in line with the European and US equities. The benchmark Nifty yielded a return of ~8% (9% in USD terms), which was better than the US markets (S&P500 +6%), Japan (Nikkei +1%) and Europe (Stoxx600 +7%) but much lower than South Korea (KOSPI +20%), Brazil (BOVESPA +14%) and Germany (DAX +20%). The valuation premium of Indian markets to the other emerging markets therefore remained elevated.

Financials saved the day for Indian benchmark indices

The benchmark Nifty (+8%) sharply outperformed broader markets (NSE500 +5.5%, Midcap Nifty 100 4.4%, Smallcap Nifty 100 +1.6%). The gains in benchmark indices were mostly led by banks (Nifty Bank +12.7%). Overall market cap of NSE was higher by 4.6%.

Sector-wise, Financials, Private Banks, Infra were top outperformers. IT Services, Realty, Pharma, FMCG, Energy were notable underperformers. Micro-sector-wise, Defense, Capital Markets, Healthcare, Fertilizers were outstanding. Renewable energy and real estate builders were notable losers.

1H2025 witnessed 3/6 negative months

The benchmark Nifty50 yielded negative month-on-month (MoM) returns for three out of six months in 1H2025. April was one of the best months ever for Nifty, yielding a gain of 16% MoM. The market breadth was negative in three out of six months implying much higher volatility in the broader markets.

Institutional flows positive

Over institutional flows were materially positive for 1H2025. Net domestic and foreign flows in the secondary equity market amounted to Rs2630bn. Foreign Portfolio Investors (FPIs) were however net sellers of Rs945.36bn in the secondary market, while domestic institutions pumped in Rs3575.75bn. On an encouraging note, FPIs were net buyers in the last four months of 1H2025. The nifty-institutional flow correlation was very weak in 1H2025.

Debt and Currency Markets

Indian debt and currency markets were volatile in tandem with the global trend. The benchmark bonds managed to close 1H2025 with decent gains, the long-dated bonds were lower. USDINR ended almost unchanged, but EURINR, JPYINR and GBPINR were materially weaker.

RBI cut the policy rates by 100bps and Cash Reserve Ratio for commercial banks also by 100bps during 1H2025. The benchmark 10-year treasury bond yields eased to 6.31% from 6.80% at the beginning of the year. Lending and term deposit rates were lower by up to 10-25bps. The yield steepened sharply.

The RBI maintained its policy stance to “neutral”. The liquidity position remained comfortable with RBI conducting OMOs to keep the system liquidity in surplus. The credit growth continued to decline; however, there are signs of corporate credit demand picking up. Overnight and call money rates cooled ~50bps.

Economic conditions

4QFY25 GDP growth (+7.4% yoy) came sharply higher than the estimates. The consensus estimates for FY26E GDP growth however remain pivoted to ~6.5%. CPI Inflation mostly remained within the RBI’s tolerance band of 4-6% and has recently breached on the lower side. Core inflation has also eased. Real rates have mostly remained in positive territory during 1H2025. Fiscal deficit continued to decline. The private sector investments failed to gather the desired pace, despite several government incentives. The government capex showed some improvement in 1H2025. External conditions remained stable during 1H2025 despite geopolitical conditions remaining volatile. Lower trade helped the current account balance. However, BoP was briefly negative. RBI replenished most of its USD reserves, expended to support USDINR earlier in the year.

Commodities

1H2025 was a mixed period for commodities. Precious metals (Gold +26%, Silver 23%) and Copper +12.8, recorded good gains, while energy (Brent Crude -11%, Coal -12%), other metals (Steel -10%, Zing -8%) and soft commodities (Sugar -16%, Corn -11%) ended the period with strong losses.

Crypto shine

Cryptocurrencies further strengthened their position with material rise in trading volumes and market capitalization. Bitcoin ended the period 1H2025 with a strong 14% gain. More jurisdictions accepted cryptocurrencies as a valid medium of exchange, financial asset and/or tradeable asset.