Welcome to Samosa Capital’s daily briefing — the best way to stay up-to-date on India’s financial markets. Here’s what’s in today’s newsletter:

• Indian equities aren’t doing so well right now,

• RBI continues controversial dividend to the government,

• and, India plans to reduce its trade surplus with the United States.

• Finally, we’ll close with Gupshup, a round-up of the most important headlines.

Have a question you want us to answer? Fill out this form and you could be featured in our newsletter.

—Shreyas, [email protected]

Market Update

Benchmark indices went up 0.57 percent for the Nifty and 0.75 percent for the Sensex due to individual names like Infosys and Wipro going up. Investors also likely bought the dip following yesterday's larger 1.50 percent loss.

Future of India: Expert Panel & Networking

Seats are running out for our upcoming “Future of India” expert panel and networking event on Wednesday, February 12, 2025, in New York City.

Our keynote speaker is Dr. Viral Acharya, who served as the deputy governor of the Reserve Bank of India, during which he oversaw India’s monetary policy, financial markets, and the central bank’s research.

Buy tickets here.

Continued Equity Underperformance

Earnings have been weak so far with only 3 out of 11 Nifty 50 companies exceeding expectations.

Analysts are questioning the consensus forecast of 14-15 percent earnings growth for the next fiscal year, calling it overly optimistic given the current macroeconomic backdrop.

Investors get cautious: India’s equity markets are bracing for further declines as foreign investors ramp up their selling amid concerns over weak corporate earnings growth. January saw a net outflow of $5.4 billion (₹467.1 billion), marking the worst start to a year in terms of foreign institutional investor (FII) withdrawals. This continues a broader trend, with foreign outflows exceeding $17 billion (₹1.5 trillion) since October.

Here’s the problem: Urban demand, which accounts for two-thirds of India’s total consumption, has lagged behind rural areas for the past three quarters, resulting in financials and consumer stocks seeing the highest outflows.

But... Despite the recent market correction, Indian equities remain expensive, trading at close to 19 times forward earnings, making them less appealing compared to other emerging markets.

What’s next: All eyes are on the 2025 Union Budget, where Finance Minister Sitharaman will announce the government’s annual fund allocations, a revised tax code, and regulations.

RBI Continues Controversial Dividend to Government

India’s government may benefit from a significant windfall dividend from the RBI, thanks to profits earned from the central bank's efforts to stabilize the rupee by selling foreign exchange reserves. Analysts project that the RBI's dividend payout could range between $17.3 to $23 billion (₹1.5 to ₹2 trillion) for the fiscal year ending in March, with the transfer impacting next year's budget accounting.  

Where is all this cash coming from: The RBI sold $196 billion (₹16.9 trillion) from April to November to support the rupee, far exceeding last year's $113 billion (₹9.8 trillion). Analysts expect full-year sales to near $250 billion (₹21.6 trillion), generating substantial profit as the dollars were bought at lower rates. ICICI Bank economists estimate this will allow the RBI to maintain a high dividend payout of around $23 billion (₹2 trillion), comparable to last year’s $24.3 billion (₹2.1 trillion).

But, but but... Such moves were highly controversial just a few years ago. Ahead of the 2018 elections, the government demanded surplus funds from the RBI to finance the project. Then-RBI Deputy Governor Viral Acharya warned that this would lead to the monetization of debt, a highly inflationary practice seen in countries like Argentina. It also threatened to reduce the independence of the central bank in managing its own balance sheet.

(BTW, you can hear Dr. Viral Acharya speak live at our upcoming February 12 event: https://www.samosacapital.com/future-of-india)

India Plans on Reducing Its U.S. Trade Surplus

Trump trumps trade: India plans to reduce its $35.3 billion (₹3.1 trillion) trade surplus with the United States, its largest trading partner. Plans include increasing imports of a variety of goods. This includes whiskey, steel, and oil, plus various products like soybeans, medical instruments, and aircraft to import from politically strategic US states. Officials are also considering lowering “most-favored nation” tariffs, applied to nations without a bilateral trade deal, on select US products like bourbon and farm goods. 

This contradicts Modi’s Made In India plan, which aims to boost India’s export industry through subsidies and infrastructure investments. Fundamentally, this means India intends to move towards increasing its trade surpluses with major nations.

Modi and Trump to meet in February, sources report. Discussions are now ongoing for a targeted trade pact, reviving efforts from Trump 1.0, which previously fell through. This deal may focus on market access for US goods and resolving disputes over data regulations, intellectual property, and e-commerce rights.

Gupshup

Macro

• SEBI wants funds to have SIPs starting at $3 (₹250) to increase financial participation. SIPs are a way for investors to access mutual funds. Currently 225 million use SIPs but most are from urban areas. Lowering the entry barrier should open access to more rural areas as well. Small incentives could be offered to firms to offset higher costs or risks. 

• Middlemen have halted Russian cargo offers due to new sanctions. Bharat Petroleum reported that no offers are open for the March delivery window which normally takes in 16-17 cargoes per month for 35 percent of all short-term oil needs. Refiners are looking for Middle Eastern grades now. 

Equities

• ​​Unilever’s profit beats estimates due to a time gain from a subsidiary sale. Net income was $347 million (₹30 billion), up 19 percent from last year. Volume growth, however, was actually flat which reflects how consumption has not grown. The company had a one-time gain of $58.9 million (₹5.1 billion) from selling a water purification business.  

• HDFC posts 2.2 percent profit growth even with a 1 percent increase in bad loans. Net income rose to $1.9 billion (₹167.4 billion) even with higher funding costs for banks. HDFC has been shrinking its loan portfolio due to a rise in slippages and a very high credit-deposit ratio of 98 percent. 

• Maruti Suzuki bets on EVs even with a terrible charging network and high prices. EVs currently make up just 3 percent of new car sales, compared to China’s approximately 50 percent. Tata is currently a frontrunner in the industry with its models being 60 percent of all EV sales.

Alts

• Essar Group is planning to build eight gigawatts of clean battery energy. This is the coal and gas firm’s first foray into renewables. They are targeting batteries due to lithium-ion packs falling 20 percent in price since last year.

Policy

• Andhra Pradesh CM — a key Modi ally — will only move on Adani when US prosecution advances. CM Naidu wants information from US officials citing contractual obligations for why he cannot take any steps against Adani. This is further proof that Adani will likely face limited charges in India.  

• India will likely announce a $450 million (₹38.9 billion) sale of Russian missiles to Indonesia. Indonesia is trying to bolster its defenses through strategic purchases. The announcement of subsonic sales will likely be this week when Indonesian President Prabowo visits India.  

• India and the US are trying to arrange an early meeting between Modi and Trump, happening as soon as February. The main topics are trade and immigration.

See you Thursday.

Written by Yash Tibrewal. Edited by Shreyas Sinha.

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.