Good morning, 

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

• Investor’s enthusiasm is running thin,

• the RBI doubles down on tackling the liquidity crisis,

• and, Maharashtra scores big wins at Davos.

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

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—Shreyas, [email protected]

Market Update.

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.

Enthusiasm is Running Thin.

Bloomberg Economics predicts India’s GDP growth will decline by 50 bps in the quarter ending March, compared to the previous quarter, which was a major setback after mixed earnings and continued declining foreign inflows. 

Nifty50 takes a beating: Since its September peak, the Nifty 50 Index has declined nearly 12 percent, with the so-called “Modi stocks,” a term coined by CLSA to describe companies benefiting from government policies, tumbling almost twice as much. The Nifty50 Index is on track for its longest monthly losing streak since 2001, with foreign funds pulling out over $19 billion (₹1.6 trillion) since September.

The aggregate market capitalization of companies in the MSCI India Index surged nearly $2 trillion (₹173 trillion) within two years, peaking in late September.

But... Despite the correction, Indian stocks remain expensive relative to regional peers, trading at 19 times estimated forward earnings—higher than all other major Asian emerging markets.  

Why now? Some market analysts believe the seeds of the current selloff were sown in June when the BJP lost its parliamentary majority and had to form a coalition government. This political shift has forced Modi to prioritize consumption-driven measures over large-scale infrastructure spending, raising concerns about the long-term policy outlook.  

The good news: For some investors, the recent pullback presents a buying opportunity. Domestic investors and funds in particular are looking to buy more. Domestic institutions and retail traders continue to provide support. Indian investors have purchased a net $8 billion (₹692 billion) worth of stocks this month alone, adding to the $70 billion (₹6.1 trillion) they invested throughout 2024.   

But, bad news begets bad news: In the short term, the weak stock market could lead to a vicious cycle — delaying corporate fundraising efforts, slowing investments, and further dampening growth. As the federal budget announcement approaches, investors will be closely watching for policy measures that could help restore confidence and reignite India's growth momentum.

RBI’s Liquidity Crisis.

India’s central bank has stepped up efforts to address a severe liquidity squeeze, purchasing government bonds worth $1.2 billion (₹101.8 billion) last week. The RBI’s move comes as the banking system grapples with a cash deficit at its widest level in over a decade.  

Data released after market hours on Friday revealed that the banking system cash shortfall — measured by RBI borrowings — reached $38.2 billion (₹3.3 trillion) on Thursday, the highest since 2010. Analysts attribute the crunch partly to the RBI's sustained dollar sales to stabilize the depreciating rupee, which has been under pressure for months. A significant amount of government bonds were purchased by entities typically linked to the central bank, fueling speculation of further interventions.  

Stronger intervention calls have grown. Banks and financial institutions have reportedly urged the RBI to take stronger measures to alleviate the liquidity squeeze. In response, the central bank has already ramped up its support, announcing plans to conduct daily variable repo rate auctions on all working days to ensure short-term liquidity needs are met.  

Meanwhile, market data from the Clearing Corporation showed that purchases from the RBI, insurance firms, and pension funds totaled $834.9 million (₹72.2 billion) on Thursday, the highest since June 2023.  

The RBI’s actions provided some relief to bond markets, with yields on the benchmark 10-year government bond at 6.72 percent, marking a five-basis-point drop over the week. 

With the cash crunch showing little signs of easing, analysts anticipate that the RBI may resort to more aggressive liquidity injections in the coming weeks, including potential open market operations and further bond purchases. The upcoming federal budget announcement on February 1 is also expected to influence the central bank’s liquidity management strategy.

Maharashtra’s Wins Davos.

Maharashtra, India’s most economically productive state that contributes a tenth of India’s GDP, and is home to Mumbai, has secured $200 billion (₹17.3 trillion) in investment commitments at the WEF in Davos, according to Chief Minister Devendra Fadnavis (the equivalent of a state governor). He emphasized Maharashtra’s investor-friendly climate and the state’s strides in EV technology and infrastructure.  

Major investors are looking in: Amazon and Microsoft have already shown strong interest in establishing data centers in the state. Additionally, investment pledges were signed with industry giants like Blackstone, Reliance, and Brookfield. While states frequently announce investment pledges at such global summits, only a fraction translate into operational projects. However, Fadnavis expressed confidence in Maharashtra’s ability to deliver, citing the state's proven track record in attracting and executing large-scale investments.  

Despite the impressive investment inflows, Maharashtra faces fiscal pressure, with Fadnavis revealing that the state has maintained a 3 percent fiscal deficit for the current financial year amid increased spending.  

Competition among states: Maharashtra was not alone in its investment drive. Other states, such as Tamil Nadu and Andhra Pradesh, have also been actively pitching for foreign investments at Davos. Tamil Nadu’s industries minister T.R.B. Rajaa highlighted opportunities in auto manufacturing and electronics, while Andhra Pradesh CM Naidu focused on AI and renewables. 

Gupshup.

Macro

• The Indian Rupee is expected to decline on Monday. The rupee is expected to open near ₹86.30 to the U.S. dollar, compared to Friday’s close at ₹86.21 to the U.S. dollar, pressured by a weaker Chinese yuan and concerns over U.S. trade policies.

• Indian shares are set to open lower on Monday due to concerns about lackluster earnings and US policy uncertainty.GIFT Nifty futures traded at $265.46 (₹22,930.5), suggesting the NSE Nifty 50 will open below Friday's $267.33 (₹23,092.2). India's benchmark indexes ended their third straight week of losses.

Equities

• A U.S. businessman has proposed to buy a 26 percent share in Religare Enterprises. In September 2023, the Burman family, founders of Dabur India, increased their stake in Religare to nearly 25 percent, triggering an open offer to acquire more shares, resulting in further action.

• Ola joins Uber in denying the implementation of phone model-based pricing. Ola Consumer stated on Friday that it doesn't set fares based on phone models (Apple vs. Android), following Uber's denial of similar allegations.

• Indian real-estate firm DLF receives record bookings for 'super luxury' homes with $4 Billion (₹345.5 Billion) spent. DLF sold 173 units in "The Dahlias" in Gurugram for $1.4 Billion (₹120.93 billion) over nine weeks, reflecting a surge in demand for luxury living among India's affluent.

• JSW Steel Posts 70 Percent Plunge in Quarterly Profit on Weaker Prices. JSW Steel's quarterly profit fell 70 percent to $83 million (₹7.17 billion), missing forecasts, with revenue dropping 1.3 percent due to weak demand and low prices, while Chinese imports pressure growth.

• IndiGo Profit Misses as Forex Loss Offsets Strong Travel Demand.IndiGo's profit fell 18 percent to $280 million (₹24.50 billion), missing estimates, due to higher foreign exchange losses, despite a 14 percent revenue increase. The airline expanded its market share to 64 percent and served 31.1 million passengers.

Alts

• India’s finance ministry advertises for a new market regulator chief. Madhabi Puri Buch's term as chief, appointed in March 2022, ends on Feb. 28. She faced pressure to resign last year over alleged conflicts of interest in an Adani Group case, which she denied.

• India says sanctioned Russian oil tankers can discharge before Feb 27.  The U.S. told India that tankers carrying Russian oil must discharge by Feb. 27 under new sanctions, according to India's oil secretary Pankaj Jain.

Policy

• India and Indonesia agree on a wide range of agreements ranging from health to security. The agreement covered culture, health, maritime, security, and digital sectors, with Indonesia’s President Prabowo emphasizing an acceleration of long-term economic cooperation with India.

• Nomura Expects India to Announce Tax Cuts in Budget to Revive Economy. Indian markets are cautious due to U.S. tariffs on Colombia and key earnings reports while surging air travel contrasts with slowing consumption. Corporate tax cuts in the Budget could boost profits but raise growth concerns.

• Indian Central Bank Buys $1.2 Billion (₹103.65 Billion) of Bonds Amid Cash Crunch. The Reserve Bank of India purchased $1.18 billion (₹101.75 billion) in government bonds last week to address a cash deficit of $38.2 billion (₹3.3 trillion), the highest in over a decade. These actions, along with daily repo rate auctions, aim to ease liquidity pressures.

See you Tuesday.

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.