📰Explained: EU Wants India To Be Its New China

Good evening, 

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

• Elon Musk is growing Tesla in India,

• The SEBI is tinkering with options trading regulations,

• and EU wants India to be its new China, but on some conditions.

Then, we close with Gupshup, a round-up of the most important headlines.

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—Shreyas, [email protected]

Market Update.

Elon Musk, Diplomat or Businessman?

Elon Musk’s companies, including Tesla and SpaceX, have gained long-sought access to the Indian market. Bloomberg News reports that Tesla is hiring in India and preparing to ship thousands of vehicles there. This development follows Musk’s recent trip to Washington, where it was unclear whether he met Modi in his capacity as a businessman or a representative of the US government.  

Tesla has resisted entering India due to high import tariffs on electric vehicles. India’s government prefers local manufacturing, offering reduced tariffs for companies investing at least $500 million in domestic production. Musk may now be willing to meet India halfway on this requirement.  

The issue with the move. However, this potential breakthrough has sparked friction with Trump. Trump has long criticized India’s tariffs on American cars and considers it “very unfair” for US companies to build factories abroad to bypass such barriers. His America First stance conflicts directly with Musk’s global ambitions, especially if Tesla invests in Indian manufacturing.  

This tension highlights broader divisions within Trump’s support base: Big Tech leaders, who favor international expansion and skilled immigration, versus nationalist supporters. The two factions previously clashed over H1-B visas, which are crucial for Silicon Valley but controversial among Trump’s more protectionist backers. Musk, a vocal proponent of H1-B visas, credits them for bringing critical talent to Tesla and SpaceX.  

India remains a key market for US tech companies. Its growing digital economy offers substantial revenue potential, and its pool of skilled engineers is invaluable. But investing heavily in India may continue to irritate Trump’s nationalist supporters, who see such moves as undermining domestic priorities.

SEBI Is Tinkering with Options Trading Regulation.

SEBI has announced new proposals aimed at reducing potential manipulation and limiting volatility spill-over from equity derivatives to the broader cash market. These measures come after Indian stock markets experienced sharp declines following record highs in September 2024.  

Key proposals are as follows:

• Revised position limits for single-stock derivatives to 15 percent of a stock’s free float market capitalization or 60 times its average daily delivery value, whichever is lower. The current limit is at 20 percent of free float or 30 times the daily average which can allow for “artificial pushes”. Those are when market manipulators force an investment to become banned through overtrading.  

• Strict criteria for index derivatives to make it so an index has to have at least 14 constituents with the top three stocks being worth less than 45 percent of its total weight. Additionally, the largest stock weight has to be capped at 20 percent. This would ban popular derivatives on the Nifty Bank Index since it only has 12 constituents with the top three being 60 percent of its weight.

• A pre-open session for futures similar to the cash-stock market. This would enhance price discovery and transparency for single-stock and index futures. 

Goals: The regulator believes these measures will reduce risks of market manipulation and excessive volatility by preventing a few large stocks from disproportionately influencing indices. Diversifying index constituents and lowering the weight of top stocks would reduce manipulation risks. SEBI is seeking feedback on proposals until March 17.

EU Wants India To Be Its New China.

The European Union plans to urge India to lower its high tariffs on cars and wine to boost trade, as it seeks to reduce its reliance on China. This push comes ahead of a two-day visit by European Commission President Ursula von der Leyen to New Delhi. According to a senior EU official, the bloc will press India to cut tariffs on some key goods and broaden market access for its products. In return, the EU is prepared to show flexibility on agricultural issues to expedite ongoing free trade agreement (FTA) talks. The official emphasized that India’s market remains relatively closed, particularly to products such as cars, wines, and spirits that are of commercial interest to the EU and its member states.  

Trade talks: Von der Leyen’s visit, accompanied by leaders of EU member nations, coincides with escalating geopolitical tensions. Brussels and New Delhi are expected to outline key areas for deeper cooperation under their strategic partnership. Von der Leyen is scheduled to meet Modi on Friday, followed by discussions with India’s Trade Minister Piyush Goyal. The next round of trade negotiations between the two sides is set for March 10-14 in Brussels.  

The EU’s call for lower tariffs also comes amid concerns from Indian exporters, triggered by Trump's threats to impose reciprocal tariffs starting in April. These tariffs could potentially result in annual losses of around $7 billion (₹609.7 billion) for Indian exporters. The EU is currently India’s largest trading partner in goods, with bilateral trade reaching nearly $126 billion (₹10.9 trillion) in 2024, marking an increase of about 90 percent over the past decade.  

Anti-China sentiment: As part of its broader “de-risking” strategy, the EU aims to strengthen economic and security ties with India, diversify supply chains, and reduce dependence on China for key products. India is seen as a vital ally, not only for economic reasons but also in addressing regional and global security challenges. Additionally, von der Leyen is expected to seek India’s support for a “peaceful and just” resolution regarding Ukraine’s security.  

Security: In terms of security cooperation, the EU and India could sign an agreement to share classified information to tackle common threats, such as cyberattacks and terrorism. Discussions may also cover potential trade in defense equipment. However, trade analysts caution that despite these potential benefits, von der Leyen’s visit may not yield substantial outcomes. Most do not expect the visit to be fruitful unless the EU recognizes India as a data-secure country. While both sides share concerns over China, India’s focus remains on border tensions with China, whereas the EU’s primary concerns revolve around the Ukraine-Russia conflict and NATO-related issues.

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Gupshup.

Macro

• Gold — a huge commodity for India — has lower prices now due to drops in inflation and demand. As inflation and rates have come down, the high-powered gold rally is starting to come to an end. Another benefit to prices has been domestic consumption in countries like India, but imports have gone down recently due to higher prices. 

• India could extend import curbs on steelmaking raw materials like met coke. India imposed quantitative curbs with country-specific quotas for low-ash met coke which is used to develop steel. The reluctance of various steel producers on lower prices to compete internationally will likely push these restrictions to June at the minimum.

Equities

• US pharmaceutical Merck plans on boosting the Indian workforce to 2,700 and double that in five years. Merck focuses on oncology, diabetes, vaccines, and animal health in India. They are looking to hire ‘digital innovators’ to continue exploring how AI affects health outcomes.

• India singled out VW as part of a $1.4 billion (₹121.8 billion) tax evasion scheme. The company wrongly classified its car imports to underpay taxes. They could be on the line for a $2.8 billion (₹ 243.6 billion) fraud payment which would greatly hurt their already small presence in India.

• UltraTech Cement is to spend $206 million (₹17.9 billion) to start up a wires and cable business. UltraTech will add the new product line to its building division, a division that recorded 13 percent CAGR over the last 5 years. The entry is perfectly timed with a slowdown in the market which could eliminate smaller players who cannot compete with UltraTech’s ability to finance off of other divisions' profits.  

Alts

• India has to double its renewable energy capacity to meet clean energy targets. India added 28 gigawatts in India to hit 165 GW but is already behind its 2022 goal of 175 GW. Fossil fuels still make up the majority of energy production with ⅔ of energy increase being dirty energy. 

• India is close to becoming the clinical trial hub. Geopolitical conflicts with Russia and China have led to companies moving operations for testing to India. Part of this is good: India will continue to grow in advanced sciences. There is also a sinister angle since the cost of failure is lower in India than in other countries. 

• Reliance is starting to use brain mapping to lure IPL advertisers after merging with Disney. The merger was worth $8.5 billion (₹740.4 billion) and has led to neuroscience as a way to gain more advertisers. Reliance is targeting small companies in regional cities that broadcast games by arguing, with neuroscience research, that IPL ads are more effective than other forms. 

• ​​Crypto trading is up to $1.9 billion (₹165.3 billion) due to unemployment and weak wages. Most crypto traders previously were trading options but recent SEBI initiatives have made it much more restrictive to trade those assets. The quoted trade amount above was for the October to December quarter.

Policy

• India and Bangladesh continue to have growing instability. Relations have reached a new low after Jaishankar highlighted the government’s issues with the interim government and its shifting stance on bilateral relations. His counterpart, Hossain, was equally as negative citing that Bangladesh will continue talking with Pakistan and China.  

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.