📰Explained: Indian Bonds Are In, Stocks Are Out

Good afternoon, 

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

• India is slowly abandoning protectionism (and its national billionaire champions),

• Foreign investors are pouring into Indian bonds while pulling out of Indian equities,

• and India is planning to join most of the world in anti-American retaliatory tariffs.

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

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—Shreyas, [email protected]

Market Update.

India’s Industrial Billionaires Are Losing Their Special Status.

For the past decade, Modi’s economic model has focused on nurturing a small circle of national champions, shielding them from foreign competition with high tariffs, exclusive government contracts, and non-tariff barriers. Since 2014, this model has consolidated the dominance of India’s top business conglomerates like Ambani’s Reliance Industries, Adani’s infrastructure empire, Tata Group, and telecom giant Bharti Airtel.  Despite Modi liberalizing and deregulating many parts of the Indian economy, import tariffs have surged—rising from China-like levels of 7 percent in 2011 to 12 percent by 2022. However, Trump’s looming tariff threats have prompted a recalibration. India’s Commerce Minister has already urged exporters to leave their protectionist mindset, signaling that the state may no longer shield local billionaires as aggressively.

Billionaire alliance shifts: A key indicator of this shift is the unexpected embrace of Musk’s Starlink by India’s largest wireless carriers, which until recently had been fiercely opposed to Starlink’s entry. Within 24 hours last week, both companies announced independent partnerships with Musk’s firm, despite the fact that Starlink lacks local regulatory approvals. The move even saw a top government minister post (and later delete) a welcome message on X, highlighting the delicate balancing act India is attempting.  

This newfound warmth toward US business interests extends beyond telecom. Talks surrounding Tesla’s potential entry into the Indian market—with import tariffs slashed from 110 percent—further underscore the government’s shifting trade calculus.  

Trump’s administration has taken direct aim at India’s trade policies, citing 39 percent agricultural tariffs—eight times higher than US levels—as a key barrier to deeper trade ties. However, Modi faces serious domestic risks if he concedes on agriculture. India’s farmers continue to demand stronger state support. Any concessions on farm trade could inflame rural unrest ahead of critical elections.  

Instead, local billionaires may bear the brunt of policy adjustments. Reports suggest India has instructed manufacturers to replace Chinese-made components with American alternatives, a shift that raises costs and could face pushback from domestic industries. Meanwhile, internal bureaucratic circles have started questioning India’s over-reliance on Western alignment, with some advocating for mending trade ties with China instead. India’s $100 billion (₹8.7 trillion) annual trade deficit with China continues to widen, while Trump’s push to eliminate India’s $50 billion (₹4.4 trillion) trade surplus with the US threatens to squeeze India’s economy further. 

By courting US businesses like Starlink and Tesla, Delhi hopes to delay reciprocal tariffs, especially on politically sensitive goods like agricultural products. But this new strategy sends a stark message to India’s oligarchs: the era of state-protected billionaires may be coming to an end.

Indian Bonds Are In, Stocks Stay Out.

Global funds bought $1.8 billion (₹156.6 billion) worth of rupee-denominated debt in March, their fastest pace in at least 6 months. Foreign investors have pulled over $2.6 billion (₹226.2 billion) from Indian equities at the same time, citing high valuations and slowing economic growth as key concerns.  

The shift toward Indian bonds is largely driven by expectations of further interest-rate cuts by the RBI. With inflation easing beyond expectations in February, now below the central bank’s 4 percent mid-term target, analysts anticipate a second rate cut in April. Most rate-cut forecasts are now calling for 50 to 75 basis points of reductions, from 25 at the beginning of the year.

Additionally, India's positive real yield advantage over the US Treasuries has fueled foreign demand. Various portfolio managers noted that Indian bonds continue to offer strong yield differentials and are well-positioned amid India’s cyclical growth slowdown.  

Ways of trading: Investment firms like Brandywine and PineBridge Investments are increasing their exposure to Indian bonds. Some are entering through supranational bonds guaranteed by multiple agencies, while others are buying corporate and government bills.

Fear of Tariffs Is Necessitating More Tariffs.

India is preparing to join the global wave of steel protectionism, announcing plans for temporary 12 percent safeguard duties on a wide range of steel imports. This move comes just a week after former US President Donald Trump imposed tariffs on all steel imports, prompting concerns about a global supply glut. 

Why follow suit? The decision follows an investigation by India’s Commerce Ministry, which cited unprecedented surges in steel imports. With China's property sector in crisis, its steel exports have reached a nine-year high, contributing to a global oversupply. India's imports of finished steel from China surged 80 percent in the first seven months of 2024, reaching 1.6 million tons, according to government data.  

To counter this, India’s trade body argues that the domestic industry is at risk of permanent damage, necessitating urgent safeguard measures. The tariffs will initially last 200 days, with a final ruling expected after 30 days of consultation and a public hearing.  

Steel stocks rise: SAIL rose 5 percent, Tata Steel climbed 2.9 percent, and Jindal Steel gained over 2 percent. Analysts believe the move will offer short-term relief to domestic producers, particularly as India ramps up its own steel capacity to support urbanization and industrial expansion.

The main risk, of course, is straining trade relations. Nonetheless, Indian steelmakers, led by the Indian Steel Association, have pushed for even stronger tariffs, urging the government to consider longer-term protection lasting up to four years.

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Gupshup.

Macro

• The RBI is trying to ask banks to limit offshore-onshore arbitrage. Banks are buying rupees from the onshore spot market and then selling those rupees on off-shore exchanges in the form of forwards. This creates an arbitrage opportunity since traders are locking in profits. For the RBI, this creates rupee volatility. 

• Crop shortages have increased Indian sugar stock prices. Top growers in Brazil and India have reported shortages for sugar which could help with commodity companies which have slumped by 40 percent since recent highs.  

Equities

• Vodafone is looking to also partner with Starlink. Shares rose by 5 percent on the news; the internet company also wants to enter the satellite space due to the market size in India. If allowed, Vodafone will stock Starlink equipment in their stores to then sell. 

• Hyundai India is hiking car prices by about 3 percent due to high operational and raw material costs. Other large Indian manufacturers like Maruti Suzuki and Tata also announced price hikes this month due to inflation, but this is Hyundai’s second price hike. The first would be considered minor at $289 (₹25,000). 

• Indigo's guidance includes increasing international route seats by FY2030. They want their international share of total seats to become 40 percent compared to 28 percent right now. Indigo dominates India’s domestic market at 60 percent share but only 20 percent of the Indian international share. The stock was up 4 percent after the announcement.  

Alts

• Greenko gets five private loan commitments for $800 million (₹69.6 billion). The loans will serve as venture debt for the green energy firm—the loans will also constitute a 20 percent investment into the firm. The private credit deal will be for a 24-month debt facility with two tranches where the first tranche can be repaid in 9 months. 

• Trump Towers is partnering with local firms to build a 4.3-acre commercial tower in Pune. The project should make $289 million (₹25 billion) in lease sales. This is the firm’s first foray into commercial projects in India, with all four other projects being residential towers. 

• ArcelorMittal SA will receive funding from South Africa for their steel mills. The government is planning initial support of $28 million (₹2.4 billion) to help pay steelworkers for the next eight months. The government could also leverage their state-owned Industrial Development which could raise its stake in ArcelorMittal higher than 8.2 percent.

Policy

• The Philippines wants India to join the Squad. The Squad is another pacific, anti-China group headed by Japan, Australia, the US, and the Philippines. Military chief Brawner plans to discuss with General Chauhan of India and expects a positive response. Brawner brought attention to Chinese man-made islands and rising aggression toward Taiwan as a reason for unification.

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.