📰India Inc. Faces Fiscal Stress | Daily India Briefing

We made a mistake yesterday: instead of publishing the article about economists criticizing India for underreporting employment data, we published an older article by accident. We’ve included the correct article in today’s newsletter.

We’ll also discuss how India Inc. is facing rising yields as fiscal stress increases, and a top private equity firm is betting big on India’s private credit boom.

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Macro

• The RBI kept rates unchanged at 5.50 percent to assess the economic impact of new U.S. tariffs. Officials cited uncertainty, with Governor Sanjay Malhotra stressing flexibility, while economists noted soft inflation could allow cuts if growth weakens.

• Emerging market assets slumped as a global tech selloff and geopolitical concerns soured sentiment ahead of the Jackson Hole symposium. Investors are now awaiting Fed Chair Powell’s speech for rate-cut signals, while Latin American currencies showed resilience.

• India’s state-run refiners have resumed Russian oil purchases despite U.S. criticism and tariff threats, lured by deeper discounts on Urals crude. The move highlights New Delhi’s balancing act between economic interests, energy security, and mounting geopolitical pressure from Washington.

• Russia expects India to keep buying its discounted oil despite U.S. tariff threats, while pushing for trilateral talks with China and India. Moscow also seeks deeper Eurasian energy ties, highlighting potential LNG supplies alongside continued crude shipments.

• India’s infrastructure output rose 2 percent year-on-year in July, slightly below June’s revised 2.2 percent growth. The index, covering eight key sectors and 40 percent of industrial output, showed declines in crude oil and natural gas production despite overall expansion.

• The Indian rupee edged lower on Wednesday, settling at 87.065 per U.S. dollar versus 86.950 a day earlier. Importer hedging and speculative demand lifted greenback buying, though active dollar sales by foreign banks capped further rupee weakness.

Equities

• India’s Nayara Energy is relying on dark-fleet tankers and Russian crude to sustain operations after EU sanctions cut off traditional partners. With government support, sanctioned vessels now move its oil domestically, highlighting risks to India’s refining capacity and energy security.

• India’s Tata Motors has re-entered South Africa’s passenger car market after six years, unveiling new SUVs and a compact hatchback. The move targets rising demand for affordable cars, intensifying competition with Chinese automakers in the region.

• India’s government has opposed Vedanta’s planned demerger into four companies, warning it could hinder recovery of dues. At an NCLT hearing, officials alleged Vedanta altered its scheme after receiving SEBI approval, CNBC-TV18 reported.

• UltraTech Cement said it will sell up to a 6.5 percent stake in India Cements, worth about $85.6 million (₹7.4 billion), through open market deals. The move ensures compliance with Indian rules capping promoter shareholding at 75 percent.

Alts

• Adani Airport Holdings and Adani Ports raised $275 million (₹23.9 billion) via offshore loans, with Barclays, DBS, First Abu Dhabi Bank, and MUFG among the lenders. The funds, priced over SOFR with four-year terms, will support bond buybacks and capital spending.

• India announced the successful test-firing of its indigenously developed Agni-5 intermediate-range ballistic missile from Odisha. The defence ministry said the launch validated all operational and technical parameters, reinforcing the country’s strategic capabilities.

• India’s Aurobindo Pharma is leading talks to acquire Prague-based drugmaker Zentiva for up to $5.5 billion (₹478.7 billion). If finalized with Advent International, it would mark the largest-ever acquisition by an Indian pharma firm.

Policy

• India and China agreed to explore demarcating their disputed border, forming an expert group to assess interim arrangements amid strained India-US ties. The move follows Chinese Foreign Minister Wang Yi’s India visit and precedes Modi’s planned meeting with Xi Jinping.

• India has introduced legislation to ban online money gaming apps, citing addiction, fraud, and money laundering risks. The move threatens a $3.8 billion (₹330.7 billion) industry, drawing pushback from gaming associations that warn prohibition could benefit offshore operators over legitimate Indian firms.

• An Indian GST panel has proposed exempting health and life insurance premiums for individuals from the current 18 percent tax. The move follows Prime Minister Modi’s recent sweeping GST cuts aimed at boosting the economy amid U.S. trade tensions.

• India’s monetary policy committee warned U.S. tariffs and trade tensions are weighing on growth, though inflation remains under control. The RBI kept its repo rate steady at 5.50 percent, with policymakers emphasizing resilience and a neutral stance amid global uncertainty.

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1. India Inc. Faces Rising Yields as Fiscal Stress Bites

Borrowing costs for Indian companies are climbing at their fastest pace since 2022, as fiscal worries from New Delhi’s tax cuts ripple through credit markets. Yields on top-rated three-year company notes have surged 26 basis points in just two trading days, while the 10-year sovereign is up 11 bps to 7.29 percent — the highest since March.

The trigger is Prime Minister Modi’s move to slash consumption taxes in response to Trump’s tariff shock. While politically popular, the cuts risk widening fiscal deficits, raising the prospect of heavier sovereign issuance. Traders are already bracing for crowding out, with corporate paper facing elevated risk premiums.

Debt capital market desks report corporates are delaying issuances, waiting to see how sovereign borrowing unfolds. Volatility in government bonds is now at a three-year high, making it harder to price new deals. Local-currency corporate bond fundraising had hit a record $90.7 billion (₹7.9 trillion) this year, but momentum may slow if yields stay elevated.

Analysts note that even with the RBI’s rate cuts and liquidity support, the market’s tone has flipped. Aastha Jalan of Arete Securities warns that “a lot of negatives have piled up,” from tariff uncertainty to geopolitics. For issuers, the challenge is clear: refinancing is still cheaper than last year, but the window may close fast if fiscal risks keep pushing yields higher.

2. Economists Criticize India for Underreporting Unemployment

India’s new monthly labor survey is drawing scrutiny from economists who warn the headline figures may understate the challenges of underemployment in the world’s most populous nation.

The latest Periodic Labor Force Survey, released Monday, showed unemployment eased to 5.2 percent in July from 5.6 percent a month earlier. But, critics argue that the methodology, which counts anyone working at least one hour in the previous week as employed, including unpaid family labor, paints an overly rosy picture of the labor market.

“The headline unemployment number is misleading,” said Amit Basole, an economics professor at Azim Premji University. “People in India cannot afford long spells of unemployment, so they are pushed into informal or part-time work far below their potential.”

India’s labor market remains heavily informal, with weak social safety nets forcing many to accept any available work. That makes underemployment, rather than joblessness alone, a more telling measure, analysts argue. Youth joblessness remains elevated, with unemployment among those aged 15–29 at 14.9 percent in July, and CMIE data showing a 35.9 percent rate for those aged 20–24.

The government defends its approach, stressing alignment with International Labor Organization norms and a survey base of 89,000 households. But economists caution that without sharper indicators of underemployment, policymakers risk misallocating resources in an economy that needs to generate more productive, formal jobs.

3. Apollo Bets Big on India’s Private Credit Boom

Apollo Global Management, the behemoth New York-based private equity shop, is doubling down on India, aiming to grow its local assets under management from $2 billion (₹174 billion) to $4 billion (₹348 billion) over the next three years. The push is squarely focused on private credit, a segment seeing record inflows as traditional banks retrench and corporates scramble for alternative financing.

Matthew Michelini, Apollo’s Asia-Pacific head, says banks “cannot fund the entire economic growth story,” leaving space for global private credit funds to step in. Apollo is targeting infrastructure, industrials, financial services, and supply-chain finance, the arteries of India’s growth cycle. It recently backed Adani’s Mumbai airport debt refinancing and has exposure to JSW Cement and Hero FinCorp.

The timing is deliberate. Bank lending to NBFCs slowed sharply in 2024, and stricter regulation has curbed risk appetite. Meanwhile, a $1 trillion (₹87 trillion) infrastructure pipeline is creating demand for large, complex financings, the kind foreign credit funds are best positioned to underwrite. Competitors like Ares, Cerberus, and Davidson Kempner are also scaling up in India, raising the competitive stakes.

Apollo plans to double its local headcount to 50, building a deeper bench in credit and supply-chain financing. Yet risks remain: overheating in private credit markets has raised concerns about looser standards, a problem that flared during India’s shadow banking crisis pre-Covid. Michelini insists India still needs more non-bank capital, not less — and Apollo wants to be at the front of that line.

See you tomorrow.

Written by Eshaan Chanda & Yash Tibrewal. Edited by Shreyas Sinha.

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