📰India's Export-Driven Growth Accelerates

Good afternoon, 

Welcome to the best way to stay up-to-date on India’s financial markets. Today, we’re discussing

• India is positioning its $700 billion (₹60.6 trillion) foreign exchange reserves as a key line of defense to protect its economy from external shocks,

• India’s push to develop its fixed-income market through STRIPS for state bonds faces a key obstacle: insurance companies are concerned about regulatory limits on bond duration

• and India’s export-driven growth surged.

Then, we 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.

India Leans on FOREX Reserves to Navigate Geopolitical Shockwaves.

As geopolitical tensions escalate in the Middle East, India is positioning its $700 billion (₹60.6 trillion) foreign exchange reserves as a key line of defense to protect its economy from external shocks. In a recent interview, Monetary Policy Committee member Ram Singh underscored that the country’s robust reserves will help contain financial volatility and inflation risks stemming from a surge in global crude and fertilizer prices.

This reassurance comes at a precarious moment. The Indian rupee has recently depreciated to its weakest level in three months amid $5 billion (₹433 billion) in foreign outflows from the bond market and rising crude oil prices, up more than 22 percent in the past month. Singh acknowledged that the rupee remains vulnerable, but emphasized that the RBI has sufficient tools, including monetary policy flexibility and direct intervention, to prevent broader macroeconomic instability.

The broader macro message is clear: India is bracing for external shocks with a multilayered strategy—ample reserves, proactive rate adjustments, and careful fiscal management. Singh defended the RBI’s recent 50-basis-point rate cut and policy stance shift, arguing that reducing borrowing costs was necessary to support demand amid global headwinds. He suggested further easing could be considered if external risks, particularly from geopolitical developments, begin to weigh more heavily on growth.

India’s ability to absorb these shocks hinges on the resilience of its external balances, low inflation expectations, and continued investor confidence. As global capital becomes increasingly cautious, the strength and credibility of India’s macro policy framework will be critical in maintaining stability and avoiding the spillover effects that have historically roiled other emerging markets.

India’s Export-Driven Growth Accelerates Amid Global Demand Rebound.

India’s economic momentum accelerated in June, as new data highlighted the country’s growing integration with global demand cycles. Flash Purchasing Managers’ Index (PMI) readings from HSBC show that both manufacturing and services sectors expanded at a faster pace, with a notable surge in export orders helping lift overall business activity.

The manufacturing PMI rose to 58.4 in June from 57.6 the previous month, while services climbed to 60.7 from 58.8, pushing the composite index to a strong 61. These figures, all well above the 50-point threshold that separates growth from contraction, signal robust private sector activity driven by international demand.

HSBC economists noted that Indian firms experienced an “unprecedented increase” in new export orders, particularly in manufacturing, supported by rising backlogs and resilient global consumption. The export surge also prompted an uptick in hiring, reinforcing the labor market and broadening the base of domestic demand.

The data carries broader macroeconomic implications. As Western economies stabilize and global supply chains normalize, India appears well-positioned to capitalize on the rebound in trade. The uptick in exports bolsters confidence in India’s external sector at a time when the RBI has pivoted to more accommodative monetary policy, cutting rates by 50 basis points earlier this month to support domestic demand.

With strong exports cushioning potential shocks from global uncertainty, such as volatile energy prices or geopolitical tensions, India's growth trajectory may remain resilient through mid-2025. Policymakers are likely to see the June PMI readings as validation of their twin-track strategy: leveraging global tailwinds while nurturing domestic momentum.

Duration Cap on State Debt STRIPS May Undermine India's Fixed-Income Market Development.

India’s effort to deepen its fixed-income markets by introducing STRIPS (Separate Trading of Registered Interest and Principal of Securities) for state government bonds faces a significant hurdle, as insurance companies raise concerns over a regulatory cap on eligible bond duration.

The RBI recently allowed STRIPS for state debt, but limited them to securities with a residual maturity of 14 years or less. While the move expands financial market instruments beyond central government securities, which already offer unrestricted-duration STRIPS, insurers, the primary buyers, argue that the 14-year ceiling will undercut demand.

Insurers and pension funds rely on long-duration assets to match their liabilities, which often stretch over 20 to 40 years. “As far as life insurance companies are concerned, the demand is more for above 20-year papers. I expect the RBI to eventually remove the duration cap in state debt STRIPS and allow STRIPS even for 30-year papers,” said Rahul Bhuskute, CIO of Bharti AXA Life Insurance. With over 50 percent of state debt issued in maturities longer than 14 years, the restriction creates a mismatch between available STRIPS and institutional investor needs.

STRIPS are critical tools for insurers and pension funds, allowing precise asset-liability matching and improving market liquidity. According to ICICI Prudential Life Insurance, insurers prefer STRIPS with maturities beyond 15 years, while pension funds are more active in the 8–15-year range.

Unless the RBI amends the duration limit, the potential of STRIPS to expand and modernize India’s debt market may be stifled, limiting their impact on long-term capital formation and portfolio management for major financial institutions.

Message from our sponsor.

Gupshup.

Macro

• India’s top economic adviser said rising oil prices will have a limited impact on inflation for now. He cited cooling inflation, low interest rates, and strong monsoons as key factors keeping the economy resilient despite global risks.

• India’s recent 25-basis-point rate cut may have only a limited immediate effect, according to MPC member Saugata Bhattacharya. He noted that the broader impact will depend on how income shifts between borrowers and depositors influence spending and credit growth over time.

• The Indian rupee weakened alongside other Asian currencies on Monday as investors sought safety in the U.S. dollar amid rising Middle East tensions, though falling crude oil prices helped limit losses. The rupee closed at 86.75 per dollar, down 0.2 percent, with markets closely watching Iran’s potential response to recent U.S. strikes on its nuclear sites.

Equities

• HSBC’s plan to mandate a return to office at least three days a week risks adding $200 million (₹17.3 billion) in annual real estate costs, threatening CEO Georges Elhedery’s $1.5 billion (₹129.9 billion) cost-saving push. The bank faces major desk shortages across London, India, and China, with tight deadlines to secure new space and avoid derailing the policy.

• Walmart-backed PhonePe is preparing to file for a $1.5 billion (₹129.9 billion) IPO in India as early as August, targeting a valuation of around $15 billion (₹1.3 trillion). The digital payments leader has hired top banks to manage the listing, with final details still being negotiated.

• HDB Financial’s $1.4 billion (₹121.3 billion) IPO, priced at up to a 40 percent discount to its grey market rate, has shaken wealthy investors who had bet on unlisted shares. The move underscores the growing dominance of institutional investors in India’s primary markets and could cool enthusiasm for pre-IPO speculation.

• Dutch investor Prosus has delayed the IPO of Indian payments firm PayU, focusing instead on improving the business over the next six to 12 months. The company had hoped to list PayU by 2025 but will prioritize operational enhancements before pursuing a public offering.

Alts

• Warburg Pincus is in talks to sell its 10 percent stake in SBI General Insurance to Premji Invest and State Bank of India in a deal that could value the insurer at up to $4.5 billion (₹389.8 billion). The discussions are ongoing and follow a previous joint investment by the parties in 2019.

• Indian insurers expect airline coverage costs to surge up to 30 percent following the deadly Air India crash, marking the steepest jump in over a decade. The $475 million (₹41.1 billion) claim tied to the June 12 disaster is likely to harden global aviation rates and raise premiums for carriers worldwide.

Policy

• India and the US aim to finalize a trade deal by July 9 to avoid higher tariffs, though key disagreements, especially over agriculture, persist. Negotiations have intensified as the US pushes for access to genetically-modified crops while India seeks tariff relief on steel, autos, and other goods.

• India has ruled out restoring its water-sharing pact with Pakistan, despite a recent military ceasefire between the two countries. Home Minister Amit Shah said the Indus Waters Treaty remains suspended following April’s terror attack, and that India plans to divert water flows to Rajasthan instead.

• India will take steps to ensure stable domestic fuel supplies despite rising Middle East tensions, said Oil Minister Hardeep Singh Puri. He noted India’s diversified energy imports and sufficient stockpiles reduce reliance on the Strait of Hormuz, a key chokepoint threatened by recent U.S.-Iran conflict.

See you Tuesday.

Written by Eshaan Chanda & 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.