📰India’s Tier-1 City-Driven Growth | Daily India Briefing

Most of India’s growth boom has been led by “India 1” consisting of 150 million, affluent, English-speaking residents in major tier 1 cities. Today, we explain what this means for India’s economy.

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Macro

• The RBI announced a fresh $32 billion (₹2.9 trillion) of bond purchases and currency swaps. There will be $22 billion (₹2 trillion) of bond buys and $10 billion (₹900 billion) in swaps. The announcements have been above market expectations, working to move yields lower. 

• Russian imports are at 1.1 million barrels per day, the lowest in 3 years, but that number will rise in 2026 due to Reliance. Although Ambani’s company had halted imports, they will resume them next year from non-blacklisted suppliers. 

• Traders are borrowing overnight rates (effectively shorting) to buy 5-year bonds.The spread between 5y and overnight is now 1 percent; the trade is a bet on short term rates remaining relatively flat or falling in a limited fashion. The RBI taking a more hawkish tilt would be a risk.

Equities

• The rise in debt raises was larger than equity raises on the NSE. Issuance grew by 10 percent to about $167.6 billion (₹15 trillion) while equity raises were flat (keep in mind this is just the NSE, not including rival exchange BSE). The flat nature for equity raises is likely due to small company restrictions that SEBI introduced towards the tail end of 2024.  

• Equity benchmarks were little changed after the metals rally and Nifty rebalancing. Markets are quiet before the end of year, reflecting the holiday season, with the only major news being silver’s rally. 

• Blackstone-backed Bagmane Prime Office REIT is filing for a $445.6 million (₹39.9 billion) IPO.This includes new stock units being sold while existing investors will also divest.

Alts

• Coinbase says a former customer agent rep was arrested in India after the exchange hack in May. Hackers bribed reps for customer data and demanded a $20 million (₹1.8 billion) ransom; the fallout of the incident would cost $400 million (₹35.8 billion) to remedy. The rep had fled to India. 

• The government is seeking $30 billion (₹2.7 trillion) in compensation for underproduced gas fields from Reliance and BP.The D1 and D3 offshore fields were supposed to produce LNG to boost India’s energy independence back in 2016. There have been a multitude of production difficulties which have now resulted in arbitration.

Policy

• The Supreme Court halted its order to allow mining underneath any natural 100 meter elevation in the Aravalli Hills. The area is mineral-rich and the previous order would have allowed the government to offer new mining and real estate leases for any part of the hills that does not touch 100 meters. There was severe backlash from citizens and environmentalist groups. 

• Lobbying is leading to growth of Indian cities and the proliferation of pollution.What used to be a Mumbai and Delhi issue is now spreading to tier 2 and 3 cities. The government says it will support the National Clean Air Programme to reduce air pollution by 2040, but specifics are still unknown.

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India’s Tier-1 City-Driven Growth

Most of India’s growth boom has been led by “India 1” consisting of 150 million, affluent, English-speaking residents in major tier 1 cities. Companies, both domestic and global, are now courting the next billion consumers in smaller towns. The next cycle of growth is being driven by the aspirational and more price-conscious customer eager for what was once reserved only for the elite. For investors, companies, and everyday consumers, India’s growth in tier 2 and 3 cities will likely define growth over the next decade. 

Small purchases were once considered impossible to reach due to frugal wallets, distant towns, and non-repeatable buying habits. Now, however, the government’s push to raise incomes rurally while improving cellular and infrastructure connectivity across the nation is paying off by developing a new segment for companies to target, specifically in the consumer discretionary sector.

Delivery apps like Zepto, Blinkit, and Swiggy are offering 10-minute delivery from international brands across India; local companies are mirroring more premium companies to provide an international feel in smaller towns such as ‘American Fried Chicken’ versus KFC. Streaming companies are not focusing on premium pricing but instead including regional content and mobile-first plans catering to consumers across India. The shift comes as India’s largest metros are starting to be fully penetrated with limited growth beyond pricing left. 

Investors are also noticing with one hedge fund predicting that India’s economy will double to $8.5 trillion (₹760.8 trillion) by 2032 due to new “India 2” customers. The shift in investment is evident with Meesho’s recent IPO which rose 60 percent after listing to value the company at $8.4 billion (₹751.8 billion), making it India’s most successful IPO this year. The company sells everything from kitchen supplies to clothing and 90 percent of its customers live outside top cities. 

The large difficulty for companies now is eliminating a plug-and-play mindset that usually works in other countries. Harley-Davidson (a company often talked about by Trump when referencing India) still, after 20 years, struggles with import taxes and limited India-specific offerings. While initial integration is difficult for the fragmented Indian market, global brands can still succeed as seen with Harley-Davidson’s collaboration with Hero MotoCorp. or Disney with Jio to create a 300 million subscriber streaming platform which is 2nd in the world only to Netflix.

See you tomorrow.

Written by Yash Tibrewal. Edited by Shreyas Sinha.

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