📰India-UK Free Trade Deal, Finally | Daily India Briefing

The RBI affirms its belief that the Indian economy is resilient to global headwinds. The RBI injects $5.7 billion in to the banking system. The UK and India will sign a FTA during Prime Minister Modi’s trip to London.

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Macro

• India's economy remains resilient amid global uncertainty, supported by strong agriculture, robust services, and modest industrial growth, according to the RBI. The RBI emphasized the importance of infrastructure investment, structural reforms, and vigilance on rising oil prices to sustain momentum.

• Indian stock markets rose on Wednesday, following a global rally sparked by a surprise U.S.-Japan trade deal, even as hopes for an India-U.S. interim trade agreement before the August 1 deadline faded. The Nifty 50 gained 0.63 percent and the Sensex rose 0.66 percent, with most sectoral indexes logging gains.

• The Indian rupee closed slightly weaker at 86.4075 per U.S. dollar, but stayed above key support levels due to a stronger Chinese yuan and exporter-led dollar sales. Positive global equity sentiment from U.S.-Asia trade deals also supported regional markets.

Equities

• Dr. Reddy’s Laboratories plans to launch a generic version of semaglutide, the key ingredient in Novo Nordisk’s weight-loss drug Wegovy, in 2026, targeting 87 countries where patents are expiring. This marks the company’s entry into the GLP-1 drug space, with plans to roll out 26 GLP-1 products starting next year.

• Kotak Mahindra Bank launched “Kotak Solitaire” to offer wealth and investment services to India’s fast-growing affluent segment. Targeting clients with at least $85-120,000 (₹7.5–10 million) in assets, the bank aims to expand its market share amid rising competition from private wealth managers.

• Adani Group has scrapped plans for its consumer super app, folding Adani One into its airport division after losses and management exits. The move marks a shift back to its core infrastructure focus, as digital ambitions faltered amid weak traction and internal challenges.

• Adcock Ingram shares surged to a record high after India’s Natco Pharma agreed to acquire a 35.75 percent stake for $232 million (₹20 billion). The deal, which will lead to Adcock’s delisting, aims to expand its footprint across Africa alongside major shareholder Bidvest.

• Reliance Industries is diversifying crude oil imports away from Russia after new EU sanctions targeted diesel made from Russian crude. Nearly half of Reliance’s imports have come from Russia this year, raising scrutiny as Europe tightens enforcement on refined fuel links to Moscow.

• Tata Capital is targeting a significantly higher IPO valuation of $18–$20 billion (₹1.5-1.7 trillion), aiming to raise $2.2 billion (₹190 billion) in September. The increase reflects strong market sentiment and regulatory requirements for large shadow banks to list.

Alts

• Petronet LNG, India’s top gas importer, is seeking a $1.4 billion (₹120.1 billion) local loan to fund a new petrochemical plant in Dahej and an LNG terminal in Gopalpur. SBI Capital Markets is advising on the deal, with banks like Axis Bank and SBI considering participation.

• Indosol Solar plans to expand its manufacturing capacity to 10GW by 2026, supported by Indian government incentives. The move aligns with Prime Minister Modi’s push to reduce solar imports and boost India’s global clean energy presence.

• GMR Airports is considering a record $579 million (₹50 billion) rupee bond sale to refinance debt amid a favorable borrowing environment. The move follows a credit rating upgrade and aligns with growth plans as India eyes airport privatization.

Policy

• India will resume issuing tourist visas to Chinese nationals starting Thursday, ending years of restrictions following the 2020 border clash. The move follows recent diplomatic progress and growing pressure from Indian businesses to ease travel curbs.

• Global e-commerce giants like Amazon and Walmart are facing increased regulatory scrutiny in India over alleged violations of foreign investment rules aimed at protecting local businesses. Walmart's Myntra is currently under investigation for potentially breaching laws that ban direct-to-consumer sales by foreign-funded wholesalers.

• In May, the Reserve Bank of India made a net purchase of $1.76 billion (₹152 billion) in the forex market, according to its monthly bulletin. The intervention aimed to manage rupee volatility amid trade tensions and geopolitical uncertainty.

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1. Indian Economy is Resilient Despite Global Headwinds, RBI affirms

India’s economy continues to demonstrate resilience amid ongoing global uncertainties, according to the RBI's latest monthly bulletin released Wednesday. The central bank highlighted steady domestic economic momentum despite external pressures, including geopolitical tensions and trade disruptions.

The bulletin follows the RBI’s surprise 50-basis-point rate cut and a reduction in the cash reserve ratio last month, moves made possible by a sharp fall in inflation, which dropped to 2.1 percent in June, a six-year low. These measures were aimed at bolstering growth in a challenging global environment.

“High-frequency indicators suggest stability in aggregate demand,” the RBI noted in its 'State of the Economy' article. Growth was underpinned by optimism around summer-sown crops, robust activity in the services sector, and modest industrial expansion.

The central bank also pointed to improving global conditions in late June, including easing geopolitical tensions in the Middle East and optimism surrounding trade negotiations. These factors, along with relaxed norms for infrastructure financing, helped lift financial market sentiment.

However, investor caution resurfaced in early July, driven by uncertainty over the India-U.S. trade agreement and subdued corporate earnings for the June quarter. The RBI acknowledged these risks but emphasized that the overall economic outlook remains stable, supported by domestic demand and proactive monetary policy.

2. RBI Injects $5.7 Billion as Short-Term Rates Surge

The RBI on Wednesday injected $5.8 billion (₹500 billion) into the banking system through a two-day repurchase (repo) auction to ease short-term liquidity pressure, as overnight borrowing costs jumped above the benchmark policy rate. The weighted average call rate, a key money market indicator, surged to 5.78 percent, exceeding the RBI’s repo rate of 5.5 percent.

The central bank received bids worth $8.3 billion (₹719 billion), with a cutoff rate of 5.53 percent, underscoring strong demand for funds from banks. The liquidity stress has been driven by monthly Goods and Services Tax (GST) outflows and prior RBI actions to drain surplus cash, including a $23.2 billion (₹2 trillion) absorption through a seven-day variable rate reverse repo (VRRR) auction.

“It seems that banks tendered very aggressively at the last variable rate reverse repurchase operation and once the GST outflows hit the system, they were left with a situation they did not envisage,” said Abhishek Upadhyay, economist at ICICI Securities Primary Dealership. Surplus liquidity, measured by excess cash parked with the RBI, dropped to $25.5 billion (₹2.2 trillion) as of July 22 from $45.2 trillion (₹3.9 trillion) last week.

Nathan Sribalasundaram, strategist at Nomura, said the RBI is likely to continue with VRRR operations but may scale down the size. Market participants are now seeking greater clarity on the central bank’s liquidity comfort zone, especially ahead of the August 6 policy meeting.

The move underscores the RBI’s balancing act between maintaining financial stability and managing inflation and growth expectations in an evolving rate environment.

3. India-UK Free Trade Deal Set to Boost Bilateral Trade, Cut Tariffs Across Key Sectors

India and the United Kingdom are set to sign a landmark free trade agreement during Prime Minister Narendra Modi's four-day visit to the UK, aiming to significantly expand bilateral economic ties through tariff reductions and enhanced market access. The agreement, finalized in May after years of negotiations, is expected to be formally signed on Thursday, with Indian Trade Minister Piyush Goyal accompanying Modi for the occasion.

The deal marks a major milestone in India’s trade diplomacy, targeting key sectors such as whisky, automobiles, textiles, and electric vehicles. Under the deal, India will slash tariffs on British Scotch whisky from 150 percent to 75 percent immediately, eventually reducing it to 40 percent over a decade. Similarly, car import duties will drop to 10 percent from 100 percent under a managed quota system. In return, Britain will offer zero-duty access to 99 percent of Indian exports, benefiting industries such as garments, footwear, engineering, and marine products.

The pact is expected to take effect within a year, following approvals by India’s federal cabinet and the British parliament. With bilateral trade standing at $55 billion (₹4.8 trillion) in 2023/24, the FTA is anticipated to catalyze further growth. The UK is India’s sixth-largest investor, while over 1,000 Indian firms operate in Britain, employing about 100,000 people.

This agreement also strengthens India’s broader trade strategy to secure preferential access for its exporters while attracting strategic investments from Western partners.

See you tomorrow.

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

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