📰India Underperforms EM Equities. Why?

Good morning, 

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

• The rupee made its largest upward move in two years (and why that happened),

• Why India’s bet on natural gas will fail,

• and, Why India is (massively) underperforming other emerging market equities right now.

• Finally, we’ll 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.

SOLD OUT: Expert Panel & Networking Event in New York City.

Our upcoming “Future of India” speaker and networking event on Wednesday, February 12, 2025, in New York City, has been sold out! Thank you to all who plan to be there. If you didn’t get a chance to buy a ticket, we’ll be hosting another event later this year.

See you tomorrow!

The Rupee Makes Its Largest Upward Move in Two Years.

India's rupee surged by nearly 1 percent on Tuesday, marking its most significant rally since November 2022, catching traders by surprise after the currency had hit a series of record lows in recent weeks. The rupee appreciated to 86.63 per US dollar, making it the best-performing currency in Asia on the day. 

The sudden gain is widely believed to be the result of strong intervention by the RBI, though the central bank has not officially confirmed any actions. Analysts suggest the RBI may have sold up to $7 billion (₹606.9 billion) on Monday and possibly another $4 billion (₹346.9 billion) on Tuesday to stabilize the currency, based on estimates from interbank brokers.

The RBI continues to smooth it out. Despite the expectation of a more flexible approach under RBI Governor Malhotra, the central bank's intervention this week shows it is still committed to stabilizing the rupee and preventing any excessive fluctuations. The rupee had hit fresh lows on Monday, following the RBI’s recent interest rate cuts, compounded by a stronger US dollar and global trade tensions, including US tariffs under President Donald Trump, which have weighed on many emerging-market currencies. The unexpected rally in the rupee has provided some relief, especially after weeks of consistent depreciation. It is clear that the RBI is still actively managing the currency's value—though interventions are less common than before Malhotra took the reigns.

India Is Betting on LNG. It’s Bet Will Fail.

India’s push to reduce coal dependence by embracing liquified natural gas (LNG) faces major hurdles, particularly inadequate LNG infrastructure. The Petronet LNG Kochi facility, open for over a decade, operated at just 25 percent capacity last year due to a lack of pipelines to transport gas efficiently.

Limited pipelines, high prices, an unfavorable tax regime, and local resistance have hampered India’s gas infrastructure, making it difficult for energy giants like Shell and TotalEnergies to expand in the market.

It gets worse: Despite India’s goal to more than double the share of natural gas in its energy mix by 2030—from 6 to 15 percent—progress has been slow. The country’s gas consumption would need to rise threefold by 2030 to hit this target, requiring investments of around $67 billion (₹5.8 trillion) in everything from pipelines to import terminals. India’s gas pipeline network, which spans approximately 14,647 miles (23,573 km), only utilizes about half of its capacity. However, it is still insufficient to meet the growing demand for gas. Approximately 60 percent of the volumes needed for India to meet its 2030 consumption target are not being transported, with many pipelines lying idle due to a lack of "last-mile" connectivity. Roughly a quarter of India’s retail gas distribution areas are not connected to the national trunk lines that carry gas from domestic fields or import terminals, leading to dampened demand.

The underperformance of LNG import terminals is another consequence of the country’s infrastructure issues. For example, of the seven import terminals operational last year, only Dahej in Gujarat operated at full capacity, while others ran at an average of just 29 percent. This is significantly below the global benchmark of 40 percent for LNG plant utilization.

Access to land: Several pipeline projects have been delayed due to complex negotiations with landowners: one pipeline project connecting Gujarat and Punjab, which began in 2011, has seen just 20 percent completion due to challenges in negotiating with 4,150 landowners across 26 villages. Other projects in southern India have been hampered by approval delays and safety concerns following several high-profile accidents. For instance, a gas pipeline explosion in. Andhra Pradesh in 2014 killed 21 people and injured 18 others.

India’s LNG industry is unlikely to see rapid changes in the short term. While the country is the fourth-largest LNG importer globally, demand has been stagnant, and imports even fell 12 percent in January compared to the previous year. The recent surge in spot LNG prices has also made alternatives, such as oil products, more attractive. India's push for energy self-reliance is further complicating the issue. Coal remains cheaper, and renewables have become increasingly affordable, while reliance on imported LNG remains a concern for both the government and consumers. 

Message from our Sponsor

The smartphone story isn’t over yet…

Uber did it to taxis, Airbnb to hotels, & now Mode is doing it to the $500B smartphone industry.

They’ve turned smartphones from an expense into an income stream - don’t miss your chance to invest.

Invest at $0.26/share

*Mode Mobile recently received their ticker reservation with Nasdaq ($MODE), indicating an intent to IPO in the next 24 months. An intent to IPO is no guarantee that an actual IPO will occur.
*The Deloitte rankings are based on submitted applications and public company database research, with winners selected based on their fiscal-year revenue growth percentage over a three-year period.
*Please read the offering circular and related risks at invest.modemobile.com.

India Massively Underperforms EM Equities.

India’s stock market has seen a significant shift in investor sentiment, with large outflows from ETFs focused on the country. The $8.6 billion (₹745.6 billion) INDA fund recorded $212 million (₹18.4 billion) in outflows last week alone, bringing the total withdrawals in 2025 to over $1 billion. This marks the worst start to the year for the ETF since the pandemic, signaling growing concerns about the country’s economic outlook.

India’s economic performance has raised red flags among investors: The country’s GDP is expected to grow by just 6.4 percent for the year through March, marking the slowest pace since the pandemic. Despite efforts to stimulate the economy—including tax cuts and the first interest rate reduction by the RBI in five years—investor enthusiasm remains muted. These measures have failed to rejuvenate interest in Indian assets, with some analysts suggesting that the current stimulus won't shift sentiment in the short term.

Politics ≄ Markets: Despite the economic slowdown, Modi's political fortunes have improved. His BJP recently secured a significant victory in the national capital after over two decades, adding to its momentum from recent successes in regional elections. However, these political gains haven’t been enough to sway investors in the short term, as concerns over the economy remain a dominant factor.

While caution prevails, some investors see potential opportunities in India, as valuations have dropped from their peak in September. The Nifty 50 Index now trades at 19.4 times estimated earnings, down from 21.3 times in September. For those willing to take on risk, the correction in prices has created a potential buying opportunity for high-quality companies.

The idiosyncratic underperformance. In the broader emerging markets landscape, India saw the largest outflows in the past week, totaling $183.6 million (₹15.9 billion). This was in contrast to inflows into China and Hong Kong, which saw a boost of $346.7 million (₹30.1 billion). Keep in mind China just saw 25 percent tariffs in addition to 25 percent on key goods like steel and aluminum. The total inflows into emerging market ETFs across developing nations amounted to $398.3 million (₹34.5 billion), showcasing the idiosyncratic reduction in India.

The long-term story holds: India's economy is projected to grow at 6.5-6.8% in FY 2024-25 and 6.7-7.3 percent in FY 2025-26, significantly outpacing global growth, which the World Bank forecasts at just 2.7 percent. This strong momentum is supported by structural advantages such as a young and expanding workforce (median age of 28 years), increasing urbanization (currently 37 percent vs. China’s 61percent), and stable governance, all of which showcase that India has much low-hanging fruit left for an explosive growth story. For India bulls, recent outflows make it a prime time to buy.

Gupshup.

Macro

• India's January inflation fell to 4.60 percent as the rise in food prices remained moderate. This fall from December’s rate of 5.22 percent marks a 5-month low.

• India's aluminum exports to the U.S. are likely to drop due to Trump’s plan to announce a 25 percent tariff on all steel and aluminum imports.

Equities

• Boeing announces that it needs more orders before starting an assembly line in India. They claim that the Indian market is not large enough for an Indian assembly line to be feasible and that more orders from throughout South Asia would be required.

• Indian space firm Digantara plans on U.S. expansion to bring $30 million (₹2.6 billion) in additional revenue. They aim to secure large-scale defense contracts and tap into the $60 billion space surveillance and intelligence market.

• Bangladesh seeks full power restoration from Adani plan months of reduced sales due to low demand and payment issues. Officials say payments are ongoing, no major disputes remain, and a virtual meeting is set for Tuesday.

• Indian Oil in talks with Cheniere for 15-year liquefied natural gas deal. Volumes are expected to be between 1.5 million to 2 million metric tons per year, with hopes of getting U.S. LNG supplies through the deal from April 2027.

• The Bajaj Group has allocated $1.1 billion (₹95.43 billion) to establish a chain of hospitals in India. The initiative, led by Nirav Bajaj, aligns with India's growing healthcare sector amid rising wealth and insurance coverage.

Alts

• France is in advanced talks to buy an Indian multi-barrel rocket launcher system. India is the world's biggest arms importer but has been trying to boost local production and has been steadily increasing sales with this potential deal being the first with France.

• KKR-backed Avendus Capital is raising up to $343 million (₹30 billion) for its third private equity fund. The fund targets late-stage investments in technology, financial services, healthcare, and manufacturing.

Policy

• Top U.S. economic advisor, Kevin Hassett, claims that India's high tariffs are a barrier to exports. Trump believes that the U.S. should match Indian tariffs. Hassett stated, “If they go down, we'll go down."

See you Wednesday.

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.