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📰Indian Equities Outperform, RBI Expectations, Fuel Taxes Rise

Three stories on Indian markets that you can't miss.

April 07, 2025

Good evening, 

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

  • Why Indian equities were able to outperform their Asian peers,

  • The RBI is going to continue its unprecedented liquidity push,

  • and India has raised taxes on diesel and gasoline to capitalize on falling crude oil prices.

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.

Indian Equities Outperform Asian Peers.

As Asian markets tumbled to their worst day since 2008, Indian equities also declined — but with far less severity — fueled by hope that the country’s economy may emerge from Trump’s intensifying trade war with only minor bruises. While benchmark indices in Hong Kong and Japan closed 11 percent and 7 percent lower, respectively, Indian stocks opened with a 5 percent plunge and managed to pare some losses by the session's end. US futures signal another brutal trading day ahead.

Reasons for resilience: Since the announcement of tariffs, Indian equities have outperformed both emerging markets and US indices. The reasons include India’s lower beta and relatively modest tariff exposure. The MSCI India Index has slipped 7 percent, outperforming the MSCI Emerging Markets Index and the S&P 500 by approximately 350 basis points. Additionally, India’s economic fundamentals are less exposed than others in the region. A lot of this comes from less reliance on US trade to prop up GDP and company earnings. 

However, India’s financial markets are far more globalized than its real economy, leaving them vulnerable to external shocks. Most economists are now projecting a direct hit of up to 0.5 percent to India’s FY26 GDP growth — a revision that’s actually less severe than earlier estimates. Still, the real test will come from the indirect effects, which are expected to become clearer in the coming months.

Key factors moving forward: The RBI is widely expected to lower interest rates again at its April 9 meeting, adding to recent liquidity injections aimed at softening the economic blow. The central bank’s stance on GDP forecasts and currency stability will also be under the microscope. The rupee has strengthened in the past few weeks to around 85, which boosts earnings but hurts export capability. On the fiscal front, maneuverability is limited. Both tax revenues and government spending have slowed, while budget deficit targets for FY26 remain ambitious. Compounding this is the tight fiscal space at the state level, where deficits are already near their statutory ceilings.

One unexpected source of relief has been the global slump in crude oil prices, with Brent falling below $60 per barrel — its lowest in four years. India, a major oil importer, has yet to pass on these savings to consumers, which could provide a future consumption boost if it chooses to do so.

FDI remains cautious. Since October 2024, foreign investors have pulled nearly $27 billion (₹2.3 trillion) from Indian equities, even though bond markets have seen renewed interest. Meanwhile, foreign direct investment during April–December barely topped $1 billion (₹85 billion). Private corporate investment is likely to slow further in the wake of tariff-related uncertainty. The upcoming earnings season, starting with IT giant TCS on April 10, will provide insight into how Indian firms are adjusting their outlooks, hiring plans, and investment strategies in response to the shifting global landscape.

Most critically, a prospective India-US trade deal, with its first tranche expected by late summer, could reshape India’s economic positioning. Negotiations will span both goods and services, and the deal could potentially lower US tariffs in exchange for greater access to Indian markets. Amid all this, investors seem cautiously optimistic about India’s fate. The country’s relatively small goods export base and its limited integration into global supply chains may insulate it from the worst impacts of the trade war. Many in India’s business community also see the China-US conflict as a strategic opportunity for India to step into supply chain gaps and gain favor with global partners.

Expect More RBI Dovish Intervention + MPC Meeting.

The RBI is going to continue its unprecedented liquidity push as it seeks to shield the Indian economy from a growing list of global headwinds, including the impact of US tariffs and broader market volatility. Analysts expect the central bank to infuse as much as $47 billion (₹4 trillion) into the banking system through bond purchases and foreign-exchange swaps in the current fiscal year. IDFC FIRST Bank and SBM India project a significant portion — $23.5 billion (₹2 trillion) — could be injected in the first half alone, adding to the $80 billion (₹6.7 trillion) already infused since January.

Rate cut angle: These measures are essential to ensure that forthcoming interest rate cuts are effectively transmitted into the economy. The RBI is widely expected to cut rates again on April 9; bulls believe continued monetary easing and ample liquidity could push benchmark yields to fresh three-year lows. Historically, liquidity surpluses of $23.5 billion (₹2 trillion) or more have been necessary to ensure smooth transmission during rate-cutting cycles within India as well. 

Global market turbulence, triggered by China’s retaliation to US tariffs, has intensified the need for safe-haven assets and accommodative policies. The RBI’s response has included ramping up Open Market Operations, with another $9.4 billion (₹800 billion) worth of bond purchases announced for April, surprising investors and reinforcing confidence in the bond market. As a result, the 10-year bond yield dropped to 6.46 percent on Monday — matching last week’s three-year low — and could slide further to 6.25 percent in the coming months.

Past dollar swaps: The RBI’s liquidity injections are also crucial as it faces upcoming net dollar maturities of about $35 billion (₹3 trillion) in the forwards market between April and June. If the central bank opts not to roll over these swaps, it would need to return the dollars, risking another cash crunch. To preempt this, the RBI is likely to maintain a surplus through further OMOs and FX interventions. 

These efforts have already had a dramatic effect. After grappling with a liquidity deficit of $38.8 billion (₹3.3 trillion) in January, the banking system is now back in surplus. The earlier cash squeeze was largely the result of the RBI’s aggressive dollar sales, which have now been counteracted by fresh liquidity injections.

Fuel Taxes to Go Up as Energy Prices Fall.

India has raised taxes on diesel and gasoline to capitalize on falling crude oil prices, aiming to bolster government revenues without immediately impacting consumers. The special additional excise duty on gasoline will increase from ₹11 to 13 per liter, while diesel will rise from ₹8 to 10 per liter starting April 8. Despite these tax hikes, retail fuel prices will remain unchanged, as state-run oil refiners are expected to absorb the cost. Oil Minister Hardeep Puri assured the public that these companies are financially robust and capable of handling the burden.

Past uses of fuel taxes: This strategic move by the government could generate over $3.5 billion (₹300 billion) in additional revenue. The funds are likely to be channeled into export incentives and measures to support domestic production amid ongoing global trade tensions and economic volatility.

The Modi administration has previously used global oil price drops as an opportunity to enhance fiscal earnings, often withholding price relief from consumers. A similar approach was taken during the pandemic when global oil prices fell dramatically. Currently, Indian fuel prices have remained stable since mid-March last year, even as Brent crude has dropped to a four-year low of $62.51 (₹5,313) per barrel.

Oil Minister Puri noted that if crude prices remain below $65 (₹5,515) for an extended period, fuel retailers may consider cutting prices. However, consumers will see a price increase in their cooking gas. The cost of a standard 14.2-kilogram LPG cylinder will rise by ₹50 from Tuesday. India imports over 60 percent of its domestic LPG consumption and has relied on subsidies to offset global price hikes. Nevertheless, state retailers are estimated to have suffered losses of $4.9 billion (₹413.4 billion) on LPG sales in FY25.

While consumers may not feel the pinch at the fuel pump immediately, the dual strategy of raising taxes and adjusting LPG prices reflects the government’s balancing act — maintaining fiscal health while managing inflation and shielding households from the full impact of global energy volatility.

Gupshup.

Macro

  • ​​India is focusing on a US FTA rather than seeking retaliation. India already has a first-mover advantage over the Southeast Asian region, but also struggles with more complicated tariff and non-tariff trade barriers. There are going to be continued trade talks over the next few weeks, as compared to neighboring titan China, which imposed 34 percent tariffs.  

  • India is looking to support jittery exporters. Exporters have asked for India to refund taxes paid during manufacturing and shipping, which was a 2021 policy to boost the economy during COVID. The requests come from the jewelry and engineering sectors, which would have the biggest fall-offs.

Equities

Alts

Policy

See you Tuesday.

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.