📰Inflation Drops, Foreign Investors Rush In, India Tightens Remittance

Good afternoon, 

Earlier today, India experienced the worst aviation-related crash in a decade, claiming at least 290 lives. Samosa Capital honors the victims.

Here’s what is in today’s newsletter:

• Inflation drops,

• Foreign investors rush in,

• and India tightens remittance rules to crack down on overseas financial holdings.

Then, we close with Gupshup, a round-up of the most important headlines.

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—Shreyas, [email protected]

Market Update.

Inflation Drops.

In a major boost for India’s central bank, consumer inflation dropped to 2.82 percent in May — its lowest level in over six years — marking the longest stretch of sub-4 percent inflation since 2018. The sharp slowdown, driven largely by easing food prices, adds further justification for the Reserve Bank of India’s unexpected 50 basis point rate cut last week.

Food inflation, which accounts for nearly half of India’s consumer basket, cooled sharply to 0.99 percent in May, with vegetable prices plunging 13.7 percent year-on-year.

Meanwhile, core inflation — which strips out volatile food and energy costs — hovered around 4.17 percent to 4.20 percent, suggesting underlying demand remains stable.

The RBI has revised its inflation forecast for fiscal 2025-26 down to 3.7 percent, citing strong agricultural output and early monsoon rains. While most economists expect the RBI to pause further cuts for now, some say additional easing is still possible if price pressures continue to recede.

Foreign Investors Rush In.

India’s equity markets are roaring back as foreign investors rush to capitalize on post-election stability, rate cuts, and improved liquidity. Companies raised $6.4 billion (₹547.4B) through share sales in May — the strongest month since December — with block trades driving most of the activity. In the first week of June alone, another $1.2 billion (₹102.6B) in block deals were executed, reflecting a growing global appetite for Indian assets.

“Investors want India exposure — and they want it fast,” said Sunil Khaitan of Goldman Sachs. Major block trades included British American Tobacco’s stake sale in ITC, Singapore Telecom’s exit from Bharti Airtel, and Rakesh Gangwal trimming his IndiGo holdings.

The revival is also breathing life into India’s IPO pipeline. HDB Financial Services secured regulatory approval for its long-awaited listing, while Prudential’s Indian joint venture prepares to go public. Though total equity fundraising remains 29 percent below last year’s pace at $15.5 billion (₹1.3T), analysts say the second half of 2025 could see momentum accelerate.

Driven by central bank support, robust earnings, and strong secondary demand, India’s capital markets are regaining strength — and could surpass 2024 fundraising levels if current trends hold.

India Tightens Remittance.

India’s central bank plans to bar resident Indians from using overseas remittances to park money in foreign time deposits, in a move aimed at curbing passive capital outflows and protecting foreign exchange reserves, two government officials told Reuters.

The RBI is preparing to amend its Liberalised Remittance Scheme (LRS) framework to prohibit remittances into interest-bearing accounts abroad, the sources said. The current scheme allows individuals to send up to $250,000 (₹21.4 million) per year for travel, education, and investments.

“This is akin to passive wealth shifting, which is a red flag for the RBI in a still-controlled capital regime,” said one of the officials, who requested anonymity due to the confidential nature of the discussions.

Policy shift amid surging deposits: The decision comes amid a sharp rise in outward-bound deposits. RBI data showed a jump in such deposits to $173 million (₹14.8 billion) in March, up from $51 million (₹4.4 billion) in February, with March typically seeing a surge in transfers as residents max out yearly limits before the fiscal year-end.

While total outward remittances dipped slightly to $30 billion (₹2.6 trillion) in FY2024–25 from $31 billion (₹2.7 trillion) the year prior, authorities remain concerned about misuse of the scheme as a backdoor for capital flight.

“This is a preventive step,” the second source said, noting the central bank is coordinating with the government to ensure such deposits cannot be routed under alternate names.

No impact on active investments: The proposed restrictions would not apply to legitimate overseas investments, including equities, mutual funds, or property purchases under LRS.

The move forms part of a broader review to streamline LRS rules, as outlined in the RBI’s latest annual report. Both the RBI and the Finance Ministry declined to comment.

India has long maintained a cautious approach to capital account convertibility, balancing global investment access with the need to preserve currency stability and reserve buffers.

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Gupshup.

Macro

• Global funds are returning to Indian stocks with $3 billion (₹256.6 billion) in net buys, but the largest US-based India-focused ETF continues to see outflows amid cautious investor sentiment. Meanwhile, bond issuances are slowing, and market infrastructure firms face valuation pressures due to upcoming rival listings.

• For the third consecutive biweekly cycle, India’s central bank skipped its scheduled 14-day liquidity operation, citing a review of liquidity conditions, even as markets had expected action ahead of heavy tax outflows, offset partially by bond inflows. Despite potential short-term tightness, the system remains in surplus, with traders anticipating only a mild rise in overnight rates.

Equities

• Boeing shares fell 5 percent after an Air India Boeing 787-8 Dreamliner crashed shortly after takeoff in Ahmedabad on Thursday, killing over 290 people in the deadliest aviation disaster in a decade. The London-bound flight struck a college hostel, killing both passengers and people on the ground, including former Gujarat Chief Minister Vijay Rupani. At least one passenger survived; this marks the first fatal crash for the Dreamliner model since its commercial debut in 2011.

• Airbus forecasts the global commercial aircraft fleet will double by 2044, driven largely by rapid growth in India’s aviation market. India is expected to become the fastest-growing domestic air travel market, with major aircraft orders from carriers like Air India and IndiGo.

• JSW Cement has begun a roadshow for a potential IPO in Mumbai as early as next month, aiming to raise up to $468 million (₹40 billion) to fund expansion and reduce debt. The move comes amid favorable market conditions and follows JSW Group’s broader strategy to unlock value across its businesses.

• The Adani Group plans to spin off and list its airports unit by March 2027 as part of an accelerated $100 billion (₹8.6 trillion) investment plan over the next five to six years, aiming to scale up energy, logistics, and infrastructure businesses. To fund this growth, the group will borrow $30 billion (₹7.6 trillion) from markets while using internal accruals and new assets to generate additional capital by 2030.

• Shares of digital payments company Paytm dropped as much as 10 percent after India’s finance ministry denied reports that fees would be introduced on UPI transactions, calling the rumors false and baseless. The decline marked Paytm’s biggest intraday fall since February 2024, with shares recovering slightly to close down 8 percent.

Alts

• Traders in India’s foreign exchange market are increasingly focusing on dollar-rupee forwards as the spot rupee remains rangebound between 85.30 and 86.02 against the dollar, with volatility at a six-week low. Forward premiums have seen sharper fluctuations due to the RBI’s recent large rate cut and shifting expectations around U.S. interest rate moves.

• India’s Coast Guard is working to tow a cargo ship that caught fire off Kerala’s coast to prevent an ecological disaster, as the vessel carries hazardous cargo and fuel. Despite firefighting efforts reducing visible flames, the fire continues near the fuel tanks, prompting urgent action to move the ship away from the shore.

• India’s palm oil imports surged 84 percent in May to a six-month high of nearly 593,000 tons, as lower stocks and competitive pricing versus soyoil and sunflower oil drove refiners to step up purchases. Total vegetable oil imports also rose sharply, with industry analysts expecting continued strong buying in June.

Policy

• India’s central bank is sending mixed signals by cutting interest rates and boosting bank liquidity to spur growth while simultaneously shifting its policy stance back to neutral, causing confusion among markets. Despite these efforts, loan growth remains sluggish as banks hold excess funds instead of lending, and bond markets have become volatile amid uncertainty over future policy moves.

• India’s stock markets dipped as uncertainty over the U.S.-China trade deal and rising Middle East tensions dampened investor confidence, with IT stocks leading losses. Paytm shares fell 8.4 percent after the finance ministry denied reports of new UPI transaction fees, a development UBS said could hurt the company’s profitability in the coming years.

See you Friday.

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.