📰Rate Cut, Jaishankar on Tariffs, India-France Defense Contracts

Good afternoon, 

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

• RBI cuts rates by 25 bps,

• External Affairs Minister S. Jaishankar breaks silence on tariffs,

• and, India confirms purchase of defense equipment from France.

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.

Rates Come Down 25 Basis Points.

In a widely expected move, Governor Malhotra announced a 25-basis-point reduction in the repo rate to 6 percent, making this the second consecutive cut. The cut comes as global volatility and recessionary fears are up, while inflation likely was stagnant from February to March. 

Inflation in February was at 3.6 percent, a larger drop than expected, due to falling food prices. Market activity shows that food prices likely stayed flat or dropped while gold prices surged due to financial activity from banks and traders. Still, a 3.6 percent inflation pace for March is ahead of what most would have expected at the beginning of 2025. 

A fear for agriculture is that prices have bottomed out and might actually rise again. There could be irregular rain patterns and heat waves due to the Indian Ocean Dipole, which leads to precipitation falling more in Southeast Asia rather than India. That being said, the RBI’s future rate decisions should not depend on that factor, given that they cannot control the weather.

A larger update is accommodation in terms of policy stance. For a while, the RBI has been in neutral mode. Neutral calls for neither stimulation nor curtailing demand in the economy, giving flexibility to react to inflation. Inflation is now comfortably within the 4 percent target, so the RBI can become accommodative to either hold or cut rates exclusively. Malhotra expects 4 percent inflation for FY25 too. The RBI will continue the liquidity measures seen over the past week, which help spread rate cuts through the economy expeditiously. 

Growth expectations: Malhotra also acknowledged the tough global scene with an updated GDP growth schedule. He has his 6.5 percent FY25 growth with 6.5 percent Q1, 6.7 percent Q2, 6.6 percent Q3, and 6.3 percent Q4 — a reduction by 20 basis points. His expectation is that tariffs will not be an immediate depressor in the economy. That is difficult to predict: Ryan Petersen of Flexport announced that 28 percent of companies are severely limiting freight transport over the next month (granted many bulked up on inventory in expectation), and Apple chartered 5 emergency planes to bring phones from India before tariffs hit. 

His specific views were bright prospects of the agriculture sector to boost rural demand with urban consumption to tick up with discretionary spending. The government can also boost infra spending while banks have healthy balance sheet,s along with corporate rates/spreads dropping. The big weight is service and merchandise exports. Service should remain resilient but merchandise and manufacturing will likely drop heavily with pharma, jewelry, and electronics drawn down: all are expensive and huge American draws.

Jaishankar Breaks Silence on Tariffs.

India’s response to President Trump’s damaging tariffs is unfolding swiftly, with a clear strategy to turn the trade disruption into an opportunity. Until today, senior Indian officials, including Prime Minister Modi, largely dodged the issue of Trump’s April 2 reciprocal tariff announcements that shook global markets. Minister of External Affairs S. Jaishankar revealed that New Delhi is doubling down on bilateral engagement by working to secure a trade deal with the Trump administration. 

This diplomatic maneuver comes as the US imposes a 26 percent tax on Indian imports—the second-highest rate among major economies after China. The tariffs have rattled global markets, erasing significant wealth from stock exchanges worldwide. Yet, for India, this is not seen as an unwelcome challenge but rather as an impetus to cement closer ties with the United States — a move that Narendra Modi and his counterparts have been pushing since their high-stakes meeting in February, which set a deadline for reaching an agreement by this fall.

Breaking the silence: Minister of External Affairs S. Jaishankar was measured in his assessment of the immediate impact of the tariffs, stating that it remains unclear how they will affect the economy. Meanwhile, domestic debates in India intensify as political allies and opposition groups alike weigh in. Influential voices from bodies such as the Swadeshi Jagran Manch are urging the government to safeguard industries that rely on vast numbers of low-income workers, highlighting the need to protect sectors like agriculture, dairy, and small-scale manufacturing even as the country forges ahead on the international front.

Historically, talks on a bilateral trade deal date back to Trump’s first term, but it wasn’t until Trump 2.0 that New Delhi held more rounds of discussions with the US in the past six weeks than it had with European nations over the last two years. India’s proactive stance has positioned the country as the only nation to have reached an understanding in principle with the US since his reelection.

India Strengthens Defense Partnerships with France.

The Indian government has given its approval for the purchase of 26 Rafale marine fighter jets from France, a move poised to reinforce the nation’s defense posture at a time when New Delhi is positioning itself as a strategic counterweight to Chinese influence in the Indian Ocean. 

The approval came from a high-powered committee led by Modi, marking a key milestone in an effort to bolster India’s naval capabilities. The deal, valued at $7.4 billion (₹640 billion) encompasses not only state-of-the-art single-pilot jets but also includes four twin-seater trainers and provisions for the maintenance of the 36 Rafale aircraft already in service with India’s air force. Part of the purchase is surprising given that India was supposed to shift purchases towards the US. 

Different allies: The decision aligns with discussions held during Modi’s recent visit to France in 2023, underscoring a deepening relationship with Western allies amid growing regional tensions. Western nations, eager to extend critical technologies and advanced weapon systems, are increasingly courting New Delhi as it seeks alternatives to its long-standing reliance on Russian hardware. From 2020 to 2024, India emerged as the largest buyer of French military equipment, outpacing even traditional defense powers like Qatar — a trend driven in part by sanctions that have dampened Russia’s deliveries. 

This procurement is set to augment the capabilities of a fleet that, in the near future, will be closely integrated with the Indian Navy’s indigenous aircraft carrier, INS Vikrant. While India continues to operate Russian-made MiG-29K fighters on its aircraft carrier, the addition of the Rafale jets is expected to plug critical gaps in the navy’s combat readiness, complementing ongoing efforts to develop homegrown deck-based fighters. As China’s assertiveness in the region intensifies, India’s latest acquisition not only enhances its operational readiness but also signals its determination to modernize its military arsenal through diversified and technologically advanced imports.

Message from our sponsor.

Stay Informed, Without the Noise.

Your inbox is full of news. But how much of it is actually useful? The Daily Upside delivers sharp, insightful market analysis—without the fluff. Free, fast, and trusted by 1M+ investors. Stay ahead of the market in just a few minutes a day.

Subscribe today.

Gupshup.

Macro

• Malhotra sees growth taking a hit from tariffs, but inflation remains unaffected. He was bullish regarding the share of exports, saying that India relies less on exports than some other countries but has still globalized recently.  

• While US bonds sell off, Indian bonds remain bullish with shorter-duration bonds leading the charge.5-year tenured debt fell by 6 basis points, and the 10-year remained flat compared to US yields rising nearly 50 basis points. A fire sale has happened globally as investors move to holding cash to cover any margin calls.  

Equities

• Tata Steel is cutting 1,600 Dutch jobs in an effort to transition to green steel. Additionally, geopolitics, trade, and supply chain disruptions are leading to lower profitability. There has also been Dutch pressure to adjust the facility given pollution claims, which Tata has denied. The plant is the second largest steel plant in Europe.

• Consumer staples are emerging as a bright spot due to rural demand prospects. Sector leaders like Unilever and Nestle have gained due to being required consumer goods. These companies appeal to defensive investors who are buoyed by interest rate cuts and increased domestic demand. 

• Indian stocks are going to beat Asian peers by the most since 2009. India is up 6 percent over Asia due to limited tariff concerns. India will also benefit most from trade being restructured, which they are working on right now.    

Alts

• Banks are expected to gain from an RBI cut, enticing public and private investors. Derivatives show the cost of hedging long positions with puts is now lower for banks than any other sector in the Nifty due to the rate cut and liquidity measures.  

Policy

• Finance Minister speaks to manufacturing success with $17 billion (₹1.5 trillion) of iPhone exports in the last 12 months. The gain was 54 percent y-o-y. There is still a growth opportunity since 80 percent of iPhones come from China with 104 percent tariffs.  

• SEBI sees limited trading risks even with a high volatility environment.SEBI Chair Pandey said that the unique trading system, where both settlement houses of NSE and the BSE can trade on each other’s bourses, makes failure impossible. Effectively, if either one goes down, the other can manage the other’s systems. All trades are also marked-to-market with proper leverage and margin requirements so it is difficult to see participants blown out either.

See you Thursday.

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.