📰RBI Hits The Brakes, Fund Inflows into India Expected, Stocks Dip Amid Israel-Iran Tensions

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 doubled down on caution,

• A weakening dollar sets the stage for inflows to Indian markets,

• and India’s major stock indexes paused after early strong gains amid Israel-Iran tensions.

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

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—Shreyas, [email protected]

Market Update.

RBI Hits The Brakes.

India’s central bank is recalibrating its policy approach, signaling a more cautious stance on monetary easing by announcing a plan to drain excess liquidity from the banking system. The RBI will conduct a $11.6 billion (₹1 trillion) variable rate reverse repo auction on June 27, its first such operation since November, marking a shift after months of aggressive fund infusions aimed at supporting economic growth.

This move underscores a broader macroeconomic pivot. The RBI had previously injected a record $110.5 billion (₹9.5 trillion) into the system since January to alleviate a liquidity crunch. But with the tide turning and surplus funds now regularly parked by banks, amounting to $26.8 billion (₹2.3 trillion) as of June 23, the central bank appears focused on reining in excess liquidity to maintain the integrity of its interest rate corridor.

While the RBI recently cut policy rates and the cash reserve ratio, short-term interbank rates have stayed stubbornly below the benchmark, weakening policy transmission. This reverse repo operation aims to nudge short-term rates back toward alignment, helping the RBI regain control over its monetary toolkit.

The implications are significant. A reversal in liquidity conditions could temper optimism in the bond market, where falling yields had reflected investor expectations of sustained policy support. Analysts expect short-term yields to rise in the near term, while longer-dated bonds could remain stable amid geopolitical calm and contained inflation.

Ultimately, the RBI’s move reflects the central bank’s balancing act: supporting growth without stoking instability in money markets. If sustained, such liquidity operations may signal a pause, or even reversal, in the easing cycle, especially if inflationary pressures return or global financial conditions tighten.

India Expecting Fund Inflows.

A weakening U.S. dollar, sliding global interest rates, and a tentative geopolitical truce in the Middle East are setting the stage for renewed foreign fund inflows into India’s financial markets. These macro shifts arrive at a critical moment for India, where policymakers are betting on consumption-led growth and a broader economic revival.

The dollar’s recent retreat, paired with expectations of a dovish U.S. Federal Reserve, is reshaping capital flows into emerging markets. India, with its resilient macro fundamentals, is well-positioned to benefit. Analysts like Vaibhav Sanghavi of ASK Investment Managers believe that softer U.S. yields will make Indian equities more attractive, especially in sectors linked to domestic consumption such as consumer discretionary, staples, rural-focused firms, and IT services.

This comes as the RBI injects liquidity and the government pushes tax reforms to bolster demand. The convergence of falling oil prices, driven by de-escalation between Israel and Iran, and India’s improving earnings outlook may amplify investor risk appetite. With Nifty futures tracking gains across Asia and market sentiment turning bullish ahead of the earnings season, institutional investors may return after recent outflows.

However, the rebound is not just cyclical; it is also structural. India continues to build credibility as a stable investment destination amid global uncertainty. With a long-term growth narrative, improving governance, and rising geopolitical relevance, the country remains a key frontier for global capital.

If global liquidity stays ample and geopolitical risks subside, India could see sustained foreign inflows through the second half of 2025, supporting both equity and debt markets.

Stocks Dip.

India’s major stock indexes paused after early strong gains, reflecting cautious investor sentiment amid rising geopolitical tensions in the Middle East. The Nifty 50 closed 0.29 percent higher at 25,044 points, and the Sensex ended 0.19 percent up at 82,055 points. Earlier in the day, both indexes had climbed as much as 1.3 percent, reaching levels not seen in nearly nine months.

The gains were tempered after Israel announced it had ordered military strikes against Iran, following reports of missile launches that breached a recent ceasefire. Iran has denied violating the truce. This escalation raised concerns among investors, leading to some profit-taking, or selling, especially at higher price levels.

Crude oil prices also rose, hitting around $69 per barrel from $67.7 before the news broke. Since India heavily depends on oil imports, rising crude prices could increase costs for businesses and consumers, potentially driving up inflation and widening the government’s fiscal deficit.

Sector-wise, IT stocks gave up early gains and closed flat, while financials and mid- and small-cap stocks showed moderate strength. Analysts believe these segments benefit from expectations of improving corporate earnings in the next few quarters.

Overall, investors remain cautious but hopeful. If oil prices stabilize, the markets may bounce back in the near term.

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Gupshup.

Macro

• Indian stock markets gave up some of their early gains after news broke that Israel planned to strike Iran for breaking a ceasefire deal. While the Nifty 50 still closed slightly higher, rising oil prices and global tensions made investors nervous.

Equities

• Novo Nordisk launched its weight-loss drug Wegovy in India at a starting price of $50 (₹4,300) per week, months after rival Eli Lilly’s Mounjaro entered the market. The move aims to capture growing urban demand in a country with over 80 million obese people, while generic competition looms as semaglutide’s patent nears expiry.

• Adani Group plans to invest $15–20 billion annually over the next five years, aiming to reach 100 GW of energy capacity and launch key infrastructure like a new Mumbai airport. Chairman Gautam Adani used the shareholder meeting to project business recovery and defend the group against recent U.S. bribery and fraud allegations.

• India's market regulator has proposed curbing the power of stock exchange CEOs by requiring new officers to independently oversee trading, risk, and compliance, reporting directly to the board and SEBI. The move aims to boost accountability and tighten governance at key financial institutions.

• Tata Motors says it's not alarmed by China’s rare earth export curbs and that its electric vehicle rollout remains on schedule, though it’s exploring alternative materials as a precaution. The company also plans gradual price hikes to offset U.S. tariffs, but has no immediate plans to shift manufacturing to the U.S.

• Gautam Adani denied any wrongdoing, telling shareholders that no one in the Adani Group has been charged under U.S. anti-bribery laws, despite allegations of misconduct. He reaffirmed the group’s commitment to growth, outlining plans to invest up to $20 billion annually and expand its energy capacity to 100 GW by 2030.

Alts

• Standard Chartered is planning a significant risk transfer (SRT) tied to about $2 billion (₹171.9 billion) in corporate loans from North America and Europe, with protection sought on $190 million (₹16.3 billion) of that portfolio. The deal, still under discussion with investors, would free up regulatory capital by shifting credit risk to third-party funds.

• Mumbai housing is at its most affordable in 15 years, with mortgage costs now consuming 48 percent of household income due to RBI rate cuts. However, it remains India’s least affordable market amid rising prices and stagnant incomes.

• Indian farmers have sharply increased rice and pulse sowing as of June 20, with rice acreage up 58 percent and pulses up 42 percent from last year. Favorable monsoon rains have also supported a 7.4 percent rise in cotton planting.

• India’s coal reserves at power plants have hit a record 58.25 million tonnes—enough for 25 days—ensuring supply stability as monsoon rains threaten mining and transport. The surge in domestic production has also helped cut coal imports and lower coal’s share in the power mix.

• Adani’s Mumbai airport arm has raised $750 million from an Apollo-led investor group to refinance debt, with the option to secure an additional $250 million. The deal comes as Adani Airports prepares for a potential public listing by 2027.

Policy

• India’s Defense Minister Rajnath Singh will visit China for the first time in five years to attend an SCO meeting, signaling renewed diplomatic engagement after the 2020 border clashes. The trip may pave the way for a potential visit by Prime Minister Modi to the SCO leaders' summit this fall.

• India’s aviation regulator found recurring safety issues on aircraft at major airports, blaming poor maintenance checks in the wake of a deadly crash earlier this month. Airlines have been given seven days to fix the problems.

See you Wednesday.

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.