📰RBI Takes the Training Wheels Off

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 pummels earnings,

• India secures mineral mining partnerships with Argentina,

• and, India and the United Kingdom resume free trade agreement negotiations.

• Finally, we’ll close with Gupshup, a round-up of the most important headlines.

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—Shreyas, [email protected]

Market Update.

Expert Panel & Networking Event in New York City

Seats are running out for our upcoming “Future of India” expert panel and networking event on Wednesday, February 12, 2025, in New York City.

Our keynote speaker is Dr. Viral Acharya, who served as the deputy governor of the Reserve Bank of India, during which he oversaw India’s monetary policy, financial markets, and the central bank’s research. Buy tickets here.

The RBI Takes the Training Wheels Off.

In recent memory, Indian companies could rely on the Reserve Bank of India to do their currency hedging for them, as the central bank would consistently intervene to maintain an unofficial dollar peg.

Not anymore. The RBI has taken a new approach of letting the rupee fall, forcing companies to deal with actual international prices and restructure their companies to be strong in a more competitive landscape. Remember, the RBI protecting the RBI from falling is also artificially boosting the export prices of Indian companies while reducing their import prices. This is effectively a monetary policy-driven tax on Indian exports, making Indian companies less attractive to the rest of the world.

The recent depreciation of the Indian rupee is beginning to strain corporate earnings. Companies of all sizes, like IndiGo, Maruti Suzuki, NIIT Learning, and Tanla Platforms, have announced currency-related losses. Companies with significant raw material costs will face higher import expenses, while even digital-focused firms like NIIT and Tanla experienced revenue declines due to currency fluctuations.

Watch the hedging: IndiGo just reported a 3x increase in currency losses to $169 million (₹14.6 billion) in the most recent quarter. The rupee, in that period, has weakened by 2.4 percent, marking the sharpest decline among EM Asian countries. Bankers speculate that the RBI has relaxed its strict dollar-pegging policy, as companies previously underestimated FX risks. Now, firms are rushing to hedge their rupee exposure, purchasing $48 billion (₹4.2 trillion) in hedges in December. Meanwhile, hedging costs have climbed by over a percentage point.

A silver lining? Former RBI Governor Duvvuri Subbarao supports the central bank’s approach, as it encourages companies to become more self-reliant rather than relying on RBI-led risk management.

India Secures Mineral Mining Agreements with Argentina

As India pushes to electrify 30 percent of the cards on its roads by 2030, it expects a dramatic increase in demand of lithium, a key mineral for electric vehicle batteries. Lithium is one of the 30 critical minerals for the energy transition but India has struggled sourcing the material. While the sub-continent is believed to have the seventh largest global supply, skeleton reports, clay-laden mines, and auction failures have resulted in a lack of domestic action.

Now, India is looking to partner with Argentina to secure its lithium needs. India is ramping up its investments in Argentina’s mining sectors, with a particular focus on lithium, as it seeks to secure critical resources for its clean energy transition. India’s Mining Secretary V.L. Kantha Rao met with Argentine officials in Bueno Aires for the first in-person discussions since a preliminary agreement was established in 2022 on mineral exploration and supply. Indian state firms Khanij Bidesh India and Coal India, along with private company Greenko, are already engaged in lithium exploration in Argentina’s northwest province of Catamarca, with further expansion likely in nearby Salta. Rao hinted that a new investment announcement could be made within the next six months.  

Why now? Argentina, which has recently liberalized its markets, making it a more attractive home for foreign investment, is the fourth-largest lithium exporter globally but also has a litany of other opportunities such as copper, gold, gas, and oil. All of these are under survey by Indian companies: three Indian companies just signed a letter of intent with state-run oil firm YPF for LNG exports.

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India and the UK Resume Free Trade Negotiations

India and the UK are set to relaunch negotiations on a free trade agreement (FTA) and a bilateral investment treaty. British High Commissioner to India Lindy Cameron confirmed the renewed efforts, emphasizing the importance of the economic partnership in unlocking opportunities for businesses and communities in both nations.  

The next steps are: Britain’s Business and Trade Secretary Jonathan Reynolds will visit India next month to advance discussions. Negotiations have already undergone 14 rounds, with the last taking place in March 2024. Key unresolved issues include tariff reductions on electric vehicles, alcoholic beverages like Scotch whisky, and enhanced access to India’s services sectors, particularly in telecommunications and financial services. The UK is seeking substantial cuts in import duties on these goods while also securing greater market entry for its companies. The FTA talks, initially launched in January 2022, were originally targeted for completion by Diwali in October 2022.

Gupshup.

Macro

• Options Traders Brace for Volatility in India's Bank Stocks Ahead of Budget. Nifty futures rise, but volatility looms pre-budget; auto stocks rebound, rupee pressures firms, and sugar stocks gain on ethanol price hikes.

• Global Firms’ Office Leasing in India Hit Record High. Global Capability Centers leased a record 28 million square feet of office space in India last year, driving a surge in office demand and highlighting India’s growing role as a global office hub.

• India’s IPO Boom Is Defying the Stock Market’s Historical Slump. India's IPO market is thriving, with 23 listings up 15 percent this year and $25-30 billion (₹2.2-2.6 trillion)  expected in 2025, driven by confident domestic investors.

Equities

• India Court Allows Byju’s US Lenders to Join Creditor Panel. An Indian court reinstated US lender Glas Trust to Byju’s creditor panel, removing its bankruptcy administrator as the firm nears insolvency.

• Byju’s Executive, Business Partner Found in Contempt of US Court. A US judge found Byju’s executives in contempt for asset stripping and violating court orders, imposing $25,000 (₹2.2 million) daily fines amid a $1.2 billion (₹103.9 billion) lender dispute.

• Rupee Pain Starts to Show as India’s Top Airline Pummeled. IndiGo plans to extend currency hedging beyond 12 months as hedging inquiries rise amid the rupee’s slide.

• Jaguar Land Rover Profit Slumps as US Tariff Threat Looms. Jaguar Land Rover's quarterly profit fell 17 percent to $650 million (₹56.3 billion) amid foreign exchange losses and looming US tariffs, while economic challenges in China and India added pressure.

• Adani Power Gets Board Nod To Raise $578 Million (₹50 Billion) Via Share Sale. Adani Power plans to sell shares to institutional investors to fund capital expansion, while also doubling its bond issuance limit amid ongoing scrutiny of the Adani Group.

• Maruti Suzuki Misses Profit Forecast on Higher Input Costs. Maruti Suzuki's profit rose 13 percent, missing expectations due to higher costs, and plans to raise car prices while expanding its electric vehicle range.

• Whirlpool Intends to Reduce Stake in India Unit to About 20 Percent in 2025. Whirlpool Corp reduction plans intend to net $550 million (₹47.6 billion) to $600 million (₹51.9 Billion) in proceeds, with the deal closing by mid-to-late 2025.

Alts

• Nykaa Expects Strong Growth as India Spends More on Brands Like Dior, Shiseido. Nykaa expects rapid growth fueled by rising affluence and expanding demand in smaller cities, with plans to increase its store count and capitalize on luxury beauty trends.

• More Indians Losing Hope of Improved Quality of Life Under Modi. A survey reveals that 37 percent of Indians expect their quality of life to worsen, the highest since 2013, amid stagnant wages and rising costs.

• India Seeking Energy, Lithium Investments in Argentina. Following a 2022 agreement, India aims to boost investments in Argentina's mining, gas, and oil sectors, particularly lithium, to support its energy transition.

• India Approves $1.88 Billion (₹163 Billion) to Develop Critical Minerals Sector. India is aiming to reduce reliance on imports and secure materials like lithium for energy transition technologies.

Policy

• Income Tax Cut in Focus as Modi Seeks Demand Boost. India’s budget will likely boost consumption with tax cuts and rural welfare while maintaining fiscal discipline amid slowing growth and global uncertainties.

• India's Modi May Tackle Economic Slowdown, Impending Trade Turmoil in Annual Budget. India's upcoming budget aims to address faltering economic growth, high prices, and low wages while preparing for global trade uncertainties.

See you Friday.

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.