📰Rupee Hits Strongest Position of 2025

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:

• The rupee has just hit its strongest position of 2025,

• India’s insurance industry to significantly increase exposure to bonds,

• and India is bracing for a punishing pre-monsoon heat wave.

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

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—Shreyas, [email protected]

Market Update.

The RBI Starts Trimming Its Rupee Trades.

The rupee has just hit its strongest position of 2025 for a myriad of reasons. Trade deals, manufacturing, and low oil costs are some, but the main reason is a change in RBI policy. Remember that the bank had been shorting USDINR while longing USDINR forward contracts to drive the rupee up while remaining hedged. Well, they now just trimmed their net long position in USDINR forwards to $64.2 billion (₹5.5 trillion) in March from an all-time high of $88.8 billion (₹7.5 trillion) in February, suggesting that the central bank allowed roughly $24.6 billion (₹2 trillion) of contracts to mature rather than rolling them over. 

This shift comes after 5 consecutive months of active intervention in on-shore and offshore FX swaps aimed at supporting the rupee, which weakened nearly 5 percent against the dollar between late November and mid-February. Longing USDINR forwards while shorting the spot currency allows for dollar weakening and rupee strength; the RBI had announced a reduction in currency shorts already, but had not announced any forward contract changes until now. 

The RBI’s one-month net short exposure fell to $11.8 billion (₹1 trillion) in March, down from $18.3 billion (₹1.6 trillion) in February, while its two- and three-month tenors contracted to $12.2 billion (₹1 trillion) from $22 billion (₹1.9 trillion). Longer-dated forwards also dropped at a slower rate, indicating a deliberate strategy of letting near-term swaps lapse while maintaining some longer-dated hedges. The unwind engineered a systemic liquidity withdrawal, which will need to be replenished via open market bond purchases.

Good thing that yesterday the RBI ramped up OMOs to $15 billion (₹1.3 trillion) to maintain liquidity at a 1 percent surplus of net demand and time deposits. With headline foreign exchange reserves at $581 billion (₹49.4 trillion) as of late March, a decline in forward liabilities directly boosts reported reserves but also tightens interbank cash. Governor Malhotra has repeatedly emphasized the dual mandate of stabilizing the currency while ensuring liquidity.

The RBI appears reluctant to deepen its short-dollar stance further, and such is smoothing the rupee’s path and avoiding any sudden surges in forward valuations. That forward premia peaked above 8 percent annualized in January for three-month tenors, up from under 5 percent a year earlier, before retreating as net shorts declined.

Corporate costs: Market participants have to watch the RBI’s OMO calendar closely since bond purchases have to match the pace of forward unwinds to prevent unintended tightening. This is also true since the next 2 quarters have 70 percent of the short book expiring, meaning either the RBI has to continue buying bonds to avoid liquidity drains or inflate the forward premia. A hidden cost of that premia is elevated hedging costs for multinationals that use forwards to guarantee exchange rates.

The Insurance Industry Dives Deeper into Bonds.

India’s insurance sector is poised to pivot from cash-settled forward rate agreements (FRAs) toward deliverable bond forwards and thus transition roughly $41 billion (₹3.5 trillion) of existing rate-derivative contracts. Under the framework effective this Friday, insurers will be able to lock in the purchase or sale of government bonds at a predetermined price for future settlement, rather than merely settling the difference in cash. 

This structural shift addresses insurers’ long-standing need for bond ownership certainty, enabling them to better match asset-liability durations. Life insurers alone hold over $525 billion (₹45 trillion) of long-term liabilities maturing beyond 10 years, making precise hedging of interest-rate risks a strategic imperative. The move is interesting given the global bond turmoil, especially in foreign ownership of US bonds globally.

Regulation demands: Regulators from the RBI and the IRDA have collaboratively drafted guidelines permitting banks unrestricted long-positioning in bond forwards while capping short positions strictly for bona fide hedging. The crux of ongoing technical talks centers on the “grandfathering” of FRAs — ensuring seamless legal migration for contracts executed under ISDA frameworks — and the development of standardized master agreements and transacted documentation. Market participants anticipate a phased conversion over the next 12–18 months, contingent on clearing membership on the clearing corporation and robust back-office readiness among insurers, many of whom currently account for nearly 25 percent of daily secondary‐market turnover in 10-year sovereign securities.

Liquidity benefits: Bond forwards are expected to deepen India’s $1.3 trillion (₹126 trillion) government debt market by catalyzing longer tenors and reducing outright bond holdings’ financing costs. Current onshore FRA volumes would be dwarfed by bond forwards if the move is undertaken, narrowing bid-ask spreads on ten- and 30-year paper by up to 2 basis points. This enhancement aligns with recent increases in RBI OMO purchases, as bond-forward hedging reduces the need for open-market balance-sheet interventions.

Globally, insurers in advanced markets routinely employ deliverable forwards to hedge risks and capture roll-down gains, accounting for over 15 percent of OTC sovereign-debt derivatives notional outstanding in OECD data. India’s adoption traces back to the 2019 debt-market roadmap but has been delayed by legacy documentation complexities and concerns over delivery logistics. The imminent launch signals a maturation of India’s interest-rate derivatives architecture, promising more granular yield-curve management tools for both fixed-income managers and liability-driven investment desks.

In parallel, non‐bank participants are lobbying for inclusion in bond-forward eligibility to bolster diversification. Should regulators extend access, the bond-forward regime could underpin a deeper, more resilient market ecosystem ahead of the Budget’s borrowing program in H1 FY 2026.

India Braces for Heat Wave.

LG Electronics has put its much-anticipated IPO of its Indian unit on ice, citing turbulent market conditions as the primary drag on timing and valuation. Originally eyeing a May launch that could have fetched up to $15 billion in market capitalization, the company is now considering a postponement until equity markets calm. Various financial advisors have told management to stand down pending a more favorable window. 

Market worries: Despite the Nifty 50 climbing nearly 4 percent since President Trump’s tariff announcement on April 2, the index remains over 7 percent below its September highs, dragging intended valuations down to an estimated $10.5–$11.5 billion (₹892.5-977.5 billion). While that is still a huge IPO for the Indian market, the company was looking to go public at a $15 billion (₹1.3 trillion) valuation. What makes management's standing off interesting is that they likely would have made more money through incentive compensation by taking a lower valuation public. 

The company maintains strong financials with LG generating $2.5 billion (₹216 billion) in revenue and $176.5 million (₹15 billion) in net income in FY 2023–24, and its India unit has led the local appliances market for 13 straight years — credentials that once promised one of India’s largest share sales. Their willingness to stay on the sidelines also reflects a more disciplined approach that multinationals have been bringing to India. 

A bigger danger: LG could further dampen momentum and investor confidence in future listings. 2025 fundraising is at $2.3 billion (₹195.5 billion) compared to $21 billion (₹1.8 trillion) by year-end in 2024. The 2025 market, at this pace, will not reach half of that value raised. 

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Gupshup.

Macro

• The rupee hit its highest mark this year at 84.5 on hopes of a trade deal and manufacturing inflows. Traders are weighing in positively, with India reporting positive trade negotiations for the first tranche of a trade deal. Additionally, firms like Apple are announcing manufacturing shifts into India, which will drive rupee purchasing and some Indian exceptionalism. Oil prices are falling, which is also bullish for the huge importer.  

• Gold drops slightly as haven demands calm on trade deal hopes. Investors use gold as an inflation and volatility hedge, and demand for both has dropped on claims that trade could be renegotiated globally. This will come as a helpful addition to Indian consumers and the entire jewelry industry. 

• Rising gold prices are a deterrent during the wedding season. Prices near $3,500 per oz are deterring consumers who would otherwise be wearing gold from head to toe during their celebrations.  

Equities

• ArcelorMittal warns of disruption to its steel business from tariffs and European support for local manufacturers. Consumption has grown 2.5-3.5 percent this year outside of China, but that demand is mostly from countries stockpiling the asset rather than an actual use case. Prices have also risen due to 25 percent global tariffs.  

• Jindal Steel reported a surprise loss due to weak steel prices during the close of 2024 and impairment charges. The impairment charge was for $160 million (₹12.3 billion) related to Madagascar and Australian equipment, and the quarterly loss came to about $40 million (₹3.3 billion). Weak steel prices were relatively inconsequential. 

• JSW Infra expects to see 10 percent higher coal volume driven by domestic buyers. This is going to continue their production rise with a 9 percent rise in 2024. This rise in sales has led to JSW reporting a 54 percent rise in y-o-y net profit for the quarter, even with tepid iron production.  

Alts

• Standard Chartered says clarity on India's green rules will boost deals. The country needs to define what counts as climate finance, otherwise, it will struggle to hit its climate goals. Those guardrails, or taxonomy framework, mitigate greenwashing and could open up doors to extra financing to hit goals. 

• Hexa Climate is buying Fortum's Indian renewables portfolio for $500 million (₹42.5 billion). There is a 206 MW existing set of commercial and industrial renewables, and a pipeline for another 600 MW of projects to be made.  

Policy

• India is approving caste count data in its 4-year delayed census. The government still has not announced when the actual census will take place, but said that caste data was important to the values of Indian society. It also helps the government administer aid to underserved members of lower castes, a large voting bloc that hurt the BJP in 2024’s general elections. 

• U.S. Secretary of State Rubio is talking to Indian and Pakistani leaders to quell a growing conflict. India has blamed Pakistan for the attack and is prepared to take military action, with Pakistan promising a swift retaliation. The US is encouraging parties to work together on an amicable response.

• India is seeking answers on why 200,000 troops were unable to stop the terrorist attack. Home Secretary Amit Shah pledges changes to India’s security regime while also searching for hard evidence linking Pakistan to the moves.    

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.