📰Tech Stocks Are Weathering the Storm, For Now

Good afternoon, 

Welcome to the best way to stay up-to-date on India’s financial markets. Today, we’re discussing

• India’s IT giants are warning that trade wars are likely going to slash earnings forecasts very soon,

• India’s ultra-wealthy are quietly rewriting the rules of cross-border investing,

• and India abruptly suspends the Indus Waters Treaty.

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

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—Shreyas, [email protected]

Market Update.

Tech Stocks Are Weathering the Storm, For Now.

India’s IT giants are warning that trade wars are likely going to slash earnings forecasts very soon. India’s market rally has weathered the storm thus far, but Tata Consultancy, Wipro, and MindTree have 30-60 percent of their revenues tied to the US. Until now, these companies have reported mixed Q4 results due to delayed client decisions and tighter discretionary budgets. A risk is what happens when tariffs fully set in for 25Q1-Q4.

Despite a 9 percent rebound in the Nifty IT Index since early April, forward earnings estimates have already fallen 1 percent, even as the sector trades at a 10 percent premium to the broader market. Current Nifty EPS growth is in the mid-teens, but that could easily reverse or even turn negative further. The Nifty IT has also traded at a premium of 22x forward earnings versus 20x for the broader Indian market. While the tech premium is seen in most economies, justifying it in India is becoming increasingly difficult. 

A key bifurcation in software. Domestic-focused sectors could hold up while large IT exporters start to see material declines. Last week, there were $2 billion (₹170 billion) of foreign inflows, but it’s unclear where the capital went. 

What people are buying instead: Analyzing the current situation also shows that commodity, pharmaceutical, and rate levels are all down right now, which would likely mean that capital inflows went to industries dealing with those instruments. Those industries, still exposed to the US, can import needed ingredients for less while exporting the unchanged final product. Investors are also likely to enter uncorrelated equities in the US, like financials, rural companies, or infrastructure.

How the Ultra Wealthy Invest.

India’s ultra-wealthy are quietly rewriting the rules of cross-border investing by routing billions through funds domiciled in the GIFT City, effectively bypassing the strict $250,000 (₹21.3 million) annual cap on individual outward remittances. According to the latest data, assets managed by these GIFT-City vehicles more than tripled to $778 million (₹66.1 billion) in the six months through December, after the RBI opened the Overseas Portfolio Investment route to family offices last June.

By setting up or investing in alternative-investment funds (AIFs) in GIFT City, family offices can now deploy up to 50 percent of their net worth overseas, potentially unlocking billions that would otherwise be stranded by capital-control limits. As of December, roughly 11 percent of the $7 billion (₹595 billion) raised by GIFT-City funds was earmarked for overseas assets, even as the bulk of fundraising remains focused on India. Industry veterans say investors are casting a wide net: US tech stocks, Asian EM equities, private credit, and VC funds are all fair game. These AIFs are now becoming a fund of funds, fueling a vibrant pipeline of feeder vehicles and licensed managers in the free-market enclave.

The legal approach to AIFs is to treat funds as corporate entities, not individual entities. This workaround has enlarged outbound flows for family offices, allowing for far deeper global diversification. While Modi wants there to be a new global finance hub, regulators are pushing back slightly. They paused new family-office fund setups amid fears of tax evasion and unchecked flows. This creates political risk for new investors who fear that an unstable regulatory atmosphere can threaten their capital.

The risk that domestic authorities see is the starvation of liquidity in India. While many different markets trade (used to 95 percent of global option volume), liquidity is thin since domestic investors are not throwing around that much capital. A deepening reliance on foreign institutional flows is also detrimental, as seen earlier this year. When global flows reversed by $15 billion (₹1.3 trillion), Indian markets quickly fell into a correction, which led to a vicious feedback loop of selling.

A benefit of global integration has been the structural shift in wealth management. Becoming a fund of funds means forging alliances with blue-chip PE and VC firms, which could bring in new practices to India. These strategic partnerships can help Indian investors become better in both practice and technology if onshore fund managers continue to build out robust due diligence and compliance in tandem with investing prowess. The outflows will continue rising as well, with ten new alternative-fund licenses granted each month.

India Suspends the Indus Waters Treaty.

India’s abrupt suspension of parts of the 1960 Indus Waters Treaty — prompted by this week’s deadly attack in Kashmir — marks an unprecedented use of water diplomacy to exert pressure on Pakistan. New Delhi has signaled it will halt the sharing of flows from the eastern rivers (Ravi, Beas, and Sutlej) just as Pakistan enters a searing pre-monsoon summer, when farmers begin planting and hydroelectric dams rely on meltwater. While Islamabad has denounced the move as a breach of international law, India’s leaders cast it as a limited, reversible response to terrorism.

On the ground, however, any meaningful disruption faces steep practical hurdles. Diverting large volumes would require months of new canals, dams, and control works that India simply doesn’t have in place. Moreover, the treaty itself prescribes arbitration through the World Bank or a UN court, and Pakistan has already threatened legal action. Thus, today’s announcement is as much a political signal as a real shutdown of water supplies.

Political signal? While India currently lacks the infrastructure to reroute basin waters, threatening that move is a huge political play. The two countries had not seen an incident in over 6 years, and the Waters Treaty has not been threatened in decades. If India did go through with the motion, Pakistan’s Punjab and Sindh provinces would be devastated: irrigation underpins 25 percent of GDP and is responsible for 40 percent of the labor force. 

Legal processes: The Indus Waters Treaty contains detailed arbitration protocols backed by the World Bank (recently strengthened after Bessent supported it). Pakistan, out of concern, will challenge the treaty’s prohibition of unilateral suspension. The precedent risk is that India's threat to this treaty could lead to other riparian disputes globally. Other moves that India has made, such as suspending Pakistan nationals’ visas in India, however, cannot be challenged.

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Gupshup.

Macro

• India is cutting LNG buying with other fuels better priced. Gail India and Indian Oil both cancelled orders with LNG monthly volume down to 1.9 million tons, which is a 5 percent decline y-o-y and the lowest since 2023. Outages at export plants in Malaysia and Australia have caused prices to soar to $12 while naphtha, a substitute, is at $8-9. Additionally, crude prices have fallen on demand concerns, making it more attractive than LNG.  

Equities

• Unilever reported net income of $292 million (₹24.9 billion), up 3.3 percent, but shares fell as the margin shrinks. The company also warned of increasing risks to its margins while revenue only climbed 2 percent. Revenue growth was slower than expected due to consumption slack from urban centers, which make up two-thirds of all revenue for the retail firm.  

• Indian IT outsourcers are using AI to cut down on workforce expenses. HCL Tech, for example, has used AI consulting to grow revenue by 4.8 percent while cutting headcount by 1.8 percent. On an earnings call, the CEO reported that convexity of that type is what the company wants to continue building. MindTree also cut 2.9 percent of its headcount. While companies are benefiting, layoffs seem to be imminent across such IT firms.  

• Databricks is hiring hundreds of Indians to accelerate their AI boom. The company is investing $250 million (₹21.3 billion) to increase Indian headcount by 50 percent to 750. They want to build a new R&D center in India, plus an AI and data academy. 

• VinFast is opening an Indian factory in June.VinFast is a Vietnamese auto manufacturer looking to expand its share in India after delivering 200,000 cars in Vietnam.  

Alts

• JP Morgan is promoting Indian markets to grow its presence. Two MDs were promoted to charge of currencies and corporate sales. This comes as Jamie Dimon expressed interest in expanding presence in India through an annual shareholder letter.  

• NaBFID is raising $2 billion (₹170 billion) through bonds and loans this year. The first part of the capital raise is a $250 million (₹21.3 billion) commercial borrowing loan with a tenor of 3 to 5 years. The NaBFID is a state-owned infrastructure lender — the value proposition is that it is easier for the  NaBFID to raise money and then lend to companies as a shadow bank than for those companies to access primary markets themselves. 

Policy

• International students being deported from the US are filing suit. Over 30 students have filed lawsuits after having their visas suspended or fearing arrest. Judges have also been filing temporary orders blocking detention or deportation, and individuals in those cases have had lawsuits filed on their behalf.

• Pakistan retaliates after India bans all Pakistani nationals. They expelled diplomats and threatened that blocking any Water Treaty would be considered an act of war. This is the most brutal attack since 2019, which almost led to war and saw Indian airstrikes on Pakistani soil. Such actions from both countries will, however, draw capital outflows.

• Modi delivered a fiery speech to hunt terrorists. He vowed to find and punish all perpetrators swiftly. The police and government are offering a $23,000 (₹2 million) reward for any information   

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.