📰Trump Urges Apple to Move Away from India, New Capital Framework, Replacing MIBOR

Good afternoon, 

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

• the Reserve Bank of India announced a new capital framework,

• President Trump publicly admonished Apple for choosing India over the U.S. for iPhone production,

• and India is planning to replace the MIBOR (like SOFR) with the SORR.

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

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—Shreyas, [email protected]

Market Update.

RBI Announces New Capital Framework.

The RBI board convened on Thursday to reassess its Economic Capital Framework for the first time since 2018. Since the Bimal Jalan committee’s 2018 recommendations (Jalan served as RBI’s Governor from 1997 to 2003, and chaired the committee in 2018 responsible for determining the Economic Capital Framework), the RBI has been mandated to maintain a capital reserve equal to 5.5–6.5 percent of its balance sheet, serving as a buffer against market and operational risks. That framework was slated for periodic review every five years, with the most recent review window having opened on July 1, 2024.

Capital adequacy ratio? By revisiting it, the RBI is effectively calibrating the trade-off between financial resilience and support for the government’s fiscal position. A lower capital reserve requirement would free up additional surplus for transfer to the central government, which relies on these dividends and surplus remittances (generated from investment income) to plug budgetary gaps. Indeed, the Ministry of Finance has forecast $30.1 billion (₹2.6 trillion) in such inflows for FY26, while market consensus anticipates the RBI’s dividend payout this year could exceed $41.2 billion (₹3.5 trillion), a record sum that would materially ease fiscal pressures amid muted tax revenues.

However, reducing the risk buffer carries its own set of risks. In an environment of elevated global volatility, the RBI’s capital cushion acts as a safety against adverse balance‐sheet shocks. Any diminution in this buffer could constrain the central bank’s ability to conduct open-market operations, intervene in foreign-exchange markets, or absorb potential losses on its sizable government bond portfolio without resorting to extraordinary measures. Such outcomes could, in turn, undermine market confidence and complicate the RBI’s primary mandate of price stability.

The 2018 Jalan committee struck a compromise by capping the RBI’s contingency reserves and endorsing a review mechanism; revisiting that equilibrium now involves weighing India’s fiscal needs against the central bank’s imperative to insulate its balance sheet from future credit, market, or operational shocks. As the board’s deliberations unfold, all eyes will be on whether the RBI maintains its existing 5.5–6.5 percent threshold or opts for a lower band.

Trump Wants Apple Factories in the US, Not India.

Trump publicly admonished Apple CEO Tim Cook for expanding iPhone assembly in India, urging him instead to up production in the US. For years, Apple’s supply chain has been centered in China, where an intricate network of component suppliers, specialized machining firms, and skilled labor enables the mass production of devices with tolerances measured in microns. An abrupt relocation of these capabilities to American soil would confront high labor costs and a nascent domestic supplier base.

India, by contrast, presents a far more pragmatic alternative for Apple’s diversification beyond China. With over 40 million iPhones already assembled annually by Foxconn, Tata Electronics (via Pegatron), and Wistron, at 60 percent y-o-y growth in local production, India benefits from generous state incentives ranging from export-oriented subsidies to preferential land allotments that lower the effective cost of assembly. Its workforce, while still building expertise, has rapidly absorbed Apple’s stringent quality standards, and the country’s burgeoning middle class provides both a sizable domestic market and a training ground for scaling production. For Apple, India represents not only a means of mitigating tariff-related risks in China but also a strategic investment in one of its fastest-growing sales regions.

What Trump is missing: Trump’s demand overlooks these operational and economic drivers. Even though he clarified that Apple could “build in India... to take care of India,” his broader message remains aspirational. Creating a US-based iPhone ecosystem would necessitate developing entire tiers of suppliers that currently do not exist domestically, as well as training engineers and technicians to Apple’s exacting standards. 

Moreover, Trump’s intervention highlights the delicate interplay between trade policy and corporate strategy. Apple’s foray into India was accelerated by the specter of US-imposed tariffs on goods exceeding a de minimis threshold, which India alleviates. By pressuring Cook to shift capacity to the US, Trump is effectively asking American consumers to bear the higher unit costs that would accompany stateside production, even as India-assembled iPhones shield the company’s global margins and support its diversified supply-chain playbook.

The Unsecured Lending Market and Replacing MIBOR.

Indian banks used to rely on the interbank call market — a place where banks lent money to each other overnight without any collateral. It was once the main way to get short-term funding and helped set a key interest rate known as MIBOR (Mumbai Interbank Offer Rate, similar to the U.S. SOFR).

But over the years, most banks and financial institutions have shifted to safer, secured loans backed by collateral, like in the repo market. As a result, these unsecured overnight loans, which once made up 20 percent of India’s daily money-market activity, now make up just 2 percent of the $70 billion (₹5 trillion) traded every day.

A May turnaround: Average daily call transactions have climbed to around $1.9 billion (₹168 billion), the highest level in over five years, peaking at $2.4 billion (₹200 billion), which are levels not seen since the market shock of March 2020. This resurgence comes against broader growth in overall money-market activity, but more importantly, signals a direct push by the RBI to restore the call market’s centrality to its monetary policy framework.

The RBI has long recognized that a robust unsecured interbank market is vital for anchoring its policy rate to actual banking costs. In his first policy statement in February, Malhotra explicitly urged lenders to “actively trade” in call money, stressing that the weighted average call rate remains the best target for the central bank. A recent RBI committee, noting the market’s contraction amid floating rate bans and stricter credit‐risk capital charges post-2008, even recommended extending call‐market trading hours by two hours to accommodate bank liquidity needs. These initiatives reflect the RBI’s concern that, without sufficient call‐market depth, the transmission of its policy repo rate to bank lending and to the pricing of financial derivatives could weaken, undermining its ability to manage overnight liquidity.

Not a unique issue: Globally, post-crisis regulatory reforms and heightened counterparty risk have driven participants into secured markets. In the US, the scandal-plagued LIBOR benchmark gave way to SOFR, underpinned by trillions of dollars in daily repo trades. In India, secured funding now accounts for 98 percent of overnight volumes, dwarfing the call market. Non-banks such as mutual funds and insurers, whose assets have ballooned since the pandemic, have priced the relative safety and transparency of secured funding into their borrowing strategies, further eroding call liquidity.

New benchmark: The RBI is preparing a transition to a new benchmark, the Secured Overnight Rupee Rate (SORR), mirroring international best practice. SORR would be calculated from the deep pool of secured overnight repo transactions, offering greater reliability and transparency than the MIBOR. But before SORR can supplant MIBOR (currently pricing 86 percent of India’s rate derivatives worth $1.2 trillion (₹100 trillion) the call market must first regain its mojo, ensuring that unsecured interbank rates remain a credible policy lever. The recent uptick in call volumes, driven largely by the RBI’s direct appeals to banks, is thus more than a statistical curiosity.

A few costs: Unsecured borrowing typically commands higher rates to compensate for credit risk, and excessive reliance on call money could strain banks’ balance sheets. The RBI must therefore tread a fine line of raising call activity while using secured markets to serve the bulk of liquidity needs. If the central bank succeeds in re-energizing the call segment, it can bolster the alignment between its policy rate and the overnight funding cost.

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Gupshup.

Macro

• Indians are rapidly cancelling Turkey and Azerbaijan travel plans. Both places spoke out against India in favor of Pakistan during the military strikes.. Cancellations surged by 250 percent this past week, and bookings fell by 60 percent. Various large Indian booking companies like MakeMyTrip have suspended promotions or travel services to the countries, citing security issues.  

Equities

• The Nifty hit its highest level since October after bank stocks led the rally. Trump’s words regarding a trade deal are bullish for avoiding disputes with the US, while a Pakistan ceasefire has alleviated geopolitical tension. Earnings season has been strong, especially for banks, which make up the largest portion of the Nifty 50.  

• Hero MotoCorp, the world's largest 2-wheeler manufacturer, is betting on smaller engines. The company has trailed the Nifty 50 by 5 percent over the last 5 years. Smaller, 125cc engines are picking up in demand, especially in rural areas, which is accelerating Hero’s bet on that segment. 

• Both large and small- and mid-cap stocks are trading above their valuations. Currently, large-cap stocks are trading at rich premiums compared to earnings expectations, followed by small and medium-sized companies. The premium for Indian stocks is due to market fervor, though large caps are up due to being safer in more volatile times. 

• India's metal companies like Vedanta have been outperforming. Buoyed by Chinese economic confidence and decent earnings reports, the sector has risen the most alongside financial companies in the entire stock market.  

Alts

• The Indian government banned Celebi Halsa, a Turkish baggage company, from 9 airports. The firm provides baggage services for airports and operates in large international terminals. The ban comes after the Turkish government showed support for Pakistan during the skirmish. Celebi’s shares fell 10 percent after the ban went into effect, though the company vowed to fight the ban through the legal system since it was based on unjust grounds.  

• Reliance gets a $2.9 billion (₹246.5 billion) loan. There are 55 lenders in the syndication, including Japanese Samurai bonds, with the vast majority of money raised going to refinance debt. The fervor behind all of the different lenders is unsurprising: Asian deal volumes are low, and Reliance is actually rated superior to India with regard to credit agencies. 

• Mittal is moving to Dubai after the UK's new taxes on non-domiciled residents. The UK previously had beneficial tax regimes for non-citizen residents that allowed for immigrants like Mittal to avoid paying UK taxes for up to 15 years. With the scrapping of that program, ArcelorMittal’s CEO is purchasing a $200 million (₹17 billion) property in Dubai to take advantage of different tax benefits.  

Policy

• Trump alleges that India offered to remove all tariffs on US goods. No agency in New Delhi responded for a comment in response. It is likely that the comments are a negotiating ploy from the White House since India has only agreed to no tariffs on certain goods like auto components, alcohol, and other small goods.  

• India and Pakistan have to break their cycle of conflict. Each conflict, this being the third in the past 10 years, threatens war and, at the minimum, brings economic pain to the entire region. India sheds its growth status while Pakistan also loses the assured IMF loans it needs for sustenance.  

• Both Pakistani and Indian PMs have been fighting a war of words now.PM Sharif has said that Modi has been fanning instability and vowed a harsher response if there is a future attack. He also said that Pakistan is prepared for war or peace and that India has to choose what route it wants.  

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.