Category: News

The Reserve Bank of India (RBI) has reduced its holdings in US Treasury securities to below US$200 billion, reflecting a strategic shift in managing its foreign exchange reserves. This marks a substantial reduction from over US$240 billion a year earlier and represents the first annual decline in US Treasury exposure in four years.

At the same time, the RBI has increased its gold reserves, with holdings rising to 880.18 metric tonnes by the end of October 2025 — up from 866.8 tonnes a year ago — underscoring a deliberate move toward asset diversification.

Gold now accounts for a larger share of India’s total foreign exchange reserves, rising to approximately 13.6 %, compared with about 9.3 % in the previous year. This shift aligns with a broader global trend among central banks to bolster safe-haven assets amid economic uncertainty and higher bond-yield risks.

Despite trimming US Treasuries, India’s overall forex reserves have remained relatively stable, indicating that the RBI’s rebalancing efforts have not significantly weakened the country’s external buffers.

Analysts say the strategy reflects a desire to reduce valuation risk from rising global bond yields and strengthen reserve resilience by holding a mix of assets, including gold, that can better hedge against volatility.

In the same period, several other central banks — including those of the UK, Belgium, Japan, France, Canada and the UAE — increased their exposure to US Treasuries, highlighting India’s unique approach in the current environment.

Overall, the RBI’s reduction in US Treasury holdings and concurrent increase in gold reserves signal a strategic diversification of India’s forex portfolio, aimed at enhancing financial stability and mitigating risks associated with over-dependence on dollar-denominated assets.

Source: The Economic Times

Credit growth in India’s banking system is showing meaningful signs of revival, supported by recent GST rate cuts, improved demand, and supportive regulatory actions — with system credit expected to grow around 12% in FY26 and nearly 13% in FY27. This trend reflects a gradual recovery in credit demand after a period of slowdown in the credit cycle.

Stronger Credit Momentum Emerging

A report by Motilal Oswal Financial Services highlights that:

• As of December 12, 2025, system credit growth improved to about 11.7% year-on-year, recovering from a low of 8.9% in May 2025 and staying above 10% since mid-2025.

• The revival in credit has been driven largely by consumption-led demand, supported by GST rate cuts that have helped stimulate activity across sectors.

• A full 100 basis-point Cash Reserve Ratio (CRR) cut is now in effect, enhancing liquidity in the banking system and providing further support for credit expansion.

Expected Trends in FY26–FY27

• Credit Growth Forecast: The report expects systemic credit growth to remain around 12% year-on-year in FY26 and to improve further to about 13% in FY27.

• Deposit Growth: Deposit growth has remained stable, at around 9.7–10% year-on-year, supporting banks’ ability to fund the expanding credit demand.

• Bank-Level Prospects: Within the banking universe, large private sector banks are projected to post moderate quarter-on-quarter growth, while mid-sized banks may record faster expansion due to more nimble lending strategies.

Why GST Cuts Matter for Credit Expansion

GST rate reductions — particularly on consumer and intermediate goods — have acted as a demand stimulus by lowering effective prices, boosting consumption, and contributing to stronger overall economic activity. This, in turn, has encouraged greater credit uptake among consumers and businesses. In addition, supportive monetary measures like CRR cuts have enhanced liquidity, enabling banks to lend more readily.

What This Means for the Economy and Markets

• Growth Support: Rising credit growth aids economic expansion by financing consumption, housing, MSME activity and capital investment.

• Banking Sector Dynamics: Banks may see improved asset quality and loan demand, especially in retail, personal loans, mortgages and SME segments.

• Interest-Rate Sensitivity: With credit growth picking up, banks may benefit from improved margins if deposit repricing stabilises and credit demand remains robust.

In summary, the convergence of GST-driven demand improvement, liquidity support (CRR cuts), and broader economic momentum is expected to lift systemic credit growth to around 12% in FY26 and 13% in FY27  a positive sign for the credit cycle and financial sector prospects.

Source: The Economic Times

India is poised to attract robust growth in foreign direct investment (FDI) in 2026, supported by solid macroeconomic fundamentals, high-value corporate commitments, investor-friendly policies, and significant new trade agreements.

FDI Performance So Far and Outlook

India has maintained strong FDI inflows even amid global uncertainties: total FDI crossed US$80.5 billion in 2024-25, and gross overseas investments during January–October 2025 have exceeded US$60 billion. Officials are confident that 2026 FDI figures may surpass last year’s data, continuing the upward momentum.

Key Drivers of FDI Growth in 2026

1. Big-Ticket Corporate Investments
Several global corporations have announced large investment plans in India, reinforcing confidence among foreign investors:

• Microsoft plans to spend US$17.5 billion by 2030 to build infrastructure and AI-capabilities.

• Amazon will invest US$35 billion over five years to expand its businesses, including cloud and AI services.

• Google intends to put US$15 billion into an AI hub in India over the next five years.

• Apple and Samsung are expanding manufacturing operations in India, underlining the country’s rising importance in global supply chains.

2. Trade Agreements With Investment Commitments
India’s free trade pact with the European Free Trade Association (EFTA) comprising Switzerland, Norway, Iceland and Liechtenstein includes a commitment of US$100 billion in FDI over 15 years. On the very day the pact came into force (October 1, 2025), Swiss healthcare firm Roche Pharma pledged 1.5 billion Swiss francs (about ₹17,000 crore) in new investment. A separate pact with New Zealand is expected to bring US$20 billion in investments when implemented in 2026.

3. Sustained Policy Efforts and Ease-of-Doing-Business Push
The government continues to review and refine FDI policy, with extensive consultations led by the Department for Promotion of Industry and Internal Trade (DPIIT) and the Commerce Ministry to make regulatory processes smoother and faster. Measures such as easing compliance burdens, decriminalising minor industry-related offences, and streamlining approvals are helping sustain investor focus on India.

Sectoral Appeal and Strategic Trends

Experts expect India’s services, software and electronics sectors to remain major magnets for foreign capital, especially as India moves up the global value chain and diversifies economic partnerships amid geopolitical shifts. Investment is also increasing from GCC (Gulf Cooperation Council) nations, adding greater diversity to FDI sources.

Top investor sources continue to include Mauritius and Singapore (together ~49 % share), followed by the United States, the Netherlands, Japan and the United Kingdom. Key sectors historically attracting FDI include services, computer software and hardware, telecommunications, trading, construction development, automobiles, chemicals and pharmaceuticals.

Why This Matters

• Economic Growth Support: Higher FDI strengthens employment, productivity and technology transfer, and helps finance infrastructure and manufacturing expansion.

• Balance of Payments & Currency: Healthy FDI inflows support India’s current account and foreign exchange position.

• Domestic Competitiveness: Global capital commitments enhance competitiveness, especially in technology-led services, AI, cloud computing and advanced manufacturing.

With strong economic fundamentals, meaningful policy reforms, high-value corporate investment announcements, and new trade agreement-linked commitments, India’s FDI trajectory in 2026 appears promising. For investors and business leaders, this underscores India’s continued appeal as a destination for long-term capital, innovation and growth.

Source: MoneyControl

The Securities and Exchange Board of India (SEBI) has approved a reduction in mutual fund expense ratios by 10–15 basis points (bps), making investing in mutual funds cheaper and more transparent for retail investors. Most asset-under-management (AUM) slabs saw around a 10 bps cut in fees charged by fund houses.

The move comes amid ongoing efforts to simplify the cost structure of mutual funds and enhance transparency for investors. The changes affect both equity and debt funds, as well as passive investment products like index funds and ETFs.

What the Expense Ratio Cut Indicates

• Lower Costs for Investors: Reduced expense ratios mean less drag on long-term returns, allowing investors to retain more of their gains.

• Clearer Fee Structure: SEBI has separated core management costs (Base Expense Ratio) from statutory levies such as GST, stamp duty, SEBI fees, and transaction taxes. This makes fund costs easier to understand.

• Encouraging Retail Participation: The reform is aimed at making mutual funds more attractive to retail investors by improving transparency and cost efficiency.

Impact on Different Fund Categories

• Equity Funds: Expense caps for open-ended equity funds with AUM below ₹500 crore have been reduced from 2.25% to 2.10%.

• Debt Funds: Fees lowered from 2.00% to 1.85%.

• Index Funds and ETFs: Caps revised to 0.90%, down from 1%.

What This Means for Investors

• Positive View: Lower ongoing costs can compound into significant savings over the long term, enhancing overall portfolio returns.

• Cautionary Note: While cheaper fund fees are beneficial, investors should still evaluate funds based on performance, investment strategy, and suitability for their financial goals.

The key takeaway is to leverage these cost reductions while maintaining a disciplined investment approach. Monitoring fund performance, portfolio diversification, and alignment with long-term objectives remains crucial.

Source: MoneyControl

India’s volatility index (VIX), widely known as the market’s “fear gauge,” slipped to a fresh record low on Wednesday, reflecting a pronounced lack of expected price swings in the stock market. The decline suggests that investors currently expect muted movement in equity prices in the near term.

The sharp fall in VIX comes amid directionless market conditions, with few strong economic catalysts or corporate triggers to drive major moves in either direction. Trading activity in the derivatives segment also remained subdued, contributing to a lower implied volatility reading.

What the Low VIX Indicates

• Calm Market Sentiment: A record-low VIX typically signals that traders are pricing in very little near-term volatility, implying a calm or complacent market mood.

• Lack of Clear Drivers: With limited fresh market cues or catalysts, participants have remained cautious, keeping volatility expectations subdued.

• Options Market Impact: Lower VIX levels generally correspond to reduced option premiums, making hedging less expensive but also reflecting lower anticipated risk.

What This Means for Investors

A historically low VIX can be interpreted in two ways:

• Positive View: It may signal stability, suggesting a period of consolidation where prices move in a narrow range, which some long-term investors find reassuring.

• Cautionary Note: Very low volatility can also imply market complacency — when most participants expect little movement, unexpected news or shocks could lead to sharper reactions once volatility returns.

For advisors and clients, this environment calls for careful positioning: while calm markets reduce short-term turbulence, the lack of clear market direction means it’s important to monitor macro developments (such as global cues or economic data) that could quickly alter sentiment.

Source: The Economics Times

Reserve Bank of India (RBI) Governor Sanjay Malhotra has indicated that India’s benchmark interest rates are expected to remain low for an extended period, reflecting a continued accommodative monetary policy stance amid stable inflation and supportive growth conditions.

Why the RBI Is Staying Dovish

According to interviews published today, Governor Malhotra reiterated that the RBI’s internal projections suggest borrowing costs should stay low for a “long period” as the central bank balances inflation control with growth support. This dovish stance follows the cumulative 125 basis points of rate cuts in 2025—the first sustained easing cycle in several years—aimed at stimulating economic activity while inflation remains muted.

Key factors influencing this outlook include:

• Subdued inflation: Consumer price inflation has been well below the RBI’s target band in recent months, creating room for policy flexibility.

• Solid economic growth: After India posted a robust 8.2% GDP growth in Q2 FY26, growth is expected to moderate moderately but remain healthy.

• Global trade opportunities: Potential trade agreements with major partners like the US and EU could provide additional growth impetus, further supporting a low-rate environment.

What It Means for Markets and Investors

For investors and financial markets, the RBI’s signal of prolonged low rates carries several implications:

• Fixed-income instruments: With policy rates likely to stay lower for longer, bond yields may remain subdued, supporting valuations in the debt market.

• Equity markets: Lower financing costs and strong growth prospects can bolster corporate earnings, particularly for interest-rate sensitive sectors such as real estate, automobiles, and consumer credit.

• Credit and lending: Lower policy rates could translate into cheaper bank lending, provided banks pass through cuts; this can stimulate credit demand and broader economic activity.

• Currency and external flows: Although dovish policy can exert downward pressure on the rupee, the RBI’s focus on inflation stability and calibrated liquidity management helps anchor expectations.

Broader Macro Context

Governor Malhotra’s comments reinforce the RBI’s broader approach: a growth-supportive stance without abandoning price stability. By signalling that rates will stay low, the central bank is aiming to consolidate the benefits of its 2025 easing cycle, sustaining momentum in private investment and consumption while monitoring inflation dynamics.

In summary, the RBI’s signal that interest rates may remain lower for a prolonged period underscores continued monetary support for India’s macro-economy. For advisers and clients, this highlights the potential for accommodative financial conditions to support equities, credit markets, and broader economic growth over the near term.

Source: The Economic Times

In the lead-up to Budget 2026, analysis of recent Union Budget data suggests that the Indian government is increasingly accurate in its fiscal planning, with actual expenditures and revenues closing the gap with original Budget Estimates (BE) over the past several years. This trend points to better forecasting, improved expenditure control, and disciplined fiscal management amid economic uncertainty.

Narrowing Gap Between Budget Estimates and Outcomes

Historically, large gaps between BE and actual outcomes were common due to factors such as volatile economic conditions, unexpected shocks, and implementation challenges. However, data from fiscal years FY2020–25 show the gap narrowing significantly — indicating that both revenue projections and spending plans are becoming more realistic and grounded. This convergence reflects enhanced budget credibility and planning discipline within the Ministry of Finance.

Key Factors Behind Improved Budgeting

• Better Forecasting Tools: The use of more refined data inputs and modelling techniques has helped align estimates with actual performance.

• Tighter Expenditure Management: Enhanced monitoring and mid-year adjustments have curbed large divergences between planned and actual spending.

• Stronger Revenue Realisation: Improved tax collections and better-than-expected non-tax revenues have helped outcomes track closer to projections.

• Policy Consistency: A more stable policy framework has reduced uncertainty and improved predictability in both spending and receipts.

Why This Matters for the Economy

This trend of convergence has positive implications for India’s macro-fiscal credibility:

• Investor Confidence: Closer alignment between estimates and actuals enhances confidence among investors and credit rating agencies, as it signals stronger fiscal discipline.

• Policy Predictability: Businesses and markets benefit when fiscal projections are more reliable — enabling better planning and investment decisions.

• Risk Management: Reduced variance between budgeted and actual figures means less need for mid-year corrections or supplementary demands, helping maintain fiscal stability.

  What to Watch Next

• Final Budget 2026 Numbers: How actual fiscal targets compare with revised estimates as the budget cycle concludes.

• Medium-Term Fiscal Objectives: Whether the government sets and adheres to clear targets for deficit, debt ratios, and capex priorities in FY27.

• Expenditure Efficiency: Continued improvements in allocating funds where they yield the highest economic impact.

• Revenue Forecasting Trends: Whether tax and non-tax revenue projections become even more aligned with actual performance over time.

The narrowing gap between India’s budget estimates and actual outcomes underscores a maturing fiscal framework and improved governance. For investors, businesses and advisory professionals, this trend enhances confidence in India’s fiscal strategy and supports robust economic engagement in the years ahead.

Source: MoneyControl

India’s foreign exchange reserves increased by USD 1.03 billion, reaching USD 687.26 billion for the week ending December 12, 2025, according to data released by the Reserve Bank of India (RBI). This rise reflects a recovery after recent weeks of fluctuation in reserves.

The weekly increase follows a dip in the previous period when reserves had declined, underscoring the dynamic nature of external buffers as global market conditions shift.

Breakdown and Drivers

• The increase in overall forex reserves suggests improved external financial stability, offering a cushion against global volatility and currency pressures.

• Weekly movements in forex reserves are influenced by multiple factors, including central-bank interventions in the currency markets, valuation changes in reserve assets (such as gold and foreign currency holdings), and capital-flow dynamics.

Why This Matters

A healthy level of forex reserves is a key indicator of macro-economic strength and a first line of defence against external shocks, including sudden stops in capital flows, exchange-rate volatility, and import bill pressures. Robust reserves help the RBI manage orderly conditions in the foreign-exchange market and support external stability.

For investors and corporate stakeholders:

• Currency risk management: Strong reserves provide confidence in the RBI’s ability to smooth volatility in the rupee, which matters for companies with foreign-exchange exposure.

• External balance signal: Reserve upticks, even modest ones, help signal resilience in the external sector amidst global headwinds—a factor that can influence sovereign risk perceptions.

• Financial planning: For firms and financial managers, reserve levels are part of the broader backdrop shaping interest-rate expectations, trade-balance outlooks, and credit conditions.

Monitoring future reserve movements especially how changes in foreign currency assets, gold holdings, IMF Special Drawing Rights (SDRs), and reserve positions evolve will be important to assess external sector trends and policy responsiveness. This includes observing how the reserve position correlates with India’s trade balance, capital inflows/outflows, and currency market interventions in the coming weeks.

Source: The Economic Times

India’s retail inflation quickened to 0.71% year-on-year in November 2025, up from a record low of 0.25% in October 2025, according to official government data. This marks the tenth consecutive month that inflation has remained below the Reserve Bank of India’s (RBI) medium-term target of 4%.

The rise in headline inflation was driven mainly by a slowing pace of food price declines, particularly in vegetables and other perishable items, as well as modest increases in fuel costs. Although food prices were still in deflation on an annual basis, the rate of decline narrowed significantly compared with October.

Key Takeaways

• Inflation Pickup: Retail inflation increased to 0.71% in November, up from 0.25% in October 2025 a rise of 46 basis points.

• Food Prices: Food inflation remained negative but the decline was less steep compared with the previous month, pointing to emerging price pressures in essential food items.

• Below RBI Target: Even with the uptick, inflation stayed well below the RBI’s target range of 2%–6%, marking the third straight month under the target band.

What This Means

The gradual pick-up in inflation while still muted signals that price pressures may be stabilising after a period of very low readings. This low-inflation environment has contributed to the RBI’s ability to cut key policy rates by 125 basis points in 2025, including a 25 basis-point cut in early December.

For monetary policy watchers, the data suggests that inflation is beginning to move off historic lows, but still presents room for policy flexibility. The combination of controlled inflation and robust GDP growth strengthens the central bank’s position to balance growth support with price stability.

Implications for Business & Investors

• Interest-Rate Outlook: With inflation remaining subdued, the RBI may retain policy flexibility, potentially keeping room for further adjustments if growth momentum needs support.

• Consumer Spending: A stable inflation backdrop can support household purchasing power and consumer demand, which in turn can benefit sectors tied to discretionary spending.

• Portfolio Strategy: For investors, low inflation trends can influence expectations around interest rates, bond yields and valuation dynamics across asset classes.

  Source: The Economic Times

Major global brokerages, including Goldman Sachs, JP Morgan and HSBC, have turned more optimistic about Indian equities — citing improved corporate earnings, easing valuations, and a favorable domestic macro backdrop.

Why the Optimism

• Earnings appear to be turning around: According to HSBC, around 69 % of companies either met or beat estimates in the latest quarter; sales grew ~6% YoY and net profits rose 13%.

• Many brokerages believe that the long period of earnings downgrades is over. Projections for FY26–FY27 now show modest upgrades, reducing downside risk.

• Valuation gap narrowing: India’s relative premium to broader Asia has compressed — for example, Goldman Sachs noted that India’s equity market premium over Asia has come down from a peak of 85–90% to around 45%, making valuations more palatable for global investors.

• Supportive policy & macro backdrop: Rate cuts, easier liquidity, and regulatory reforms have improved the growth environment. Coupled with good corporate governance and domestic demand revival, this improves the odds for a sustained equity up-cycle.

• Foreign flows show signs of re-entry: After a period of outflows and under-performance relative to global peers, foreign institutional investors (FIIs) are reportedly turning net buyers again a sign of renewed confidence in India’s medium-term outlook.

As a result:

• Goldman Sachs has upgraded India back to “Overweight,” with a target for the Nifty 50 at 29,000 by end-2026.

• JP Morgan has also raised its base-case Nifty50 target to 30,000 over a similar horizon.

What It Means for Investors, Clients & Your Advisory Approach

• Equity positioning outlook improves: For long-term investors, India’s equity market may be entering a “catch-up/re-rating” phase sectors with strong domestic demand (consumer, financials, consumption, infrastructure) are likely to benefit the most.

• Balanced-risk perspective: With valuations more reasonable and earnings visibility improving, the risk-reward profile for Indian equities now appears more attractive than in recent years though global macro risks remain.

• Importance of selective investing: Rather than broad bets, selective exposure to sectors expected to benefit from earnings recovery, policy support, and domestic demand seems prudent.

• Monitoring foreign flows and global context: Given that part of the rebound depends on return of FII flows and global investor sentiment, continued vigilance on global macro trends, foreign capital movements and India’s relative attractiveness remains important.