# 1 Markets
Markets remained subdued ahead of key corporate earnings and the anticipated India–US trade deal, with participants awaiting clarity on former President Trump’s tariff stance ahead of the August 1 deadline. The Sensex and Nifty closed lower at 82,500 and 25,149, respectively, led by selling pressure in IT and auto stocks. Promoters and private equity firms offloaded ~$30 billion in H1CY25, including ~$11 billion in June alone, triggering volatility. Insider selling of this scale, particularly amidst $11B in FPI outflows, is generally perceived as a negative sentiment indicator. Despite these headwinds, Indian equities are up 7% YTD, supported by $41 billion in DII inflows—underpinned by resilient retail mutual fund participation.
Indian bonds continue to trade in narrow band without many triggers with 10Y closing at 6.30% from 6.29% last Friday.
Escalating tariff tensions dampened equity sentiment through the week, with the Dow Jones Industrial Average declining over 1%. The S&P 500 and NASDAQ also posted losses but recouped part of the decline to end the week down 0.31% and 0.08%, respectively. Risk aversion across global markets supported a stronger US dollar. Meanwhile, heightened inflation concerns stemming from the tariff escalation pushed bond yields higher, with the 10-year US Treasury yield closing at 4.41%.
# 2 RBI
2.1 RBI on July 11, 2025, has clarified that loans given to Agri & MSE borrowers against ‘voluntary pledge’ of gold and silver not violation of norms while classifying them under collateral free limit.
- As per current guidelines
- Effective 1 January 2025, Loans given to Agri sector has to be collateral free up to ₹ 2 lakh per borrower.
- Under RBI’s Master Direction and December 2009, banks are prohibited from accepting collateral for loans up to ₹10 lakh to micro and small enterprises.
- Banks must waive collateral and margin requirements for agricultural and allied loans up to this limit.
- As per the recent circular Banks will not be violating the above RBI regulations on loan classification if they take “voluntary pledge” of gold and silver as collateral for agriculture and micro & small enterprise (MSE) loans up to Rs. 2 lakhs for Agri and up to Rs 10 lakh for MSME borrowers.
The RBI appears to have issued the aforementioned clarification as there was differing interpretation among its inspection teams regarding classification of loans for agriculture and MSE borrowers, up to the collateral-free limit, involving pledge of gold and silver as collateral. Some of the Central bank inspectors took a view that if gold and silver are pledged as collateral in the case of such loans, then these (loans) cannot be grouped under the priority sector lending (PSL) norm. This clarification would address this issue for bankers and a welcome move.
2.2 As per report released by CRIF Highmark last week,
- New to Credit’ [NTC] borrowers formed less than 25% of fresh retail loan disbursals in FY25 across most categories, indicating continued lender caution.
- Two-wheeler loans remain an exception, with ~49.2% of disbursals going to first-time borrowers—broadly stable YoY.
- Rising asset quality concerns, unstable employment, insufficient documentation, and income ineligibility are key reasons for lender hesitation.
Besides lack of knowledge about an individual’s borrowing history, many do not meet income criteria. Besides, the employment records of many potential borrowers are also questionable as they do not have a stable job history. It may take some more time for lenders to codify comprehensive criteria for NTC borrowers.
2.3 RBI last week has issued draft guidelines to streamline regulations around novation of OTC derivative contracts.
- Novation would mean the original contract is extinguished and replaced by a new one with identical terms-except for the change in counterparty done through a tripartite agreement. This agreement involves the transferor, who exits the original contract; the transferee, who steps in; and the remaining party, who continues in the new contract
- To ensure fairness, the draft mandates that the novation must occur at prevailing market rates, with the mark-to-market value exchanged between the transferor and transferee. This ensures that the financial impact of the transfer is accurately reflected.
This proposal aligned with the evolved global standards and current market practices and are aimed at enhancing transparency and legal certainty. Key impact:
- Facilitates seamless transfer of counterparty risk without requiring termination and re-execution of contracts, reducing administrative burden and cost.
- Enables efficient reallocation of risk and positions among market makers, improving liquidity in OTC derivatives.
- Enhances confidence of market participants, including foreign investors, by ensuring predictability and robustness in the regulatory framework.
In sum, the change brings India’s OTC derivative market closer to global norms, supporting risk management, liquidity, and market development objectives.
# 3 SEBI
3.1 SEBI on July 7,2025 published its report on the trading activity in the equity derivatives segment [EDS] post recent introduction of tighter measures (Dec 2024-May2025). Some of the interesting findings are:
- Index options turnover, year on year, is down by 9% (in premium terms) and 29% (in notional terms). However, compared to 2 years ago, index options volume is up by 14% (in premium terms) and 42% (in notional terms).
- Turnover of individuals in premium terms in EDS is down by 11% year on year and up by 36% over similar period two years ago.
- Number of unique individual investors trading in EDS down by 20% compared to previous year and up by 24% from 2 years ago.
- India continues to see relatively very high level of trading in EDS, compared to other markets, particularly in index options.
- Analysis of profit and loss of individual traders in EDS suggests that at aggregate level, nearly 91% of individual traders incurred net loss in EDS in FY 2025 (similar trend was observed in FY 2024).
Retail investors remain vulnerable to sophisticated and opaque strategies by large players like Jane Street—recently banned by SEBI—highlighting the urgent need for stronger oversight to address concentration and manipulation risks in index options.
3.2 SEBI in its consultation paper released on July 9, 2025, propose to expand the role of credit rating agencies [CRAs]:
- Currently, Sebi’s rules restrict CRAs to rating securities that are listed or proposed to be listed on recognized stock exchanges. However, CRAs are not barred from rating other financial products if permitted by guidelines from other financial sector regulators (FSRs) such as the Reserve Bank of India (RBI) or the Insurance Regulatory and Development Authority (IRDA). Existence of this regulatory gap – financial products under other FSRs lack specific rating guidelines – has led to confusion about whether CRAs can rate such products, such as unlisted securities.
- Sebi’s new consultation paper seeks to address this ambiguity. CRAs may now be permitted to undertake ratings of financial instruments that fall under the jurisdiction of other Financial Sector Regulators (FSRs), even where no specific rating guidelines have been issued by those regulators.
- This means permitting CRAs to rate financial instruments where no specific rating guidelines exist.
- CRAs to provide for rigorous disclosure, separation, and acknowledgment mechanisms for activities outside SEBI’s regulatory scope.
- CRAs to establish a compliance reporting framework for ongoing non-regulated activities.
3.3 IFSCA announcement – a major boost to corporate bond markets
- GIFT City regulator has allowed global banks (e.g., HSBC, Standard Chartered) to offer total return swaps (TRS) on Indian corporate bonds, expanding beyond earlier access to government securities.
- One party, often a bank or financial institution, pays a predetermined rate (fixed or variable) while the other party pays the total return of the asset, including both income and any capital gains or losses. This allows one party to gain exposure to an asset’s performance without actually owning it, while the other party transfers the risk and benefits of ownership.
- TRS enable foreign investors to gain exposure to India’s credit market without opening domestic accounts, aligning with growing global interest post India’s inclusion in bond indices.
- Banks are also seeking approvals to extend TRS to offshore dollar bonds of Indian companies at GIFT City.
- TRS have contributed to ~$22B foreign inflows into sovereign debt, reinforcing their strategic role in capital market access.
India has expanded the use of total return swaps to corporate bonds via GIFT City, enabling foreign investors broader access to its booming ₹53 lakh crore credit market. This move strengthens global participation without requiring onshore accounts, amid rising private credit activity and index inclusion flows.
3.4 SEBI in its consultation paper has proposed expansion of products for AMCs.
- Proposed to permit Asset Management Companies (AMCs) to offer management and advisory services to pooled non-broad-based funds (e.g., family offices) without requiring a separate Portfolio Management Services (PMS) licence.
- This marks a shift from the 2011 restriction to prevent conflict of interest which may arise due to differential fee structure for mutual fund as a product vis-a-vis other product. AMCs are currently permitted to provide management and advisory services to pooled assets which are broad based in nature.
- AMCs must ensure that resources allocated to such mandates are proportionate to fees earned, and mutual fund investors should not bear costs of servicing non-broad-based clients.
- SEBI flagged concerns around both preferential treatment (higher fees diverting attention) and cross-subsidisation (discounted fees unfairly burdening mutual fund investors).
SEBI’s proposal allows AMCs to serve family offices, expanding their scope. Success depends on clear cost allocation, resource segregation, and robust disclosures to prevent conflicts and protect MF investors. Framework is sound but needs sharper operational clarity.
# 4 Economy
4.1 The Centre has notified on Saturday, the tax exemption for sovereign wealth funds (SWFs) and pension funds for another five years, allowing such entities to claim benefits on eligible investments made in India till March 31, 2030, formalising the announcement made in the Union Budget earlier this year.
- Tax exemptions provided under Section 10(23FE) covering dividends, interest, and long-term capital gains from investments in specified infrastructure sectors.
- This move aims to deepen long-term capital flows into infrastructure.
Since introduction in 2020, the policy has spurred rising interest, with SWF investments doubling to $6.7B in 2022 and assets under custody growing 60% YoY to ₹4.7 lakh crore by April 2024.
4.2 A joint New York and San Francisco Federal Reserve Banks study finds
- a 9% probability of U.S. interest rates returning to 0% by 2032, driven by long-term uncertainty and volatility despite stable near-term outlook.
- while zero rates can spur growth in crises by lowering borrowing costs and boosting spending, they also pose risks: savers suffer, banks face margin pressure, inflation may spike, and policy space narrows—limiting the Fed’s response capacity in future downturns.
# 5 PE/VC
5.1 As per HSBC 2025 Affluent Investor (India Focus) report released last week
- Affluent Indian investors are shifting towards diversified, growth-oriented portfolios—embracing alternatives, multi-asset strategies, and managed products over traditional holdings.
- Gold allocation rose sharply from 8% to 15% in a year, followed by alternatives.
- Managed products, equities, and gold dominate portfolios; cash holdings lowest in Asia (15%), signalling higher capital deployment.
- Strong overseas interest, led by the US, with global peers favouring Singapore, UAE, UK, and Hong Kong.
This marks a clear shift toward more professionalised, growth-oriented, and globally aligned wealth strategies.
5.2 India Deal Activity Q2 2025 as per Grant Thornton report:
- Total deal value dropped 48% YoY to $17B across 582 deals, amid global geopolitical tensions (Iran-Israel, Russia-Ukraine, US policy shifts).
- Only 197 M&A deals worth $5.4B, the lowest quarterly value since Q2 2023.
- Private equity (PE) more stable:
- 357 PE deals worth $7.4B, second-highest volume since Q4 2022 though values down from Q1 ($8.9B).
- Banking & financial services led in value ($4.5B across 73 deals).
India’s Q2 2025 deal activity slumped 48% amid global geopolitical tensions, with M&A hitting a multi-quarter low. PE remained resilient in volume, aided by two new unicorns. BFSI led in value, retail in volumes. Deal momentum is expected to recover in H2 as macro conditions stabilise.