# 1 Markets
Global equities, including India’s benchmark indices, declined as Israel launched airstrikes on Iran’s nuclear and military sites early Friday. Rising oil prices have renewed concerns over input cost inflation and margin pressure for Indian corporates. The Nifty fell 0.7% on Friday, having dropped as much as 1.6% intraday. Near-term market direction hinges on further geopolitical developments and global trade/tariff policy, though extreme tariff outcomes appear unlikely and may already be priced in.
The 10-year-bond yield remained largely flat last week and with benign inflation nos. softening the yield further to 6.29% on Friday. Market participants are also worried that the intensifying conflict could force the Reserve Bank of India to hit the brakes on more rate cuts or abandon them altogether.
Middle East conflict also pulled down all the three major indices S&P, Nasdaq and Dow Jones between 0.5 – 1.5%. US treasury yield softens to one-week low following tepid CPI reading. US Yields softened on hopes of rate cut with 10-year yield closing lower at 4.40% on Friday following the announcement of likely new incumbent to chair Fed
# 2 Banking
2.1 RBI last week has amended the Master Direction on KYC (2016) to simplify and digitise the processes of customer onboarding and periodic KYC up dation, aiming to improve inclusion and accessibility, particularly through digital and assisted channels. Key highlights:
- Banks/NBFCs must fetch KYC records online from CKYCR, with customer consent, without requiring resubmission unless there is a change.
- Simplified process for face to face – like
- Aadhaar biometric e-KYC permitted; If address differs, a self-declaration suffices.
- Digital KYC is allowed in face-to-face setups.
- Aadhaar OTP-based e-KYC is allowed in non- face to face; Account must undergo full CDD within one year.
- Video based customer identification treated equivalent to face-to-face
- Business Correspondents (BCs) can now assist in both onboarding and KYC up dation, expanding rural access.
- Empathetic reactivation advised for accounts under DBT/PMJDY/EBT schemes.
This update reflects RBI’s push for digitally enabled, inclusive, and flexible KYC norms, balancing ease of access with regulatory rigour.
2.2 RBI has amended its earlier guidelines (circular dated January 1, 2024) regarding inoperative accounts and unclaimed deposits. As per the revised instructions:
- Deposits unclaimed or inoperative for 10 years or more must continue to be transferred to the Depositor Education and Awareness (DEA) Fund.
- To simplify activation of such accounts, banks must allow KYC up dation at all branches, including non-home branches.
- Video-based Customer Identification Process (V-CIP) may also be used for KYC updates.
- Banks may additionally utilise Business Correspondents (BCs) to facilitate KYC for activating such accounts, in line with the Master KYC Directions (2016).
Hopefully simplified KYC helps bring down huge accretion to unclaimed deposits, amounting to more than Rs. 78000 cr. and make life easier for depositors to get them back.
2.3 Key highlights from Jefferies Report on NBFC sector 4Qfy25
The NBFC sector entered a consolidation phase in 4QFY25, with
- PAT growth slowing to 9% YoY (vs. 15% in 3Q),
- AUM growth moderating to 19% YoY,
- Average NIM compression of 47bps QoQ.
- Margin guidance remains cautious due to delayed liability repricing.
- Asset quality improved across most lenders, with declining GNPA and recovering collections.
- Risks remain in MSME and MFI portfolios.
The slowdown was broad-based across lending segments, though gold NBFCs stood out with strong sequential AUM. However, FY26 is expected to bring growth stability, margin tailwinds, and easing borrower stress, with fixed-rate lenders best placed for margin surprise.
2.4 As per MFIN data released last week,
- Equity capital of NBFC-MFIs declined in FY25 1.8% YoY to ₹35,759 Cr,
- Annual debt funding fell 35.7% to ₹57,307 Cr in FY25, as lenders and investors turned cautious amid sectoral stress.
- Banks remained the primary source of funding for MFIs. (78.4% share).
- Gross microfinance loan portfolio contracted 13.9% YoY to ₹3.81 lakh Cr.
- NBFCs (not MFIs) saw portfolio growth (+4.1%).
- Portfolio quality worsened sharply, with PAR 31–180 rising to 6.3% (from 2.2%).
- East, Northeast, and South accounted for 62.7% of the total portfolio.
Most of the reports now converge on single point – stress in MFI space continuing. The four large Indian MFIs have made substantial write off in Q425. Hopefully RBI would come with some measures to overcome the stress in the space.
# 3 SEBI
3.1 A new ONDC-based initiative is set to democratize mutual fund access—especially for underserved regions—by slashing transaction costs from ₹2–7 to ₹0.75. Key Innovations
- Enables Kirana stores and small agents to sell mutual funds using ONDC rails and Aadhaar-based KYC.
- Low transaction costs make ₹51/day SIPs viable, targeting daily-wage earners and micro-entrepreneurs.
- Only 18% of MF assets are from beyond the top 30 cities—this initiative targets that untapped market.
Challenges:
- Initial transaction failures expected to decline with scale basis system maturity.
- Exploring CBDC or direct bank partnerships to reduce gateway fees further.
- Full rollout hinges on relaxed rules and lighter compliance norms for small distributors.
3.4 SEBI Mandates Verified UPI Handles for Safer Market Transactions (Effective Oct 1, 2025)
- ~8,000 SEBI-registered intermediaries (brokers, MFs, PMSs) must use standardized, verified UPI IDs (e.g., abc.brk@validhdfc) to collect investor payments via UPI. These will be visually marked with a green triangle and thumbs-up icon.
- Old UPI IDs to be discontinued post 8 December 2025. New system aims to reduce payment fraud and assure legitimacy in securities transactions.
- Investors can verify UPI IDs using SEBI’s soon-to-be-launched “Sebi Check” tool. NEFT, IMPS, and other payment modes remain optional. Only Self-Certified Syndicate Banks (SCSBs) can issue the @valid handles.
This is a continuing attempt by SEBI on investor protection including its focus on cybersecurity and fraud prevention.
# 4 Economy
4.1 Govt is planning a shift to a chain-based Index of Industrial Production (IIP) to make industrial policy more responsive and accurate.
- Unlike the current fixed-weight system, this method will revise weights every 1.5–2 years using data from the Annual Survey of Industries (ASI), allowing for more sector-specific and timely economic insights.
- The base year will be updated to 2022–23, with the new series expected by 2026–27.
- Consumer Price Index (CPI) weights, currently updated every 5 years, will now be refreshed every 4 years using Household Consumption Expenditure Survey (HCES) data, which will be conducted every 3 years (last done in 2023–24).
A chain-based index, already used internationally, links each period to the previous one for better reflection of structural changes. Challenges remain around syncing with evolving industrial classifications.
4.2 As per data released last week,
- Retail inflation (CPI) eased to 2.8% YoY in May, marking the lowest in 75 months and the seventh consecutive month of moderation (April: 3.1%; May FY24: 4.8%).
- Food inflation fell to 0.99% YoY, a 43-month low (Apr: 1.78%; Oct FY24 peak: 9.7%).
- Core inflation held at 4.2% YoY in May, stable from April; average FY24: 3.6%.
- This is below RBI’s Q1FY26 forecast of 2.9% reinforcing a broad disinflationary trend.
- Inflation has now remained below RBI’s 4% target for four straight months—the longest such streak in 5+ years.
While the sharp fall in headline inflation offers temporary relief, underlying core and sticky price metrics remain near the 4–4.5% range, reflecting persistent structural pressures. Monetary policy has likely bottomed, and further easing will be data dependent. For now, RBI’s inflation targeting regime appears validated, but risks from monsoon variability and global spillovers warrant caution.
4.3 World Bank’s Global Economic Prospects Report – June 2025
- Global GDP growth forecast to 2.3% in 2025 (down 40bps vs Jan), citing rising trade barriers, geopolitical tensions, and policy uncertainty. Growth in advanced economies slows to 1.2% (US: 1.4%).
- India Outlook:
- Growth forecast held at 6.3% (down from 6.7% in Jan), reflecting export headwinds from weaker global demand and trade tensions.
- Rebound projected at 6.5% and 6.7%, in FY 27 and 28 led by services exports.
- Tariff hikes by the US (27% announced, 10% implemented) pressure India’s export outlook.
- India lifted ~270 million out of extreme poverty between FY12–23.
India remains the fastest-growing major economy, but rising external fragilities could dampen near-term momentum.
4.4 As per S&P report released last week,
- India Inc’s Capex to Double to ₹72.7 Lakh Cr (US$ 850B) Over 5 Years
- Top 100 listed firms to double investments, led by power transmission (₹25.7L Cr), airlines, and green hydrogen.
- Mostly internally financed via strong balance sheets and cash flows; lower debt reliance than past cycles.
- Funding Ecosystem: Supported by banks, NBFCs (PFC, REC), bond market.
While credit stress flagged in renewables, steel, airports due to execution and price volatility increase in private capex complimented by lower interest rates augur well for the growth of the economy.
# 5 PE/VC
5.1 The End of Tax-Free Exits via Singapore – Analysis and Impact
- The Basics: What Changed
Last fortnight, Singapore’s IRAS issued its first advance tax rulings under Section 10L of its Income Tax Act — a critical moment for Indian funds routing investments via Singapore. These rulings clarify what qualifies as “economic substance” and signal the formal end of zero-tax exits through shell entities.
Section 10L mandates that Singapore-based entities must show real operations — qualified staff, physical premises, local decision-making, and sufficient local spending — to enjoy tax exemption on foreign gains. If they fail, their capital gains are taxed at 17%.
- Analysis: Why It Matters for India
- If Singapore denies tax benefits citing lack of substance, Indian authorities can now invoke GAAR or PPT to deny treaty benefits as well — effectively closing the loop on treaty shopping.
- Earlier, Indian courts (e.g., Blackstone case in 2023) had sided with investors based on formal residence in Singapore. Now, with Section 10L, even a legal presence isn’t enough — functional substance matters.
- Section 10L mirrors global anti-abuse efforts like OECD’s Base Erosion and Profit Sharing [BEPS]. It was introduced partly to satisfy EU concerns about Singapore being used as a low-substance, no-tax jurisdiction.
- Implications for Funds and Startups
- Nearly $35 billion worth of pre-2017 “grandfathered” Indian investments — expected to exit tax-free — now face scrutiny. If even 25% of these are taxed, governments could recover $1–2 billion.
- Funds must build real operations in Singapore or risk dual taxation. Merely holding a board meeting or maintaining a registered address no longer suffices.
- The India-Singapore treaty once offered double non-taxation. That arbitrage is now closed. Funds must invest through jurisdictions with real economic presence or consider newer setups like GIFT City.
- Bottom Line:
- For India: More tax revenue, stronger anti-avoidance enforcement, and a move away from shell routing.
- For Investors: Tax certainty improves, but only for those with real presence. The era of paper entities is over; substance is now king.
5.2 BCG Report on India’s AI Ecosystem- Key highlights
- India’s AI sector is undergoing rapid transformation, with over 600,000 AI professionals, 2,000+ AI startups launched in the last 3 years, and a market poised to exceed $17 billion by 2027, more than 3x current levels. India holds 16% of global AI talent, second only to the US. This growth is powered by:
- Rising enterprise tech investments
- A massive digital ecosystem with 700 million internet users
- Strong STEM talent and widespread public digital infrastructure (Aadhaar, UPI, ONDC)
- India’s open data architecture and high data volumes enable population-scale AI solutions across sectors. Further infrastructure boost:
- 45 new data centres planned in 2025, adding 1,015 MW to current capacity
- Government’s India AI initiative (₹10,000+ crore corpus) to provide 10,000+ GPUs for AI R&D
AI is now a business imperative, with Indian firms leveraging it to leapfrog global peers. Success hinges not just on tech, but on change management, talent integration, and organisational embedding of AI.
5.3 Key takeaways from NASSCOM Industry review Q425
- Global GDP is projected to grow by 2.8% in 2025 (IMF April 2025), down from previous estimates, and revised to 3.0% in 2026.
- Global IT service tech spending is expected to grow 5.0% in 2025 and 5.2% in 2026.
- Trade uncertainties, especially tariffs introduced since February, led to a decline in overall global tech company revenues, with a notable 4% decrease in revenues and a 240-bps contraction in net margins quarter-on-quarter.
- Overall global tech revenues dipped 4% q-o-q, with headcount increasing marginally by 0.3%, indicating a cautious approach to hiring amidst uncertain market conditions.
- Specific sectors like communications & high-tech saw revenue growth of 14.5%, driven by AI advancements, while transportation declined 2.6%.
- Cloud hyperscale’s’ revenues grew 3.4% q-o-q (20.3% y-o-y), whereas software revenues declined 1%, but digital native companies grew 1.9% q-o-q.
- Net margins for software companies expanded, contrasting with declines in digital native firms.
- AI-led projects showed strong deal momentum, with an increase of 1.4x in global AI deals q-o-q, especially in BFSI and retail verticals.
- Revenue per employee increased roughly 15.2% from Dec-24 to Mar-25, indicating efficiency improvements.
- Managed services deal pipeline remains healthy, with LTM growth at 18.4%, indicating sustained demand.
The tech industry experienced growth cautioned by global economic uncertainties, trade tensions, and tariff impacts, leading to revenue declines and margin contractions. AI and cloud services continue to drive strategic shifts, with companies focusing on automation and efficiency amid cautious spending and hiring patterns.