Week ending 17th January 2026

# 1 Markets

Indian equity markets weakened last week, as global uncertainties and profit-taking weighed on sentiment. The Nifty 50 slipped below the 25,700 mark, registering a weekly decline of around 2.5%, while the Sensex shed approximately 605 points. Pressure stemmed largely from renewed US–India tariff concerns and sustained FII outflows, with broader markets—mid- and small-cap stocks—significantly underperforming the benchmarks. Renewed tensions in West Asia and the imposition of higher tariffs on Russian trade are likely to weigh on market sentiment, sustaining bearish pressure in the weeks ahead.

Indian government bond yields jumped after Bloomberg deferred India’s inclusion in its Global Aggregate Index, dimming near-term hopes of $20–25 billion foreign inflows and triggering position unwinding. 10-year G-Sec yield went up to 6.67% by Jan 16, a near 10-month high.​

US equity markets posted modest weekly gains last week, with S&P 500 up 1.6%, Dow up 2.3%, and Nasdaq up ~1.9%, hitting record highs early in the week.​Volatility increased later amid Fed independence concerns and profit-taking, ending the week, little changed or slightly lower on Friday, while small-caps (Russell 2000) surged 4.6%.

US Treasuries traded rangebound last week, with 10-year yields testing 4.20% before settling near 4.16% by Jan 15 amid fading Fed cut expectations.​

# 2 RBI

2.1 Key Takeaways from SBI Banking Report published last week

• Deposits rose from ₹18.4 lakh cr. (FY05) to ₹241.5 lakh cr. (FY25); advances from ₹11.5 lakh cr. to ₹191.2 lakh cr.- significant system scale up witnessed.
• C-D ratio climbed to 79% in FY25 from 69% in FY21; post-pandemic asset growth rose to 94% of GDP. – (beyond the optimal CD ratio of 76%)
  • Unsecured loans jumped to ₹46.9 lakh cr., forming 24.5% of advances (above 20% since FY19); PSBs hold ~50% of such exposure.
  • Sensitive sector exposure at ₹50 lakh cr., nearly 27% of total advances; split mainly between private banks (50%) and PSBs (47%).
  • Top 10 districts hold ~49% of credit; eastern & north-eastern regions lag with low C-D ratios.
• PSB capital adequacy improved (FY21–FY25); some private banks saw CRAR decline despite higher absolute levels.
• CASA stable at ~37%; maturity mismatch in 1–3-year bucket reflects rising loan prepayments.
• Contingent liabilities jumped 18x to ₹505.5 lakh cr., with 93% from forex forwards.

India’s banks are back in growth mode with stronger balance sheets, but rising leverage, unsecured credit, and sharp geographic concentration are emerging fault lines that could test resilience if credit conditions tighten.

 

2.2 RBI in its Discussion Paper last week has proposed resuming UCB Licensing

• This is after a 20-year pause (since 2004), triggered earlier by high failure rates (31% of post-1993 licensed Urban Coop Banks [UCBs] turned unsound).
  • Number of UCBs has declined to 1,457 (Mar 2025) from 2,104 (2003), reflecting consolidation; total assets ₹7.38 lakh crore, deposits ₹5.84 lakh crore.
  • Sector average CRAR ~18% (92% above 12% minimum), GNPA 6.2%, NNPA 0.7%, PCR 90.1%, indicating materially stronger balance sheets than two decades ago.
  • Tier-1 UCBs (<₹100 crore deposits) form 57.5% by number but hold only 11.3% of deposits; larger UCBs dominate business volumes.
• Financial inclusion in underserved areas, stronger RBI powers post-2020 Banking Regulation Act amendments, benefits of consolidation, and support from the Umbrella Organisation (NUCFDC, operational since 2024) support licensing.
  • Capital instability (refundable shares), “one-member-one-vote” limiting investor interest, small systemic footprint (UCB deposits ~3.1% of banking), governance and technology gaps—especially in small entities- continue to haunt
• Proposed Licensing only large, well-run co-operative credit societies, preferably multi-state entities, and learn incrementally.
• Eligibility Criteria Suggested:

• Minimum capital ₹300 crore (as of March 31 of prior FY).
• ≥10 years of active operations.
• ≥5 years of strong and progressive financial track record.
• CRAR ≥12%, Net NPA ≤3% at licensing stage.

RBI is signalling a calibrated reopening of UCB licensing—restricted to large, financially sound, and professionally governed co-operative societies—to balance inclusion goals with systemic stability.

2.3 RBI last week strengthens internal grievance redress mechanism –

• All complaints that are partly resolved or rejected must undergo a mandatory review by a senior authority before closure.
  • Such complaints will be automatically escalated to the Internal Ombudsman for independent review.
  • Complaints cannot be closed by the same branch or touchpoint that handled them, whether resolved, partly resolved or rejected.
  • Banks/NBFCs may compensate customers for financial loss, time, expenses, harassment and mental agony.
• RBI mandates active board supervision to protect customer rights; internal audit to oversee implementation.
  • Coverage includes banks, SFBs, Payment Banks, NBFCs but excludes HFCs.

RBI’s move hardwires senior-level review, independent oversight and board accountability into grievance handling, sharply tilting the system in favour of faster, fairer customer redressal.

2.4 RBI issued draft Circular proposing key changes in FX management from April 2027

• Proposes to align forex risk capital treatment with international standards
• Forex risk capital to be computed daily at both solo and consolidated levels.
  • Capital charge applies to all forex positions (including gold) across trading and banking books, onshore and offshore.
  • Positions deducted from regulatory capital, specified capital instrument holdings, matured unpaid securities, and NPAs (credit risk only).
  • Non-dealing investments in overseas subsidiaries/affiliates may be excluded if they hedge capital ratio sensitivity, are limited to neutralising amounts, held for ≥6 months, and covered under an approved risk policy.
• Revision in Net Open Position (NOP) Computation and proposed to include net spot, forward, guarantees, and option delta equivalents.
• Capital requirement is proposed at 9% of NOP, over and above credit and interest rate risk charges.

Overall, the draft tightens and standardises forex risk capital treatment, raising transparency and capital discipline for banks while allowing narrowly defined structural hedges to manage genuine capital ratio sensitivities.

# 3 SEBI

3.1 SEBI has released draft consulting paper on Friday proposing to allow FPIs to settle net obligations instead of mandatory gross settlement –

• To reduce funding costs, liquidity strain, FX slippage, and operational inefficiencies, especially acute on index rebalancing days amid rising FPI outflows.
  • As per present procedure, even offsetting same day buy and sell trades require full funding and delivery on a gross basis, leaving FPIs underinvested for at least a day.
  • Illustratively, if an FPI has purchased Stock A worth ₹ 100 cr. and sold Stock B worth ₹ 100 cr., mandatory gross settlement forces FPIs to fund buy and sell legs separately—leaving ₹100 crore idle for a day instead of being netted—leading to temporary underinvestment.
• Applies only to outright transactions (either buy or sell in a security in a settlement cycle); intra-day buy–sell in the same security remains gross-settled to limit market risk.
  • SEBI retains gross settlement for non-outright trades.

SEBI’s proposals signal a pragmatic push to lower friction and modernise market plumbing, but whether operational efficiency alone can reverse FPI outflows will depend on broader macro and policy confidence.

3.2 SEBI released draft consultation paper on Friday revamping KYC framework – key highlights

• Single, reusable KYC proposed and Intermediaries to rely on KYC data from KRAs, eliminating repeated document submission across market participants.

• • Investors spared multiple KYC checks, greater transparency, discipline, and consistency in KYC processes.
  • Multiple verified mobile numbers and email IDs to be allowed and stored centrally.
• Aadhaar-verified mobile numbers may not need re-verification by intermediaries, reducing friction.

• KRAs to trigger alerts for 5-year KYC lapses, expired documents, and minors turning 18; intermediaries to update records proactively.
• Mandatory notification to KRAs on account closure to stop data sharing with former intermediaries.
• Overseas address proof made optional for OCI cardholders residing in India for over 182 days.
• No extra documents for name changes already updated in PAN/Aadhaar; pragmatic validation for source-verified addresses.

Overall, Sebi’s proposals mark a decisive shift toward a single-source, technology-led KYC framework that cuts duplication, lowers friction, and puts investor convenience at the centre of compliance.

# 4 Economy

4.1 As per Govt. data released last week, India’s trade deficit has widened –

• December merchandise trade deficit expanded to $25.04 bn, up from $24.53 bn in November and $20.63 bn in Dec 2024, driven by a sharp import surge.
• Exports in December rose modestly to $38.51 bn (from $37.80 bn YoY), while imports jumped to $63.55 bn (from $58.43 bn YoY).
• Services exports in December were estimated at $35.50 billion and imports at $17.38 billion, suggesting a services trade surplus of $18.12 billion
  • Exports to the US increased to $7.01 bn in December (vs $6.98 bn in November); Apr–Dec FY26 exports up ~10% to $65.88 bn despite higher tariffs.
  • Bilateral goods trade with US reached $105.31 bn (Apr–Dec), up from $94.97 bn YoY; India’s trade surplus widened to $26.45 bn (from $25.09 bn).
• Total merchandise exports Apr-Dec FY26 rose to $330.29 bn (from $322.41 bn YoY); imports climbed to $578.61 bn, pushing the cumulative goods trade deficit to $248.3

India’s exports showed resilience amid global headwinds, but a widening import bill—especially China-led—kept the trade deficit elevated, underscoring the urgency of boosting competitiveness and reducing import dependence.

4.2 As per data for December released by Govt last week

• WPI inflation: +0.83% YoY, back in positive territory after 2 months of deflation (Nov: -0.32%).
• Higher manufactured goods (+1.82%), food, minerals; core WPI at 34-month high of 2%.
• Fuel & power: Still in deflation (-2.31% YoY).
• Wholesale food: Flat YoY, improving from -2.6% in Nov.
• CPI inflation: 1.3% YoY (Nov: 0.7%), 3-month high, but below RBI band.
• Food inflation: Negative but easing (-2.7%); meat, fish, eggs turning costlier.
• Core CPI: 4.5%, 2-year high, led by gold & silver prices.
• CPI–WPI gap: Narrowed to 50 bps (from 100 bps in Nov).

 

After months of deflation, inflation is clearly bottoming out—price pressures are firming but remain mild, giving the RBI room to pause rather than pivot.

4.3 As per World Bank’s latest Global Economic Prospects (GEP) report released last week

• Revised FY26 GDP growth forecast to 7.2% from 6.3%, driven by strong domestic demand and private consumption
  • Tax reforms and rising real rural incomes underpin the upgrade.
• Growth seen moderating to 6.5% in FY27 (unchanged) despite 50% US tariffs, as domestic demand offsets export drag.
• Growth edges up to 6.6% in FY28 on resilient services, export recovery, and higher investment.
  • Rising trade restrictions, policy uncertainty, tighter financial conditions, social unrest, and climate-related shocks—especially for South Asia are listed as risks

India’s growth story remains domestically driven and resilient, cushioning global headwinds and trade shocks even as the world economy loses momentum.

4.4 Supreme Court judgement last week – Merger Without Exit, Tax Without Sale !!

Background:

• In corporate amalgamations, shareholders often receive shares of the new company through a share swap, without selling their holdings.
• Tax disputes arise when such shares are held as stock-in-trade rather than as long-term capital assets.
  • Classification depends on intent, holding period and trading frequency, leading to frequent disputes.
• The case involved OP Jindal group entities, whose shares in Jindal Ferro Alloys Ltd were replaced with shares of Jindal Strips Ltd after a 1996 amalgamation.

Judgement (Supreme Court)

• The Court held that when shares held as stock-in-trade are substituted with shares of the amalgamated company: substitution itself is a taxable event.
  • The value difference is taxable as business income under Section 28, even without sale.
  • Rejected the argument that no tax arises since there is no “sale” or “exchange”.

Impact

• Liability arises immediately on receipt of shares, not on sale.
• Gains taxed as business income, not capital gains.
• Traders, family offices, banks, Category-III AIFs, and HNIs with trading portfolios.

 

The ruling accelerates and hardens taxation of merger-related share swaps by treating trading portfolios as taxable business income on receipt, setting the stage for wider scrutiny and litigation.Top of FormBottom of Form

# 5 PE/VC

5.1 Tiger Global–Flipkart tax case: PE/VC Investors jittery!

Basic facts

• Tiger Global invested via Mauritius entities into Flipkart’s Singapore holding company, which owned Flipkart India.
• In 2018, Tiger sold most of its stake as part of Walmart’s $16 bn acquisition of Flipkart.
• Tiger claimed capital gains tax exemption under the India–Mauritius DTAA (treaty), citing indirect transfer and grandfathering for pre-April 1, 2017, investments.
• The tax demand is ~₹14,500 crore (including interest and penalties); Tiger’s sale proceeds were ~$1.6 bn.

Supreme Court judgement last week

• Overturned Delhi High Court and ruled against Tiger Global.
• Held that treaty benefits can be denied where the structure is an impermissible tax-avoidance arrangement.
• Mere Tax Residency Certificate (TRC) is insufficient; authorities can examine commercial substance.
• Applied substance over form and allowed GAAR to override treaty claims, despite grandfathering arguments.

Key reasoning

• Mauritius entities were found to be conduit / lacking real business substance.
• Control, decision-making and economic nexus were effectively outside Mauritius, with Indian assets driving value.
• Therefore, India can tax offshore exits where underlying value substantially arises from India.

What changes in practice

• Grandfathering protection for pre-2017 investments is no longer absolute if substance is weak.
• Tax authorities can look through layers and deny treaty benefits if substance is not demonstrated.

Impact on investors

• Re-examination risk for pre-2019 Mauritius-routed investments and past exits (including IPO exits).
• Provisioning and tax risk reassessment likely for PE, VC, FPI funds with Mauritius/SPV structures.
• Deal structuring shifts from jurisdictional optimisation to “substance engineering” (real operations, governance, decision-making).
• Future flows may pivot further to Singapore, GIFT IFSC, SEBI AIFs, but legacy exposure remains.

Who could be affected

• Funds historically using Mauritius vehicles, including PE/VC and FPIs; scrutiny may extend to similar treaty regimes (e.g., Singapore, Netherlands) where substance is questioned.

The ruling widens India’s tax net for offshore exits linked to Indian assets and raises the bar on substance, materially increasing retrospective risk for legacy Mauritius structures while reshaping how future India deals are planned.