Week ending 17th May 2025

# 1 Markets

Foreign investors sustained their bullish stance on Indian equities, infusing ₹14,167 crore so far this month, buoyed by easing geopolitical risks with Pakistan, improving prospects of a US-India trade agreement, and growing expectations of a domestic rate cut. Despite mild profit booking on Friday, the Sensex ended the week with a 3.62% gain at 82,330, while the Nifty closed at 25,019, up 4.0%. Market outlook remains positive in the near term, driven by strong FPI flows and macro stability. However, selective profit-taking could persist, particularly in overheated segments like midcaps.

Bond markets reflected the dovish rate environment, with CPI inflation remaining within the RBI’s comfort zone and expectations firming for a rate cut. The 10-year G-sec yield softened to 6.31% by Friday’s close.

Globally, US markets rallied on optimism around a potential US-China trade resolution, with the Nasdaq up 3.5%, led by tech, and the Dow and S&P 500 rising 1–2%. However, gains were tempered by Moody’s downgrade of the US credit outlook, citing the ballooning $36 trillion debt burden. Concerns over sustained fiscal slippage and inflationary pressures from proposed tariffs pushed US 10-year yields up to 4.44%.

# 2 Banking

2.1 RBI is considering 

• updating bank nomination forms to include nominees’ email and phone numbers to help reduce unclaimed deposits. 
• This follows the Banking Laws (Amendment) Bill, 2024, which now allows up to four nominees and more flexible nomination options. 

Unclaimed deposits transferred to RBI has been quite significant despite increasing awareness and stood at Rs. 12254 cr., in FY23, Rs. 11794 cr in FY24 and Rs 7946 cr. in FY25.The move aims to improve claimant tracking and bring down the extent of unclaimed deposits. However, concerns over nominee consent and KYC changes continue to remain. 

2.2 Key takeaways from SIDBI Report on MSMEs last week

• MSMEs contribute nearly one-third of India’s GDP and account for about 50% of exports.
• Over 7 crore MSMEs generate employment for approximately 26 crore individuals.

• Registration of MSMEs has increased significantly with over 6.2 crore MSMEs registered by March 2025, up from 2.5 crore in March 2024. 35% of micro enterprises remain unregistered

Challenges 

• Access to formal credit remains a major challenge, with an estimated credit gap of about ₹30 lakh crore for the sector.

• High degree of borrowing from informal sources by micro enterprises, which is at 12% compared with small and medium enterprises at 3% and 2%, respectively. Cumulatively 17% of MSMEs surveyed had no credit access. Only 18% of the respondents have taken advantage of digital lending. 
  • Besides access to credit, MSMEs face issues like skilled labour shortages, infrastructure bottlenecks, and limited awareness of government schemes.

• Industries such as Readymade Garments (RMG), Grocery Retailers, Food Processing, and IT/ITeS have higher reported credit challenges.
• For digital lending, sectors with moderate to high digital presence (e.g., hotels, readymade garments, pharmaceuticals) have more potential for digital credit uptake.

• Government initiatives are underway, but sector and region-specific policies are needed to address higher credit challenges for targeted solutions.

Despite forming several committees in the past (Tandon, Chore, Nayak, Kapur, Sinha, Kamath, Nachiketh Mor) credit gap for MSMEs continue to be unresolved fully. Formalisation, corporatisation and moving away from collateral based loans to cash flow-based loans only could provide real solutions and bring down the gap. It is understood that the Govt. is evaluating a 2–3% interest subsidy framework to help MSMEs mitigate rising cost of capital and softening demand.

2.3 Takeaways from JP Morgan Report – India Financials landscape

1. Nominal GDP is expected to grow at ~10% CAGR, with stable FX and terms of trade creating a conducive environment for FII inflows
2. Financial sector is expected to stay well-bid, with valuation upside in PSU banks and quality private operators, especially as large-cap financials rotate from domestic to foreign hands.
3. Money supply tightening and elevated LDR (102%) indicate liquidity constraints; system credit growth expected at ~10% CAGR in next 2–3 years.
4. The credit-to-GDP multiplier should hover around 1x, with LDR likely to stabilize near 80%.
5. Regulatory tightening (post 2023–24) has curtailed growth of NBFCs; consumer lending to grow at 12–13% CAGR going forward (vs. 18% CAGR since 2014).
6. Gold loan NBFCs continue to offer superior risk-adjusted returns in a high gold price environment.
7. Household debt-to-GDP has plateaued at ~42%, suggesting limited room for aggressive retail leverage growth unless asset quality holds up.
8. System credit growth is decelerating, now at 11% YoY (vs. 20Y avg of 16%).
9. Interest expense as % of disposable income is near a 14-year high, increasing pressure for monetary easing.
10. Savings rate remains stable at ~31% of GDP; household financial asset allocation is shifting, with potential implications for fund flows

There are strong indicators for pushing credit growth, easing regulatory tightening and creating enabling eco system. Hope RBI addresses these concerns in its policy meeting. 

# 3 SEBI

3.1 SEBI issued a circular on May 13, 2025, extending the timeline for compliance with a certification mandate for the key investment team of Alternative Investment Fund (AIF) Managers. This requirement was initially notified on May 10, 2024, directing relevant personnel to pass the NISM Series XIX-C: AIF Managers Certification Exam. The original deadline was May 9, 2025, 

• SEBI’s rationale was to standardize baseline knowledge through a uniform exam, especially as investment experience claims are subjective and hard to verify empirically.
• Seasoned fund managers—especially senior professionals—raised practical concerns over studying and clearing an exam at a late career stage, questioning its incremental value.
• AIF norms already require investment professionals to hold either a relevant postgraduate degree, or at least five years of investment experience in capital markets. The additional exam was thus seen by many as duplicative, given these rigorous baseline filters are already in place.

• The certification syllabus was said to be overly focused on compliance and taxation topics, which are typically outsourced by most AIFs.
• Category I and II funds (long-only equity, VC, infra) argued the content was heavily skewed towards Cat III funds (which employ complex hedging strategies), reducing relevance for a large segment of the AIF industry. This has now been addressed as SEBI is proposing separate exams for Cat I/II and III separately.

While SEBI’s intention of ensuring uniform competence and accountability is structurally sound, its execution has faced practical limitations. The certification appears misaligned with the industry’s role-specific needs, disproportionately affecting experienced fund managers and non-Cat III funds. The extension offers temporary relief, but SEBI may need to consider modular certification or tiered exemption frameworks to balance regulatory oversight with operational practicality.

3.2 SEBI extends FPI compliance deadline: 

• SEBI has extended the deadline for Foreign Portfolio Investors (FPIs) to comply with new rules on issuing Overseas Derivative Instruments (ODIs) to November 17, 2025, from the earlier deadline of May 17. 
• The rules, first issued in December 2023, prohibit proprietary ODI issuance and require a separate FPI registration. 

The extension follows requests from market participants seeking more time for implementation. It appears that this is a big challenge, and it may be a surprise if it gets implemented.

3.3 SEBI has allowed credit rating agencies (CRAs) to apply the Expected Loss (EL)-based rating scale—previously used mainly for infrastructure-related instruments—to municipal bonds, alongside the existing standardised rating scale. 

This move is aimed at better reflecting the recovery prospects and creditworthiness of municipal bonds, especially since these are typically issued for infrastructure development by urban local bodies. The change is effective immediately, as per SEBI’s latest circular.

3.4 On May 13, 2025, the Supreme Court of India delivered a landmark judgment in the case of Competition Commission of India v. Schott Glass India Pvt. Ltd., decisively shaping the contours of competition law enforcement in India. 

• The dispute originated from a complaint lodged in May 2010 by a manufacturer of glass ampoules and vials, alleging that Schott Glass India had engaged in anti-competitive practices including offering exclusionary volume-based discounts, imposing unfair contractual terms, refusing to supply products on certain   occasions.  In 2012, the CCI found Schott Glass India guilty of abusing its dominant position under Section 4 of the Competition Act, 2002 and imposed a penalty. 

Supreme Court’s Analysis and Findings

1. The Court observed that the discounts were objectively justified by operational efficiencies, particularly the continuous operation of glass melting furnaces, which benefit from predictable, high-volume offtake.
2. Emphasizing the necessity of an effects-based approach, the Court held that mere identification of a practice under Section 4(2) does not suffice to establish abuse of dominance.

This verdict sets a significant precedent in Indian competition law jurisprudence:

• The judgment mandates that enforcement agencies must demonstrate actual or potential adverse effects on competition, moving away from a form-based approach.
• Volume-Based Discounts when uniformly applied and objectively justified, are not inherently anti-competitive. E commerce practices would now be seen with this lens.
• By advocating for a balanced and evidence-based enforcement approach, the judgment is likely to bolster investor confidence in India’s regulatory environment.

The Supreme Court’s decision in the Schott Glass India case marks a pivotal moment in the evolution of competition law enforcement in India. By emphasizing the necessity of effects-based analysis and procedural fairness, the Court has provided clear guidance for future assessments of abuse of dominance, ensuring that regulatory interventions are grounded in robust economic evidence and respect for due process. 

3.5 The Securities Appellate Tribunal (SAT) last week delivered a pivotal judgment in the case of V. Shankar v. SEBI (Appeal No. 283 of 2022), providing significant relief to compliance officers by delineating the boundaries of their liability concerning fraudulent activities perpetrated by company promoters or directors. 

• The case centred on V. Shankar, the former Company Secretary and Compliance Officer of Deccan Chronicle Holdings Ltd. (DCHL), who faced a ₹10 lakh penalty imposed by SEBI for misleading investors during buyback announcement in 2011. While announcement claimed sufficient reserves for the buyback, investigations revealed that the financial statements understated loan liabilities, rendering the reserves inadequate for the buyback. 

The SAT’s ruling emphasized the following points:

1. Compliance officer’s role is ministerial, not managerial. They are responsible for ensuring regulatory compliance but are not expected to oversee or verify the accuracy of financial statements approved by the board. 
2. It is untenable to expect a compliance officer to re-audit or verify the veracity of audited accounts certified by qualified chartered accountants and approved by the board of directors 

The SAT’s decision serves as a significant clarification of the legal responsibilities of compliance officers within corporate structures. By distinguishing between ministerial and managerial roles and emphasizing the necessity of knowledge or recklessness for liability, the tribunal has delineated the boundaries of accountability, thereby reinforcing the importance of clearly defined roles in corporate governance. A welcome judgement indeed. Hopefully, we expect similar application is made while implicating independent directors.

# 4 Economy

4.1 As per data released by Govt. last week India’s wholesale inflation (WPI) eased to 0.85% in April 2025, down from 2.05% in March and 1.19% a year ago, marking the lowest level since March 2024.

• Prices of primary articles (including food and crude oil) declined year-on-year, pushing this category into deflation
• Wholesale food inflation fell to 2.55% in April, an 18-month low, from 4.66% in March. 
• Crude petroleum and natural gas inflation was -15.5% in April. The Indian crude basket averaged $67.73/barrel, down from $89.44 last April and $72.47 in March, reflecting continued global softness due to geopolitical and trade-related uncertainties.
• Retail inflation declined to a nearly 6-year low of 3.16 per cent in April, mainly on account of subdued prices of vegetables, fruits, pulses, and other protein-rich items, and remains within the comfort zone of the Reserve Bank.

While WPI decline indicates a moderation in producer level cost pressure, particularly due to lower food and energy prices, fall in food inflation could support household budgets and boost consumption demand at the start of FY26. Lines are now clear for RBI rate cut perhaps.

4.2 As per provisional data for April 25, released by Ministry of Commerce last week 

1. Merchandise Trade:

• • Exports: $38.49 bn; Imports: $64.91 bn.

• Trade Deficit: $26.42 bn – a 5-month high

2. Services Trade:

• Exports: $35.31 bn; Imports: $17.54 bn. 
• Net Services Surplus: $17.77 bn

Widening Trade deficit – Structural or Temporary? 

• The sharp rise in the April trade deficit to $26.42 bn reflects a persistent imbalance driven by import-intensive growth, particularly crude oil and capital goods.

• Sequential dip in exports from March ($41.97 bn → $38.49 bn), coupled with a rise in imports, suggests demand-side pressures domestically, possibly due to front-loading of capital and energy goods.
• Services growth is unlikely to fully offset the widening merchandise deficit if the trend persists into Q2.

• The 7.9% YoY increase in non-petroleum exports (Apr-Jan) and double-digit April growth in segments like engineering and chemicals indicate manufacturing depth and policy support through schemes like PLI.

April 2025 trade data signal a mixed outlook. While export resilience in key manufacturing segments and services strength are positives, the sharp spike in imports, rising deficit, and external geopolitical pressures underscore macro vulnerability. Policy continuity and demand-side balancing measures may be needed to prevent structural widening of the current account deficit.

4.3 The Ministry of Statistics released India’s first monthly Periodic Labour Force Survey (PLFS) for April 2025, reporting a national unemployment rate of 5.1% (current weekly status basis). Unemployment among youth (15–29 years) was significantly higher at 13.8%, with urban youth particularly affected (17.2% overall in urban areas vs. 12.3% rural).

• Youth unemployment (15–29 yrs): 14.4% for women (23.7% urban, 10.7% rural); 13.6% for men (15% urban, 13% rural).
• Labour Force Participation Rate (LFPR): 55.6% overall (58% rural, 50.7% urban). Male LFPR: 79% rural, 75.3% urban; Female LFPR: 38.2% rural.
• Worker Population Ratio (WPR): 52.8% nationally (55.4% rural, 47.4% urban); Female WPR: 36.8% rural, 23.5% urban.

The revamped PLFS, now providing real-time high-frequency data, may be helpful for the Govt. agencies to plan timely and suitable intervention across States.  

4.4 As per UN Population Fund [UNFPA] data released last week,

• India’s elderly population (60+) is expected to rise sharply from 8.6% in 2011 to nearly 20% by 2050 prompting significant changes in consumption patterns across income groups, geographies, and family structures.
  • Households with elderly spend 12% of total consumption on healthcare vs. 5% in others.
  • While affluent would focus on organic food, supplements, and specialised diets, middle income would balance homecooked meals with health foods. 
• 50% of seniors now use smartphones, led by affluent users.
• Rich would opt for premium senior living facilities with full services.

• While affluent would be financially independent via pensions, investments, and assets, poor would be highly vulnerable, rely on public pensions and informal family aid.

These patterns will decisively shape India’s social and policy architecture. Without timely policy action to harness the demographic dividend, India risks squandering its growth potential over the next three decades.

# 5 PE/VC

1. Private Credit Funds are signalling strong demand for yield products in falling interest rate scenario, with multiple launches by leading AMCs.
   1. Kotak Mahindra AMC’s Credit Fund Sees Record ₹1,200 Cr First Close
      and expects to close at ₹. 2000 cr. 
   2. Avendus raises ₹1,000 Cr in First Close of Private Credit Fund III
      targeting gross IRRs of 16–18%. 
2. Weekly VC Funding hits $618M, highest year to date.

• Indian startups raised $618 million across 29 deals in the week ending May 9, marking a 494% jump over the previous week. This signals strong investor appetite despite global headwinds and geopolitical risks.

1. DPIIT approved 187 startups for tax exemptions, offering much-needed compliance relief. This is part of a broader push to reduce friction and incentivize innovation. These benefits support formalization and scale-readiness.
2. The Indian government is introducing support for creative industries—dubbed the “orange economy”—to nurture arts, design, fashion, and culture-led entrepreneurship. This expands the startup definition beyond tech and product innovation.