Week ending 19th July 2025

# 1 Markets

Equity markets ended the week on a subdued note, with the Sensex and Nifty 50 closing lower at 81,669 and 24,941 respectively on Friday. Sentiment remained weak, driven by sustained FII outflows exceeding ₹10,000 crore during the week and underwhelming Q1 earnings prints. Global cues offered little support—while US macro data was stronger, persistent concerns around the Fed’s rate trajectory and elevated crude oil prices weighed on investor confidence. Looking ahead, markets are expected to remain volatile in the near term, with focus on the upcoming corporate earnings cycle, US Fed commentary, and oil price trends.

In fixed income, bond yields softened after a benign inflation print. The 10-year benchmark yield declined to 6.30% on Friday.

US retail sales rose 0.6% in June after two months of decline, easing concerns around consumer spending. Gains were broad-based, led unexpectedly by auto sales, despite prevailing pessimism around tariffs. Sentiment has recently improved All three US indices ended the week marginally higher, touching record highs on Friday. Bond yields remained range-bound, with the 10Y closing at 4.43%.

Japan’s 10Y yield hit 1.595%—it’s highest since 2008—amid a broader sell-off in its $7.7T bond market. Yields on 20Y and 30Y bonds also surged to 1999 highs before easing slightly. The move raises concerns about higher borrowing costs for households and businesses globally, as stress in Japanese debt begins to spill over into other major bond markets.

# 2 Banking

2.1 As per circular issued by IBBI last week,

• Resolution Professionals (RPs) are now required to formally disclose all fraudulent, avoidance, or wrongful transactions identified during Corporate Insolvency Resolution Process [CIRP] to the Committee of Creditors (CoC).
• These transactions must be detailed in the Information Memorandum shared with all stakeholders.
• Any resolution plan must clearly state how such transactions will be addressed, enabling CoC to factor them in during plan evaluation.
• The change aims to improve transparency, ensure accountability, and allow creditors to make informed decisions on recoveries.

Impact

• This strengthens the CoC’s decision-making with better visibility into pre-insolvency misconduct, potentially increasing recovery through clawbacks or litigation.
• By embedding these disclosures into the IM and resolution plan, the market may start pricing in promoter misconduct and legacy liabilities more systematically.
• However, the practical ability of RPs to detect, verify, and document complex avoidance transactions within tight CIRP timelines remains a challenge.
• The circular is silent on the materiality threshold or evidentiary standards required for such disclosures, potentially leading to over-reporting or legal disputes.
• Unless followed by prompt action by the CoC and Adjudicating Authority, such disclosures may remain procedural, without real deterrence or asset recovery impact.

# 3 SEBI

3.1 SEBI last week in its draft consultation paper has proposed five key changes in the Mutual Fund scheme guidelines. Key highlights and impact are summarised below.

1. AMCs can launch a second scheme within an existing category if the flagship scheme is over 5 years old and where the AUM exceeds ₹50,000 crore
   • The new scheme must have similar investment objectives, strategy, and asset allocation
   • The existing scheme will be closed to new subscriptions (only redemptions allowed)
   • Only two schemes per category will be allowed simultaneously
   • Separate fund manager for the new scheme is required
   • The Total Expense Ratio (TER) of the new scheme is capped at the last disclosed TER of the existing scheme
   • Nomenclature must remain consistent, e.g., “Large Cap Fund (Series 1)” and “Large Cap Fund (Series 2)”

Impact

• New schemes offer nimbleness and agility in stock selection due to smaller corpus
• May allow better capacity management and performance continuity
• Existing schemes will see only outflows, potentially creating liquidity management issues
• Fund managers will need to generate liquidity from the existing portfolio to manage redemption.
• Possibility of regulatory arbitrage by larger AMCs
• Risk of investor confusion or perception of favouritism to new scheme investors

 

2. Proposal to introduce portfolio overlap limits to prevent identical holdings across schemes:
   • Maximum 50% overlap allowed between two schemes in value funds, Contra funds and sectoral and thematic equity funds.
   • Overlap to be checked at New Fund Offer (NFO) deployment on a semi-annual basis using month-end portfolios

Impact

• Enhances true-to-label scheme integrity and product differentiation
• May force repositioning or rationalisation of overlapping schemes
• Implementation may be complex for large fund houses with similar styles

 

3. Proposed that all Fund names must directly reflect their scheme category
   • g., “Large Cap Fund” must be renamed “Large Cap Scheme”
   • “Low Duration Fund” to be renamed “Ultra Short to Short Term Fund”
   • Can include intended investment horizon in names (e.g., “Medium Term Fund (3 to 4 years)”)

Impact:

• • Improves transparency and investor understanding
  • May require extensive rebranding and client communication
  • Could lead to disruption in fund marketing material and distribution platforms

 

4. Proposed to introduce Mandatory lock-in for solution-oriented schemes (e.g., retirement, children’s funds)

• • Applies only to new investments; existing investors exempt

Impact

• • Enhances product discipline and aligns with long-term investor goals
  • Operational complexity in managing dual cohorts (locked-in vs. non-locked-in units)

 

5. Proposal to allow merger of schemes.
   • If original scheme’s AUM falls below viability threshold, AMC has the option to merge schemes
   • Cap of two schemes per category is to be maintained at all times

Impact

• Ensures portfolio efficiency and cost rationalisation
• Lack of clarity on what constitutes “significant AUM decline” could result in interpretation issues

 

3.2 SEBI has proposed in its draft consultation paper last week

• a shift in how gold and silver ETFs are valued, moving from the current system based on international LBMA prices to domestic spot prices published by Indian commodity exchanges like MCX.
• This aims to standardize valuation, reduce discretion and variability among AMCs, and better reflect local market conditions.

# 4 Economy

4.1 GST – Unintended fall outs

• As per business journals, State GST departments across at least 6–7 states (including Karnataka, Gujarat, Tamil Nadu, and Andhra Pradesh) have initiated a coordinated compliance drive, issuing notices to ~60,000 unregistered businesses operating above GST turnover thresholds.

• The businesses under scrutiny are primarily B2C in nature, such as Ice cream parlours, salons, small eateries etc., often informal setup with limited back office.
• Many businesses had annual digital receipts exceeding ₹40 lakh for goods and ₹20 lakh for services, triggering mandatory GST registration thresholds.

Impact

• The enforcement represents a significant push toward formalisation, particularly in cash-light, small-scale B2C sectors that historically remained outside the tax net despite substantial scale.
• Thousands of small and micro-enterprises face the prospect of retrospective tax liabilities. For many, sudden compliance costs, penalties, and regulatory action may lead to business closure or operational distress.

Solutions:

1. Launch a time-bound amnesty or regularisation scheme for unregistered MSMEs to register without facing full retrospective penalties, encouraging voluntary compliance.
2. Provide one-time waiver or reduced penalties for first-time defaulters, especially those with no fraud intent.
3. Initiate sector-specific GST literacy campaigns for informal B2C sectors (e.g., salons, eateries, repair shops).
4. Consider staggered enforcement based on digital footprint size (e.g., >₹1 Cr UPI receipts first, then ₹50–75 lakh), allowing administrative bandwidth to be used effectively while minimising panic.
5. Revisit GST threshold norms for service sector (₹20 lakh currently) which may be disproportionately low in digital-heavy economies.

This highlights the critical balancing act between fiscal enforcement and business enablement. While tax compliance is essential for revenue integrity and formalisation, administrative overreach without adequate support risks eroding trust and damaging fragile informal livelihoods. A calibrated, data-informed, and empathetic compliance strategy is essential to drive lasting inclusion into the GST regime.

4.2 As per Periodic Labour Survey report released last Tuesday,

• The unemployment rate among youth (15–29 years) rose for the second consecutive month to 15.3% in June, up from 15.0% in May, with urban areas showing a sharper increase (18.8%, up from 17.9%), signalling continued stress in formal and semi-formal job markets.

• Labour Force Participation Rate (LFPR) for youth fell to 41.0% from 42.1%, driven primarily by a rural drop (41.1% vs 42.7%), suggesting discouraged job-seeking or seasonal withdrawal. Urban LFPR remained flat at 40.8%.
• While urban unemployment across all age groups rose to 7.1%, rural unemployment improved to 4.9%. This divergence is attributed to a rise in own-account workers (likely informal/self-employment) in rural areas, alongside a fall in recorded job-seeking activity.

The data highlights continued weakness in demand-side formal employment, especially in urban centres, and growing reliance on informal/self-employment in rural areas. The falling LFPR may mask the true extent of labour market stress, pointing to a need for targeted employment generation in urban youth and formal segments.

4.3 As per data released last week,

• For Q1 FY26, total exports (goods & services) rose ~6% YoY to $210 bn, aided by a services surplus of ~$15.6 bn in June
• June exports were $35.1 bn (flat YoY, lower MoM due to cheaper oil) while imports slid to $53.9 bn (down 11% YoY).
• Merchandise trade deficit in June accordingly fell to $18.7 billion, beating expectations (~$22 bn), as imports dropped sharply even though exports hit a 7-month low.
• During April-June this fiscal,
  • electronics exports rose by 47 per cent to USD 12.41 billion in last fiscal
  • exports of Ready-Made Garments rose to USD 4.19 billion as against USD 3.85 billion
  • Similarly, marine exports grew by 19.45 per cent to USD 1.95 billion
• It would be noteworthy to highlight CRISIL report last week – which expects
  • India’s goods exports to face pressure in FY26 due to reciprocal US tariff hikes effective August, amid ongoing trade negotiations.
  • Slowing global growth (2.9% in 2025 vs 3.3% in 2024) and US GDP deceleration (1.7% vs 2.8%) add to headwinds.
  • Merchandise trade volumes are set to contract (-0.2%), but India’s CAD remains comfortable at 1.3% of GDP, supported by services surplus and resilient remittances.

While the lower deficit due to cheaper oil and sluggish gold imports offers macro relief, it signals tepid demand and lingering export sluggishness. Bottom of Form

4.4 India Inflation Snapshot – June 2025

• Headline CPI fell sharply to 2.1% in June, down from 2.82% in May — lowest in over six years and nearing RBI’s lower tolerance band of 2%.
• This marks the eighth consecutive monthly decline, the longest streak in a decade, and the fifth straight month of sub-4% inflation.
• The fall was driven by food deflation (-1.1%), the first since Jan 2019, especially in vegetables (-19%), pulses (-11.8%), and meat/fish (-1.6%). Cereal inflation eased to a 41-month low of 3.7%.
• Core inflation rose to 4.4%, highest since Sep 2023, attributed to price increases in jewellery, signalling demand-side resilience.

• WPI slipped into deflation at -0.13% in June, vs 0.39% in May — lowest in 21 months and the first negative print since Oct 2023- driven by broad-based softness in food, fuel, and manufacturing:

The sustained disinflation across CPI and WPI strengthens the case for further RBI rate cuts to revive demand and support growth.

 

4.5 PM Dhan-Dhaanya Krishi Yojana – A Step Forward, But Still Statist

The Union Cabinet last week has approved the Prime Minister Dhan-Dhaanya Krishi Yojana (PM-DDKY), a new six-year initiative (FY26–FY31) targeting agricultural revitalization across 100 underperforming districts. The scheme intends to improve crop yields, promote diversification towards higher-value crops, enhance irrigation and logistics, and expand access to formal credit.

• Focused on 100 lagging districts, identified by low cropping intensity, poor credit access, and below-par productivity.
• Consolidates 36 existing central schemes under one umbrella to streamline administration and reduce redundancy.
• Targets a mix of input enhancement, irrigation expansion, logistics improvement, and institutional credit outreach.

Impact:

• As India engages with the US and others on agricultural market access, improving domestic productivity and quality becomes critical for competitiveness.
• While the announcement shows renewed political will, its ability to deliver structural transformation—beyond input substitution and credit disbursal—remains uncertain.
• The rollback of farm bills revealed deep-rooted mistrust toward reforms perceived as pro-corporate. This continues to shape the Centre’s reluctance to pursue liberalisation.

The PM-DDKY is a welcome, targeted attempt to reboot the farm agenda—but it reflects a reform-lite, state-driven approach, prioritising administrative consolidation over market-driven transformation. Without deeper structural corrections—especially around pricing, markets, and aggregation—the scheme may improve inputs but fall short on outcomes.

# 5 PE/VC

5.1 SEBI, last week has launched the VCF Settlement Scheme 2025 (July 21, 2024–January 19, 2026)

• to enable Venture Capital Funds (VCFs) that migrated to the AIF regime but failed to wind up expired schemes to settle violations.
• These VCFs, which continue holding unliquidated assets past their fund tenure, can now regularise their status without enforcement.

SEBI may initiate action against non-compliant entities after the deadline – July 19, 2025.

5.2 As per industry report released at India Insurtech Summit 2025 last week,

• After peaking at $820m in 2021, Insurtech investments moderated to $239m in 2024 amid a shift from “growth at all costs” to sustainable scaling.
• The sector is poised for over $1 billion in fresh funding in the next 12 months.
• Investor appetite is returning to back startups in areas like digital insurance distribution, claims automation, and AI-driven underwriting.
• Report identifies:
  • a drop in insurance penetration (total premiums/GDP fell below 4% in FY24 from ~4.2% earlier, with life insurance particularly slipping) indicating a large protection gap in the market – but also a huge opportunity.
  • Regulatory initiatives (e.g. a National Health Claims exchange and the upcoming Bima Sugam digital platform) and the new Data Protection Act are expected to improve infrastructure and trust, making it easier for Insurtech players to innovate.