Week ending 26th July 2025

# 1 Markets

Equity indices fell for the fourth consecutive week, marking a 1-month low for the Nifty amid weak Q1 earnings, continued FPI selling, and muted global sentiment. The Nifty on weekly basis closed 0.5% lower at 24,837.00, while the Sensex fell 0.4% to 81,463.09. FPIs sold ₹22,288 crore in July, while DIIs absorbed ₹2,138.6 crore. With no breakthrough in US-India trade talks and absence of near-term catalysts, markets are expected to remain range-bound.

The yield on the Indian 10-year G-Sec held at the 6.3% threshold, not far from the lowest level since 2021 amid the dovish outlook for the RBI and lower credit risk from India’s prudent fiscal policy. 10Y yield closed at 6.35% on Friday.

U.S. equities closed higher for the week, with the S&P 500 and Nasdaq hitting record highs for the second consecutive week. The Dow rose 1.26%, while mid- and small-cap indices gained ~0.9%. Value stocks modestly outperformed growth. Sentiment was supported by positive trade headlines, as the U.S. announced agreements with Japan, Indonesia, and the Philippines, and signalled progress with the EU ahead of the August 1 tariff deadline.

Macro data remained strong – July’s flash U.S. Composite PMI rose to a 7-month high of 54.6, led by services. Bond yields softened, with the 10-year yield ending at 4.38%.

# 2 RBI

2.1 Key takeaways from RBI Draft digital banking guidelines

1. Banks cannot compel customers to opt for digital banking channels (such as mobile or internet banking) to avail of other services like debit cards. Access to facilities must be decoupled from digital onboarding.
2. Banks must obtain explicit, documented consent before offering digital services. Clear terms and conditions (in English, Hindi, and local language), charges, grievance processes, and risks must be disclosed, with mandatory alerts (SMS/email) for all transactions.
3. Compliance with RBI’s fraud liability guidelines is mandatory to limit customer losses from unauthorised transactions.
4. Banks must seek prior RBI approval before launching any new transactional digital banking service. Eligibility requires full Core Banking Solution implementation, IPv6-enabled public-facing IT, and minimum net worth of ₹50 crore.
5. Banks are barred from displaying or promoting third-party or group entity products on digital platforms unless specifically permitted by the RBI – aimed at preventing misuse of digital banking reach for affiliated product sales.
6. Banks must establish board-approved policies for digital channels, covering IT infra, compliance, liquidity, risk management, and operational capability. RBI also requires a five-year cost-benefit and resourcing plan for proposed digital rollouts.

RBI’s draft decisively protects consumer choice by preventing forced digital adoption and mandating explicit consent. It also strengthens fraud safeguards through risk-based monitoring and limits banks’ ability to cross-sell group products on digital platforms. The directive signals a shift toward customer-centric digital banking with heightened regulatory oversight.

2.2 Key takeaways from the RBI Bulletin (State of Economy) July 2025,

• External Commercial Borrowings (ECB) slowed to US5.7billion in April−May2025 down from US3 billion in April-May 2024.
• India’s current account recorded a surplus of US13.5 billion (1.34.6 billion (0.5%) in Q4:2023-24, driven by higher net services exports and remittances.
• As of 31 March, India’s external debt was $736.3 billion, representing a 10% year-over-year increase. External debt-to-GDP ratio has increased to 19.1% from 18.5% at the end of March 2024.
• Corporate bond issuances remained high at ₹1.87 lakh crore up to May 2025, nearly twice the amount raised in the same period last year, with yields rising but risk premiums showing mixed trends.
• Liquidity in the banking system remained in surplus, which would facilitate faster transmission of the policy rate cuts to the credit markets.
• High-frequency indicators for June indicate modest overall industrial activity; steel and capital goods showed strong growth, but automobile production moderated, and electricity generation remained subdued.
• Construction activity remains robust with steel consumption and cement production still high, supporting ongoing infrastructure activity.

Overall, despite global uncertainties and geopolitical tensions impacting markets, India’s economy shows resilience through steady external balances, controlled inflation, strong infrastructure activities, and high corporate bond issuance. Inflation remains subdued, and external flows are positive, supporting macroeconomic stability.

2.3 RBI in its report released last Tuesday highlighted:

• Financial Inclusion Index (FI-Index) rose to 67 in March 2025, up from 64.2 in 2024, marking a 4.3% annual improvement.
• Growth was seen across all three dimensions: access, usage, and quality.
• Progress was primarily driven by improvements in usage and service quality, reflecting deeper financial engagement and literacy.

Despite structural outreach (e.g., Jan Dhan, banking correspondents), access to formal credit remains inequitable—many poor still rely on informal lenders. The gap persists where the affluent access cheap credit, while creditworthy but underserved individuals face high interest costs—highlighting the need for faster, more inclusive financial integration.

2.4 As per report released by RBI last week

• Loan growth slowed to 9.4% as of June 27, the lowest since March 2022, down from peak of 2.74% MoM in Dec 2023.
• Deposit growth now exceeds loans at 10%, reversing the earlier trend where deposits lagged.
• Despite a 100-bps policy rate cut and CRR reduction, credit demand remains subdued, with only partial transmission—loan rates down ~25 bps, deposit rates cut 30–70 bps since Feb 2025

Structural reforms are needed to revive credit cycle—specifically lower tariffs on intermediate goods, more trade agreements, and greater FDI openness to position India as a mid-tech export hub.

2.5 Key highlights from CareEdge report on affordable Housing Finance Companies (HFCs):

• Gross NPA to rise to 1.6% in FY26 (vs 1.4% in FY25)
• Credit cost to increase to 0.4% (vs 0.3%) due to higher delinquencies, especially from self-employed borrowers
• AUM growth to moderate to 23% in FY26 (vs 25%)
• Rising delinquencies attributed to loan book seasoning and borrower profile; policy support may cushion impact
• Prime HFCs:

• Gross NPA to decline to 1.6% in FY26 (vs 1.7%)
• Credit cost to remain stable at 0.3%
• AUM growth to accelerate to 12.1% (vs 10.6%)
• NPA largely linked to wholesale builder/commercial loans, not retail housing portfolio

Affordable HFCs face rising stress as loan book seasoning exposes higher delinquencies and credit costs, especially from self-employed borrowers, despite strong AUM growth. In contrast, prime HFCs show improving asset quality and accelerating growth, highlighting the need for stricter risk filters and calibrated expansion in the affordable segment.

# 3 SEBI

3.1 SEBI on July 25, 2025, issued a consultation paper proposing regulatory easing for issuers of non-convertible securities:

• Issuers may replace physical dispatch of financials and annual reports to security holders with a letter containing a web link and a Quick Response (QR) code providing direct access to the documents.

• SEBI proposed introducing clear timelines for sending financials to debenture holders, especially for issuers not governed by the Companies Act, 2013.
  ▸ For companies governed by the Companies Act: timelines under the Act will apply.
  ▸ For entities governed by other statutes: relevant provisions of their parent Act will apply.
  ▸ In the absence of such provisions: a default timeline of 21 days (as per Companies Act) is proposed.

The proposals are aimed at reducing compliance cots, avoid paper wastage and improve ease of doing business. QR code would provide ease of access for debenture holders and clarity for unlisted issuers not covered by Companies Act.

3.2 SEBI has mandated annual board performance evaluations to strengthen governance and board effectiveness. Some suggestions

1. Digital tools enable more frequent, focused evaluations — moving beyond the once-in-three-years norm.
2. Traditional reviews are marred by bias and hierarchy. Digital platforms align feedback with defined KPIs (strategy, risk, succession, etc.), enabling longitudinal tracking and benchmarking.
3. Boards differ widely in structure, stage, and strategic context. Modern platforms allow deep customisation — tailoring questions to company lifecycle, industry, board composition, and upcoming challenges. 360° feedback from senior executives and auditors adds granularity and highlights blind spots.
4. Artificial intelligence can analyse minutes, flag governance gaps, and benchmark director contributions.

India Inc’s boards face growing scrutiny. Digital and data-driven evaluations — when designed meaningfully — can become strategic levers for performance, not just compliance. However, most Indian boards treat evaluations as a compliance formality — delayed, rushed, or perfunctory. Traditional methods (paper surveys, interviews) are subjective, time-intensive, and rarely yield actionable insights.

3.3 Insurance regulator IRDAI in its draft consultation paper released last Wednesday

• Proposed a framework that mandates an internal insurance ombudsman schemefor insurance companies with an aim to address complaints against claims up to Rs 50 lakh.
• proposed setting up of an independent and impartial review mechanism for all insurance companies.
• The internal ombudsman would have an independent oversight reporting directly to the board or committee and will have the power of deciding in complaints where the amount does not cross Rs 50 lakh.

By institutionalising this internal but independent mechanism, it is expected that the quality of grievance handling and overall consumer confidence in the insurance sector stands enhanced.

# 4 Economy

4.1 India and the UK signed a Comprehensive Economic and Trade Agreement (CETA) with the aim of doubling imports and exports to more than $100 billion by 2030 from $56 billion. Highlights from the 16^th trade pact:

Key positives

• India will receive tariff‑free entry for approximately 99% of its exports to the UK, covering virtually its entire export value—estimated at ~$12.9 billion in FY 2024.

• Expected bilateral trade to double to >$100 billion by 2030, adding ~$34 billion annually. Sectors like textiles, chemicals, pharmaceuticals, gems, and marine products poised for export surges of 20–60%
• Tariff savings of 4–16% for MSMEs—especially textiles, leather, and handicrafts—enhance global competitiveness.
• Duty‑free access across ~95% of agricultural tariff lines, benefiting exports of spices (turmeric, pepper), seafood, mango pulp, jackfruit, millets, and pulses
• Easier visa access for business‑related professionals—yoga instructors, chefs, artists—with temporary UK entry and exemption from host national insurance for up to three years
• Expected to attract up to £6 billion in bilateral investments/export wins - Long‑term GDP boost of ~0.06% (≈ £5.1 billion annually) for India

Risks / Concerns

• Reduced import tariffs on UK goods—from 15% to 3%—may put pressure on domestic industries, especially in autos, consumer goods, and financial services

• Luxury automobile duties fall to 10% only gradually, with quotas limiting volume. EV liberalisation is deferred till 2036, delaying full market opening.
• The agreement does not include binding commitments on labour protection, environmental standards, or public health, raising concerns among civil society and policymakers

·         Many small exporters lack awareness of rule of origin and certification requirements like TBT and sustainability standards. This could limit benefits and create compliance costs.

Overall, the India–UK FTA represents a major opportunity for Indian exporters and MSMEs, potentially doubling trade and boosting GDP. Nonetheless, it comes with certain constraints and vulnerabilities, particularly for domestic sectors, compliance-challenged MSMEs, and unresolved investment and environmental policy concerns.

4.2 As per data released last week

• Core sector output rose 1.7% YoY in June 2025 (vs. 1.2% in May, 5.0% in June 2024), marking a three-month high.
  • Growth was led by steel (+9.3%), cement (+9.2%), and refinery products (+3.4%), aided by a favourable base and infra demand.
  • Remaining five sectors—coal (-6.8%), electricity (-2.8%), natural gas (-2.8%), crude oil (-1.2%), and fertilizers (-1.2%)—contracted YoY.

Core output may improve marginally to ~2% YoY in July, supported by steel/cement momentum and power output recovery.  Despite this, weak momentum across coal, electricity, and gas may constrain overall industrial output, keeping IIP growth subdued around 1.5%.

4.3 As per S&P release last week,

• The HSBC Flash India Composite Output Index (weighted average of comparable manufacturing and services indices) was at 60.7 in July, slightly lower than 61 in June.
• Manufacturing PMI climbed to 59.2, its highest level in around 17 years, indicative of a robust improvement in the health of the manufacturing industry.
• The manufacturing PMI output index stood at 62.5 in July, compared to 62.1 in June.
  • Overall, sales expanded at their quickest pace in a year.
  • International orders surged to their strongest level since the series began, driven by demand from across the world, including Asia, Europe and US.

India’s private sector activity remained strong in July, well above long term average of 54.8 with the manufacturing sector recording its highest level in 17 years, growing faster than services.

4.4 Key findings from the World Bank report released last week:

• $2.4 trillion needed by 2050 to support 951 million urban population; total requirement to rise to $10.9 trillion by 2070 for 1.1 billion urban dwellers.
• >50% of 2050 urban infrastructure is yet to be built, offering a time-bound opportunity to embed resilience.
• 144 million new urban homes required by 2070—2x the current housing stock.
• Urban capital expenditure is insufficient; own-source revenues stagnant at ~1% of GDP (2011–2018).

India faces a dual imperative: massive urban infrastructure creation and sustaining macroeconomic stability amid global volatility. Report underlines the need for private sector participation, policy clarity, and strategic capital deployment to support India’s long-term urbanisation and growth trajectory.

4.5 Morgan Stanley in its report last week

• projects India’s GDP will double to $10.6 trillion by 2035, becoming the world’s third-largest economy by 2028.
• Maharashtra, Tamil Nadu, Gujarat, Uttar Pradesh, and Karnataka are each on track to reach $1T individually.
• Highlights decentralized growth via state reforms, manufacturing, and infrastructure spending.
• India may contribute 20% of global growth in coming years.
• Capital expenditure by the central government has risen to 3.2% of GDP from 1.6% a decade ago, seen as key to sustaining momentum.

# 5 PE/VC

5.1 As per KPMG’s Venture Pulse report

• VC funding in India rose to $3.5B across 355 deals in Q2 2025, up from $2.8B in Q1—bucking global declines.
• While U.S. and European dealmaking slowed, India saw major rounds in Health tech ($218M) and logistics (Porter’s $200M). Fintech remained a top draw.
• Investors are reallocating capital toward AI, Defence tech, and financial services, even as overall risk appetite tightens.

PE/VC professionals note early-stage funding has cooled since 2021, but growth-stage investments in strong category leaders continue. India’s long-term digital momentum is keeping capital flowing into transformative sectors.

5.2 Key takeaways from McKinsey report on future of AI in Insurance space

1. Artificial intelligence has moved from pilots to deep workflow transformation—powering quote generation, risk assessment, and policy creation. Early adopters are seeing up to 6x higher shareholder returns, while past failures stemmed from tool silos and poor adoption.
2. Segment enablers

• Life: AI enables modular product design, faster underwriting (50–70% TAT cut).
• Health: AI drives personalisation, fraud detection, and lowers onboarding costs (20–40%).
• Motor/P&C: Most mature; automated claims saved £60M for Aviva.
• Commercial P&C: AI boosts broker speed, uses satellite/drone data; quote times halved in some markets.

3. When embedded end-to-end, AI delivers:

• Sales: +10–20% agent conversion
• Claims: +3–5% accuracy, –65% complaints
• Underwriting: –30–50% turnaround
• Servicing: +11% digital engagement

4. Agentic workflows use autonomous software agents for routine tasks. Success demands a 4-layer AI stack: Engagement (chat, voice), Decision (pricing, claims), Infrastructure (APIs, deployment), Data (AI-ready pipelines).
5. Build Where It Matters

• Build in-house: Claims, underwriting (core IP).
• Buy off-the-shelf: HR, admin (standardised).
• Hybrid: Sales tools (context-specific tuning).

Artificial intelligence is transforming insurance from isolated pilots to core workflow automation, delivering measurable gains in underwriting, claims, and customer engagement. Competitive advantage will hinge on end-to-end adoption, internal ownership of AI agents, and enterprise-wide stack readiness.