# 1 Markets
The BSE Sensex closed 0.2% higher at 83,432.9 on Friday, snapping a two-day decline in a volatile session. Investor sentiment remained cautious ahead of the July 9 US tariff deadline and a potential US-India trade deal. SEBI’s interim ban on U.S. quant firm Jane Street for alleged market manipulation also weighed on markets. Meanwhile, BlackRock estimates India’s equity risk premium (ERP) at ~4.9%, near its long-term average, suggesting current valuations may be justified despite elevated earnings multiples. Silver lining is USD weakening prompting for higher flows to emerging economies including India.
Bond markets hold steady within a narrow range with 10Y yield marginally softening to 6.29% on Friday
Private payrolls unexpectedly fell by 33,000 in June—the first decline in over two years—driven by a drop in services jobs, according to ADP. In contrast, official data showed nonfarm payrolls rising by 147,000, beating expectations, with unemployment dipping to 4.1%. The surprise strength in headline hiring has jolted bond markets—2Y yields spiked 12 bps to 3.9%, and 10Y hit 4.32%—effectively ruling out a July rate cut. Equity markets welcomed this with all the three broad indices – Dow Jones, S&P and Nasdaq recording growth of 1.5% – 2%.
# 2 RBI
2.1 Key takeaways from RBI Financial Stability Report 2025 released last week:
2.1.1 Credit Growth:
- Overall credit growth weakened across most sectors in H2 2024-25, except for services and ‘others’
- NBFCs’ credit growth rose to 20.7% year-on-year in March 2025 from 16.0% in September 2024, driven by NBFC-Upper Layer, influenced by mergers and conversions
- MSME credit grew fastest among all sectors in FY25 at 14.1% YoY, ahead of retail (11.7%) and services (11.2%), despite overall deceleration in bank credit.
- MSME credit share hit an all-time high of 17.7% of total non-food credit, totalling ₹14.3 lakh crore as of May 2025.
- Micro enterprises formed 49% of MSME credit alongside stronger asset quality.
- Subprime borrower share dropped sharply from 33.5% (Jun ’22) to 23.3% (Mar ’25).
- Gross NPA ratio for MSME loans improved from 4.5% (Mar ’24) to 3.6% (Mar ’25).
2.1.2 Corporate Funding
- Capital market mobilisation surged 32.9% YoY, reaching ₹15.7 lakh crore in FY25 vs ₹11.8 lakh crore in FY24 – comprising 63.5% debt, 27.4% equity, 6.9% bank lending.
- Privately placed debt accounted for 99.2% of total mobilisation.
- Outstanding rose to ₹53.6 lakh crore by Mar 2025.
- FY25 saw record fresh issuance of ₹9.9 lakh crore.
- AAA-rated issuers led with 67.1% share, while sub-AA issuers formed 16%.
2.1.3 Banking Sector Resilience
- Gross NPA (GNPA) ratio projected to rise marginally from 2.3% (Mar’25) to 2.5% (Mar’27) under baseline stress.
- Could rise to 5.6% under severe stress scenario 1, and 5.3% under scenario 2.
- Capital adequacy (CRAR) to remain well above minimum 9% threshold:
- 17.2% → 17.0% (baseline), 14.2% (severe 1), 14.6% (severe 2).
- Default by top 3 individual borrowers → CRAR down by 90 bps
- Default by top 3 groups → CRAR drops 130 bps, 4 banks see >2% drop.
- Common Equity Tier-1 (CET1) ratio to improve under baseline from 14.6% → 15.2%; falls to 12.5% (severe 1) and 12.9% (severe 2) — still above 5.5% minimum.
2.1.4 Household Credit
- Per capita retail debt up from ₹3.9L (Mar’23) to ₹4.8L (Mar’25) — led by prime-rated borrowers.
- Non-housing retail loans: 54.9% of household debt, 25.7% of disposable income (Mar’24).
- Housing loans: 29% of household debt — growth steady, but largely from existing borrowers, not new.
- >50% of loans to prime and above-rated borrowers.
- Rising share of accounts with loan-to-value >70% — an emerging risk.
2.1.5 Retail Credit
- GNPA for unsecured retail loans at 1.8% (Mar’25) across system.
- Private banks: Highest share in GNPAs (52.6%), followed by PSBs at 40.5%.
- Private banks contributed to ~80% of fresh retail slippages (Sep’24–Mar’25).
2.1.6 Small Ticket Personal Loans
- Fintech NBFCs hold 51.5% of personal loans <₹50,000, followed by:
- NBFCs/HFCs: 32.8%; Private banks: 7.7%
- Borrower behaviour (loans <₹50,000):
- 68.3% had ≥3 live loans; 10% had at least one overdue personal loan
In nutshell, no systemic risk flagged — supported by strong corporate and bank balance sheets, multi-decade low NPA ratios, adequate capital buffers, resilience of mutual funds and clearing corporations. Structural shift by corporates from traditional bank credit to market-based funding, especially corporate bonds and equity is a welcome change. The key monitorable are rising exposure to sub-prime and unsecured borrowers, high reliance on existing borrower base for credit growth, growing share of high LTV retail loans, fintech-led expansion in small-ticket personal lending, with signs of stress.
Comment:
The report, while data-rich and polished, remains cautiously optimistic — designed more to reassure in sanitised tone than to reveal some key challenges like –
- Funding costs for banks are rising, but yields remain flat — suggesting weakening credit pricing power.
- Higher Return on Equity [RoEs] at Public sector banks are offset by low market valuations, implying limited investor confidence.
- A large share of equity mobilisation is used for buybacks or promoter exits — not fresh capital. Shares sold by promoters increased 6.69 times on a quarterly basis and 1.54 times from last year to ₹2.61 trillion, according to PRIME Database.
- Gains in PSBs are driven by treasury income, not core operations.
A bolder focus on emerging risks and structural vulnerabilities would make the report more than a ritualistic exercise.
2.2 Key takeaways from BIS Annual Report 2024 (“The Great Financial Transformation”)
- Two seismic shifts since 2008:
- Credit flows now dominated by government bond markets rather than private lending.
- Non-bank financial institutions (NBFIs) — pension funds, insurers, asset managers — now outsize banks in global assets and drive cross-border capital flows.
- FX swaps (~$111T outstanding) underpin this system, enabling hedged global investing, with the US dollar central to 90% of contracts.
- Financial markets now globally interconnected:
- Capital reacts instantly across geographies.
- Financial stocks and risk sentiment transmit systemically.
- Domestic monetary policy still matters, but spillovers from global factors have intensified, especially on risk assets.
The global financial system has undergone a structural shift from a bank-led, domestically anchored model to a highly interconnected, investor-driven ecosystem, where non-bank financial institutions and FX swap markets dominate cross-border capital flows. This transformation has made financial conditions more globally synchronized, heightened sensitivity to risk sentiment, and complicated the effectiveness of domestic monetary policy — requiring central banks to operate with greater awareness of global dynamics while still retaining influence over their own yield curves.
2.3 As per data on loan spreads in banks, published by RBI last week,
- Average fresh loan spread rose 17 bps MoM to 3.09%, reflecting banks’ margin protection strategy.
- Spread for private sector banks rose 34 bps to 3.86%, while PSBs increased by 6 bps to 1.79%.
- As of March 2025, 61.6% of floating-rate rupee loans are EBLR-linked; 34.9% are MCLR-based.
- System-wide NIMs fell to 3.5% in March 2025; private banks at 4.1%, PSBs at 3.0%.
On the whole, it appears that margin compression likely to be contained, as deposit rates have declined faster than lending rates, cushioning impact of rate cuts.
2.4 RBI on Wednesday directed all categories of banks and other lenders (NBFCs) not to levy any prepayment charges w.e.f. Jan.1, 2026. Details summarised below:
- All loans granted for non-business purposes to individuals, and loans for business purposes to individuals and Micro and Small Enterprises (MSEs) with sanctioned limits up to ₹50 lakh, shall not have pre-payment charges.
- Lenders must clearly disclose pre-payment charges, or the absence of such charges, in the sanction letter and loan agreement, including the Key Facts Statement for loans, as per circulars.
- No lender shall levy charges retroactively if they were waived earlier or not disclosed properly.
- Small borrowers, especially MSEs, will have the flexibility to prepay without penalties, making it easier to switch lenders or pay off loans early without extra cost.
The RBI aims to eliminate unfair pre-payment charges for small and medium-sized business loans, promote transparency, and ensure borrowers are not penalized when paying off loans early.
2.5 RBI Study on Certificate of Deposit [CD] Issuances – Interesting insights
- CASA deposit growth has slowed as savers shift to higher-yielding assets; credit demand continues rising, forcing banks to tap CDs.
- Issuances hit all-time highs of ₹3.7 lakh crore in Q4 FY25, with ₹1.17 lakh crore in March 2025 alone — a 300x increase from pandemic lows.
- Public sector banks now dominate issuance (69% vs. 6% in early 2022).
- Mutual funds dominate CD investment (85% share), linking CD demand to capital market flows.
Important findings:
- Higher credit growth + tight liquidity led to more CD issuances.
- Greater market volatility led to fewer CD issuances (due to lower credit demand and investor flight to safety).
- Long-dated CDs in rising rate regimes; short-dated when cuts are expected.
CDs have emerged as a key liquidity barometer for India’s banking system. Their rising issuance signals a growing mismatch between credit demand and deposit mobilisation, compounded by tighter system liquidity and shifting investor behaviour.
# 3 SEBI
3.1 SEBI last Tuesday released draft guidelines for conversion from Private to Public InvIT
- Proposes removing current lock-in requirements for sponsors and non-sponsor unitholders during conversion of private listed InvITs to public InvITs.
- Since Aug 2023, sponsors must maintain a perpetual minimum unitholding post-listing. Hence, earlier 15% holding with 18-month lock-in is now redundant.
- SEBI suggests using follow-on public offer (FPO) rules instead of IPO norms for such conversions to streamline the process.
SEBI aims to facilitate smoother conversion of private InvITs to public by removing outdated lock-in norms and aligning disclosure requirements with follow-on offers. This move enhances liquidity, reduces compliance friction, and encourages broader institutional and public participation in InvITs.
3.2 SEBI has made it mandatory to issue a common contract note (CCN) with a single volume weighted average price (VWAP), starting June 27.
- The move is aimed at increasing cost efficient and reducing compliance burden for market participants.
- It would also ensure consistent trade reporting aligned with the clearing corporation interoperability framework
3.3 SEBI has released a draft circular proposing uniform, tech-driven capacity and performance norms for commodity derivative exchanges and clearing corporations—aligning them with equity market standards. Key proposals:
- Exchanges must maintain 2x installed capacity of projected peak load based on past 6 months’ data.
- Equity market IT guidelines (as of Dec 10, 2024) to be extended to commodity exchanges.
- Real-time automated monitoring of critical IT infrastructure made mandatory.
- Utilisation beyond 75% will require immediate corrective action and SOP-based resolution.
SEBI is set to overhaul tech norms for commodity exchanges by mandating uniform capacity planning and real-time IT monitoring, aligning them with equity markets. This move aims to strengthen market resilience and operational stability across asset classes.
# 4 Economy
4.1 India Services and Manufacturing PMI – June 2025
Services Sector:
- Services PMI rose to 60.4 in June, a 10-month high, up from 58.8 in May.
- Growth was driven by strong domestic demand, sharp rise in new orders, and improved international sales, especially from Asia, Middle East, and the US.
- Input and output inflation softened, improving margins.
- Employment rose for the 37th straight month.
- Average Q1FY26 services PMI at 59.3, below 60.5 in Q1FY25.
Manufacturing Sector:
- Manufacturing PMI climbed to 58.4 in June, a 14-month high, from 57.6 in May.
- Driven by robust domestic and export demand, especially from the US.
- Export orders growth was the third highest since 2005.
- Hiring surged, marking the fastest pace since survey inception.
- Input cost inflation eased to a 4-month low, while output prices continued to rise, though at a moderated pace.
India’s economy entered FY26 on strong footing, with both services and manufacturing sectors reporting multi-month highs in activity for June, led by robust domestic demand and surging exports. Margin pressures eased and hiring accelerated, but external risks like tariff uncertainty and softening global demand could temper momentum ahead.
4.2 India IIP data released last week– Key Takeaways
- IIP growth slowed to 1.2% in May 2025 – lowest in 9 months; down from 2.6% in April and 6.2% in May 2024.
- Manufacturing (+2.6%) was the only growing sector; Mining (-0.1%) and Electricity (-5.8%) contracted.
- Capital goods remained strong, up 14.1% YoY – highest in 19 months.
- Primary goods (-1.9%), consumer durables (-0.7%), and non-durables (-2.4%) contracted – indicating weak consumer demand.
- Electricity output saw sharpest fall in over a year, signals underlying weakness.
- Only 13 of 23 manufacturing sub-sectors grew; industrial growth remains uneven and fragile.
- Industrial GVA growth slowed to 6.1% in FY25 (vs. 11.4% in FY24); Q1 FY26 outlook weak.
India’s industrial recovery remains fragile and uneven, with May’s sharp slowdown in IIP growth (1.2%) highlighting persistent weakness in core sectors, subdued consumer demand, and lack of broad-based momentum—raising concerns over the near-term outlook for industrial GVA and overall economic recovery in FY26.Top of Form
4.3 As per World Bank data released on Saturday,
- India’s Gini score fell to 25.5 in FY23 from 28.8 in FY12, placing it in the “moderately low” inequality category (Gini score: 25–30).
- India ranks 4th globally on income equality, ahead of 167 countries, and is just behind Slovak Republic (24.1), Slovenia (24.3), and Belarus (24.4).
- As per the World Bank Spring 2025 Poverty and Equity Brief, 171 million Indians moved out of extreme poverty in the past decade.
- Poverty rate under $2.15/day fell from 16.2% (FY12) to 2.3% (FY23).
- Under the revised $3.00/day threshold, poverty rate in FY23 is 5.3%.
India’s improved Gini Index and steep poverty decline signal real gains in welfare delivery and financial inclusion. However, since the Gini measure is based on consumption, it may understate actual income and wealth inequality. Structural gaps—such as unequal access to quality jobs, education, and healthcare—remain significant. While the progress is commendable, the data warrants cautious interpretation and deeper focus on ensuring long-term inclusive growth.
# 5 PE/VC
5.1 As per Venture Intelligence data released last week:
- Total VC Funding: $4.95 billion across 410 deals in H1 2025
↗️ +9% YoY increase in deal value (vs. $4.54 billion in H1 2024)
↘️ Slight decline in number of deals (418 in H1 2024)
- Growth Stage: $3.7 billion (vs. $3.6 billion in H1 2024)
- Early Stage: $1.1 billion
- Early-stage deal activity remains robust
- Top Sectors by Investment: Ecommerce: ~$1.3 billion; Fintech: ~$1 billion ; Others: Enterprise Software, Deep tech, Health tech
- In the first six months of 2025, India saw five unicorns – Netradyne, Porter, Drools, BlueStone, and Jumbotail—compared to only six in the entire last year.
Venture capital funding in Indian startups showed early signs of a rebound in the first half of 2025. It is clear that funding levels have normalized post-correction, investors are prioritizing profitability and cash flows, especially at the growth stage and focus has shifted to sustainable growth over hyper-scaling.
5.2 VCCEdge Q1CY25 Deal Update – Key Highlights
- Overall deal activity in Q1CY25 showed early signs of recovery. While deal volumes improved marginally, deal value surged 40% YoY and 49% QoQ, reflecting renewed investor interest despite lingering caution.
- Mergers & acquisitions remained strong, with volumes up 35% YoY and value up 31%, indicating robust domestic strategic activity and market confidence.
- Equity capital markets witnessed a pronounced slowdown, with deal volumes falling 47% and value declining 27% YoY due to global macro and regulatory headwinds.
- Segment Trends:
- Angel/Seed – maintained leadership in volume terms but declined 34% in value YoY, indicating moderation in early-stage enthusiasm.
- Private Equity registered the sharpest rebound — volumes doubled, and deal value grew 2.4x YoY, signalling strong interest in mature bets.
- Venture Capital saw healthy traction with volumes up 23% and value rising 29% YoY.
- Public Equity plunged 64% in volume, marking the steepest drop across segments and a clear shift away from public market issuance.
- Exits saw a significant contraction — deal count dropped 88% YoY and deal value touched a five-year low, reflecting a challenging monetisation environment. Even though QoQ volumes rose 14%, value continued to decline sharply.
Q1CY25 highlighted a recovery in private market transactions led by PE and VC, while early-stage and public market activity remained subdued. Exit markets continue to face pronounced stress.