# 1 Market
Benchmarks ended the week of December 5, 2025, on a mixed note, with the Sensex inching up to 85,712 and the Nifty settling at 26,186, even as midcaps weakened following early-week losses. Market sentiment was weighed down by profit-taking despite a robust 8.2% Q2 GDP print, and FIIs remained net sellers through the period. A late-week RBI repo rate cut provided a lift, particularly to rate-sensitive sectors, and is expected to support further gains.
Indian bond yields eased post-RBI’s 25 bps repo rate cut to 5.25% on Dec 5, with the 10-year G-Sec dropping below 6.5% from a four-week high of ~6.57% earlier in the week. Bonds rallied on liquidity boosts like ₹1T OMO purchases, though partial rebound occurred on profit-booking
US equities posted modest gains last week, with the S&P 500 up about 0.3%, the Nasdaq nearly 0.9%, and the Dow around 0.5%, marking a second straight positive week. Major indexes hovered just below record highs as investors weighed steady economic data against expectations for future Fed rate cuts.
US Treasury yields rose sharply last week, with the 10-year note climbing from 4.06% to 4.14%—its worst weekly performance in eight months amid mixed economic data. Investors trimmed Fed rate cut bets ahead of PCE inflation, pushing 30-year yields to 4.79% and signalling bond price declines.
# 2 RBI
2.1 Key highlights from RBI Policy rate announcements on 5th Dec 2025
- Repo Rate reduced by 25 bps to 5.25 per cent, lowest level since July 2022. The MPC also decided to continue with the neutral stance.
- Its fourth this year, taking total reductions to 125 bps—is expected to further boost India’s real estate market, especially the borrowing-sensitive affordable and mid-income housing segments, by reinforcing a supportive financing environment and injecting fresh momentum into residential demand.
- Real GDP growth for 2025-26 is projected at 7.3 % with Q3 at 7.0 %; and Q4 at 6.5%.
- CPI inflation for 2025-26 is now projected at 2.0 per cent.
- RBI not worried about the slight rise in unsecured loan slippages—up 8 bps in Q2—overall retail asset quality remains stable with unsecured loans forming ~25% of retail credit and 7–8% of total system credit.
Other announcements:
- Open market operation (OMO) purchases of ₹1,00,000 crore in government securities and a 3-year USD/INR buy-sell swap of USD 5 billion to inject durable liquidity.
- Liquidity measures – OMO and swap- inject durable liquidity, countering surplus conditions while aligning call rates to repo, yet may widen yield spreads amid FPI outflows.
- Bank credit surged 11.4% y-o-y, fuelling retail and services, but over-reliance on non-bank intermediation (total resources up 22%) heightens systemic risks if NPAs rise.
Regulatory directives to banks/NBFCs
- Big relief to banks reversing last year’s single entity rule – from a “single entity per business” stance to allowing multiple entities in the same line, provided they serve distinct segments (geography, customer, ticket size, etc.) and the board approves the rationale.
- Banks to present a plan by March 2026 to ringfence core business from riskier non-core activities, while allowing multiple lending entities with board approval and implementation by March 2028.
- Restrictions on lending to directors/relatives and against group shares now apply mutatis mutandis to NBFCs in bank groups, with board approval required for large exposures.
- NBFCs of bank groups must comply with the Commercial Banks – Undertaking of Financial Services Directions, 2025 for overlapping businesses, including lending, distribution, broking, PMS, insurance, mutual funds and investment management.
- Definitions of “group entity”, “agency” and “referral” business are tightened.
- Bank-group equity investments in ARCs is capped at <20%,
- Banks investment in Cat III AIF investments is barred
- Stricter limits apply to Banks’ stakes in financial entities and REITs/InvITs.
- Concentration and intra-group exposures and large exposure limits recalibrated based on an expanded Tier I eligible capital definition.
- Banks must provide mobile and internet banking for basic savings accounts and cannot levy cash-deposit charges for these accounts.
Comments
- RBI used India’s “Goldilocks” macro window—strong 8% H1 FY26 growth, soft 2.2% inflation, and tolerance for INR weakness—to cut rates and ease liquidity without jeopardising domestic monetary stability.
- Policy stance signalled confidence and courage, marked by upgraded GDP/CPI forecasts and durable liquidity tools (OMO purchases, 3-yr FX swaps) aimed at protecting credit growth despite currency pressures and limited immediate market reaction.
- Future market direction hinges on external flows and trade dynamics, but the broader message remains – INR’s shift to a new 85–95 range is manageable, India’s domestic resilience is intact, and capital markets can progress even without heavy FPI dependence.
2.2 RBI issues revised guidelines for Non-Operative Financial Holding companies used by banks/SFBs effective December 5, 2025. Key highlights:
- All activities permitted to banks under Section 6(1) (a–o) of the Banking Regulation Act must be carried out within the bank, not through group entities.
- Mandatory subsidiary route for specialised financial services: Activities like mutual funds, insurance, pensions, investment advisory, PMS, and broking must operate only via subsidiaries/JVs/associates, not directly by the bank.
- NOFHC entities do not require RBI approval for activities listed above but must inform RBI within 15 days of board approval.
- All other activities need prior RBI approval, and group entities are prohibited from engaging in activities barred for banks.
The revised NOFHC norms tighten group-level discipline by pushing banks to consolidate core functions in-house while ringfencing specialised services through regulated subsidiaries.
2.3 RBI in its review based on data as of March 2025, has retained SBI, HDFC Bank and ICICI Bank as Domestic Systemically Important Banks (D-SIBs).
- They must maintain additional CET1 capital of 0.8% (SBI), 0.4% (HDFC Bank) and 0.2% (ICICI Bank) over the Capital Conservation Buffer.
- Global systemically important banks (like Citi, HSBC) operating in India must also hold proportionate additional CET1 capital, aligned with their global surcharge applied to Indian risk-weighted assets.
RBI’s update reinforces tighter capital buffers for the biggest banks, underscoring their critical role in safeguarding financial system stability.
# 3 SEBI
3.1 SEBI has introduced Single Window Automatic & Generalised Access for Trusted Foreign Investors (SWAGAT-FI) to simplify entry for low-risk foreign investors.
- The framework provides single-window market access, easing participation in Indian securities markets.
- Granted an option to SWAGAT-FIs applying for registration/ already registered as FPIs to also register as FVCI, without the need for any further documentation.
- Registration under both FPI and FVCI regulations will enable SWAGAT-FIs to invest in listed equity instruments and debt securities of Indian companies as FPI, and in unlisted Indian companies engaged in specified sectors and startups as FVCI under respective regulations.
- To enhance ease of compliance, the regulator increased the periodicity for continuance of registration, including payment of fee and review of KYC documentation to 10 years, up from the current three-year or five-year periods
- Enables a unified, streamlined registration process across various investment routes.
- SEBI allowed retail schemes in IFSCs with a resident Indian sponsor or manager, to register as FPIs.
- Currently, Alternative Investment Funds in IFSCs with a resident Indian sponsor or manager are permitted to register as FPIs.
- SEBI has also aligned its rules with IFSCA by capping sponsor contributions from resident Indian non-individuals in IFSC funds at 10% of the fund’s corpus (or AUM for retail schemes) to eliminate regulatory inconsistencies and reduce compliance risk.
SEBI’s move signals a clear push to make India a friction-light, investor-friendly market for high-quality global capital.
# 4 Economy
4.1 As per data released by Govt last week
- Index of Industrial Production [IIP] collapsed to a 14-month low of 0.4% (y-o-y) in October (3.7% last year and 4% in September)
- Manufacturing (accounting for 78% of IIP) grew1.8% vs 5.6% in Sept and 4.4% last year.
- Capital goods production rose 2.4% in October, down from a 5.4% in Sept.
- Production of consumer durable goods fell 0.5% annually in October compared to a 10% rise in Sept.
- Production of consumer non-durables contracted by 4.4% annually, compared with a 0.3% contraction in Sept.
- Primary goods production reported a 0.6% contraction in October, compared to a 1.3% rise in Sept.
- Overall early indicators point to a weak Q3 outlook despite strong Q2 GDP optics.
Early high-frequency data signal that India’s strong Q2 momentum is already fading, with exports, manufacturing, and consumption all weakening sharply in Q3.
4.2 Fitch Rating in its report released last week
- lifts India’s FY26 GDP forecast to 7.4% (from 6.9%) on stronger real incomes, upbeat sentiment and GST reform gains; FY27 growth seen moderating to 6.4%.
- INR downside limited; rupee expected to strengthen to 87/$ by end-2026 despite recent record lows.
- Falling inflation opens space for one final RBI rate cut to 5.25% in December, (RBI did cut rate to 5.25% on Friday) after 100 bps easing in 2025; policy rate seen steady for two years thereafter.
- Private consumption remains FY26’s growth engine, aided by GST overhaul shifting to a 5%–18% structure and reducing rates on ~375 items.
- Private capex expected to revive in 2HFY27 as financial conditions ease, while public investment slows under tighter fiscal discipline.
- High US tariff exposure (≈35%) underscores potential boost from a prospective India–US trade deal.
Fitch’s outlook signals a near-term growth sweet spot for India, powered by consumption and policy tailwinds, even as medium-term momentum hinges on easing financial conditions and stronger external support.
4.3 As per RBI’s publication last week,
- Current Account deficit [CAD] widened to $12.3 bn (1.3% of GDP) in Q2 FY26 vs $2.4 bn (0.2%) in Q1, mainly due to a lower—but still large—trade gap.
- In H1 FY26, CAD narrowed to $15 bn (0.8% of GDP) vs $25.3 bn last year, while reserves fell $6.4 bn vs $23.8 bn increase a year ago.
- Merchandise trade deficit slightly narrowed to $87.4 bn from $88.5 bn a year earlier.
- Remittances rose strongly to $38.2 bn vs $34.4 bn last year.
- FDI turned positive, recording $2.9 bn inflow vs $2.8 bn outflow a year ago.
- FPI saw a sharp reversal with $5.7 bn outflow vs $19.9 bn inflow last year.
- ECB inflows eased to $1.6 bn from $5 bn.
- NRI deposits fell to $2.5 bn from $6.2 bn.
- Forex reserves declined $10.9 bn, reversing a $18.6 bn increase a year earlier.
India’s external position remains manageable, but softer capital flows and a dip in reserves highlight emerging pressures beneath an otherwise improving current account trend.
4.4 S&P upgraded India’s insolvency regime to Group B from Group C, citing improved creditor-friendliness under the IBC due to following reasons:
- IBC has strengthened credit discipline, shifting power toward creditors as promoters risk losing control during resolution.
- Average recoveries improved to 30%+, up from 15–20% under the old regime.
- Resolution timelines shortened to ~2 years, far better than 6–8 years earlier.
- Consistent creditor-led resolutions and better timeliness supported the upgrade.
- Recent Supreme Court rulings (e.g., Bhushan Power & Steel) have reinforced creditor rights, even amid procedural delays.
India’s insolvency upgrade reflects real progress, but recovery levels and legal delays show the IBC still has distance to cover before matching top global regimes.
4.5 As per S&P Global release last week,
- HSBC Manufacturing PMI dropped sharply to 56.6 (a 9-month low), making Thailand the fastest-growing manufacturing economy.
- HSBC India Services PMI rose to 59.8 from 58.9 in October — indicating solid expansion, stronger growth and demand.
- Sector has stayed above 50 for 4+ years, signalling sustained resilience.
- New business inflows boosted activity; international sales slowed due to global competition.
- Input cost inflation fell to a 5.5-year low, leading to subdued selling prices.
- Firms remained optimistic but slightly cautious due to competition and election-related uncertainty.
- Job creation continued modestly, with limited capacity pressure on firms.
India’s economy leaned on its resilient services sector in November, even as manufacturing momentum faltered.
4.6 Govt last week has widened small company definition to entities with paid-up capital ≤ ₹10 crore and turnover ≤ ₹100 crore (up from ₹4 crore/₹40 crore), effective immediately. This is from MCA’s perspective and different from MSME classification as per MSMED Act
- Move aims to boost ease of doing business, lowering compliance burden and freeing managerial/financial bandwidth for growth.
- Holding and subsidiary companies remain excluded, ensuring benefits apply only to standalone businesses.
- Small companies enjoy reduced compliance: no cash-flow statement, simplified board report, lower filing fees/penalties, and only two board meetings/year.
- Fast-track mergers available, making restructuring simpler and less costly.
The relaxed thresholds significantly broaden the small-company net, sharpening India’s ease-of-business push by meaningfully cutting compliance for standalone enterprises.