Week ending 6th June 2026

# 1 Markets

Indian equities extended their decline, with the Nifty 50 and Sensex falling ~0.7% amid elevated crude prices and persistent geopolitical tensions. Continued FII outflows kept market sentiment fragile, though strong DII support helped absorb selling pressure and limit deeper losses. Market likely to continue with near-term volatility with a cautious-to-negative bias.

U.S. markets saw a sharp correction as strong jobs data reinforced expectations of higher interest rates for longer, triggering a tech-led selloff and wiping $1.8 trillion from the S&P 500 in a single day.  AI and semiconductor stocks led to the decline amid profit-booking.

The benchmark Indian 10-year G-Sec yield retreated from the 7.00% mark to a four-week low of roughly 6.90% as bond prices rallied, driven by the RBI holding interest rates steady at 5.25% alongside a major government proposal to exempt FPIs from capital gains and interest withholding taxes.

US Treasury yields marched sharply higher as a massive beat in May payroll data and inflation fears sent 2-year yield climbing to 4.17% and the benchmark 10-year yield jumping to 4.55% on expectations of another rate hike before year-end by Fed.

# 2 RBI

2.1 Impact of each of RBI Monetary Policy & Regulatory Announcements:

• Policy repo rate kept unchanged and neutral policy stance retained.
  • RBI prefers to wait for clarity; avoids premature tightening despite raising global uncertainty, energy prices and supply chain induced inflation risks.
• Commitment to maintain adequate system liquidity
  • Support banking sector funding, credit expansion

• Expanded the Fully Accessible Route (FAR) to include 15-year, 30-year and 40-year Government Securities (G-Secs).

• All new 15-, 30-and 40-year G Secs included; sovereign green bonds included.
• Positive for govt. bond market liquidity seen in the backdrop of FPI utilization of just 6.8% with FPI position in FAR at ₹ 3.24 trillion. (avg tenure of 11 years).
• The inclusion of new tenures along with tax exemption implies higher post tax return and improve inflows.

• Removal of FPI restrictions under general route (removal of short-term investment, concentration and individual security limit); Separate “general” and “long-term” FPI categories merged into a single investment limit. Overall caps retained at 6% of outstanding Central Government securities and 2% of State Government securities.
• Removal of limit of 30% on short maturity would see maximum demand with expectation of rise in rates. Available headroom in both general and long route is ₹4.06 trillion which is indicative of potential inflows.
  • The initiative comes amid persistent foreign outflows, with FPIs withdrawing about $57.7 billion from Indian equities since 2025.
• Higher investment limits for NRIs/OCIs in listed equities without registration- doubling the individual cap from 5% to 10% and aggregate limit from 10% to 24%.

• • Despite existing headroom, NRI participation remains low, with NRI ownership accounting for only 0.7% of Sensex market capitalisation as of Q4 FY26. – this may help mobilise overseas Indian capital and broaden participation

• Expansion of same equity investment facility to all individual person’s resident outside India [PROIs)
  • Expand foreign investor base beyond NRIs and OCIs.
  • Simpler KYC, Taxation, documentation and repatriation processes are yet to be fully addressed
• Concessional forex swap for PSU ECB borrowings till Sept 30.
  • Reduces funding costs for PSUs amidst higher hedging costs
  • ECB/FOCB flows fell by 30% in FY 26 to $42.9 billion from $61.2 bn.in FY25 (11% by PSUs) – thus likely to help improve ECB borrowings.

• RBI to bear full hedging costs for fresh 3–5-year FCNR(B) deposits mobilised by banks until 30 September 2026, making foreign currency deposits significantly more attractive.
  • Banks gain a 3.0–3.2% cost advantage (equivalent to current forward premium), creating room to offer 50–100 bps higher rates to NRI depositors. (Current FCNR B rate is 3.35% and forward premium is 3.5% vs 3-year rupee deposit rate at 6.5%)
  • FCNR(B) deposits remain exempt from CRR and SLR requirements, further improving banks’ economics on such deposits.
  • SBI estimates potential inflows of $10+ billion, over the next year by offering FCNR B at 5.5% vs US treasury rates at 4%.
  • Addresses sharp decline in FCNR(B) inflows, which fell 87% in FY26 to $946 million from $7.1 billion in FY25.

• However, scheme may impose a high fiscal/quasi-fiscal cost, with effective costs potentially reaching ~10% after accounting for deposit rates and hedging expenses.
• Export proceeds realization restored to 0 months
  • May support export growth.

Other announcements

• FY27 GDP growth projected at 6.6%, lower than FY26 growth of 7.6%, FY27 CPI inflation projected at 5.1%, with inflation expected to rise towards the upper tolerance band during the year.

• Banking system remains well-capitalised, highly liquid and asset quality continues to improve. GNPA ratio declined to 1.73%. Profitability remains healthy though moderation is visible due to compression in net interest margins.

• NBFCs remain adequately capitalised with improving asset quality and stable profitability metrics.

The message is clear: RBI is prioritising external-sector resilience and capital inflows while maintaining a wait-and-watch approach on interest rates. Measures are particularly positive for: Government bond markets, foreign portfolio and debt inflows, Equity market liquidity and Overall balance-of-payments stability. More particularly this puts to rest, some claims that the rupee be allowed to move towards 100/$.

2.2 What ails IndusInd Bank again?

Key Findings post PwC review of 1+ million treasury transactions across seven product categories.

• Treasury accounting lapses led to ₹1,818 crore overstatement of profits and assets.
• Manual entries were used to offset trading losses, creating a ₹2,202 crore receivable from the ALM Desk.
• After adjusting for swap-cost amortisation, the net misstatement stood at ₹1,818 crore.
• Structural disconnect between ALM (risk management) and Trading Desk resulted in inaccurate financial reporting.
• Absence of linkage between internal ALM deals and external hedges weakened hedge accounting integrity.

• External FX forward contracts were not marked-to-market, leaving unrealised losses of: ₹121 crore (Mar-24) ₹161 crore (Jun-24) unrecognised.
• Cross-currency swap accounting errors caused ₹32 crore misstatement.
• Swap-cost amortisation errors resulted in ₹16 crore misstatement.

Governance Concerns

• Weak controls over manual journal entries and off-system adjustments.
• Deficiencies in maker-checker reviews, reconciliations, and supervisory oversight.
• Increased vulnerability to financial misstatements, errors, and potential fraud.

Lapses arose from manual accounting interventions, weak controls, operational silos, and accounting treatment errors, resulting in a material overstatement of earnings and assets and raising significant governance concerns. The episode underscores how weak controls, manual overrides, and fragmented treasury governance can materially distort financial reporting despite robust technology infrastructure.

2.3 As per CareEdge report on Microfinance Sector released last week:

• Sharp decline in NPAs driven by accelerated write-offs and tighter underwriting standards.

• NBFC-MFI gross NPAs expected to improve to 3.6% (Mar-26) from 5.4% (Mar-25).

FY27 Outlook

• Asset quality may see a marginal deterioration in FY27 as lenders revert to normal write-off practices.
• Credit performance remains under watch despite improving operating conditions.

• Gross Loan Portfolio expected to grow at ~14% CAGR (FY26–FY30).

• RBI measures continue to aid sector stability and growth. Better rural incomes and economic activity supporting credit demand.
• Higher collection efficiencies and stronger lending practices improving portfolio resilience.

The microfinance sector is transitioning from balance-sheet clean-up to sustainable growth, with near-term asset quality normalization likely but long-term prospects supported by stronger underwriting, regulatory support, and robust financial inclusion demand.Top of Form

2.4 As per Crif Highmark report on MSME credit released last week

• MSME credit exposure reached ₹46 lakh crore in April 2026, up 12.8% YoY, though growth moderated sharply to 3.1% between Dec 2025–Apr 2026 (vs. 9.7% a year earlier). Active MSME loans declined 3.5%, reversing the growth trend seen last year.
• Accounting for ~86% of active MSME loans, micro businesses reported higher early-stage delinquency (PAR 31–90 days at 2.7%) versus small (1.5%) and medium enterprises (0.8%).
• Credit growth slowed significantly in manufacturing and contracted in recent months, while trade credit also declined; supply chain-linked sectors such as transport, food processing, and auto ancillaries saw portfolio contractions of 14–17%.
• Portfolio-at-risk increased for PSU banks and cash credit facilities, while working capital utilization rose to 70–73%, indicating greater dependence on existing credit lines.

MSME credit remains broadly resilient, but rising delinquencies, elevated credit utilization, and weakness in micro and manufacturing-linked segments warrant close monitoring by lenders and policymakers.

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# 3 SEBI

3.1 Why SEBI ordered investigation and why is Rajesh Exports case intriguing?

Background

• Rajesh Exports Limited is a long-listed gold refining and jewellery company that acquired Valcambi SA in 2015 through its Singapore subsidiary and projected itself as a large global precious-metals player. A shareholder complaint in 2024 regarding unusually large and long-outstanding receivables triggered a SEBI investigation.
• SEBI’s interim order alleges that REL may have materially overstated revenues (up to ~₹15.15 lakh crore over FY21–FY25), used unsupported transactions, failed to provide key records, and inadequately disclosed related-party dealings.

Why SEBI Acted (Rationale)

1. REL’s Indian operations generated only a tiny fraction of reported group revenues.
2. Auditors reportedly received very limited documentation for large samples of purchases and sales.
3. Transactions worth over ₹11,000 crore were recorded with a stockbroking entity that reportedly denied having such business dealings with REL.
4. Funds allegedly moved through promoter-linked accounts and entities without corresponding disclosures expected under governance norms.
5. Forex gains and interest income were allegedly booked as operating revenue, potentially inflating the perceived scale of business operations.

This may go down as one of the most dramatic accounting fraud allegations ever seen in Indian capital markets post Satyam. If even a fraction of SEBI’s findings sustains, this is not just a corporate governance failure. This is a complete collapse of reported financial reality.

From a lender’s standpoint, the most intriguing issue is not the alleged revenue inflation itself. It is whether the company’s cash flow, collateral, inventory and receivables genuinely support credit exposure. In investing, protecting capital starts with understanding not just the numbers, but also the trustworthiness of those behind them.

3.2 Can cousin be an independent director? SEBI’s surprising guidance

Background

A listed company, Maithan Alloys, sought SEBI’s clarification on whether the cousin of a promoter-group shareholder/director could be appointed as an independent director under the SEBI LODR Regulations. The issue arose because the candidate had family ties to the promoter group, even though she was not a board member, shareholder, or executive of the listed company.

 

Essence of SEBI’s decision

SEBI, through informal guidance, held that a cousin is not included in the statutory definition of “relative” under the LODR Regulations. Therefore, according to the facts presented, the candidate may be eligible to be appointed as an independent director.

The test of independence was interpreted by reference to the defined term “relative” in the regulations, not to broader notions of family association. (Regulation 16(1)(b) uses the concept of a person “not related to promoters or directors,” and SEBI anchored the analysis to the regulation’s specific definition of “relative.”)

Critics argue that independence in substance may be weaker where long-standing personal and family relationships exist, even if the law does not classify them as relatives.

 

Letter of the law vs. spirit of governance

SEBI’s decision effectively says that a promoter’s cousin is not automatically disqualified from being an independent director under the current LODR definition of “relative”. The ruling offers legal clarity but also highlights a broader governance debate: compliance with the letter of the law does not necessarily guarantee independence in spirit.

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# 4 Economy

4.1 India GDP FY26 – Key Takeaways

• India’s GDP growth accelerated to 7.7% in FY26 from 7.1% in FY25, reaffirming its position among the fastest-growing major economies.
• Nominal GDP increased 8.9% in FY26, while nominal GVA rose 9.9%. (Revised accounting with FY23 base year)
  • Real GVA grew 7.9% in FY26, reflecting broad-based economic expansion.
  • Q4 FY26 GDP grew 7.8% YoY, demonstrating resilience despite global geopolitical uncertainties.

Key Growth Drivers

• Private consumption grew 7.7% for FY26.
• Investment growth remained strong, with GFCF rising 8.2% for FY26 and 10.8% in Q4, the strongest quarterly expansion in three years.
• Net exports remained a drag, though the trade deficit contribution narrowed, making overall growth largely domestically driven.

Sectoral Performance

• Manufacturing: +10.7%
• Trade, Transport & Related Services: +11.0%
• Financial, Real Estate & Professional Services: +10.4%

Major Downside Risks

• Escalating West Asia tensions and prolonged Iran-related conflict.
• Higher crude oil prices, given India’s dependence on imported energy and critical trade routes such as the Strait of Hormuz.
• Imported inflation and tighter financial conditions.
• Potential El Niño-related weather disruptions and weak monsoon risks affecting rural demand and agricultural output.
• Pressure on manufacturing, logistics, transport and trade-related sectors from elevated energy costs.

 

Growth remains broad-based and domestically driven but sustaining a 7%+ trajectory will depend on managing crude oil, inflation and geopolitical risks.

4.2 Govt. has promulgated an ordinance providing Tax Exemptions for FPIs.

• Government abolished LTCG tax (12.5%) and 20% withholding tax on interest income to FPIs from eligible government securities, effective 1 April 2026.

• Improves post-tax returns for FPIs by 15–20%.
• Increases return differential versus other sovereign bond markets.
• Removes a key friction affecting foreign participation.

• Long-term capital gains tax and withholding tax exemptions extended to the Bank for International Settlements (BIS). BIS had previously avoided Indian sovereign debt due to tax costs.
  • Potential BIS investments of US$7–11 billion into Indian G-Secs.
  • 10-year G Sec yield fell from 7.01% to 6.94% post announcement

 

The move is timely as India’s net FDI fell from $45 bn in FY21 to $0.35 bn in FY25, driven by higher re­patriation of profits and lack of com­mensurate increase in inflows. This package combined with bond market reforms by RBI may boost sovereign debt demand.

4.4 As per S&P Global release on PMI last week

HSBC Services PMI rose to 59.8 in May (from 58.8), a 6-month high, indicating strong expansion and outperforming manufacturing PMI (55.0).

• Growth was led by stronger demand for freight, digital services, e-commerce, entertainment and IT services, highlighting resilience of the domestic economy.
• New export orders returned to growth after April’s decline, supported by demand from markets such as Australia, Canada, Germany, UAE and the UK, though still below the 2025 average.
• Input-cost inflation moderated to a 4-month low, providing some relief to businesses despite higher food, fuel, gas, labour and material costs.

Strong domestic demand is cushioning India’s economy for now, but sustaining this momentum will depend on how effectively it navigates rising energy costs, inflation risks and global uncertainty

4.5 India IIP & Manufacturing Activity (May/April FY27) – Key Takeaways

• Industrial output (IIP) grew 4.9% YoY in April 2026, marking the first release under the new FY23-base IIP series.
  • Manufacturing growth remained strong at 6.2%, with 17 of 23 industry groups recording expansion.
  • Mining output contracted 5.1%, partly offsetting gains from manufacturing.
  • Capital goods output surged 16%, indicating healthy investment and capex momentum.
  • Infrastructure and intermediate goods grew 7.1% and 7.7%, respectively, reflecting broad-based industrial demand.
  • Consumer durables rose 4.3% and consumer non-durables increased 2.8%, signalling resilient domestic consumption.

The combination of robust manufacturing output, strong capital goods growth, and an expansionary PMI suggests India’s industrial sector entered FY27 with solid momentum, though higher energy costs and external geopolitical risks remain key watchpoints.

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# 5 PE VC

5.1 As per report published by the National Foundation for American Policy (NFAP).

• Immigrants founded or co-founded 455 of 775 U.S. unicorns (59%) as of April 2026.
  • Nearly two-thirds of U.S. unicorns were founded by immigrants or children of immigrants.
• Almost 80% of U.S. unicorns have either an immigrant founder or an immigrant in a key leadership role.

• India ranks #1 globally as the source country for immigrant founders of U.S. unicorns.
• Indian-born entrepreneurs have founded or co-founded 96 U.S. billion-dollar startups, ahead of Israel (60 unicorns), UK (47), China (41)

• Immigrant-founded unicorns have a combined valuation of approximately $5 trillion. These companies generate an average of 833 jobs per company.

• Strong growth in immigrant-led unicorn creation over the past decade: 2018: 50 of 91 U.S. unicorns had an immigrant founder while in 2026: 455 of 775 U.S. unicorns have an immigrant founder.

 

India has emerged as the single largest contributor to America’s unicorn ecosystem, highlighting the global competitiveness of Indian entrepreneurial talent and the strategic importance of skilled migration pathways.Top of FormBottom of Form

 

5.2 As per report by Fintech Association for Consumer Empowerment [FACE]

 

• Digital NBFCs sanctioned 13.2 crore personal loans worth ₹2.15 lakh crore in FY26, accounting for 77% of all loans by number but only 19% by value.

• Overall personal loan sanctions reached ₹11.45 lakh crore across 17.3 crore loans; banks contributed 61% of value (₹6.94 lakh crore) despite originating only 8% of loan accounts.
• Average loan size was ₹16,238 for fintech lenders versus ₹90,547 for other NBFCs and ₹4.91 lakh for banks; 43% of fintech lending value was from loans below ₹50,000.
• Fintechs’ share of personal loan sanctions rose from 66% to 77% by volume and 12% to 19% by value between FY23 and FY26.
  • Nearly 76% of sanction value came from Tier III/smaller towns (39%) and rural areas (37%); over 50% of lending was to borrowers below 35 years.
  • Outstanding digital personal loans increased from ₹56,927 crore to ₹1.43 lakh crore in three years; fintechs now account for 45% of active personal loan accounts.
• Asset quality improving: Loans overdue by over 90 days declined from 3.3% (Mar-23) to 1.4% (Mar-26), reflecting stronger underwriting and collections.

 

Fintech lenders are increasingly reshaping India’s retail credit landscape by combining financial inclusion with improving credit quality, making them a significant complement to traditional banks.