# 1 Markets
Indian equities ended flat Friday in choppy trade as auto gains on GST cuts were offset by IT weakness on US tariff worries. For the week, Sensex and Nifty rose ~1% each, rebounding from prior losses, with market breadth turning mildly positive, while foreign investors kept selling amid global risk-off sentiment. Nifty closed at 24,741, Sensex at 80,711 24,850–25,000 with a cautiously optimistic outlook supported by domestic flows and reforms, though volatility is likely to persist. Recent remarks by President Trump, coupled with the Prime Minister’s response, signal a positive alignment with India. This constructive tone could influence market sentiment positively in the coming week.
Net inflows into the fully accessible route (FAR) surged to ₹10,471 crore in August (vs. ₹2,466 crore in July), driven by higher yield spreads between Indian and US treasuries. The first 25 bps CRR cut from September 6 is set to infuse liquidity, supporting G-Sec yields, which eased to ~6.47% by September 5 amid stable bond markets. Outlook remains range-bound (6.50–6.60%), with state supply, and policy-driven volatility.
U.S. equities ended the week to September 5, 2025, mixed after hitting fresh records, with the S&P 500 up 0.3%, Nasdaq up 1.1%, and Dow down 0.3%. A weak jobs report showing only 22,000 jobs added in August (vs. 75,000 expected) revived recession concerns despite tumbling bond yields and rising rate-cut bets. Markets remain near all-time highs, but upcoming inflation data and Federal Reserve signals will drive elevated volatility.
US bond markets rallied last week as weaker jobs data boosted hopes of a Fed rate cut, pulling the 10-year yield down to 4.08%, its lowest since April. Yet, soaring long-bond yields in UK (30y yield hitting 5.7% from 1% in 2022) signal deep stress in the North Atlantic financial system, reflecting extraordinary debt pressures. The Fed faces a policy trap: rising yields safeguard the dollar but risk recession, while capping yields aids refinancing but fuels inflation and erodes trust. Interesting times ahead!
- GST 2.0 Reforms – Incremental or Structural?
To economically unify India, GST collapsed 36 tax jurisdictions and subsumed 17 taxes and 13 cesses levied by the Union and state governments. In continuation, GST 2.0 reform announced last week include simplification of the GST rate structure.
Key Aspects
- Rationalization of GST slabs to mainly two slabs: 5% for essentials and 18% for standard goods and services, with a 40% slab for sin and luxury goods to discourage consumption.
- Removal of the 12% and 28% slabs, redistributing items either to lower or higher rates.
- Several essential goods such as daily household items, dairy products, health care items, agricultural machinery, and small cars now taxed at lower rates (mostly 5% to 18%).
- Process reforms include improved compliance measures, automated refunds, easier registration, and institutional set-up like GST Appellate Tribunal (GSTAT) for faster dispute resolution.
Direct and Indirect Impact
- Reform tilts in favour of staples and low-ticket consumption.
- Two slabs (5%and 18%), removal of compensation cess and correction of inverted duty structure would enable higher compliance, lower disputes.
- The reform is expected to reduce inflation by about 1.1 percentage points by lowering the tax burden on essentials.
- Short-term revenue loss estimated at around ₹48,000 crore (~$5.5 billion), expected to be offset in the medium-term by demand stimulation and better compliance.
- Notably, the grant of export status to intermediary services is a game-changing change, bringing parity for such foreign exchange earners with other exporters and resolving long-standing disputes around refunds. The relaxation of conditions for allowability of post-sale discounts is also expected to ease a recurring area of dispute and compliance friction for businesses.
- Boost to demand and consumption through lower prices on essential goods, healthcare products, and certain automobiles.
- Exempting GST on life and health insurance may encourage wider adoption, particularly among first-time buyers. However, this may not immediately translate into a discount of 18%, as insurers will also have to forgo the input tax credit (ITC) they were able to get on GST payment. (ITC includes GST on various expenses like commissions, IT systems, office rent, professional services, claims processing, vendor payments and medical network services etc.,)
- Potential margin improvement for businesses due to lower input costs.
Gaps and Challenges
- GST rate cuts are causing short-term working capital blockages for stockists, distributors, and retailers. They had paid higher GST on old inventory but will recover lower GST when selling under the new regime. This mismatch leaves excess credit in GST ledgers, straining cash flows. The impact is sharpest on MSMEs and retailers with thin 3–5% margins, where recovery may take weeks to a year. Illustration:
- A retailer selling household items like hair oil, shampoo, soap and toothpaste will have paid 18% GST when stocking up its inventory. Now, when they clear this inventory after 22 September, when the new tax rates come into effect, customers will be paying only 5% GST on these products.
- If such a retailer has an inventory of ₹10 lakh, they would receive roughly ₹1.53 lakh as input tax credit on this. However, assuming a 5% margin, their GST liability would be only ₹52,500 as against ₹1.89 lakh under the older rates.
- This translates to about ₹1.05 lakh being stuck as unutilized input tax credit, which could take months to offset.
- GST Council has fallen short with respect to an equally important commitment — to fully tame ‘Babu Raj’ by eliminating red tape — made by Hon’ble PM in the same Independence Day address.
- The GST Council simplified some classifications and cut rates on aspirational goods, but stopped short of full clarity, leaving scope for subjective interpretations and disputes.
- The real benefit of GST rate cuts will only be felt if sellers pass it on to consumers, but many are inflating base prices to pocket the gains.
- Strong vigilance by the National Anti-Profiteering Agency is essential to prevent undue profiteering and ensure end users truly benefit. Revenue concerns of states remain significant, given the large revenue loss in the short term and reliance on growth to bridge it.
- Broader structural issues such as interstate input credit management, differential state policies, and balancing federal concerns require ongoing effort beyond rate rationalization.
The reform, effective from September 22, 2025, aims to rationalize tax rates, reduce compliance complexity, and provide relief to the common man by lowering rates on many essential goods and everyday items while increasing tax on super luxury and harmful goods.
However, it still faces challenges on revenue sustainability for states, need for clear product classifications, and effective implementation of institutional reforms for a long-term robust system. This is incremental cushioning, not a GDP game changer. More reform may be required.
# 3 RBI
3.1 As per data released by RBI last week,
- As of August 22, deposits grew 10.22% YoY, marginally above credit growth at 10.03% YoY, reversing the earlier fortnight’s pattern.
- This is clearly an improvement from July where credit growth slowed to 9.9% YoY versus 13.6% YoY a year earlier.
The deposit–credit gap turned positive by August 22 after briefly favouring credit in early August.
3.2 As per MFIN report on Micro finance portfolio released last week
- Industry data show rising delinquencies even after the cap on simultaneous borrowing.
- Sharp rise in mid bucket stress across banks and NBFCs
- Banks – PaR (31–180 DPD, incl. technical write-offs) increased to 5.4% (Jun’25) vs 2.5% (Jun’24).
- NBFC-MFIs – PaR (31–180 DPD) at 6.0% (Jun’25) vs 2.6% (Jun’24);
- Industry-wide PaR >180 DPD rose to 13.6% (Jun’25) vs 7.6% (Jun’24) and 11.3% (Mar’25).
- Early delinquency buckets worsening; PaR 31–60 DPD: 1.1% (Jun’25) vs 0.5% (Jun’24) and PaR 61–90 DPD: 1.4% vs 0.7%
- Portfolio contraction alongside stress.
- NBFC-MFIs outstanding: ₹1.38 lakh crore (Jun’25), –18% YoY (vs ₹1.68 lakh crore).
- Banks’ outstanding: ₹1.16 lakh crore (Jun’25), –15.8% YoY (vs ₹1.38 lakh crore).
Both banks and NBFC-MFIs exhibit broad-based deterioration across early and late buckets with concurrent YoY portfolio shrinkage, indicating pressure not yet abated.
# 4 SEBI
4.1 SEBI on Sept 1, 2025, published detailed framework for intraday position limits monitoring for equity index derivatives.
What changed?
- Introduces an entity-level, intraday net position cap in index derivatives, measured on futures-equivalent / delta-equivalent basis
- Intraday caps in equity index options—₹5,000 cr. net (futures-equivalent)
- Entities with underlying exposure >₹5,000 cr. may have higher net caps; gross limit stays ₹10,000 cr. per side.
- Provides a monitoring and penalty framework (including stricter provisions for expiry-day build-ups). Effective broadly from 1 Oct 2025; specific expiry-day penalty provision effective 6 Dec 2025 (as reported).
SEBI is curbing “outsized” expiry-day positioning and leveraged intraday risk while trying to preserve liquidity provision learning from Jane Street episode. Expect lower expiry-day volatility spikes but some strategy re-engineering around weekly/monthly expiries.
4.2 SEBI published amendment regulations relating to InvITs last week
What changed?
- “Public” redefined: Related parties of the InvIT/sponsor/IM/PM excluded as Public; however, QIBs that are related parties participating in an offer are treated as public (with carve-outs).
- Minimum ticket for privately placed InvITs cut to ₹25 lakh (from ₹1 crore), expanding eligible investor base beyond institutions.
- Reporting/valuation tightening for leveraged InvITs: Quarterly valuations and disclosures when consolidated borrowings exceed 49%; simultaneous submission to trustees and stock exchanges; flexibility added to quarterly result timelines (“as may be specified by the Board”).
The amendment broadens participation (₹25 lakh ticket) while raising disclosure cadence for highly leveraged InvITs. Expect wider HNI/FO participation, more comparable, frequent valuations for riskier structures, and cleaner public-float delineation in offers.
# 5 Economy
5.1 As per data released by Govt. last week
- FDI in India rose 15% to $18.62 billion during April-June 2025 rising from $16.17 billion last FY while it was $9.34 billion in Q4FY25.
- Total FDI, which includes equity inflows, reinvested earnings and other capital, increased to $25.2 billion during April-June 2025 as against $22.5 billion last fiscal.
- Inflow from US nearly tripled to USD 5.61 billion during April-June 2025
5.2 As per S&P report released last week
- Manufacturing PMI stood at 17.5 year high of 59.3 (Jul: 59.1)
- new orders at a 57-month high.
- new export orders eased to a 5-month low amid tariff uncertainty.
- input costs up (bearings, leather, minerals, steel, small electronic parts); output charges up.
- Services PMI at 15 years high of 62.9 (Jul: 60.5)
- over 4 years above 50.
- Surge led by international sales (third strongest since 2014)
- Composite PMI: 63.2 — 17-year high, indicating broad-based growth.
Broad-based domestic momentum plus outsized acceleration in international orders lifted activity above 62. US tariffs, GST-related deferment, and rising price pressures temper the outlook. Concurrent rise in input and output prices in services and manufacturing raises pass-through risk. Need to exercise caution against reading it as pure underlying demand strength.
5.3 As per Ministry of Corporate Affairs release last week,
- Company incorporations increased by 37% y-o-y to 20,170 in August and LLP registrations up by 22% to 6,939.
- 8th consecutive monthly rise for companies; 6th for LLPs.
- Investor confidence in India’s long-term prospects remains firm despite near-term US tariff risks.
Formation activity is robust and persistent. While expected domestic reforms—especially GST tweaks—seen supporting consumption and new unit formation/expansion additional 50% US tariff could test the trend.Bottom of Form
5.4 As per data released by Ministry of Telecom last week,
- Total internet subscribers (Jun 30, 2025): 100.28 crore; QoQ growth 3.48%.
- Mix: Broadband 97.97 cr. (97.7%) vs Narrowband 2.31 cr. (2.3%).
- Access: Wireless 95.81 cr. (95.5%) vs Wired 4.47 cr. (4.5%).
- Demographics: Urban 57.94 cr. (57.8%); Rural 42.33 cr. (42.2%).
- Data intensity: 24.01 GB/month per wireless subscriber; average realisation ₹8.51/GB (implies ~₹204 data revenue per user/month).
- 5G FWA: ~1 cr. subscribers; net add 11.2 lakh, ~15.7% of total wireless net adds.
India’s internet footprint is now near universal and overwhelmingly wireless + broadband, with a meaningful rural share. Usage remains heavy and affordable; 5G FWA, though small, is contributing a notable share of incremental growth.
# 6 PE VC
6.1 As per report released last week by venture platform Fibonacci X
- Scale-up: VC AUM rose ~5× to ₹4.8–4.9 lakh cr. (2025) from ₹1.04 lakh cr. (2015);
- VC’s share of private capital increased 24% → 36%.
- Sub-₹400 crore funds led fresh capital; ~10 new funds >₹300 crore launched annually over the last three years.
- Dry powder: Expanded ₹100 crore (2015) → ₹5,000 crore (Mar-2025) (~50×).
- Returns concentration: Top-quartile funds delivered DPI ~3.0× (~7× industry average); only 48/169 schemes returned ≥50% to LPs.
- Domestic capital shift: 39% of new funds had fully domestic LPs in 2025 (vs 20% in 2023); family offices active—71% invest directly, ~half write cheques <₹10 crore.
- Firm evolution & resilience: Several first-time managers scaled AUM up to 48× in a decade; 83% of the 2021 unicorn cohort remained resilient.
India’s VC pool has quintupled, fuelled by sub-₹400 crore funds and rising domestic LP/family-office participation—expanding early-stage dry powder and localising capital. Returns remain power-law concentrated (top quartile DPI ~3×), making rigorous manager selection.
6.2 As per report on deep tech released by TDK Ventures. Deep tech spans semiconductors, quantum systems, advanced materials, space tech, and other science/engineering-led breakthroughs.
- India’s deep tech funding is projected to average >$5B annually within five years, up from ~$1.5B/year in recent years
- Deep tech startups raised $1.3B in 2024, a 78% YoY increase, indicating accelerating investor interest.
- Longer gestation periods and limited exit track-record impede capital flows; 45% of founders cite limited investor understanding as a key constraint, along with value mismatches and shallow local VC depth.
- Emerging hot spots: Anticipated growth in energy tech & transition, robotics & automation, B2C deep tech, agri tech, space tech, and advanced materials.