Week ending 7th June 2025

# 1 Markets

Indian markets rallied on Friday as the RBI delivered a double stimulus—a 50 bps repo rate cut and a 100 bps CRR reduction—reviving hopes of stronger credit growth and economic recovery amid a lack of fresh triggers. The Nifty 50 surged 252 points (+1.02%) to 25,003 and the Sensex gained 443 points (+1.55%) to close at 82,188. Despite remaining in a consolidation zone for a third week, markets posted weekly gains of ~1%, buoyed by domestic tailwinds.

Government bond yields were volatile post-policy. While the repo cut was welcomed, the RBI’s shift from an ‘accommodative’ to ‘neutral’ stance tempered expectations of further easing. The 10-year benchmark yield inched up 5 bps to 6.23%. Meanwhile, foreign flows into Indian corporate bonds hit a decade-high in May at ₹20,996 crore, underscoring sustained FPI interest in debt.

US markets rallied as May jobs data showed a modest 139,000 additions, keeping unemployment steady at 4.2%. Jobs report lifts stocks with all the three major indices Dow Jones, Nasdaq and S&P 500 rising by 1% or more. 

Despite muted hiring, stronger-than-expected wage growth led to a sharp rise in Treasury yields—10Y up 11 bps to 4.51%, 2Y up to 4.04%, and 30Y up to 4.97%. Trump’s renewed pressure on the Fed to cut rates and trade policy uncertainty continue to cloud the macro-outlook, though data still signal resilience.  The European Central Bank cut rates by 25 bps to 2%, marking its eighth cut in a year, as inflation showed signs of being under control.

# 2 RBI

2.1 RBI Policy: Key Takeaways (June 2025)

• Repo rate cut by 50 bps to 5.5%, cumulative 100 bps easing in 2025.
• CRR cut by 100 bps to 3.0% (lowest on record), phased over Sep–Dec 2025; expected to release ₹2.5–2.6 lakh crore liquidity.
• Policy stance shifted from ‘Accommodative’ to ‘Neutral’, suggesting limited residual easing space.

• • FY26 GDP growth retained at 6.5%.

• FY26 inflation forecast cut to 3.7% (vs 4.0%) amid soft food/commodity prices and good monsoon expectations.

• The system-level parameters of NBFCs too are sound with comfortable capital position and improved GNPA ratios.
• Stress in unsecured retail loans easing, but microfinance portfolio remains under pressure.
• Gross FDI surged in FY25, indicating India’s continued attractiveness despite rising repatriation

Rationale & Intent

• Frontloaded easing aimed at accelerating credit transmission and supporting growth.
• Liquidity injection via CRR cut expected to lower cost of funds and ease lending conditions.
• By changing stance to “Neutral” from “accommodative” signalled pause on rate cuts unless triggered by data

Impact on Borrowers & Economy

• Home loan EMIs to decline: ~₹3,100/month saving on ₹50L loan; ~₹7.5L interest saved over 20 years.
• Boost to real estate demand, especially affordable/mid-income segments.
• Eases systemic cost of credit, particularly benefitting smaller, deposit-constrained banks including SFBs. 

• Bond market reaction mixed: initial rally reversed due to neutral stance; long-duration bonds sold off.

The steepest outsized rate cut since the Covid shutdowns and stage-gated mileposts to the lowest cash reserve ratio (CRR) on record are both aimed at quickening the pace of transmission. Since further rate cuts look unlikely, investors are shifting toward the front end of the curve and reducing long duration bonds. The duration call has played out well so far, it would be a good time for investors to re-evaluate their duration positioning. At this point, accrual may be a better strategy to rely on, compared to duration. 

2.2 RBI Annual report 2025 – Looking beyond nos. and transfer of Rs. 2.69 lakh cr. to Govt

1. India spends just 0.7% of GDP on R&D vs 2–6% for major economies; private sector contributes less than global peers.
   1. High ROI in India: 1% rise in R&D → 0.25% gain in productivity; middle-income countries benefit most.
2. Large firms are borrowing less from banks, relying more on bonds, CPs, and equity.
   1. Banks shifting focus to mid-market & retail as corporates migrate to capital markets.
3. Outward FDI now favours developed economies (51.1%) over emerging markets.
   1. Companies often export first, invest later – a stepwise approach.
4. Central banks globally now prioritise safety, liquidity, and returns amidst rising geopolitical risk.
   1. Gold gaining importance as a sanction-proof, stable reserve asset.
5. Deposit growth slowed to 10.6% YoY in FY25 from 13% the previous year, with term deposits dominating with 59.5% share.
   1. Higher interest rates drove toward 1–3-year term deposits, now forming 45.1% of the total.
6. Insured deposits in India rose 7.11 percent year-on-year to reach Rs 96.7 lakh crore as of September 30, 2024, up from Rs 90.32 lakh cr.
   1. However, the insured amount itself constituted 46.3 percent of total assessable deposits, a small dip from 47.5 percent the previous year, suggesting that while more deposits are being insured in absolute terms, their share within total deposits is declining.
7. RBI enabling rupee-settled trade with countries like UAE, Mauritius.
   1. lower transaction costs, faster settlements, trade continuity during global disruptions: building resilience in cross-border trade systems.
8. ₹22 lakh crore household savings (6.5% of GDP) present an opportunity.
   1. That’s substantial domestic capital looking for productive opportunities. The challenge is using this capital effectively. 

Together, these research nuggets show an economy in transition. The R&D research shows how we can convert research spending into actual productivity gains. The credit research reveals our financial system is becoming more sophisticated, with companies using cleverer funding sources. The FDI analysis shows Indian businesses are getting smarter about global expansion. The reserve management research indicates we’re building defences against political and economic shocks. The payments research shows we’re developing alternatives to dollar dependence.  All are connected pieces of India’s evolution into a more complex economy.

2.3 RBI on Friday revised the qualifying asset threshold for NBFC-MFIs effective immediately.

• Qualifying asset threshold revised from 75% to 60% of total (net) assets, aligning it with the definition of microfinance loans. 
• The 60% threshold must be maintained on an ongoing basis; failure to do so for four consecutive quarters will require the NBFC-MFI to submit a remediation plan to RBI.

While the RBI acknowledges that stress in unsecured and credit card portfolios has eased, NBFC-MFIs continue to face pressure. To support their financial viability, the RBI has revised qualifying asset thresholds, enabling greater asset base diversification. However, effective diversification may remain elusive in the near term given intense competition from incumbent players

2.4 RBI on Friday has come out comprehensive revised Directions for lending against gold aimed at harmonizing regulations, address lending practice concerns, and strengthen conduct-related aspects across Regulated Entities (REs) – banks and NBFCs. Key take aways below:

• The maximum Loan to Value [LTV] depends on the loan amount per borrower—up to 85% for loans ≤₹2.5 lakh, 75% for loans > ₹ 2.5 lakhs, decreasing as the loan amount increases, ensuring prudent lending limits. Loan amount to include interest.
• Consumption loans have a maximum tenure of 12 months, with provisions for renewal or top-up within the permissible LTV and subject to borrower’s repayment capacity.
• Clear procedures for assessment, auction, and disposal of collateral are mandated, including advance notice and reserve prices at auction.
• Pledged collateral must be released within seven working days post full repayment. 

Two serious constraints in draft guidelines have been addressed now – ownership could be confirmed through self-declaration instead of purchase invoice and credit appraisal has been done away with for loans up to 2.5 lakh. These guidelines aim to promote responsible lending, transparency, and borrower protection in gold and silver collateral loans while ensuring risk mitigation for lenders.

# 3 SEBI 

3.1 SEBI on Friday gave some more breathing time for venture capital funds [VCFs] registered under erstwhile VCF regulation.

• It has now extended the additional liquidation timeline by one year till July 2026 for VCFs transitioning to alternative investment funds [AIF] rules.
• Sebi, in August 2024, issued modalities and conditions for VCFs to migrate to the AIFs rules. This also allowed VCFs, with at least one scheme not yet wound up after the end of their liquidation period, an additional liquidation period until July 19, 2025, if they migrate to AIF Regulations.
• Based on industry feedback and to facilitate migration, Sebi has now extended this additional liquidation period to July 19, 2026

Comprehensive AIF guidelines were introduced in 2012 replacing the narrow VCF guidelines operating till then. Many legacy VC funds, stuck in regulatory limbo since the 2012 AIF regime, now have a one-time chance to either wind up or migrate to Category I AIFs as Migrated Venture Capital Funds (MVCFs) under revised AIF Guidelines. These funds, akin to operating with “expired passports,” face compliance and liquidation challenges due to legal and market hurdles. Hopefully this breather would help them resolve and liquidate their schemes.

3.2 SEBI last week, has introduced a comprehensive framework for non-green ESG debt securities (social, sustainability, and sustainability-linked bonds), effective June 5. The new norms aim to enhance transparency and curb “purpose-washing” by mandating:

• Adherence to global standards (ICMA, Climate Bonds, ASEAN, etc.)
• Pre- and post-issue disclosures, including project details, fund usage, and third-party verification
• Post-listing reporting on impact, KPIs, and proceeds in annual filings
• Redemption clauses if ESG claims are found misused

The rules apply even to SME-listed issuers, who must follow bi-annual disclosures. SEBI also empowers ESG rating agencies to assess bond performance. This move seeks to align with global practices and foster trust in India’s growing ESG debt market.

3.3 SEBI on June 2 has issued revised Investor Charters for Investment Advisers (IAs) and Research Analysts (RAs) to promote transparency, define service standards, and protect investor rights.

Key Points:

• IAs must assess risk profiles and suggest suitable products; RAs must provide fair, method-based research.
• Investors are entitled to clear information, fair treatment, and access to grievance redressal via SCORES 2.0 or ODR.
• Registered professionals only; maintain all communication records.
• Mandatory display of the Charter on websites/apps and during onboarding.
• Monthly disclosure of complaints is now compulsory.

This enhances accountability and trust in the advisory ecosystem.

# 4 Economy

4.1 As per provisional estimates released by NSO released last week,

• India’s GDP grew by 7.4% in the quarter ended March 2025, surpassing expectations and bringing the full-year growth for FY25 to a robust 6.5%. 
  • Growth in the March quarter was driven by a strong performance in the services sector, which expanded by 7.3%, and a notable recovery in industry, with the construction segment recording an impressive 10.8% growth. The agriculture sector also sustained its positive trajectory, posting a growth rate of 5.4%.
  • On the expenditure side, Gross Fixed Capital Formation registered a healthy recovery with 9.4% growth, while net exports turned positive, buoyed by strong service exports. 
  • India’s growth to remain resilient and robust at 6.5% in FY26

The final-quarter performance outpaced expectations, beating both the Reserve Bank of India’s (RBI’s) forecast of 7.2 per cent and a Reuters poll of economists that had projected 6.7 per cent growth. It may be recalled that NITI Aayog CEO announced last week that India has already overtaken Japan to become the world’s 4th largest economy, with its GDP crossing USD 4 trillion.  

4.2 As per data released by World Bank last week, 

• Nearly 270 million people moved out of extreme poverty in India between 2022- 23 and 2011-12
• their number shrank to 5.3% of the population from 27.1%
• in absolute nos., the population living in extreme poverty fell to 75.2 million in FY23 from 233.5 million 11 years earlier.
• India has emerged as a statistical outlier in a positive direction.

This is remarkable as it comes after the global threshold to measure extreme poverty has been raised to $3 per person per day from $2.15 and incorporated the 2021 purchasing power parity (PPP) for the calculation.

It may be worth noting that India’s methodology revision partially offset the increase as India transitioned to a Modified Mixed Recall Period method from Uniform Reference Period in its Household Consumption Expenditure Survey [HCES] resulting in higher measured consumption and lower poverty estimates.

4.3 Moody’s ratings last Tuesday released its outlook on banking sector: 

• Systemwide NPL ratio expected to stay at 2–3% over the next 12 months (vs. 2.5% as of Dec 2024), supported by strong domestic growth conditions.
  • Wholesale loans: Healthy asset quality due to robust profitability and low leverage among corporates.
  • Unsecured retail loans: Deteriorating trend; NPLs rising over past quarters.
  • Small private banks: Likely to face weaker asset quality compared to larger peers and PSBs.

• Government capex, middle-class tax cuts, and monetary easing to support consumption and economic resilience.
• India’s limited exposure to goods trade reduces vulnerability to global trade tensions.

Overall outlook signals that domestic macro strength to buffer banks amid global uncertainty; divergence in asset performance across lender segments persists. It may be noted that this is complimented by IMF outlook released last week that India will remain the world’s fastest-growing major economy over the next two years, which expects the country’s rates of expansion to touch 6.2% in 2025 and 6.3% in 2026. However, OECD in its report released last week trimmed India’s FY26 GDP forecast to 6.3% (from 6.4%) citing global trade headwinds, notably Trump’s tariff hikes.

4.4 As per S&P Global release,

• HSBC Manufacturing PMI softened to 57.6 in May (3-month low), down from 58.2 in April. While growth in output and new orders slowed, it remained above long-run averages. Demand remained strong, though growth was constrained by competition, inflation, and geopolitical tensions.
• HSBC Services PMI edged up to 58.8 (3-month high), driven by strong domestic and export demand (fastest export order growth in 19.5 years). Hiring surged to a record (~16% of firms added staff), but input and output prices rose sharply. 
• HSBC Composite PMI slipped marginally to 59.3 (from 59.7 in April), reflecting robust services growth offset by slower manufacturing momentum. Employment rose at a record pace, but cost pressures intensified, especially in services.

Services continue to remain the engine of growth, while manufacturing shows early signs of strain. Record job creation across sectors signals robust hiring intent. Export momentum and staffing expansion are supporting private sector resilience despite global headwinds.

# 5 PE/VC

5.1 Key take aways from McKinsey Global Private Markets report 2025 

1. Private Equity dealmaking activity faced headwinds, with deal values and counts showing variable growth. 
   1. Global PE dealmaking rebounded by 14% to $2 trillion in 2024, marking the third-most-active year on record.

• The median purchase multiple (entry) for buyouts in 2024 was approximately 11.2× EBITDA, indicating continued premium valuations despite market pressures.

1. Private equity fundraising slowed, with funds closed in 2024 being open for a record-high average of 21.9 months, up from 19.6 months in 2023.
   1. PE fundraising declined for the third consecutive year, decreasing by 24 percent year over year to $589 billion.
   2. Midmarket funds (ranging from 1billion to 5 billion in size) were the only category that bucked the trend.

• The number of funds closed in 2024 (~420 buyout funds) was below the decade average (~460), reflecting more prolonged fundraising cycles.

1. Private debt fundraising decreased by 22 percent to $166 billion.
   1. The pooled net IRR for private debt in 2024 was 6.6 percent.
   2. Default rates remain low but could begin to rise in the future.
   3. Over $620 billion in high-yield bonds and leveraged loans are set to approach maturity in 2026–2027, creating opportunities for refinancing and increased demand for private credit solutions
2. Private Market Valuations in 2024, displayed resilience, with ongoing adaptation to higher interest rates and geopolitical tensions. Capital deployment across asset classes increased in double digits, even as fundraising dipped.

• Investors indicated intentions to allocate more capital to private markets in the coming year, showing confidence despite the uneven environment.

1. Distributions to LPs exceeded capital contributions for the first time since 2015.
   1. PE returns across sub asset classes continued to decline, with the industry-wide IRR decreasing to roughly 3.8 percent.
   2. Total secondaries deal volume increased 45 percent year over year to $162 billion, making 2024 the highest year on record- critical source of liquidity for LPs.

These data points and insights highlight the resilience and evolving dynamics of private markets in 2024, amid economic and geopolitical shifts. Private market participants are exploring new capital structures such as evergreen funds and increased secondary market activity, reflecting adaptive strategies in a transitioning industry.

5.2 Venture capital (VC) funding into Indian startups in May touched the highest level so far this year, clocking in at $1.45 billion. When compared with April 2025, the increase was 103%, according to YourStory Research.

1. May’s VC funding came in from just 99 deals, while April saw a total of 119 deals with a total value of $716 million. 
2. In May, VC inflow surprisingly remained consistent across various stages of funding—early, growth and late. Surprisingly, the debt category of funding received $121 million in the month of May.

The sectors that received the most capital in May were logistics, followed by Health tech and fintech. This was a surprising development, as the fintech segment topped the list earlier. Regulatory headwinds in fintech might explain some of the investor caution in the segment