Week ending 15th March 2025
# 1 Markets
Indian equities have emerged as one of the worst performers globally as trade dynamics evolve. For the first time since 2009, the Sensex’s price-to-earnings (P/E) ratio has fallen below that of the Dow, highlighting valuation pressure. Historically, India traded at a +13% premium to the U.S., but today, it stands at an 8% discount.
Foreign investors continue offloading Indian stocks despite a sharp correction, citing economic slowdown concerns. Additionally, U.S. tariff actions pose risks, with India’s high average tariffs potentially weighing on growth. Broader markets struggled, with 1,894 stocks declining against 984 advancing last week. The Nifty closed below 22,400, and the Sensex dropped to 73,828 on Thursday, the last trading day of the week. Experts remain unconvinced that markets have reached a bottom. The upcoming FOMC decision on March 19 and U.S. tariff reviews could provide future direction.
Meanwhile, expectations of rate cuts have risen, backed by benign inflation, with bond yields trading within a narrow range. India’s 10-year yield closed at 6.69% on Thursday. In the U.S., Federal Reserve Chair Jerome Powell signaled potential revisions to the Fed’s dot plot projections, but suggested interest rates would likely remain unchanged in the near term. The U.S. 10-year yield hardened, closing at 4.31% on Friday.
Investor sentiment was rattled by a looming U.S. government shutdown, dragging down all three major indices until Thursday. However, Friday saw a strong reversal, with the Dow gaining 1.66%, the S&P 500 rising 2.13%, and the Nasdaq surging 2.61%.
# 2 Banking
2.1 INDUSIND BANK – What shook the markets last week
- IndusInd Bank suffered a financial blow as its net worth was reduced by ₹ 1,577 crore.
- That’s almost 2.5% of its net worth evaporated.
What happened?
- IndusInd engaged in interest rate swaps (IRS) and foreign exchange (FX) derivatives to hedge risks tied to foreign currency borrowings, particularly yen-denominated deposits.
- These deposits, popular among Indian banks for their ultra-low rates (e.g., 0.1–0.5% vs. India’s 6–7% deposit rates), expose banks to FX risk if the yen weakens against the rupee.
- To mitigate this, IndusInd’s treasury desk swapped fixed-rate yen liabilities into floating-rate rupee equivalents, while the trading desk executed offsetting external contracts with counterparties like global banks (e.g., HSBC, Citi) or domestic players.
- The bank used internal trades for illiquid trades (e.g., 3–5-year yen swaps or 8–10-year dollar borrowings).
What is the Issue?
- The external leg was marked-to-market, while the internal leg used swap cost accounting—creating a mismatch. Illustratively speaking the differential would be like valuation of share through discounted cash flow and exchange traded price.
- The gains from these trades mostly flowed into the Net Interest Income (NII) line in the P&L. But when trades were unwound (e.g., early repayment of borrowings), one leg hit the P&L, while the other skewed the asset book. This mismatch built up over years.
Why Now?
- New RBI guidelines from September 2023 (effective April 1, 2024) forced a review.
- Internal trades were discontinued, and unwinding old positions exposed the discrepancies by September-October 2024.
Was it an Oversight Failure?
Perhaps yes. Despite concurrent, internal, statutory, and compliance audits over the years, this slipped through. The bank’s CEO, admitted they’re still piecing together how it went unnoticed, pending the external report due by March/April 2025.
The hit’s a one-off, not a systemic flaw. This wasn’t fraud or reckless trading—just a long-standing accounting glitch exposed by new rules. RBI yesterday has reassured depositors of Bank’s CAR and LCR exceeding regulatory requirements to prevent run on the bank.
2.2 As per CRISIL report published last week
- Corporate India will need to raise Rs 115-125 lakh crore in debt between FY26 and FY30 to fund capex, working capital, and NBFC financing.
- Of this, Rs 45-50 lakh crore will be for capital expenditure, while Rs 70-75 lakh crore will be required for NBFCs and working capital.
- The infrastructure sector will drive investment, accounting for three-fourths of total capex and 55% of overall debt needs.
- Despite low corporate leverage and improved infrastructure credit profiles, India’s financing ecosystem, including banks, corporate bonds, and ECBs, is expected to grow at 10% annually, possibly creating a funding gap of Rs 10-20 lakh crore.
To bridge this, the corporate bond market needs to play a larger role, supported by regulatory and policy measures, ensuring a steady flow of capital for infrastructure and other sectors. Unless RBI includes corporate bonds in its repo market, the bond market is unlikely to deepen despite various other steps taken by the Govt.
# 3 SEBI
3.1 SEBI has introduced stricter regulations for SME IPOs to ensure investor protection and encourage fundraising by SMEs with a soundtrack record. Key changes include:
- A minimum EBITDA of ₹1 cr. in at least two of the past three financial years.
- Selling shareholders cannot offload more than 20% of the total issue size, with an individual cap of 50% of their holdings.
- Excess promoter shareholding beyond the Minimum Promoter Contribution (MPC) will be released in phases—50% after one year and the remaining after two years.
- Ticket size Increased to two lots to curb speculation.
- IPO proceeds cannot be used to repay loans from promoters, promoter groups, or related parties. General corporate purpose capped at 15% of the total issue size or ₹10 cr., whichever is lower.
- SMEs can raise additional capital without migrating to the main board if they comply with SEBI’s LODR regulations.
These regulations introduced to protect investors’ interest follow a surge in SME IPOs, with 240 SMEs raising over ₹8,700 cr. in 2024, most of them with questionable financial. Of the 53 stocks in the BSE SME IPO index, only two have delivered positive returns on a three-month basis, as many counters plunged up to 50% though on a one-year timeframe, the SME IPO index has delivered gains of 58%. It is felt higher restrictions could dampen the spirit of SME IPOs removing the flexibility required to bolster their popularity.
3.2 SEBI is planning a suitability exercise for
- Retail traders looking to dabble in Futures & Options (F&O).
- They have to prove they are financially and intellectually prepared for the high-risk segment- have required knowledge and funds before stepping into derivatives trading.
The core idea behind this exercise is to assess whether retail investors understand the risks associated with F&O trading. The regulator may introduce a test to determine suitability, and brokerage firms will likely play a key role in evaluating traders’ eligibility.
3.3 SEBI has expanded the definition of Unpublished Price Sensitive Information (UPSI) to enhance regulatory clarity and compliance. Effective from June 10, 2025, the amended insider trading regulations include:
- Fundraising activities, credit rating changes (excluding ESG ratings), and agreements affecting management or control.
- Corporate insolvency developments, including resolution plan approvals, loan restructuring, and one-time settlements.
- Fraud or defaults by the company, its promoters, directors, or key managerial personnel (KMP), including arrests in India or abroad.
- Forensic audits, including initiation or final reports related to financial misconduct.
- Regulatory or judicial actions against the company, its directors, or subsidiaries.
- Critical licenses or approvals, along with guarantees, indemnities, and sureties for third parties.
This is coming on top of recently expanded list of Related Party transaction lists which literally constricted financial flexibility of listed firms to enhance shareholder value. It remains to be seen how expanding UPSI would further play down on operations of the company.
3.4 SEBI last Tuesday
- Reduced the processing time for a rights issue of equity shares to 23 working days (from the date of Board approving the issue) from 126 days in a bid to make it a preferred route of fundraising.
- Provided flexibility of allotment to specific investors in the rights issue
- Discontinued the current requirement of filing draft offer with it for issuance of its observation, instead it will be filed with stock exchanges for its in-principle approval, as the entity is already a listed entity.
The moves would facilitate ease of doing business and enable faster rights issues and bring down the present average timeline of 317 days. This mechanism would be even faster than the preferential allotment route that takes 40 working days
# 4 Economy
4.1 Key take aways from report released last week by Morgan Stanley
- India is projected to become the world’s third-largest economy by 2028, surpassing Germany, driven by macroeconomic stability, policy reforms, and infrastructure improvements.
- The economy is expected to expand from $3.5 trillion in 2023 to $4.7 trillion in 2026 and $5.7 trillion by 2028.
- CPI expected to decline from 4.9% in FY25 to 4.3% in FY27, driven by moderating food prices.
- India’s share in global GDP is set to rise from 3.5% in 2023 to 4.5% by 2029.
Key Growth Drivers
- Consumer Market Expansion, Macroeconomic Stability, Investment & Infrastructure, Growth in credit to GDP ratio and increasing manufacturing share in GDP.
- Strength in service exports and Current account deficit to stay below 1% of GDP in FY25-27.
Risks to Growth
- Global recession, US trade policies, dollar strength, and Fed’s monetary actions.
- Fiscal mismanagement at the state level and any policy shifts affecting macroeconomic stability.
Morgan Stanley maintains that India’s strong economic fundamentals and policy-driven stability position it for sustained long-term growth, making it a key global economic player.
4.2 Key takeaways from Moody’s Ratings in its report released last Wednesday
- India’s GDP growth to exceed 6.5% in FY26, up from 6.3% in FY25, driven by higher government capital expenditure, tax cuts for middle-income groups, and monetary easing.
- Loan growth is expected to slow to 11-13% in FY26, compared to an average 17% between March 2022 and March 2024, as banks align lending with deposit expansion.
- Profitability will remain adequate, with marginal declines in net interest margins (NIMs) due to modest rate cuts.
- The banking sector will maintain a stable outlook, but asset quality may deteriorate moderately, especially in unsecured retail loans, microfinance, and small business loans.
- Inflation is expected to decline to 4.5% in FY26 from 4.8% in the previous year.
Moody’s anticipates strong economic momentum for India in FY26, supported by government-led investments and policy measures, while the banking sector remains resilient despite some challenges in asset quality and loan growth.
4.3 As per MOSPI release last Wednesday
- India’s industrial output, measured by the Index of Industrial Production (IIP) grew by 5.0 per cent in January, from 3.5 per cent in December 2024
- Manufacturing sector’s output grew 5.5% in January vs 3.6% year-ago period.
- Mining production grew just 4.4% in Jan. vs.6 % year ago.
- Industrial output increased by 4.2% in the April-January period compared to %
- capital goods segment grew by 7.8 % in January vs. 3.2 % year ago.
- consumer durables grew by 7.2 % in January vs. 11.6 % in 2024.
- non-durable consumer goods decreased by 0.2 % vs. 0.3% increase last year.
The core sector makes up 40.27 % of the IIP, making it a lead indicator of industrial activity.
4.4 As per MOSPI data release last week,
- India’s annual inflation rate dropped to 3.62% in February 2025, down from a revised 4.26% in the previous month
- Inflation fell sharply for food (3.75% vs 5.97% in January), which accounts for nearly half of the Indian price basket, amid deflationary pressure for eggs, spices, vegetables, and pulses
- Also, prices fell for fuel and light (-1.33%) and remained soft for housing (2.91%),
This marked the slowest rise in consumer prices since July of the previous year and the first time in six months that inflation fell below the Reserve Bank of India’s 4% mid-point target. It is felt that the decline in inflation enhances the likelihood of a rate cut by RBI in April 2025.
# 5 PE VC
5.1 Key takeaways from McKinsey Global Private Markets Report 2025: (Private equity emerging from the fog)
- Private equity AUM declined by 1.4% globally for traditional closed-end commingled funds. – Break up of AUM
- Buyout – 60%
- Growth equity – 20%
- Venture capital – 15% reflecting its focus on early-stage investments.
- Global private equity dealmaking rebounded (+14%) to $2 trillion, driven by
- large buyout transactions (> $500 million enterprise value), which rose in both count (+3%) and value (+37%)
- Venture capital continues to struggle with declining deal counts (-16.9%) and poor returns compared to buyouts
- Fundraising declined for the third consecutive year (-24%)
- buyout, growth equity, and venture capital each falling by ~23–25%
- Mid-market fund ($1-$5billion) showed resilience
- Smaller Funds (<$1 billion) struggled with extended fund-raising timelines.
- LPs increased their target allocations to private equity (from 6.3% in 2020 to 8.3% in early 2024), signalling long-term confidence despite near-term liquidity challenges
- Global dry powder decreased by 11% to $2.1 trillion as deployment activity picked up
- Buyouts outperformed growth equity and venture capital, delivering a 4.5% IRR through Q3 2024 versus growth equity’s 4.2% IRR and venture capital’s 1.9% IRR
- Over longer horizons, buyout strategies have consistently outperformed public markets, despite recent underperformance against buoyant public equities in shorter periods.
- PE-backed exit values increased by 7.6% to $813 billion after two years of decline, but IPO exits fell (-7% in value, -20% in count)