An apt policy: RBI may tighten credit later but its current focus is on attracting flows of foreign exchange: Mint 5th June 2026

 https://www.livemint.com/opinion/online-views/rbi-mpc-monetary-policy-committee-credit-foreign-exchange-forex-rupee-repo-rate/amp-11780638285109.html

Withdrawal of taxes on FPI investment in Gsec: The final frontier? Business Standard 5th June 2026

 The foreign portfolio investors (FPIs) have been in a withdrawal mode this year. One of the reasons which has been given is the system of taxation where returns become less competitive when compared with other markets.

 This has been addressed well by the government by exempting interest earned on GSecs holding from tax as well as removing any capital gains tax on GSecs. This is a big positive step that has been supplemented by the Reserve Bank of India (RBI), which now allows them to invest under the FAR regulation in securities of over 10 years duration. 

 

The important question is whether or not there will there be an about turn in the flow of funds in the debt segment? This is something which will be tested in the coming months. Prima facie, the tax rates of 20% on earnings in interest or capital gains meant erosion in real return. The prevailing thought process earlier was to have some kind of a level playing field for investors from both the domestic and foreign sections.

However, this could have militated against such investment, especially so considering that investors have been looking at other emerging markets and comparing returns. A declining rupee already lowered effective return that was compounded by the tax rate. This correction should make GSecs valuable again for investors. 

 

It must be pointed out that our GSecs are now part of global bond indices, which means that all such policies matter as investors keep rebalancing their portfolio depending on effective returns. Often investment in indices is complemented by separate investments in the Indian market to take advantage of any arbitrage opportunities. The nominal returns on bonds are fixed by the market over which no one has control. The same holds for currency movement that is determined outside the system. What we can control is the system of incentives available for investors. The government intervention here is hence pragmatic as it plugs a gap. 

With interest rates poised to rise across the world, the bond returns would be one of the clinching factors. The decision taken by the Fed in the upcoming meeting will hold the clue to the direction of interest rates in the US under the new Chairman. 

The next few months will test the efficacy of these measures as there has been a long standing demand for withdrawal of the withholding tax on FPI earnings in the debt segment. 

 

With the present measures being invoked all returns – interest and capital gains are not subjected to any tax. In parallel the RBI has also enabled them to invest in bonds of maturities higher than 10 years as well as in fresh issuances of paper.  All this should boost inflows. But ‘how much’ is the question? 

Why are FPIs exiting? Financial Express 5th June 2026

 Since the war began, global stock indices have behaved differentially. The Sensex surely has gone down from 81,287 to 75,415 between February 27 and May 22. This could give a signal that the Indian market has underperformed; however, US indices S&P 500 and DJI have gone up while the NYSE Composite is marginally down. Nikkei is up significantly while FTSE is down. German (DAX 40) and French (CAC 40) indices are down. So is the case with Brazil (IBOVESPA). But Korean KOSPI has done brilliantly while Singapore (STI) has trudged in the positive zone. Hang Seng of Hong Kong is down, as is the Shanghai Composite. Therefore, our market is not an outlier.

Yet it has been seen that foreign portfolio investors (FPIs) are in a withdrawal mode. Since March 1, they have pulled out $23.75 billion from the Indian market (equity and debt) while in the corresponding preceding 51 sessions, they withdrew $1.25 billion. The former included around $21 billion in equity and the balance in debt and hybrid. Interestingly, for the 51 days prior to the war, equity withdrawal was at $22.75 billion, with debt being positive.

Thus, the FPIs have been withdrawing funds from the equity segment even before the war began, which means it is a continuation of an earlier trend. The war has only maintained this tendency. However, in debt it was positive though marginal, which turned negative once the war began. An explanation can be conjectured here.

Decoding Herd Mentality

On the equity front, the FPIs have been bearish about Indian markets. It should be remembered that FPIs consists of myriad investors who are registered with Sebi and not a single entity. Therefore, the joint action can be taken to be some kind of group-think where decisions are taken based on a common line of thinking. One reason is the belief that some of the major stocks and sectors may be overvalued with very high private equity ratios. Generally, ratios above 30 denote overvaluation, less than 20 reflect opportunity, while the range of 20-30 could go either way.

The NIFTY pharma, FMCG, and consumption indices show ratios of ~35. It is 30 for auto, while it is less than 15 for banks, making them attractive. Here, the clue is corporate profitability. Growth in sales and profits has tended to be more in the single digit range, which indicates stability at best. This needs to change for the valuations to be justified or else, theoretically, the prices would have to correct over a time period.

The issue with stocks being considered to be overvalued is twofold. First, it makes sense for investors to exit as the upside seems limited. In fact, with the Sensex exhibiting higher volatility, it is a sign that the best is over for the time being until there is more buoyancy in the performance. The annualised daily volatility since the war began increased to 21.6% for these 50-odd sessions compared with 11.6% in the earlier period. Second, for new investment to flow, a wait and watch approach would be taken, following which a fresh round of investment would begin.

As mentioned earlier, some markets have shown remarkable resilience during these times, and investors would probably be moving their funds from markets like India, Brazil, etc. to the US, which has witnessed a general upward movement. It must be noted that ever since the central banks have been pursuing quantitative tightening, the quantum of investible funds has come down considerably. Hence, funds are being reallocated as investors search for opportunities in a wider set of markets.
Coming to the war, India’s market performance could be making FPIs cautious.

The high dependence on imported crude oil makes the trade balance jittery. While real growth is less of a concern, the issue with rupee depreciation is a consideration. The fact that the rupee is moving down lowers purchases and enhances sales, leading to net outflows. This in turn, feeds back to the currency strength as the rupee tends to be affected perversely, thus justifying the view that real returns would be weak. This is a tough nut to crack from the policy point of view.

How about debt? Ever since the war began, the bond markets have been in a different mood. Higher crude prices cause higher inflation across the world. This means that interest rates will no longer be lowered. Kevin Warsh’s appointment as chairman of the Federal Reserve was supposed to be associated with lowering of rates, which is what Donald Trump wanted. The last policy was cautious on rates. Now there is talk of rates being increased rather than lowered as inflation increases. This has pushed up bond yields. While Indian bond yields too have climbed up to cross 7% for 10 years’ maturity, there is a case of investors weighing the net return where the currency decline comes into play.

Therefore, FPIs will continue to be unpredictable in the next few months. They cannot be considered as a source of long-term capital when working out the options for closing the current account deficit gap. As long as they do not accelerate their withdrawal, it could be steady news. But the declining rupee is definitely a consideration for them as the real value gets affected.

What will the MPC do this time. BusinessLine 2nd June 2026

 

Business beyond profit and loss: Financial Express Book review 1st June 2026

 https://www.financialexpress.com/life/lifestyle/business-beyond-profit-amp-lossnbsp/4255152/lite/

Today businesses need to think beyond just making money. They need to be socially relevant as well. The government has come up with a mandatory amount to be spent by companies on corporate social responsibility, but that is just the monetary aspect, and money spent has often has been belittled as green-washing. All that is changing now, as companies and corporate heads work seriously to bring about changes in the way business is conducted.

Sutapa Banerjee captures this in her book, where her focus is on what companies should do to go beyond mere profit and loss. There is no better way to do it then get a mélange of experts to talk about the importance of three broad heads—sustainability, equity and breaking stereotypes. There are 24 essays in this book with 20 authors providing their views on various issues under these headings, besides the author who has her say on each of these subjects before having a round-up in terms of structuring a playbook.

There are some stellar names associated with this book, starting with a foreword by Nadir Godrej in a rather catchy poetic style. Others include Abheek Barua, Kiran Khalap, Sanjeev Bikhchandani, Manish Sabharwal, Deepinder Goyal and more.

Abheek Barua has an impressive piece on sustainability and inclusion, which is an economist’s view that talks about the importance of this issue and how corporates can work to make this world a better palace. This can be on projects taken up as well as environment-friendly ways of going about their business. Hence, what is important is doing the same business in a better manner. There is the case of ITC taking up projects to not just tackle waste but also new ways of greening land. Companies have now started projects to address issues concerning product disposal, which is very important.

Mukundan takes up the case of his domain, the chemicals industry, and flags three issues that have to be taken up by corporates. The first is to support bioethanol and biodiesel to ensure that coal boilers become more ecofriendly. The second is to set intermediate targets such as closure of old and inefficient power plants, vehicles, building, and improvement in logistics to enhance efficiency and lower costs. Third is to focus on goals such as providing green hydrogen at $1 per kg by developing smart grids, etc.

There are nine essays in this section with some foreign insights on sustainable agriculture in Africa being provided by MD Ramesh, which can hold clues for us within the country too.

Digital Equalizers

The section on equity and economic participation will appeal to every Indian reader. For instance, the essay on a digital job place by Bhikchandani takes us to how the concept of Naukri.com evolved, which has made searching for jobs easy for both prospective employers and employees. There is an extension now for blue collar workers too, called JobHai.com.

This concept was novel when it started and was an equalising tool for all segments of society. We have also seen the government launch a similar initiative at a different level for MSMEs where a virtual marketplace called GEMS has been launched.

Sabharwal’s name is synonymous with human resources and he has focused on reforms that are needed in the education space. He touches the right chord when he talks of reforms in the twins of education and skilling, which are both priorities of the government. The former is a challenge because it is quite diverse in the country and becomes the basis of fomenting inequality as access to quality education is not the same to all. A similar challenge is on the skills front where the youth do not have them to get meaningful jobs.

Preeti Reddy writes on the gender inequality pervading corporate India. She believes that things are changing as many companies are addressing this issue by making jobs more inclusive. Therefore, the DEI (diversity, equality and inclusion) formula is widely used by them. In USA, however, there has been a slowdown on this front, especially after Donald Trump has come to power, and there have been executive orders passed to restrict race and gender-based DEI programmes.

Reddy highlights the progress made in India and the fact that 97% of NSE-listed companies have one woman director and 48% have two or more than two, which is testament to this commitment. She highlights the need for political will to pursue this cause. She also believes that we need to have more women role models. Here an interesting observation is made that when the CEO is a woman, there tends to be more gender balanced boards.

At a different level, Deepinder Goyal talks about how his model of Zomato quite effectively fostered equality across three constituents in the value chain of food delivery. The customer, of course, is most empowered by getting access to not just knowledge but also to food from various outlets. Restaurants are the second group which are able to enlarge the universe of customers which was not possible in the pre-online model where they had to depend on the locality of their establishment for business. Last is the delivery partner model which has become a large industry given the proliferation in not just these delivery-app companies but also the physical area to be covered.

Pirojsha Godrej talks of the construction industry and the assimilation of migrant labour given that this industry employs 56 million workers, including 7 million women. The efficiency of starting projects and completing on time is contingent on delivery, and the seasonal labour shortage is a bane for the industry. The solution is to give primacy to the worker and ensure well-being as it is the only way to ensure there is limited reverse migration. Business hence has to be more responsible to remain viable and successful.

Banerjee has made this compilation well focused on three subjects which has several takeaways for both existing and prospective entrepreneurs.

Increasing impact of the west asia war: Chaos in prices: Free Press Journal 2nd June 2026

 

Shift in the economy’s tale: Goldilocks to Cinderella: Hindustan Times 29th May 2026

 The Indian economy in FY26 was termed a Goldilocks economy (borrowing from the popular fairytale), a bit of a cliché. But things looked just right and the cliché seemed apt: The growth rate was healthy, inflation stood at just 2.1%, and the external balance was marked by a low current account deficit. This was against the backdrop of the Trump tariff tantrums, making it all the more significant.

However, things have started to change. The picture today seems more like Cinderella’s tale, of having to retreat after a great evening. The West Asia crisis casts a shadow across the world. Many felt Iran would fold soon after the death of Ayatollah Ali Khamenei. But more than two months have passed; each side is claiming victory and the Strait of Hormuz remains shut, leaving economies vulnerable as global fuel and fertiliser markets reflect the pressure from a choked commerce route.

Let us look at what this means for us.

First, the growth rate is sure to be affected. The Reserve Bank of India (RBI) forecasts 6.8% for FY27 though talk elsewhere suggests even 6.5% — well below the 7.6% recorded in FY26. While the Purchasing Managers’ Index — an indicator of the health of the manufacturing and services sector — still looks encouraging, this may not translate to higher growth. There is a base effect at play here.

Second, RBI projects inflation to rise to 4.6% this year; though within the range of the monetary policy’s inflation target, it is higher than last year’s and closer to the long-run average (around 5%).

There are two other factors at play here. One is the retail prices of petrol and diesel. With the Brent benchmark now close to $100/barrel — up from $80-90/barrel assumed by most for the year — the government protected consumers until it had to hike prices. These hikes will impact transport costs as well as input costs for all producing enterprises.

The monsoon is the other factor. While the India Meteorological Department has indicated that it will arrive on time, the total rainfall for the year has been projected at 92% of normal, with El Niño effects in play in the second part of the season — not good augury for food inflation. Any shock here can have a sharp effect on the headline inflation number.

Third, with a high inflation threat in all countries, central banks everywhere have taken a cautious view on interest rates. This includes the Federal Reserve, notwithstanding the pressure from the US President to cut rates. The present outlook in India on inflation is hawkish as there can be an upside to the 4.6% expected. Therefore, it is reasonable to assume that the interest rate cut cycle is over and there will be a prolonged pause on the repo rate. More likely, at least one, if not two, hikes to repo rate towards the end of the year — depending on the data — may not be a far-fetched proposition. This is completely different from FY26’s aggressive rate cuts.

Fourth, there could be some discomfort on the budget numbers front, given the oil situation. The government had projected a fiscal deficit ratio of 4.3% for the year. The change in GDP methodology caused a slight increase — 4.4-4.5%. The issue is whether the projection will hold. The excise cut on petrol and diesel has led to a revenue loss, likely in the range of ₹1.2-1.4 lakh crore. The gas availability situation has led to an increase in fertiliser prices, and the subsidy bill can swell by over 20%. With oil companies probably not making significant profits — or more likely, registering losses — this year, the tax and dividend they pay to the Centre will likely fall, affecting the latter’s revenue. Hence, a deficit slippage looks likely if expenditure outlays remain unchanged. Fiscal management will have to be dexterous to balance these odds.

Fifth, the external account situation will no longer be comfortable. Presently, our reserves cover 11 months of imports — a good showing. But going ahead, there are challenges. The trade deficit could widen as import costs go up due to oil and exports can slow down because shipping routes to the Gulf Cooperation Council (GCC) countries are affected by the war. Remittances from the Gulf will slow down; given that roughly 35% of total remittances to India come from this region, there will be significant challenges from this front. On the c

apital account side, foreign portfolio investors (FPIs) continue to be bearish on India’s equity market. With foreign direct investment (FDI) also being cautious — investors are looking more at the developed world — the inflow could, at best, be stable. The high level of repatriation could continue, affecting net inflows to the country.

Two engines of growth need to be observed. The first is consumption. With all the incentives given by the government in 2025, it was expected that the momentum would be maintained. But oil has played spoilsport, with prices of several products (paints, pesticides, FMCG goods, electronics) and services (airfares, restaurants, etc) rising. With inflation risks, the direction of consumption, especially urban, needs to be watched. Rural consumption will largely be contingent on the monsoon prospects.

The other is private investment. Last year, companies were cautious as the American tariff tantrums cast a shadow. The war has exacerbated uncertainty for FY27 and will warrant a similar approach. With so many factors at play, the Goldilocks story seems set to change — and Cinderella’s midnight bells could chime at some point.