On Thin Ice

When Jon Snow allowed the wildlings to pass through the Wall in Game of Thrones, the fantasy drama television series that captured worldwide fame a few years ago, it wasn’t because the two sides had built a level of trust or resolved their differences. It was to deal with a larger threat—the White Walkers, or the army of the dead. So, enemies who had fought for generations were forced into an uneasy truce. The fighting stopped. Order, of a kind, returned.

A different war has been playing out in the real world for the past few weeks. But this week there was a pause with the US and Iran agreeing on a two-week ceasefire brokered by Pakistan and reluctantly accepted by Israel.

There was a sense of relief. Oil prices fell sharply—in some cases by as much as 10% in a single session—as the immediate threat to supply appeared to ease. Equity markets surged 4-5% in a single day and risk assets reflected a short-lived return of confidence. The first-order reaction was consistent with a system stepping back from the edge.

But the relief did not hold. Within a day, oil began to rise again, moving back towards the $95-100 range, as markets reassessed what the ceasefire meant. Shipping flows remained uneven, with reports of vessels delayed or rerouted. Tanker rates and insurance premiums stayed elevated, reflecting the persistence of risk despite the pause. Continued military activity and competing interpretations of the agreement reinforced a deeper uncertainty.

What markets are now trying to assess is not whether the ceasefire exists, but how it changes the structure of risk. 

So far, the answer appears limited. The physical system remains constrained. A significant share of global oil continues to pass through the narrow Strait of Hormuz. Even partial disruption is enough to keep supply tight and prices sensitive. 

At the same time, the underlying disagreements that led to the war have not been addressed. What exists is a pause shaped by immediate pressures, not a settlement that reduces long-term risk.

This distinction is beginning to show up in prices. Oil is no longer reacting to the presence of a ceasefire, but to the probability of its breakdown. Equity markets, after an initial stabilisation, have become more tentative. There is a subtle shift from pricing relief to pricing uncertainty.

For India, the transmission is more direct. India imports more than 85% of its crude oil requirements and nearly half of its natural gas, much of it routed through the Strait of Hormuz. That makes even partial disruption relevant. As oil prices retrace towards the upper end of the recent range, the impact begins to show up across variables.

The rupee has faced renewed pressure as higher energy prices increase the import bill and widen the current account. Inflation expectations, particularly around fuel and transport, become more sensitive to sustained price moves. 

When energy prices move on supply risk, the effects tend to transmit through import costs, then currency, and eventually into broader prices. Policymakers can smooth parts of this adjustment, through taxes or inventory management, but not fully offset it.

Markets are still trying to assess how durable this pause is. A durable de-escalation would ease supply constraints and stabilise expectations. A breakdown would reintroduce the risks that markets had briefly set aside. 

For now, neither outcome is dominant. What exists instead is a temporary alignment of incentives that reduces immediate pressure but leaves the system exposed – the kind of arrangement that holds, but only just.

Like at the Wall in Game of Thrones, the conflict has not been resolved. It has been deferred. And markets are adjusting accordingly—not to peace, but to the possibility that this version of it may not last.

Holding the Line

The ceasefire in the Middle East has calmed markets, but the economic and financial systems remain unsettled. That is the backdrop against which the Reserve Bank of India delivered its latest policy decision.

The expectation going in was relatively clear. Headline inflation had softened meaningfully last year and, at 3.21% in February, was still below the RBI’s 4% target. Growth conditions remained supportive. 

Under normal circumstances, this would have strengthened the case for further easing. But conditions are not normal. The Monetary Policy Committee chose to hold the repo rate at 5.25% and maintained a neutral stance. The decision was unanimous. On the surface, this is a pause; in substance, it is a signal about how the RBI is reading the balance of risks.

Two forces are at work: inflation and uncertainty. Over the past year, inflation has fallen sharply—dropping to 0.25% in October 2025. Earlier rate cuts – 125 basis points cumulatively through 2025—were a response to that easing cycle. 

The second force is uncertainty. The Middle East conflict pushed oil prices higher and threatens to jack up inflationary expectations. It also introduced volatility into the currency. The rupee has depreciated by more than 4% during the period of conflict, even briefly crossing 95 to the dollar—a record low—before recovering after the RBI imposed curbs on speculative trading. This matters significantly. For an import-dependent economy, where over 85% of crude oil is imported, currency weakness feeds directly into inflation through higher landed costs.

Markets are still trying to assess how persistent these pressures will be. That is where the RBI’s stance becomes clearer. The pause is not about where inflation is today. It is about where it could move if current conditions persist. If oil stabilises in the $90-95 range and supply normalises through the Strait of Hormuz, inflation risks may ease. If disruptions linger, prices will move higher. In that sense, the policy is less a reaction to data, and more a positioning against risk.

Alongside the rate decision, the RBI introduced a set of measures that point in the same direction, easing constraints where conditions allow. Banks will now be able to include quarterly profits more flexibly in their capital calculations, without being tied to earlier volatility in provisioning. The change reflects a relatively benign credit cycle, with non-performing assets near decadal lows, and is expected to stabilise capital ratios as balance sheets grow. 

At the same time, the RBI has proposed to do away with the investment fluctuation reserve requirement. The buffer, originally designed to absorb volatility in bond portfolios, is being reconsidered given updated mark-to-market norms and existing capital charges for market risk. Taken together, these measures could free up Rs 35,000-40,000 crore within the banking system, with analysts suggesting a potential 20-30 basis point improvement in capital ratios for some banks. 

Regulation, like monetary policy, tends to adjust at the margin. Both reflect the same environment—some improvement in inflation, some relief in global conditions, but neither complete. The system is still carrying residual stress from energy prices, currency movements and the uncertainty around how long the current pause in geopolitical tensions will last. Cut too early, and the RBI risks amplifying imported inflation if external conditions worsen. Wait too long, and it risks slowing momentum in parts of the domestic economy. A neutral stance allows it to hold that balance—for now.

The Big Bang

If monetary policy was about managing near-term uncertainty, the next story sits at the opposite end of the horizon.

India’s most advanced nuclear project—the prototype fast breeder reactor at Tamil Nadu’s Kalpakkam—has reached “criticality”, the stage at which a nuclear chain reaction becomes self-sustaining. 

To understand why it matters, let’s start with a constraint. India holds only 1-2% of global uranium reserves and imports most of what it needs to run conventional reactors. At the same time, it has almost 25% of the world’s thorium—but doesn’t have the technology to use that. The nuclear programme has long been designed around this imbalance. 

The Kalpakkam reactor represents the second stage of that strategy. Unlike conventional reactors, which consume uranium and generate plutonium as waste, a fast breeder reactor can use that plutonium as fuel—and in the process, produce more plutonium and a more fissile variety of uranium.

In effect, it changes the fuel equation. Instead of relying primarily on fresh uranium, the system begins to recycle and multiply what it already has, creating a pathway to the third stage—reactors that can use thorium as a primary fuel.

The timing also matters. India is already the world’s third-largest energy consumer, and demand is expected to grow alongside the economy. Nuclear power currently accounts for only about 3% of the energy mix, with capacity of around 8 GW. The stated ambition is to scale this significantly—to as much as 100 GW by 2047.

That expansion cannot rely on imported uranium. The breeder programme is designed to extend the life of existing resources and reduce dependence on external supply—a vulnerability that becomes more visible in periods of geopolitical stress, as recent disruptions in energy markets have shown.

But the path is not without friction. Fast breeder reactors are complex systems, and globally their track record has been uneven, with challenges around cost, efficiency and long construction timelines. The Kalpakkam project itself has taken over two decades to reach this stage, with costs rising significantly from initial estimates.

Moreover, electricity from such reactors has historically been more expensive than conventional nuclear, and in many cases costlier than renewable alternatives. Technological viability does not always translate into commercial scalability.

The trade-offs are clear. On one side is energy security and long-term optionality. On the other is cost, execution risk and competing technologies. How that balance evolves will determine whether this remains a technological milestone or becomes a meaningful part of India’s energy mix.

Holding Ground

After the long arc of energy security, let’s move our focus to the tech sector. Tata Consultancy Services, the first among large IT firms to report earnings for the January-March quarter, delivered numbers that were slightly above expectations. Revenue for the fourth quarter rose 9.7% to Rs 70,698 crore while net profit increased 12.2% to Rs 13,718 crore.

These numbers reflect a demand environment that is steady rather than strengthening. Part of that strength came from currency—a weaker rupee supports export-oriented IT firms that bill in dollars but incur costs in rupees. 

But there is a more measured picture that one should not miss. Growth in North America—which accounts for nearly half of TCS’s revenue—was 2.5%, pointing to stable demand, but not acceleration. The company’s largest segment, banking and financial services, grew just 0.4%, suggesting that core client spending remains cautious.

At the same time, there are early signs of where incremental growth is coming from. Annualised AI-related revenue crossed $2.3 billion, up from $1.8 billion in the previous quarter, while segments such as life sciences and manufacturing grew modestly. The order book improved sequentially to $12 billion, indicating that deal flow remains intact.

That mix—stable demand but uneven across segments—is consistent with how the industry has been evolving. Clients continue to invest in technology, but with a sharper focus on efficiency and outcomes. This shows up in slower growth in traditional verticals and stronger traction in areas linked to transformation, including AI.

The numbers suggest that while macro headwinds have not fully receded; they are being managed. Growth is holding, margins are supported, and deal pipelines remain healthy—but without a clear broadening in underlying demand. As the rest of the sector reports over the coming weeks, the question is unlikely to be about whether growth persists. It is more about where it begins to widen.

Market wrap

Other Headlines

• RBI proposes delays for high-value UPI payments, checks for senior citizens to curb digital frauds
• SEBI extends IPO approvals till Sept 30 as West Asia war hurts market sentiment
• Wipro to acquire Olam Group’s IT business Mindsprint for $375 million
• UK awards $510 million in funding to Tata’s Agratas for Somerset EV battery gigafactory
• Air India CEO Campbell Wilson resigns amid losses and regulatory scrutiny
• India GDP to grow 6.6% in FY27, risks from West Asia crisis persist: World Bank
• India’s services PMI growth slows to 14-month low as West Asia war hits demand
• Govt of India withdraws bid to host annual UN climate talks COP33 in 2028
• Govt raises HPCL Rajasthan Refinery project cost by 84% to Rs 79,459 crore
• Govt raises fertiliser subsidy by 11.6% as US-Iran war lifts global prices
• Govt orders major airports to cut landing and parking charges by 25%, in relief to airlines
• Gautam Adani to seek dismissal of US SEC fraud case by April 30

That’s all for this week. Until next week, happy investing!

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