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The Weak Links

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Late last month, the American artificial intelligence company Anthropic’s dire warnings about the threats AI poses came to light. If that wasn’t enough for organisations and governments to tighten their cyber defences, the events that unfolded this week across many countries including India surely will.

Let’s start with India. On October 21, State Bank of India reported that a preliminary examination of about 375,000 records found on the dark web identified 3,897 customer records containing personally identifiable information.

The details reportedly included names, mobile numbers, dates of birth, addresses and loan-related information. SBI said the incident had not materially affected its core operations, financial performance or business continuity. It appointed an independent cybersecurity agency to investigate the source and extent of the exposure.

The SBI disclosure came after the Indian Computer Emergency Response Team, or CERT-In, issued an advisory on October 9 describing attacks on non-banking financial companies, digital lenders, fintech firms and payment service providers. Attackers exploited exposed applications and payment APIs, stole credentials and initiated unauthorised transfers by bypassing transaction controls, CERT-In said at the time without naming any company.

A different weakness emerged this week at eMudhra Ltd, a publicly listed digital security company, when CERT-In said some eMudhra intermediate certificates had been compromised. CERT-In said private keys associated with eight intermediate digital certificates had been generated with insufficient cryptographic randomness, making them recoverable from their public keys.

These certificates are critical cybersecurity tools as they encrypt data sent between users and websites to keep hackers away. Essentially, the compromised keys could have enabled fraudulent website certificates or software signatures.

This is worrisome since the company’s clients range from IT giants Infosys and TCS to government agencies such as the India income-tax department. While eMudhra said none of the eight intermediates had issued certificates to end-user websites, tech companies such as Google, Apple and Microsoft moved to distrust the affected certificates. This, in turn, forced the company to announce that it was exiting its global business of issuing security certificates for websites.

India wasn’t the only country dealing with cybersecurity risks. Many countries worldwide took down some government websites to protect against security vulnerabilities in the PHP programming language, which is used to run more than 70% of the websites on the internet.

The US National Security Agency as well as authorities across Germany, France, Belgium, the Netherlands, Finland and Japan issued such warnings and began to apply security patches to deal with two critical vulnerabilities highlighted by cybersecurity researchers working with ChatGPT maker OpenAI and Google-owned Wiz using AI tools.

To be sure, these incidents are not evidence of a common, widespread cyberattack. But they illustrate different vulnerabilities: customer information can be exposed, digital trust can be weakened, and payment controls can be circumvented. For institutions, keeping services running is one measure of security; establishing what information and systems remain exposed is another.

The Inflation Gap

From cybersecurity, let’s now move on to macroeconomic issues.

The Reserve Bank of India’s latest policy decision earlier this month was unanimous on the rate increase, but not on the signal that came with it. The RBI meeting’s minutes, released this week, offer some more clues on what may lie ahead.

All six members of the Monetary Policy Committee voted to raise the repo rate by 25 basis points to 5.50%. However, two opposed the accompanying shift in policy stance from neutral to calibrated tightening. The disagreement centred on whether the spread of price increases was evidence of more persistent inflation, or whether supply-side pressures were still doing most of the work. That distinction shaped how members assessed the need for a more restrictive policy signal.

The minutes show why the question has gained importance. The weighted share of items in headline consumer price index (CPI) recording inflation above 4% rose from 20% in March to about 37% in August, Governor Sanjay Malhotra noted. Core inflation, which excludes food and fuel, rose from 3.9% in July to 4.2% in August.

The figures point to a wider distribution of price increases, but they do not establish that inflation has become entrenched. The MPC itself noted some evidence of inflation becoming more widespread, but limited evidence that supply-side pressures had become embedded in firms’ pricing behaviour. A broader rise in prices does not necessarily mean that inflation will persist at the same pace.

That distinction shaped the debate over policy.

Economist Nagesh Kumar, one of the three external members of the RBI’s Monetary Policy Committee, argued that inflation remained largely supply-driven and that there was little evidence of generalisation or an overheating economy. He supported the rate increase but preferred to retain a neutral stance.

Professor Ram Singh, another member of the committee, also backed the increase, while warning that a tightening stance could imply an extended rate-hike cycle and weigh on consumption and investment.

Other members placed greater weight on the risk of waiting for clearer evidence. This indicates more rate hikes are likely.

Deputy Governor Poonam Gupta argued that monetary policy works with a lag and that the RBI need not wait for definitive signs of inflation spreading before acting.

Economist Saugata Bhattacharya, also an external MPC member, pointed to rising input prices and signs that businesses were passing some costs on to consumers.

The committee’s projections reflect the pressure it sees. The RBI raised its inflation forecast for 2026-27 to 5.2%, from 5% in August, while increasing its growth projection to 7.1%, from 6.7%. It expects inflation to reach 6% in the October-December quarter before easing to 5.7% in January-March. The 6% level is the upper limit of the RBI’s tolerance band; its formal inflation target is 4%.

September’s provisional retail inflation reading, released on October 12, came in at 5.54%, up from 4.83% in August. Provisional food inflation reached 7.74%. These figures were not available when the MPC met on October 5-7, but they add to the evidence the RBI will have to assess at its next meeting in early December.

The minutes leave one distinction unresolved. Inflation is appearing across a larger share of the CPI basket, but the RBI has found limited evidence that supply-side pressures are becoming embedded in firms’ pricing decisions. Whether that changes will depend on how costs pass through to consumers and how prices evolve in the months ahead. For now, the committee’s debate is about how to respond before that evidence becomes clearer.

Tax Tweaks in the Offing?

Let’s now move on from banking to markets and policymaking. Foreign investors have pulled nearly $32.8 billion out of Indian equities so far this year, adding to the $18.9 billion outflow last year. In such a scenario, tax relief has re-emerged as one possible way to improve the market’s appeal.

But the debate is not simply about lowering taxes. It is also about what the government wants to encourage: longer-term investment or less speculative trading.

Finance Minister Nirmala Sitharaman said this week that the government was open to hearing views on long-term capital gains (LTCG) tax and securities transaction tax (STT) ahead of the next Union Budget. She made no commitment to changing either. The remarks followed a proposal by SBI Research to abolish LTCG tax on equities while extending the qualifying holding period to two or three years from one year currently.

The proposal has two parts, and they would affect investors differently. Under current rules, eligible listed shares and equity-oriented mutual fund units held for more than 12 months qualify for long-term treatment. Gains above Rs 1.25 lakh a year are taxed at 12.5%.

Under the SBI Research proposal, qualifying long-term gains would become tax-free, but investors would have to hold their investments for longer. Someone selling after 18 months, for instance, could see gains taxed at the short-term rate of 20%, rather than the current long-term rate. The proposal could reward patience while raising the tax burden for some investors who sell earlier.

STT addresses a different activity. It is charged on specified market transactions, whether or not they produce a profit. From April 1, 2026, the government raised STT on futures from 0.02% to 0.05% of traded value, and on the sale of options from 0.10% to 0.15%. The rate on exercised options also increased. The changes targeted derivatives trading; the 0.1% STT on delivery-based equity purchases and sales remained unchanged.

The revenue at stake is significant. STT collections reached Rs 46,840 crore by October 14, up 51.6% from a year earlier. Higher derivatives tax rates contributed to the increase, alongside market activity.

Separately, reported collections from LTCG tax on equity transactions reached Rs 1.29 lakh crore in assessment year 2025-26, against Rs 72,249 crore in the previous year. These figures relate to different revenue measures and periods, and they indicate the scale of the tax base rather than the amount the government would lose under a proposed change.

A lower LTCG tax could improve investors’ post-tax returns, but it would not guarantee fresh foreign inflows. Those also depend on valuations, earnings, currency movements and global conditions. Meanwhile, raising derivatives taxes and reconsidering long-term capital gains taxation need not be contradictory: the measures address different types of market activity.

The government has opened a debate, not announced a change. The question is whether a different tax structure can reward longer holding periods without an unacceptable fiscal cost, and how much that incentive can influence investor behaviour.

The Short End

The RBI’s rate hike earlier this month and shift to a tightening stance has had another consequence—the terms on which investors are willing to lend to the government over short periods have come under pressure.

On October 21, the tension became visible in an unusual way: the central bank rejected every bid at a Treasury bill auction through which the government planned to raise Rs 23,000 crore.

The auction covered 91-day, 182-day and 364-day bills. Across the three maturities, 224 bids were received and none was accepted. At the previous such auction, on October 14, the government raised funds at yields of 5.73%-6.49%.

Over the five weeks to October 14, yields on these maturities had risen by 64-83 basis points. The one-year bill’s yield was 99 basis points above the RBI’s 5.50% repo rate, the widest such gap in four years.

So, what does this really mean?

Well, the move suggests that the bond market is reassessing the cost of short-term borrowing after the RBI’s rate increase and shift to calibrated tightening.

Many traders believe the yields investors sought were above the central bank’s expectations. That, however, remains a reported market interpretation, not an official explanation: the auction result did not specify why the bids were rejected.

Liquidity conditions provide further context, though they do not establish the reason for the auction outcome.

The banking system’s liquidity surplus fell to Rs 542 crore on October 22, from Rs 48,304 crore a day earlier and Rs 11 trillion in early September. Common pressures included the RBI’s liquidity absorption measures, GST payments, state government borrowing, foreign-exchange intervention and cash moving out of banks.

The RBI allotted Rs 50,006 crore in an overnight variable-rate repo operation on October 22, against a notified Rs 50,000 crore, at a weighted average rate of 5.55%. Banks had submitted bids worth Rs 1.62 lakh crore.

The strong demand for overnight funds points to pressure on immediate liquidity, although it does not establish what drove the previous day’s auction result.

Rejecting all bids is unusual, but not unprecedented. The RBI did the same across all three maturities at the end of March; in June, it cancelled auctions of 182-day and 364-day bills.

The latest result does not, by itself, establish that another rate increase is imminent or that the RBI is setting a ceiling on borrowing costs.

But it does show that the terms investors are seeking and the terms on which the government is prepared to borrow have diverged.

Whether that gap reflects rate expectations, immediate liquidity pressures or other market conditions remains unclear.

For now, the auction is evidence of tension in short-term funding markets, not a definitive signal of the RBI’s next move.

 

Beyond the Network

Let’s now talk about the most-talked-about event of the week—the IPO of Jio Platforms. The subsidiary of billionaire Mukesh Ambani-led Reliance Industries launched its Rs 30,213-crore IPO this week and crossed the finish line in less than two hours. The IPO is significant for several reasons. For one, it is the first IPO by a Reliance Industries group company in nearly two decades, so naturally there is a lot of excitement. Then, it is India’s biggest IPO thus far and overtakes public offerings of companies such as Hyundai Motor India, the National Stock Exchange and Paytm.

Another highlight is that the entire IPO is a fresh issue of shares and no existing shareholder—which include Facebook parent Meta, Google parent Alphabet, American private equity firms and Middle Eastern sovereign wealth funds—are selling any stake. That’s a departure from most other IPOs in India over the past couple of years.

The IPO is priced between Rs 1,065 and Rs 1,119 apiece. At the upper end, the issue implies a post-offer valuation of about Rs 10.3 lakh crore, propelling Jio into the top 10 listed companies in India.

Jio Platforms intends to use up to Rs 27,500 crore of the net proceeds to prepay, in full or in part, certain borrowings of its telecom unit Reliance Jio Infocomm.

Beyond the big numbers, investors are being asked to value two things in Jio Platforms’ IPO: a large, profitable telecom business and a wider digital-services proposition whose future contribution is still developing. The distinction matters at its implied valuation. Jio’s existing earnings provide a substantial base, but they also show where most of its business currently lies.

Jio Platforms reported consolidated revenue from operations of Rs 1.47 lakh crore and profit after tax of Rs 30,049 crore in the financial year ended March 2026. At the upper-end valuation, that amounts to roughly 34 times FY26 profit.

The revenue mix offers a closer look at what underpins those numbers. According to the red herring prospectus, Reliance Jio Infocomm, Jio Platforms’ telecom arm, contributed 87.74% of consolidated revenue in FY26. Its contribution was even greater for EBITDA, at 94.88%, and profit after tax, at 93.76%. The figures show that the telecom operation generates most of the group’s current earnings.

Jio Platforms also has businesses spanning enterprise digital services, cloud computing and entertainment, and its stated priorities include expanding into AI and other technology services. But the prospectus notes that the company’s key operating indicators remain largely tied to digital connectivity. The extent to which newer services will change the group’s revenue and profit mix remains to be seen.

Strong demand for the IPO shows that investors are willing to bid at the offered price. The harder question is how much of the valuation rests on the earnings Jio already generates, and how much on the contribution its broader digital ambitions may make over time.

Market wrap

India’s stock markets recorded a sharp drop this week, as high oil prices above $110 per barrel due to tensions in the Middle East stoked worries over inflation and rate hikes. Strong demand for Jio Platforms’s $3.2 billion IPO also drained liquidity from the secondary markets.

The Nifty 50 slumped lost 2.4% and the BSE Sensex slipped 2.2%. In the broader market, small-caps sank 7.3% and the mid-caps plunged 5.6%.

As many as 15 of the 16 major sectors logged losses this week, with stocks directly affected by high oil prices falling the most.

The consumer durables index lost 6.4% while energy, FMCG and auto indexes dropped between 4.6% and 3.5%.

Only a handful of Nifty stocks were in the green. These included top performer HCL Tech, followed by TCS, ONGC and UltraTech.

At the other end, Adani Enterprises saw the steepest fall–nearly 8%. Four more companies–Shriram Finance, Trent, Tata Motors Passenger Vehicles and Nestle India–lost over 7% each. Another 10 stocks sank at least 4% each.

Heavyweight HDFC Bank lost 5% after missing quarterly profit estimates. Axis Bank dropped 5.6% after missing forecasts while Bajaj Finance fell 5.4%. Jio Platforms parent Reliance Industries fell 1.7% while its Jio Financial unit dropped 5.2%.

Earnings snapshot

 

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

 

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