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The Fourth of July is celebrated across the US as ‘Independence Day’, marking the passage of the Declaration of Independence in 1776 that finalised the freedom of 13 American colonies from British rule. Two-and-a-half centuries later, America now also has the Second of April as ‘Liberation Day’ to mark the “declaration of economic independence”.
Unlike Independence Day, however, Liberation Day may not survive even for a year. Or maybe it will. We don’t know yet. Nobody knows. Or maybe some people know but we don’t really know if anyone actually knows.
Confused? Well, don’t be. Or, well, you should be. Because we certainly are!
Anyway, let’s try to get back on track. If we can.
On April 2, US President Donald Trump announced sweeping tariffs on imports from all of America’s trading partners. He called it Liberation Day. He imposed 10% baseline tariffs on imports from all countries and additional “reciprocal tariffs” that differed from country to country. His aim was to bridge America’s massive trade deficit and force American and foreign companies to manufacture everything from shoes and clothes to iPhones and SUVs in the US.
He later postponed most of the reciprocal tariffs for 90 days, giving countries time to stitch trade deals with the US.
Now, the tariffs hurt companies that import goods and consumers who buy those products. Naturally, some companies challenged those tariffs in court. They were joined by some trade groups and about a dozen states.
On May 28, the US Court of International Trade (CIT) unanimously ruled that Trump’s reasons for imposing tariffs as a matter of a “national emergency” was unconstitutional. The court said the US Constitution gave Congress exclusive authority to regulate trade with other countries and that the president’s emergency powers can’t override that authority.
Effectively, the court blocked most tariffs Trump has imposed since taking over as president on Jan. 20. But some tariffs, levied under different laws, remain in place. These include a 25% tax on imported cars and auto components as well as on steel and aluminum. On May 29, however, an appeals court stayed the trade court’s order. The appeals court has given the administration until June 9 to submit its legal arguments, before it takes the next steps.
So, what’s going to happen now? Will the tariffs stay or won’t? It’s a little early to say that but the tariff war is clearly far from over. Whichever side loses the case in the appeals court is certain to approach the US Supreme Court. And even if the apex court blocks the tariffs, Trump has other ways of imposing import duties.
Still, the trade court’s order shows Trump isn’t in as strong a position as he thinks. The stock market knows that too, as shares jumped after the court ruling and shrugged off the appeals court’s decision. America’s trading partners have smelled the weakness, too, and its trade negotiations with China and the EU haven’t made much progress.
Tariffs aren’t the only sticking point for Trump. His closest ally Elon Musk has quit the government and gone back to managing his businesses, especially Tesla, after the EV maker’s sales and stocks slumped.
Trump is also cracking down on US universities, especially Harvard, and his administration has paused visa interviews of foreign students. In addition, he has imposed a tax on remittances. Both steps will hurt India. Meanwhile, the Indian government is in talks to strike a trade deal with the US. How will those talks pan out? Keep reading this newsletter!
The Central Point
Moving back home, this was the last week for India Inc. to report earnings for the quarter and year ended March 31, 2025. Now, we have been writing about corporate earnings in the previous editions of this newsletters, so this time we will look at the performance of a far bigger and far more important organisation—the Reserve Bank of India.
The central bank this week released its annual report for 2024-25. The report showed that the size of the RBI’s balance sheet grew 8.2% to Rs 76.25 trillion (about $890 billion) and net income jumped 27.5% to Rs 2.69 trillion ($31.5 billion).
Since it’s not every day that we write about the RBI’s financial performance, let’s try to simplify a few things—for instance, how does the RBI make money, what does it do with it, and what factors affect its net income.
The central bank makes revenue through various sources. It buys government bonds and gets interest payments. It invests its reserves in foreign securities and earns interest. It operates in the currency markets, buying and selling dollars and rupees, and gains from such forex transactions. It also prints currency notes and makes money doing so.
In FY25, the RBI’s gains from forex transactions soared almost 33% to Rs 1.11 trillion while interest income from foreign securities surged nearly 49% to Rs 97,007 crore. These two pushed its income sharply higher.
The RBI’s net income is basically its total income minus expenditure, or effectively its surplus. And almost the entire surplus goes into the government’s kitty, which the RBI actually announced last week.
This surplus of Rs 2.69 trillion will help the government to bridge its fiscal deficit. This amount was higher than the Rs 2.11 trillion surplus transferred in FY24, but still lower than what the market was expecting—more than Rs 3 trillion.
The surplus was lower than expected because the RBI has been cautious and lifted its contingency risk buffer under its economic capital framework that it revised last week. This buffer is basically a fund the RBI keeps for a rainy day—think of the pandemic or bailing out a struggling commercial bank or uncertainties such as the trade tariffs or even a war.
Under the revised norms, the RBI can keep a buffer of 6% plus or minus 1.5 percentage points—so, basically a range of 4.5-7.5%. That’s wider than the 5.5-6.5% range that it had set in 2019. This year, it decided to keep a buffer of 7.5%. In turn, this resulted in the lower-than-expected transfer to the government.
While the RBI’s transfer was less than expected, where the annual report did match expectations was in terms of monetary policy. “The benign inflation outlook and moderate growth warrant monetary policy to be growth supportive, while remaining watchful about the rapidly evolving global macroeconomic conditions,” it said.
That’s as clear an indication as any of another rate cut when the RBI reviews its policy next week.
State of the Economy
Sticking with economic matters, government data this week showed that India’s gross domestic product growth accelerated to 7.4% in the January-March quarter, from a revised 6.4% in the previous three months. The growth rate received a boost from higher rural spending thanks to improvement in farm output, though urban spending was relatively subdued.
This is the second consecutive quarter when GDP growth has picked up; the rate had slumped to 5.6% in the July-September last year. The fourth-quarter print was just enough to meet the government’s full-year forecast of 6.5%. Still, growth for the full year has slowed from the 9.2% pace in 2023-24.
The data showed also that the construction sector expanded 10.8% during the fourth quarter and the financial, real estate and professional services sector’s output increased by 7.8%. The agriculture sector grew 5.4% and manufacturing recorded a far slower 4.8% growth. The rate of growth in trade, hotels, transport, communication and services related to broadcasting sector was 6%, and for electricity, gas, water supply and other utility services sector was 5.4%.
While the headline number may bring cheer, real economic growth as measured by gross value added—which excludes indirect taxes and government subsidies—grew at a slower pace of 6.8% in Q4 versus 6.5% in the third quarter.
The Reserve Bank of India has projected GDP growth at 6.5% for the ongoing financial year and 6.7% for the next year. While the central bank will play its part to ensure growth stays strong—it has cut interest rates twice and is widely expected to reduce rates again next week—the Indian economy does face a few headwinds.
Weak urban consumption due to stagnant wages, weak corporate earnings, and uncertainty about trade tariffs could play spoilsport in the current year. If that’s the case, the government will have to do the heavy lifting once again.
Monsoon Moment
There is one more factor that affects economic growth but is beyond our control—the monsoon.
Rains during the June-September monsoon season bring nearly 70% of the water needed for irrigation and for filling up reservoirs. So, a good monsoon boosts output of crops such as rice, cotton, soybeans and sugarcane. This, in turn, lifts farmers’ income and rural spending on everything from soaps to tractors, buoying the broader economy. It also helps to lower food prices and bring inflation under control, in turn, allowing the RBI to keep interest rates low.
This week, the government came up with its monsoon forecast and there’s good news. The government said monsoon rains are likely to be above normal for the second straight year.
Rainfall is projected to be 106% of the long-term average this year; the weather department considers rainfall between 96% and 104% of the 50-year average of 87 cm as normal.
Central and southern India could receive above-average rainfall while southwestern regions could get average rainfall but northeastern states are likely to see a below-average season, the weather department said.
Already, the season is off to a good start. The monsoon arrived in Kerala on May 24. This is eight days before its usual June 1 date and marked its earliest arrival in 16 years. After Kerala, the monsoon has covered parts of Tamil Nadu, Karnataka and Mizoram before moving on to western India, including Mumbai, far ahead of its normal schedule.
To be sure, forecasting is a difficult task. And while weather forecasting has improved substantially over the past decade, it isn’t always 100% accurate and early onset doesn’t necessarily mean sufficient rainfall during the entire season.
In 2009, for instance, the monsoon hit Kerala on May 23—the earliest in 25 years. But total rainfall during the season was just 82% of normal. So, let’s pray to the rain gods for bountiful showers this year!
Market Wrap
Both the Nifty 50 and the BSE Sensex fell this week as investors turned a little cautious after rapid gains over the past few weeks. For the week, the Nifty lost 0.4% and the Sensex dropped 0.33%.
However, both the indices logged a third straight month of gains, helped by foreign portfolio inflows as international trade tensions eased. The Nifty rose 1.7% in May while the Sensex notched up a gain of 1.5%. Both are now about 12% higher since March and remain just about 6% lower than their record highs.
The small-caps jumped 8.7% during the month while the mid-caps climbed about 6.1%.
For the week, market breadth was negative with 35 of the 50 Nifty stocks and 22 of the 30 Sensex companies ending lower. Grasim, UltraTech and ITC were the top losers, falling more than 4% each. PSU stocks fell too, led by NTPC, Power Grid and ONGC. Shriram Finance, Tata Consumer, Asian Paints, Apollo Hospitals and Hindalco were the other major laggards.
Gainers were led by retailer Trent and IndusInd Bank. State Bank of India, Adani Ports, L&T, Jio Financial and Bharti Airtel were among the other gainers.
Other Headlines
- Jio BlackRock Asset Management gets SEBI approval to start mutual fund business.
- SEBI bars IndusInd Bank ex-CEO Sumant Kathpalia, deputy CEO Arun Khurana from markets for insider trading.
- State-owned SAIL’s Q4 adjusted profit drops 13% to ₹1,594 crore.
- Bata India consolidated profit falls 28% to ₹45.92 crore, missing estimates.
- LIC fourth-quarter profit jumps 38% to ₹19,013 crore.
- State-run iron ore miner NMDC’s Q4 adjusted profit falls 3.5% to ₹2,351 crore.
- Leela hotels owner Schloss Bangalore’s IPO covered 4.5 times.
- Aegis Vopak Terminals IPO covered 2.1 times.
- SEBI approves Hero Fincorp’s ₹3,668-crore IPO.
- Stock broking platform Groww confidentially files for IPO of up to $1 billion.
- Coal India unit Central Mine Planning and Design Institute Ltd files DRHP for IPO;.
- SEBI limits equity derivatives expiry days to Tuesday or Thursday.
- Govt raises minimum support price of rice by 3% to ₹2,369 per 100 kg.
- India’s industrial output growth slows to 2.7% in April from 3% in March.
- IndiGo names former Shell India CEO Vikram Singh Mehta as new chairman.
- British American Tobacco sells 2.5% stake in ITC for about $1.5 billion.
- IndiGo co-founder Rakesh Gangwal sells 5.7% stake for $1.36 billion.
- JSW Steel gets a breather as Supreme Court pauses liquidation of Bhushan Power.
That’s all for this week. Until next week, happy investing.
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