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On June 6, when the Reserve Bank of India slashed the repo rate by a larger-than-expected 50 basis points, it cited the declining trajectory of inflation as one of the reasons for the decision. “The outlook for inflation points towards benign prices across major constituents,” the central bank said, as it lowered its inflation forecast for 2025-26 to 3.7% from 4%.
Indeed, retail inflation slowed to a six-year low of 2.82% in May from 3.16% in April on easing food prices, indicating the RBI made the right call.
But just two months before, at its previous policy meeting on April 9, the RBI had made slightly different comments on inflation. While it acknowledged the downtrend in prices and noted that the fall in crude oil prices augured well for the inflation outlook, it also cautioned about certain risks to inflation due to global uncertainties and currency pressures.
Few RBI watchers would have noticed the relatively minor change in the inflation-related commentary, as they instead fretted about the surprisingly large rate cut and the shock change in the policy stance to neutral from accommodative.
Still, it may now be time to talk about inflation again. Why, you may ask?
Well, you see, since June 6, international crude oil prices have soared almost 17-18%. Prices of the Indian basket of crude oil have jumped at a similar rate.
The biggest reason for this surge is the escalation in the war between Russia and Ukraine, and Israel’s attack on Iran’s military and nuclear establishments on June 13. While the Russia-Ukraine war has been going on for more than three years, it was the Israeli attack and the Iranian retaliation that sent crude oil prices soaring.
But why does it matter to us? That’s because India imports nearly 88% of its crude oil requirements and more than half of its natural gas needs. In 2024-25, the country’s oil and gas import bill was almost $152 billion.
If the Israel-Iran conflict escalates, especially if the US enters the war and Iran blocks the critical Strait of Hormuz, oil and gas prices will rise. This will jack up India’s import bill. In turn, this will put pressure on India’s already high trade deficit. This will also weigh on government finances by widening its subsidy bill and its fiscal deficit. Credit ratings firm ICRA estimates that a $10/barrel increase in oil prices for the fiscal year will push up the import bill by $13-14 billion.
For the corporate sector, an increase in oil and gas prices would hurt earnings of companies across several sectors such as refining and petrochemicals, aviation, fertilisers, and paints. If oil marketing companies pass on the price hike to businesses and consumers, this could mean costlier cooking gas, petrol and diesel. Eventually, this will seep into other products and services, including food items as transportation charges will rise. ICRA estimates that every 10% increase in oil prices can push wholesale inflation higher by 80-100 basis points and consumer inflation by 20-30 basis points.
And if all that does happen, the math will change. The RBI, the government, India Inc, and we the consumers, all will have to rework our budgets. Here’s hoping we won’t have to!
Standing his Ground
Inflation isn’t just an important number to watch for in India alone. It’s equally critical in the world’s largest economy—the US—especially over the past few months. That’s because the US Federal Reserve has refused to cut interest rates citing risks to inflation because of President Donald Trump’s tariff policies. And the Fed did that again this week.
The US central bank kept its key rate between 4.25% and 4.5%, saying the economy remained strong but the path of inflation was uncertain because of the tariffs Trump has imposed on foreign goods. Notably, Fed Chair Jerome Powell last cut rates in December, before Trump took over as president in January.
The Fed, of course, isn’t alone in holding rates to see the impact of tariffs on trade and inflation. The Bank of Japan and the Bank of England also kept rates unchanged this week, as did Pakistan, Turkey and Chile. But Sweden, Norway and Switzerland cut rates this week citing low inflation.
These divergent actions come ahead of the July 9 deadline that Trump had set when he paused his reciprocal tariffs for 90 days to stitch trade deals. The US has so far signed a deal only with England, and nobody knows if tariffs will return after July 9. The wars in the Middle East and Europe make policymakers’ task even more challenging.
While Trump hasn’t yet cleared his stand on tariffs, he has made his displeasure with the Fed amply clear.
He launched an extraordinary attack on Powell after the Fed’s decision. “‘Too Late’ Jerome Powell is costing our Country Hundreds of Billions of Dollars,” Trump posted on his social network Truth Social on Thursday. “He is truly one of the dumbest, and most destructive, people in Government, and the Fed Board is complicit.”
“TOO LATE’s an American Disgrace!” Trump said and demanded that rates be slashed by a massive 2.5 percentage points.
A cut of 250 basis points would be unprecedented anywhere in the world. Typically, central banks adjust rates in increments of 25 basis points, going up to 50 or even 75 basis points on a few occasions.
To his credit, Powell has refused to take Trump’s bait and has stayed sharply focused on keeping inflation low. He acknowledged that inflation was currently low but explained that tariffs take time to reach end consumers as goods being sold at retailers today may have been imported several months ago before tariffs were imposed.
“What everyone on the [Federal Open Market Committee] wants is a good, solid American economy with strong labor market and price stability,” Powell said. That’s what we want. Our policy is well positioned right now to deliver that.”
SEBI’s bazooka
Moving back home, the Securities and Exchange Board of India announced a slew of measures this week that it hopes will make doing business easier for startups, investors and other stakeholders as well boost investments.
The capital markets regulator lowered the regulatory requirements for foreign investors who buy only government bonds, saying they need not disclose their investor group details as these securities carried low risk.
Announcing its decisions after a board meeting, SEBI said resident and non-resident Indians as well as overseas citizens will also be allowed to contribute to the corpus of foreign investors who buy only government bonds.
Foreign investors have rushed to buy Indian bonds after their inclusion in global indices such as the FTSE Russell Emerging Markets Government Bond Index and the JPMorgan Global Emerging Market Bond Index. These investors held more than Rs 3 trillion in such bonds as of March 2025, up over 70% from a year earlier.
In another decision, SEBI allowed certain state-owned companies to delist from stock exchanges without approval from minority shareholders provided the government shareholding is at least 90%. These companies can now delist at a fixed price that must be 15% higher than the floor price, SEBI said. The relaxed norms, however, don’t apply to insurance companies, non-banking financial companies and banks.
While both the decisions will help the government, SEBI also announced measures that will help startups and investors. For one, it allowed founders of startups to retain employee stock options after the companies list on stock exchanges.
However, these stock options must be granted at least a year before filing draft papers for IPO and no fresh ESOPs should be granted to such shareholders after listing, SEBI said. Currently, startup founders are not allowed to hold stock options after companies go public.
SEBI made another decision that will help startups who are shifting their domicile from other countries back to India with a view to float an IPO here. It said that it will exempt banks, insurers, state-owned firms, and alternative investment funds from the minimum promoter contribution threshold of holding equity shares for at least one year before going public. Essentially, this means that the one-year norm will now include convertible preference shares—a favourite route for investing in unlisted companies—and that these investors will now be able to sell their stakes during IPOs.
Look for a Job
While SEBI is doing its bit to improve investment flow into equity and debt markets, policymakers perhaps need to do a bit more when it comes to the overall economy. Since April, the government has been releasing monthly data on labour force covering both urban and rural areas. And the latest data points a sobering picture.
India’s unemployment rate rose to 5.6% in May from 5.1% in April, according to data released by the statistics ministry this week. Joblessness rose partly because of a fall in agricultural activity after the end of the harvest season. The data showed also that the female unemployment rate was at 5.8% in May, compared to 5.6% for males.
While the headline unemployment rate may not look as bad, the bigger problem surfaces when we dig a little deeper.
The unemployment rate among urban youth aged 15 to 29 years was as high as 17.9% in May versus 17.2% in April. In rural areas, the youth jobless rate jumped to 13.7% in May from 12.3% in the previous month as workers shifted away from agriculture to other activities.
The data also showed the labour force participation rate, which is an indicator of people with jobs and those actively seeking employment opportunities. This rate fell to 54.8% during May from 55.6% in April among people of all ages 15 years and above. This rate was 56.9% in rural areas and 50.4% in urban areas for persons of the same age group. For youth in the 15-29 age group, this rate fell to 61.6% from 62% for men and slipped to 22.4% from 23.1% for women.
Essentially, this points to two main challenges. First, one in six youths in urban areas and one in seven in rural areas didn’t have a job in May. Second, women remain far less employed than men. The datasets clearly give policymakers a lot to think about.
Market Wrap
India’s stock market benchmarks gained this week, thanks mainly to a jump on Friday. Both the Sensex and the Nifty ended 1.6% higher this week after climbing almost 1.3% on Friday.
Market breadth was positive with 35 of the 50 Nifty stocks and 21 of the 30 Sensex companies ending in the green this week.
Mahindra & Mahindra was the top Nifty gainer this week, rising nearly 6%, after the Competition Commission of India approved its acquisition of SML Isuzu.
Tata Motors, one of M&M’s main rivals, was the top loser and fell 5% this week after its British luxury car unit Jaguar Land Rover trimmed margin guidance.
Tata Group’s retail arm Trent, Bharti Airtel, Eicher Motors, Bharat Electronics, HDFC Life, Asian Paints and SBI Life were among the other major gainers. Most banks ended higher after the Reserve Bank of India relaxed project financing rules. IT stocks gained, too.
The losers included Adani Ports, which operates a port in Israel, and its parent Adani Enterprises. All three Bajaj companies–Bajaj Finance, Bajaj Finserv and Bajaj Auto–closed with losses. Drugmakers Sun Pharma, Dr Reddy’s Labs and Cipla fell amid concerns of US tariffs.
Other Headlines
- India’s Aeronautical Development Agency invites interest for developing a 5th-generation stealth fighter jet.
- France’s Dassault, Anil Ambani’s Reliance Aero to manufacture Falcon 2000 business jets in India.
- Directorate General of Civil Aviation says no ‘major safety concerns’ on Air India’s Boeing 787 fleet.
- India’s merchandise trade deficit narrows to $21.88 billion in May from April’s $26.42 billion.
- SEBI bars former IIFL Securities executive Sanjiv Bhasin from markets over alleged stock manipulation.
- SEBI approves changes to derivative expiry days to Tuesdays and Thursdays for NSE and BSE, respectively.
- Hindustan Zinc approves Rajasthan project worth ₹12,000 crore to boost production capacity.
- DLF clocks ₹11,000 crore in sales from Privana North luxury project in Gurugram.
- Zee Entertainment to raise ₹2,237 crore by issuing convertible warrants to some shareholders.
- Reliance Industries sells shares worth ₹1,876 crore in Asian Paints.
- Electric scooter maker Ather Energy to double retail network to 700 centres by March 2026.
- India’s wholesale inflation slowed to 0.39% in May from 0.85% in April.
- Facebook, WhatsApp parent Meta appoints Arun Srinivas as India head.
That’s all for this week. Until next week, happy investing.
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