{"id":40932,"date":"2026-05-22T17:12:49","date_gmt":"2026-05-22T11:42:49","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=40932"},"modified":"2026-05-22T17:13:56","modified_gmt":"2026-05-22T11:43:56","slug":"the-price-of-stability","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/the-price-of-stability\/","title":{"rendered":"The Price of Stability"},"content":{"rendered":"

For much of the past year, markets and investors had settled into a relatively comfortable assumption. Inflation was cooling, central banks were cutting interest rates, and governments, despite large deficits and rising debt, still appeared able to borrow without serious strain. That assumption is beginning to fray.<\/span><\/p>\n

The immediate trigger has been the widening conflict in West Asia and the resulting rise in oil prices. But the market reaction over the past week suggests investors are starting to worry about the possibility that the world is entering another phase of structurally higher inflation and borrowing costs. That anxiety is now showing up clearly in global bond markets.<\/span><\/p>\n

Yields on government bonds across the US, Japan, Europe and several emerging markets have climbed sharply in recent weeks. The US 10-year Treasury yield crossed 4.6% to levels last seen more than a year ago, while the 30-year Treasury yield jumped above 5% to its highest since 2007. Even countries that enjoyed ultra-low interest rates for years are now confronting more expensive financing conditions. Bond yields in Japan, for instance, have touched multi-decade highs.<\/span><\/p>\n

Why do bond yields matter? Well, once sovereign yields rise meaningfully, the effects rarely remain confined to bond traders. The cost of money begins to rise across the system. Governments borrow at higher costs. Companies refinance more carefully. Mortgages become more expensive. And equity valuations come under pressure.<\/span><\/p>\n

Meanwhile, in India, 10-year government bond yield has risen above 7.1%. Part of this reflects domestic pressures that were building beneath the surface over the past year. State government borrowing has expanded steadily, driven partly by rising welfare spending and cash-transfer schemes. At the same time, India\u2019s external position has worsened.\u00a0<\/span><\/p>\n

The recent jump in crude prices has intensified those concerns. Higher energy prices widen the import bill, pressure the rupee and complicate monetary policy. A weaker currency raises the risk of imported inflation. That leaves the RBI balancing multiple objectives simultaneously: growth, inflation, liquidity and currency stability.<\/span><\/p>\n

The conversation in markets has shifted accordingly. Before the Iran war began, investors were debating how aggressively central banks around the world could cut rates this year. Now, central banks are moving in the opposite direction. Indonesia unexpectedly raised interest rates this week as pressure on the rupiah intensified. The Philippines has also lifted rates to protect the peso, and more Southeast Asian nations could follow.<\/span><\/p>\n

In India, Bloomberg News reported that RBI officials are evaluating a rate hike. And Standard Chartered said the RBI could hike rates as early as June. Even the US Federal Reserve may now have few options but to start tightening.<\/span><\/p>\n

Clearly, policymakers are now thinking less about stimulating growth and more about preserving financial stability.<\/span><\/p>\n

Investors are also watching the shrinking gap between Indian and US bond yields. For years, India benefited from a simple dynamic: Indian government bonds offered a meaningful yield premium over US Treasuries, helping attract capital. But as US yields rise, the additional return investors receive from holding Indian debt looks less compelling.\u00a0<\/span><\/p>\n

The result can be pressure on capital flows, currencies and domestic borrowing costs across emerging markets.\u00a0<\/span><\/p>\n

Will this lead to a sustained global tightening cycle? This remains unclear. Much will depend on oil prices, geopolitical developments and how quickly inflation pressures spread into broader economies. But one shift already seems visible. The era in which cheap money quietly absorbed fiscal and geopolitical stress no longer appears as secure as it once did.<\/span><\/p>\n

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\"SIP_Kuvera\"<\/b><\/strong><\/span><\/p>\n

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Embedded Investing<\/b><\/h3>\n

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For years, India\u2019s mutual fund industry operated on a simple principle: the investor and the payer had to be the same person. Money flowing into a mutual fund scheme had to come directly from the investor\u2019s own bank account, partly to reduce fraud risks and maintain a clear audit trail. SEBI now appears willing to loosen that framework\u2014cautiously.<\/span><\/p>\n

In a consultation paper this week, the capital markets regulator proposed allowing \u201cthird-party payments\u201d in MFs in a limited set of cases, including salary-linked investments by employers on behalf of employees, payment of commissions to distributors in the form of MF units, and donations towards social causes through regulated fund structures.<\/span><\/p>\n

Together these proposals highlight how India\u2019s mutual fund ecosystem is evolving from a standalone investment product into a more integrated layer within everyday household finance.<\/span><\/p>\n

The most significant proposal relates to payroll-linked investing that will allow companies to make payments on behalf of employees. The mechanism could make MF investing resemble provident fund contributions or retirement deductions, where investing becomes embedded into monthly financial routines rather than requiring repeated individual decisions.<\/span><\/p>\n

This is a shift that matters because one of the industry\u2019s biggest structural challenges has been converting awareness into long-term participation. SIP inflows have grown rapidly in recent years, but participation still remains concentrated among higher-income urban households. Payroll-linked investing could reduce behavioural friction, particularly for first-time investors who may otherwise postpone or avoid setting up investments independently.<\/span><\/p>\n

The proposal also reflects a broader shift underway across financial services globally: the movement from \u201copt-in\u201d finance towards embedded finance. Banks, insurers and investment platforms are increasingly trying to weave savings and investment products into existing workflows\u2014salaries, payments and subscriptions\u2014rather than waiting for consumers to actively seek them out.<\/span><\/p>\n

At the same time, SEBI appears conscious of the risks. Third-party payments have historically been viewed as a potential vulnerability within financial systems, particularly around money laundering and fraudulent transactions. That explains the emphasis on KYC verification, audit trails, and validated relationships between payer and beneficiary.<\/span><\/p>\n

The second proposal of allowing asset management companies to compensate distributors partly through MF units instead of cash commissions is smaller in scale but potentially more contentious. The regulator said such a mechanism could encourage distributors to build long-term savings exposure themselves. But it also raises questions around incentive alignment and mis-selling if distributors are compensated through products they help distribute.<\/span><\/p>\n

The third proposal, to make donations for social causes through mutual fund structures, reflects a similar attempt to connect investing with broader financial flows while maintaining transparency around fund movement.\u00a0\u00a0\u00a0\u00a0\u00a0<\/span><\/p>\n

Taken together, the proposals suggest the regulator is thinking beyond traditional fund \u00a0 \u00a0 \u00a0 \u00a0 and towards how MFs may eventually become linked to salaries, incentives, philanthropy and long-term household cash flows. That does not necessarily imply rapid transformation. The proposals remain at the consultation stage, operational details are still evolving and implementation risks remain significant. Payroll-linked investing, for instance, may function very differently across large corporations, smaller firms and informal employment structures. But the direction is notable.<\/span><\/p>\n

For the past decade, India\u2019s mutual fund story was largely about expanding access\u2014more investors, more SIPs and more digital platforms. The next phase may focus on making investing less episodic and more embedded within everyday financial systems. And in financial services, behavioural convenience often matters as much as product availability.<\/span><\/p>\n

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Opening the Auction<\/b><\/h3>\n

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Like MFs, the broader equity markets also spent the past few years focused on access. We saw more retail investors enter the market as IPO a\u00a0 \u00a0 ctivity expanded and trading volumes surged. But such rapid participation has also exposed a quieter issue beneath the surface: how prices are formed when a stock begins trading.<\/span><\/p>\n

This week, SEBI proposed changes to the pre-open call auction mechanism used for newly listed and re-listed shares. The proposal reflects a larger concern about whether opening prices are capturing genuine demand or being constrained by the limitations of the current system.<\/span><\/p>\n

Why is this important? Well, the opening price of a stock is the market\u2019s first attempt to translate expectation into value\u2014a process often less precise, and more fragile, than investors assume. If price bands are too restrictive, markets struggle to reflect genuine demand. If constraints are loosened too aggressively, opening trades become more vulnerable to manipulation, speculative spikes and thin liquidity.<\/span><\/p>\n

The issue is particularly relevant for re-listed stocks. SEBI said the existing framework can sometimes produce artificially low starting prices because of restrictive price bands and distorted order matching during the pre-open session. In some cases, large numbers of buy orders are rejected altogether, limiting the market\u2019s ability to discover a fair price.<\/span><\/p>\n

Most retail investors often assume that price discovery is automatic. In reality, it depends heavily on market structure. The pre-open session exists to reduce disorder during the opening trade, when volatility is naturally high. Exchanges aggregate buy and sell orders before regular trading begins and attempt to arrive at an equilibrium price. But systems designed to contain volatility can also suppress information.<\/span><\/p>\n

SEBI\u2019s consultation paper appears to acknowledge that tension. The regulator has proposed moving towards a more market-linked base price for re-listed stocks, potentially using recent traded prices or independent valuations instead of rigid benchmark mechanisms. It has also proposed requiring participation from at least five distinct buyers and sellers during price discovery to broaden market involvement.<\/span><\/p>\n

Notably, SEBI has left IPO pricing unchanged for now. Newly listed IPO shares will continue using the issue price as the base price during the pre-open session.<\/span><\/p>\n

That distinction matters because IPO prices already emerge from an institutional discovery process. Re-listed stocks are different. Long trading suspensions or stale valuations can make rigid price bands less effective as pricing anchors.<\/span><\/p>\n

What SEBI is attempting, then, is a recalibration of how markets absorb information during periods of high uncertainty.<\/span><\/p>\n

There is also a broader signal here about the direction of Indian market regulation. Over the past two years, SEBI has increasingly focused not just on expanding participation, but on improving market quality itself\u2014from surveillance and derivatives activity to disclosure standards and trading mechanics.\u00a0<\/span><\/p>\n

SEBI\u2019s latest proposal reflects an important shift in emphasis. As Indian markets mature, regulators are increasingly paying attention not just to who participates in markets, but to how markets function beneath visible price moves.<\/span><\/p>\n

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The New Search<\/b><\/h3>\n

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Moving on to tech news, Google this week unveiled what it described as the biggest overhaul to Search in over 25 years.<\/span><\/p>\n

For a generation of internet users, Search meant typing a few words into a box and scanning a list of links. The process was simple and familiar. And it was largely unchanged for more than two decades. That model is now beginning to shift.<\/span><\/p>\n

Google has now placed artificial intelligence at the centre of the internet\u2019s most important discovery layer. The company wants Search to behave less like an index of websites and more like an intelligent assistant which is capable of understanding intent, synthesizing information, managing tasks and, increasingly, acting on a user\u2019s behalf.<\/span><\/p>\n

The practical implications are significant. Instead of searching for information, users may increasingly delegate decisions to AI systems: planning travel, filtering products, organising schedules, tracking prices or even interacting with businesses directly. Search is moving from helping users find the web to helping them navigate life on the web.<\/span><\/p>\n

What this means is that AI is no longer sitting beside the digital economy as an experimental tool. It is embedding itself into the operating system of how companies work, how consumers interact online, and how capital is being allocated.<\/span><\/p>\n

The shift is changing corporate behaviour. Standard Chartered announced plans to cut thousands of back-office roles as it expands the use of AI and automation. Facebook parent Meta will eliminate 8,000 jobs while increasing AI spending.<\/span><\/p>\n

In earlier technological transitions, businesses typically adopted new systems gradually, waiting for costs to fall and practical use cases to mature. The current AI cycle appears different. Competitive pressure – alongside the fear of falling behind – is accelerating adoption before institutions, labour markets and regulatory frameworks have fully adjusted.<\/span><\/p>\n

Google\u2019s own announcement reflected that urgency. The company is redesigning the product that built modern internet advertising while simultaneously trying to protect its own position. AI-powered search tools have the potential to alter how users consume information, which websites receive traffic and, eventually, how digital advertising itself functions.<\/span><\/p>\n

That creates opportunities, but also uncertainty. Publishers are trying to assess what AI-generated search results could mean for referral traffic and online visibility. Software companies are reassessing how much routine digital work can be automated. Younger workers starting white-collar jobs are questioning what AI adoption may mean for career stability.<\/span><\/p>\n

That anxiety surfaced unusually clearly this week when former Google CEO Eric Schmidt was booed by students of the University of Arizona at the mention of AI in his speech. The reaction revealed that while financial markets and corporate leadership increasingly speak about AI with confidence and inevitability, public sentiment remains more conflicted.<\/span><\/p>\n

The tension surrounding AI is no longer simply about whether the technology works. In many areas, it already does. The larger question is how quickly institutions and labour markets adapt as AI systems become deeply integrated into everyday economic activity.<\/span><\/p>\n

Even the legal disputes surrounding AI are beginning to reflect the industry\u2019s shift from idealistic experimentation to large-scale commercial competition.<\/span><\/p>\n

Elon Musk this week lost his lawsuit against OpenAI and its boss Sam Altman, a case rooted partly in whether the ChatGPT maker had drifted away from its original non-profit mission.<\/span><\/p>\n

Beneath the courtroom arguments sat a broader reality: modern AI development requires enormous amounts of capital, computing infrastructure and commercial scale. That may ultimately be the central story of this phase of the AI cycle.\u00a0<\/span><\/p>\n

The debate is shifting away from whether AI will matter and towards who controls the computing infrastructure, who absorbs the disruption and how the economic gains are eventually distributed.<\/span><\/p>\n

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\"FD_Kuvera\"<\/p>\n

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Market wrap<\/b><\/h3>\n

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India\u2019s stock markets eked out modest gains this week, led by IT companies and banks, as market sentiment improved on signs talks between the US and Iran to end the war had progressed.<\/span><\/p>\n

The Nifty 50 and the BSE Sensex gained 0.3% each during the week. The indexes are still down 5.8% and 7.2%, respectively, since the war started on Feb. 28. The small-cap index rose 0.4% while the mid-caps jumped 1.4%.<\/span><\/p>\n

Seven of the 16 major sectors recorded gains this week, led by a 4.3% rise in the IT index after a sharp drop in previous weeks due to AI-related concerns. Wipro led the IT pack with a gain of 6.9%, followed by Infosys, Tech Mahindra, HCL Tech and TCS.<\/span><\/p>\n

Overall, Grasim was the biggest Nifty gainer and jumped 7.6% after posting a 32% rise in fourth-quarter revenue. Trent, Hindalco, Apollo Hospitals and IndiGo parent InterGlobe Aviation were the other top performers.<\/span><\/p>\n

Axis Bank led financials higher with a 3.3% gain. Non-bank lenders Jio Financial and Bajaj Finserv, and ICICI Bank were the other major financial stocks in the green.<\/span><\/p>\n

State-run Power Grid Corp was the biggest loser, falling 3.8%. Tata Steel, Tata Consumer, ONGC, Hindustan Unilever, Max Hospitals were the other major laggards.<\/span><\/p>\n

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\u00a0Earnings Snapshot<\/b><\/h3>\n

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