Tuesday, February 3, 2026

Finance Ministry May Raise FDI Limit in Public Sector Banks to 49%

By Blogger February 03, 2026 No comments

Finance Ministry Considers Raising FDI Limit in Public Sector Banks to 49%

The Finance Ministry is evaluating a proposal to raise the foreign direct investment (FDI) limit in public sector banks (PSBs) to 49%, up from the current cap of 20%. The move is aimed at strengthening the capital base of state-owned lenders and supporting their long-term growth plans.

According to officials, discussions are currently underway, with inter-ministerial consultations in progress. The proposal reflects the government’s broader strategy to ensure that public sector banks remain well-capitalised as credit demand expands across the economy.

Why the FDI Cap Matters for PSBs

At present, public sector banks face a much lower FDI ceiling compared to their private sector counterparts. While private banks are allowed to receive up to 74% foreign investment, PSBs are restricted to just 20%. This difference limits the ability of state-run banks to tap global capital pools.

If approved, the proposed hike to 49% would bring PSBs closer to private banks in terms of investment flexibility, potentially attracting long-term foreign investors and easing pressure on government finances.

FDI Rules: Public vs Private Banks

Public sector banks: Current FDI cap at 20%, proposal to raise it to 49%
Private sector banks: FDI up to 49% through the automatic route
Beyond 49% to 74%: Requires government approval in private banks

Capital Raising and Government Shareholding

Officials noted that the Union government’s shareholding in 12 public sector banks has not reduced in terms of the number of shares since 2020. However, the percentage holding has declined in some lenders due to capital raised through fresh share issuance.

Collectively, PSBs have raised around Rs 45,000 crore through various routes such as qualified institutional placements (QIP) and offers for sale. Looking ahead, banks are expected to mobilise an additional Rs 45,000–50,000 crore in the next financial year, in line with their growth trajectory.

Strong Growth Outlook for Public Sector Banks

The growth outlook for PSBs remains robust. Public sector banks are projected to double their asset size over the next five years, supported by improved balance sheets and rising credit demand.

As of the end of September 2025, the combined assets of public sector banks stood at approximately Rs 261 lakh crore, highlighting their critical role in India’s financial system.

IDBI Bank Disinvestment Update

On the strategic disinvestment front, the government is moving ahead with the privatisation of IDBI Bank. Financial bids are expected to be invited soon as part of the sale of a 60.72% stake.

This includes 30.48% held by the government and 30.24% owned by a public sector financial institution. The divestment process has already seen multiple expressions of interest, with prospective bidders receiving regulatory clearances.

Need for Large, Globally Competitive Banks

On sector consolidation, officials reiterated that India requires three to four large banks capable of supporting the country’s expanding economy. Stronger capital bases and selective consolidation are seen as key to building globally competitive lenders.

If implemented, the proposed FDI limit hike could mark a significant step toward strengthening public sector banks and reducing the government’s future capital infusion burden.

Disclaimer: The views and investment tips expressed in this article are for informational purposes only and do not represent financial advice. The views expressed are those of the sources cited and not necessarily those of this website or its management. Investing in equities or other financial instruments carries the risk of financial loss. Readers must exercise due caution and conduct their own research before making any investment decisions. We are not liable for any losses incurred as a result of decisions made based on this article. Please consult a qualified financial advisor before making any investment.

US Cuts Tariffs on India to 18%, India to End Russian Oil Imports

By Blogger February 03, 2026 No comments

US Cuts Tariffs on India to 18% as New Trade Deal Reshapes Energy and Markets

The United States and India have reached a significant trade agreement that reduces US tariffs on Indian goods to 18%, down sharply from earlier elevated levels. The deal marks a major reset in bilateral trade relations and is expected to have wide-ranging implications for Indian exporters, global energy flows, and financial markets.

Key Highlights of the US–India Trade Agreement

Under the newly announced arrangement, Washington has agreed to roll back punitive duties imposed on Indian imports, while New Delhi has committed to easing trade barriers and restructuring its crude oil sourcing strategy.

US tariffs on Indian goods reduced to 18%
Removal of an additional 25% punitive duty linked to Russian oil purchases
India to significantly scale down imports of Russian crude
Increased purchases of energy, technology, and agricultural goods from the US

Energy Shift: India to Move Away from Russian Oil

A crucial element of the agreement involves India ending its dependence on discounted Russian oil. Over the past few years, India had increased Russian crude imports to reduce costs, especially after global sanctions disrupted traditional supply chains.

As part of the new understanding, India will instead source oil from the United States and may also explore supplies from Venezuela. This shift is aimed at diversifying energy imports while aligning more closely with US strategic interests.

Recent data already indicates a slowdown in Russian oil purchases. Imports, which were around 1.2 million barrels per day in January, are projected to fall to nearly 1 million bpd in February and further to 800,000 bpd in March.

Massive Import Commitments from the United States

Beyond energy, India has committed to buying over $500 billion worth of goods from the US over time. These purchases are expected to span multiple sectors, including:

Energy products such as crude oil and gas
Advanced technology and defense-related equipment
Agricultural commodities and food products

This commitment is likely to deepen economic ties between the two nations while providing US exporters with long-term demand visibility.

Stock Markets React Positively

Financial markets responded swiftly to the announcement. US-listed shares of major Indian companies surged, reflecting renewed investor confidence after months of trade-related uncertainty.

Technology and banking stocks led the rally, while India-focused exchange-traded funds also posted strong gains. The positive reaction comes after Indian equities had suffered sustained foreign investor outflows, making them among the weakest performers in emerging markets this year.

Why This Deal Matters for India

India relies on imports for nearly 90% of its crude oil needs. While cheaper Russian oil had helped contain costs, escalating trade pressure from the US created risks for exports and capital markets.

The new agreement offers immediate tariff relief for Indian manufacturers and exporters, potentially improving competitiveness in the US market. At the same time, it signals a strategic realignment in energy sourcing that could influence global oil trade dynamics.

Outlook Ahead

The US–India trade deal represents a turning point after months of tense negotiations. Lower tariffs, stronger trade flows, and renewed investor confidence could provide a much-needed boost to Indian markets. However, the long-term impact will depend on how smoothly India manages its energy transition and executes its large-scale import commitments.

Budget 2026: Sovereign Gold Bond Capital Gains Exemption Limited to Original Subscribers

By Blogger February 02, 2026 No comments

Sovereign Gold Bond Tax Rule Change in Budget 2026: Capital Gains Exemption Restricted

The Union Budget 2026 has proposed a significant change in the taxation framework for Sovereign Gold Bonds (SGBs). Under the new proposal, the long-standing capital gains tax exemption on SGBs will now be available only to a limited category of investors.

According to the Budget announcement, the exemption will apply only if the bonds are subscribed at the time of the original issue and held continuously until maturity. This marks a departure from the earlier understanding, where investors enjoyed capital gains tax exemption on redemption regardless of how the bond was acquired.

What Has Changed in the SGB Taxation Rule?

The revised proposal aims to clarify and standardise the tax treatment of Sovereign Gold Bonds across all issuances. As per the Budget 2026 documentation, capital gains exemption will be granted only when:

The investor subscribes to the SGB during the original issuance by the Reserve Bank of India.
The bond is held without interruption until redemption at maturity.

This clarification has been incorporated through a proposed amendment to the Income-tax Act, 2025. The objective is to remove ambiguity surrounding tax benefits for bonds purchased via transfers or the secondary market.

Impact on Secondary Market Investors

The proposal is expected to directly impact investors who bought Sovereign Gold Bonds from the secondary market. Earlier, many investors assumed that holding SGBs till maturity would automatically make the capital gains tax-free.

Under the new rule, this benefit will no longer apply to bonds acquired through purchase or transfer after the original issuance. In addition, premature redemption will also disqualify the investor from claiming the exemption.

Interest Income Remains Taxable

It is important to note that the 2.5% annual interest offered on Sovereign Gold Bonds continues to remain taxable as per the investor’s applicable income tax slab. This aspect of SGB taxation remains unchanged.

Revised Tax Treatment Explained

The taxability of capital gains on Sovereign Gold Bonds under the proposed framework can be summarised as follows:

Purchased at original issue and held till maturity: Capital gains exempt
Not purchased at original issue but held till maturity: Capital gains taxable
Purchased at original issue but redeemed before maturity: Capital gains taxable
Purchased from secondary market and not held till maturity: Capital gains taxable

Uniform Application Across All SGB Issuances

The Budget 2026 proposal also states that this exemption rule will apply uniformly to all Sovereign Gold Bond issuances by the Reserve Bank of India. This ensures a consistent tax framework and eliminates differing interpretations for different bond series.

What Investors Should Keep in Mind

For long-term investors considering SGBs primarily for tax efficiency, subscribing during the original issue and holding till maturity is now crucial. Secondary market purchases may still offer price opportunities, but they will not provide the same tax advantage on capital appreciation.

Investors should carefully reassess their gold investment strategy in light of these changes and factor in the potential tax outgo before making decisions.

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India Budget FY27: Government to Borrow Record ₹17.2 Trillion, Bond Yields Under Pressure

By Blogger February 01, 2026 No comments

India Budget FY27: Government to Borrow Record ₹17.2 Trillion, Bond Yields in Focus

India’s central government has announced a record gross borrowing of ₹17.2 trillion for the fiscal year 2026–27, marking a significant jump from the current year and exceeding most market expectations. The borrowing plan, revealed as part of the Union Budget, reflects the government’s intent to support economic growth while managing fiscal consolidation in a challenging global environment.

Borrowing Plan Exceeds Market Estimates

The planned gross borrowing of ₹17.2 trillion represents a 17% increase over the current fiscal year’s borrowing of ₹14.61 trillion. In comparison, market participants had largely anticipated gross borrowings in the range of ₹16 trillion to ₹17.5 trillion, with consensus estimates clustering around ₹16.3 trillion.

On a net basis, government borrowing is set to rise to ₹11.73 trillion in FY27, compared with ₹11.33 trillion in the ongoing fiscal year. India’s fiscal year runs from April to March, and these borrowing numbers play a crucial role in shaping liquidity conditions in the domestic bond market.

Impact on Bond Markets and Yields

Government bond yields have already moved higher in recent months, largely due to the sheer scale of borrowing by both the central and state governments. The fresh announcement of elevated bond supply is expected to keep yields under upward pressure in the near term.

Market participants remain cautious, noting that demand for government securities has struggled to keep pace with issuance. The benchmark 10-year government bond yield may see further upward movement once markets resume trading, as investors digest the larger-than-expected borrowing programme.

Dependence on Central Bank Support

Despite substantial liquidity support measures, including large bond purchases and foreign exchange operations, concerns persist that supply-side pressures could dominate. Analysts believe that bond yields may continue to depend heavily on open market operations by the central bank to remain anchored.

High gross borrowing increases bond supply.
Limited incremental demand could keep yields elevated.
Central bank interventions remain critical for market stability.

Fiscal Deficit and Debt Targets

Alongside the borrowing plan, the government reaffirmed its commitment to fiscal discipline. For FY27, it aims to reduce the fiscal deficit to 4.3% of GDP, aligning with its medium-term consolidation roadmap.

India has also transitioned toward targeting a debt-to-GDP ratio as a key fiscal anchor. For the upcoming fiscal year, the government projects this ratio at 55.6%, signaling gradual progress toward long-term sustainability.

The fiscal deficit, which represents the gap between government spending and revenue, is closely monitored by investors for its implications on borrowing needs, interest rates, and overall market confidence.

Growth Focus Amid Global Uncertainty

The latest budget underscores a renewed emphasis on strengthening domestic manufacturing and supporting economic expansion. With global growth facing uncertainty and financial markets remaining volatile, policymakers appear focused on balancing growth support with prudent fiscal management.

For investors, the record borrowing plan is a double-edged sword. While it reflects confidence in sustaining economic momentum, it also raises concerns about persistent pressure on bond yields and funding costs across the economy.

What Investors Should Watch

In the coming months, bond market movements will likely hinge on several factors:

The pace and scale of government bond issuance.
Demand from banks, insurance companies, and foreign investors.
Liquidity measures and bond purchases by the central bank.

As FY27 approaches, the interaction between fiscal policy and monetary support will remain central to market sentiment, particularly for fixed-income investors tracking yield trends.

Precious Metals Slide as Strong Dollar Triggers Gold and Silver Sell-Off

By Blogger January 31, 2026 No comments

Precious Metals Slide as Strong Dollar Triggers Profit Booking

Gold and Silver Face Sharp Correction

Precious metals witnessed a sharp sell-off on Friday, with gold and silver prices tumbling from their recent highs. The decline was largely driven by a strengthening US dollar and the unwinding of yen carry trades, which together dampened investor appetite for safe-haven assets. The correction came after a strong rally in January, prompting many investors to lock in profits.

In the domestic spot market, gold prices fell 5.4% to around ₹1.66 lakh per 10 grams, marking a steep decline of nearly ₹9,545 in a single session. Silver saw an even sharper fall, plunging 10.7% to about ₹3.39 lakh per kilogram. The speed and magnitude of the fall reflected heightened volatility across global commodity markets.

ETFs See Deeper Cuts Than Spot Prices

The correction in spot prices quickly spilled over into exchange-traded funds (ETFs) linked to precious metals. Notably, ETFs declined more sharply than the underlying metals, suggesting an exit of speculative and short-term positions.

Silver ETFs dropped between 18% and 24%
Gold ETFs corrected by 8% to 12%

This divergence highlights how leveraged and speculative investments tend to react more aggressively during periods of market stress. Silver ETFs, which had seen strong inflows over the past few months, were particularly vulnerable during the sell-off.

Global Cues Add to Market Pressure

Market participants pointed to multiple global factors behind the sharp fall. Expectations of a more aggressive interest-rate outlook in the United States weighed heavily on precious metals, which typically struggle in a rising rate environment. Additionally, the unwinding of yen carry trades removed a key source of liquidity that had previously supported commodity prices.

The policy stance of major central banks also played a role. Japan’s central bank had earlier raised interest rates to multi-decade highs and maintained a steady stance in its recent meeting, prompting investors to reassess risk positions globally. Speculation around a potentially more hawkish US monetary leadership further added to the pressure on gold and silver prices.

Selective Buying Emerges at Lower Levels

Despite the sharp correction, the dip attracted some bargain hunting. Market participants noted that long-term investors and jewellers stepped in to buy at lower price levels, viewing the decline as a temporary pause rather than the end of the bullish trend.

Jewellery manufacturers used the opportunity to replenish inventories, although retail demand from end consumers remained muted. Many investors continue to believe that the broader outlook for gold remains constructive, supported by global uncertainty and long-term inflation concerns.

Outlook: Volatility Likely to Persist

Experts caution that precious metals may remain volatile in the near term as currency movements, global interest-rate expectations, and speculative positioning continue to influence prices. While the recent fall was driven largely by profit booking rather than a shift in fundamentals, investors are advised to remain cautious and factor in short-term fluctuations.

For long-term investors, gold and silver continue to play a role as portfolio diversifiers. However, the recent episode underscores the importance of disciplined investing and awareness of global macroeconomic triggers.

India Cuts Food Weight in CPI to 36.75% Under New Inflation Series

By Blogger January 30, 2026 No comments

India to Revamp CPI Basket: Food Weight Reduced to 36.75% in New Inflation Series

India is set to introduce a revamped Consumer Price Index (CPI) series that significantly reduces the weight of food items, a move expected to make headline inflation readings more stable and reflective of current consumption trends. Under the new framework, the share of food in the CPI basket will be cut to 36.75% from the existing 45.86%.

This structural change could help smooth inflation volatility and provide clearer signals for monetary policy, as food prices are often influenced by seasonal factors such as weather conditions and supply disruptions.

Why the CPI Basket Is Being Updated

The current CPI series is based on consumer spending patterns from 2011–12, which economists believe no longer accurately represent how Indian households spend today. Over the past decade, rising incomes, urbanisation, and greater spending on services have altered consumption behaviour.

To address this gap, the government will adopt 2024 as the new base year for CPI calculations. The year 2025 will serve as an overlap period, allowing historical inflation data to be statistically converted to the new base for continuity and comparison.

More Spending Categories for Better Price Tracking

One of the key changes in the new inflation series is the expansion of major CPI groups. The number of headline categories will increase to 12 from the current six, bringing India’s inflation measurement framework closer to global best practices.

This broader classification is expected to improve price tracking across sectors and provide policymakers with deeper insights into inflation drivers.

Food’s Shrinking Share in Household Budgets

Recent household expenditure surveys indicate that food now accounts for a smaller share of total spending compared to a decade ago:

Urban households: Food share has declined to 39.7% from about 43% in 2011–12.
Rural households: Food spending stands at around 47%, down from nearly 53% earlier.

The revised CPI weights aim to better capture these shifts, ensuring inflation data mirrors present-day realities.

Housing and Utilities Remain Key Inflation Drivers

The combined weight of housing, water, electricity, gas, and other fuels will be fixed at 17.66%, making it the second-largest contributor to inflation after food.

Notably, rural house rent has been included in CPI for the first time, and the sample size for tracking house rents has been expanded in both rural and urban areas. This change is expected to improve the accuracy of shelter-related inflation measurements.

Transport, Health, and Services Gain Importance

Other major components in the revised CPI basket include:

Transport: 8.8%
Health: 6.10%
Clothing and footwear: 6.38%

Service-oriented categories such as restaurants and accommodation, education, and information and communication will each carry weights of around 3.5%, highlighting the economy’s gradual shift toward services.

E-commerce Prices to Be Tracked for the First Time

In a significant modernization step, the CPI will now incorporate prices from e-commerce platforms. Items such as airfares, OTT subscriptions, telecom plans, and selected online services will be monitored, reflecting the growing role of digital consumption in household spending.

Recent Inflation Trends

India’s headline inflation rose in December to 1.33% year-on-year, marking its fastest pace in three months, as the decline in food prices moderated. In November, inflation had stood at 0.71%.

The updated CPI structure is expected to offer a clearer and more balanced view of inflation trends going forward, aiding both investors and policymakers.

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Rupee Hits Record Low Beyond 92 vs Dollar Amid FII Outflows and Importer Demand

By Blogger January 29, 2026 No comments

Rupee Slips Past 92 per Dollar to Record Low Amid Capital Outflows and Importer Worries

The Indian rupee weakened sharply on Thursday, sliding past the critical 92-per-dollar mark for the first time and touching a fresh all-time low of 91.99. The fall reflects sustained pressure from weak foreign capital inflows, heightened corporate hedging activity, and persistent demand for dollars from importers.

This latest move underscores the growing strain on the domestic currency despite relatively strong macroeconomic fundamentals. Market participants noted that anxiety over further depreciation has intensified, prompting companies to protect themselves against currency risks.

Sharp Decline in a Short Span

The rupee’s breach of the 92 level came just days after it crossed 91 for the first time, highlighting the speed of the recent depreciation. So far in the current calendar year, the currency has weakened by around 2%. Since the imposition of higher U.S. tariffs on Indian merchandise exports, the cumulative decline has been close to 5%.

This weakness has persisted even as India continues to post strong growth numbers. Official data shows that the economy expanded by 8.2% in the quarter ended September 30, reinforcing the contrast between domestic growth momentum and external sector pressures.

Central Bank Seen Stepping In

Traders indicated that the central bank likely intervened in the currency market ahead of the local session to curb excessive volatility as the rupee neared the psychologically important 92 mark. Such moves are generally aimed at smoothing sharp fluctuations rather than defending a specific level.

Policymakers have consistently maintained that they do not target a fixed exchange rate or band. Instead, interventions are used selectively to prevent disorderly market movements and maintain overall financial stability.

External Pressures Continue to Weigh

Several external factors have combined to keep the rupee under pressure. These include:

Steep U.S. tariffs on Indian exports, which have strained trade flows
Large foreign portfolio outflows, reducing dollar supply in domestic markets
Rising bullion imports, increasing demand for foreign currency
Corporate risk aversion, with firms actively hedging against further depreciation

Since the tariff measures took effect, the rupee has also weakened by around 7.5% against both the euro and the Chinese yuan. On a trade-weighted basis, the real effective exchange rate stood at 95.3 in December, marking its lowest level in nearly a decade.

Hedging Activity Adds to Pressure

A notable shift in market behavior has further exacerbated the rupee’s decline. Importers and corporate entities have increased hedging in the forward market to guard against a weaker currency. At the same time, exporters have slowed their dollar sales, reducing supply and amplifying downward pressure on the rupee.

Analysts believe this imbalance between dollar demand and supply has played a significant role in the recent sharp moves, especially during periods of thin liquidity.

Outlook Remains Cautious

Market experts expect volatility to remain elevated in the near term. While there is optimism that current tariff-related pressures may ease over time, delays in policy relief could continue to weigh on India’s external balances.

Some forecasts suggest that the rupee could weaken further over the next year, though periodic central bank intervention and rebuilding of foreign exchange reserves on favorable moves may help limit excessive swings.

For investors and businesses, the recent currency movement highlights the importance of monitoring global trade developments, capital flows, and risk management strategies in an increasingly uncertain external environment.

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