🏦 India’s liquidity crunch

Good morning. Today is going to be a great day! Let’s go after it 💪 

- Ruchirr Sharma & Shatakshi Sharmaa  

TABLE OF CONTENTS

• 🏦 India’s liquidity crunch

• 🤝 India-UK trade booms with a 121% leap in payments

• 🗞️ Bite-sized summaries

  • 🔍️ OpenAI expands ChatGPT search, challenging Google

  • 🧑‍💼 Adani group merges Sanghi & Penna cement with Ambuja Cements

• 🧑‍🍳 What else is cookin’?

• 🍿 Entertainment, Entertainment, Entertainment

MARKETS

🇮🇳 India

• Markets experienced a significant downturn. Key factors influencing the market included global uncertainties and pressure from heavyweight stocks like Reliance and HDFC Bank.

🌍️ International

• markets closed mixed: concerns about inflation and interest rates are influencing market sentiment. Investors are awaiting the Federal Reserve's interest rate decision tomorrow.

LIQUIDITY

🏦 India’s liquidity crunch

India’s banking system is grappling with its steepest liquidity deficit in six months, reaching ₹1.5 trillion ($17.7 billion) as of December 16, 2024. This strain stems primarily from two major forces: increased advance tax payments by companies and the Reserve Bank of India’s (RBI) likely intervention in the currency market to stabilize the weakening rupee. These pressures have driven up borrowing costs, signalling rising stress within the financial system.

Despite the RBI’s recent efforts to alleviate liquidity—such as reducing the cash reserve ratio (CRR) and conducting variable-rate repo auctions—fresh outflows have intensified the crunch. Advance tax payments alone amounted to ₹1.4 trillion, a routine but significant drain that coincides with quarterly deadlines. Adding to this is the year-end festive season, which has triggered heightened cash withdrawals, further depleting banking reserves.

Meanwhile, the RBI’s ongoing intervention to curb rupee volatility has compounded the liquidity strain. With the rupee recently touching a record low of 84.93 against the US dollar, the central bank has been actively selling dollars to stabilise the exchange rate and address mounting trade deficit pressures. However, such interventions inevitably drain rupee liquidity from the system.

The resulting deficit has pushed the interbank weighted average call rate—an important overnight borrowing benchmark—to as much as 35 basis points above the RBI’s policy repo rate of 6.50%, reflecting the squeeze on short-term funding.

Overall: Experts suggest that additional steps may be needed to restore balance, including open-market bond purchases, term repo operations, FX swaps, or even another CRR cut. Without such interventions, liquidity is expected to remain marginally negative, keeping short-term borrowing costs elevated and putting further strain on the system.

Read more: Economic Times

TRADE

🤝 India-UK trade booms with a 121% leap in payments

Business activity between India and the UK has soared in 2024, with HSBC data revealing a remarkable 121% surge in payments from Indian businesses to the UK. Payments from UK businesses to India also recorded a strong 32% growth in the first nine months of the year.

HSBC's data highlights significant year-on-year growth in client referrals between its UK and India operations, showcasing a deepening economic corridor. The bank attributes this expansion to India's rapidly growing middle class and its emergence as a hub for Global Capability Centres (GCCs), which attract multinational corporations due to India’s skilled workforce in technology and language capabilities.

Cora McLaren, Head of International Subsidiary Banking at HSBC UK, emphasized the vast opportunities for UK businesses in India, particularly in high-quality goods and services. Conversely, Indian companies, especially in the pharmaceutical sector, are increasing their presence in the UK market.

The boost in trade comes as both nations prepare to restart Free Trade Agreement (FTA) negotiations in 2025. Prime Ministers Keir Starmer and Narendra Modi reaffirmed their commitment to the FTA during the G20 Summit in Brazil. The agreement is expected to significantly enhance the current GBP 42 billion trade relationship, which has been growing steadily.

Richard McCallum, CEO of the UK India Business Council, noted that geopolitical factors and sustained reforms make India an increasingly attractive destination for UK investments.

With renewed FTA discussions on the horizon, experts anticipate even faster growth in trade, strengthening the strategic and economic partnership between India and the UK.

Read more: Economic Times

GENERAL OVERVIEW

🗞️ Bite-sized summaries

🔍️ OpenAI expands ChatGPT search, challenging Google - OpenAI has rolled out ChatGPT-powered internet search for all users, marking a strategic move to integrate search directly into ChatGPT rather than creating a standalone product. Previously available only to paid subscribers, the feature now provides real-time, summarized answers with source links, offering an alternative to traditional search engines like Google. While this move enhances access for millions globally, it raises concerns from publishers who fear AI tools like ChatGPT Search and Google’s AI Overviews could reduce web traffic to original sources. The expansion also brings renewed attention to OpenAI’s relationship with Microsoft, a major investor seeking to challenge Google’s search dominance.

🧑‍💼 Adani group merges Sanghi & Penna cement with Ambuja Cements - Adani Group-owned Ambuja Cements announced the merger of Sanghi Industries and Penna Cement to streamline operations and enhance shareholder value. Under the scheme, Sanghi shareholders will receive 12 Ambuja shares for every 100 held. This consolidation strengthens Ambuja’s capacity, absorbing Sanghi’s 6.1 MTPA cement capacity and Penna’s 10 MTPA. The merger integrates major assets, including Sanghi’s single-location clinker plant and Penna’s multiple plants across Andhra Pradesh, Telangana, and Maharashtra. Ambuja aims to reach 100 MTPA production by FY25 and 140 MTPA by 2027-28, leveraging unified cash flow management for faster expansion and operational efficiency.

HEADLINES

🧑‍🍳 What else is cookin’?

What’s happening in India (and around the world 🌍️)

• NITI Aayog invites EoI to research the 'Cost of Doing Business in India.'

• West Bengal's potato crisis: Ban on inter-state movement threatens growers, cold storages.

• Instagram now lets you schedule DMs.

• Magicpin rolls out a 15-minute food delivery service.

• Ola is to go live pan-India soon on ONDC in the F&B category.

CULTURE

🍿 Entertainment, Entertainment, Entertainment

• Australia vs India: tied 1-1 on Day 4.

• After Baby John, Atlee and Murad Khetani team up to produce a thriller with Vijay Sethupathi.