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India is opposed to providing any capital gains tax waivers to overseas debt investors even if it delays its goal of getting its bonds included in global bond indexes, two sources familiar with the matter said.

The Indian government had initiated the process of listing its debt in global indexes in 2019, and has been in discussions with J.P.Morgan and Bloomberg-Barclays while also talking to Euroclear with regards to clearing and settlement.

Under existing rules, an overseas investor is required to pay a short-term capital gains tax of 30% if a listed bond is sold within 12 months.

The global bond index listing plan was widely expected to be announced early this year but the government's insistence on capital gains has slowed talks with index operators, officials privy to discussions told Reuters.

The finance ministry did not immediately reply to a mail and a message seeking comments.

In October last year, Reserve Bank of India Governor Shaktikanta Das said the index inclusion was in an advanced stage of discussions with major index providers and should happen "maybe in the next few months".

"The taxation part of it is the only thing that is yet to be resolved. But there is no rationale to tax citizens and not tax overseas investors," a senior source aware of the discussions said.

Domestic investors have to pay short-term capital gains tax on debt investments as per their prevailing tax slabs and additional 4% cess.

"The risks of such index inclusions have always been there and though India is in a much better shape now, globally things are fairly volatile and it may not necessarily be the best time to go for this," he added.

Index inclusion will aid sentiment in the near-term and incremental foreign investment inflows over the medium term would help policymakers to buy some time until the global market conditions become somewhat easier to navigate, Deutsche Bank said in a recent note.

"Global bond index inclusion is not a panacea for all the challenges faced by India at this juncture, but at least it can help on the margin," the bank said.

India’s current account deficit (CAD) for FY22 widened to $38.7 billion or 1.2 percent of gross domestic product (GDP) from $23.7 billion (0.9 percent of GDP) in FY21.

The wider deficit is on expected lines as a surge in global oil prices inflated the petroleum and oil bill for the economy during the year. As a result, the trade deficit widened sharply by $185.5 billion.

Since oil prices are likely to remain elevated, economists expect the CAD to widen further in the coming year. What’s more is that the odds of a recession in the US have risen which could dampen the prospects for exports as the country remains the biggest export destination for Indian goods and services.

A supply glut is set to hit India’s government bond market, and drive benchmark yields toward 8 per cent by year-end, according to Standard Chartered Plc.

The lender estimates that excess supply of sovereign and state debt may total as much as Rs 6.3 trillion ($81 billion) this fiscal year. That’s likely to further upset a market that’s struggling to cope with rising interest rates and dwindling surplus liquidity, said Parul Mittal Sinha, head of India financial markets at the bank.

“It may keep becoming incrementally more difficult for supply to be absorbed by the market,” said Sinha, who has spent more than a decade trading currencies and rates in London, Singapore and Mumbai. “Supply worries will increase from July and with interest rates normalizing to a higher trajectory and liquidity surplus decreasing –- all these three factors can come together.”

Rupee bonds have maintained a semblance of stability amid the selloff in global debt, with recent auctions drawing decent demand as the central bank vowed to ensure the orderly completion of the government’s borrowing program. Still, there are signs that the calm may be shattered after benchmark 10-yields soared to the highest since 2019 last week.

Indian authorities are looking to sell a record Rs 14.3 trillion of bonds this fiscal year as they boost spending to spur growth while tax cuts erode public revenue. To make matters worse, the central bank is expected to hike rates further after 90 basis points of increases in the last two meetings while also mopping up excess liquidity to tame prices that are running above its target band.

StanChart estimates that excess bond supply may total between Rs 3.8 trillion to Rs 6.3 trillion this fiscal year, according to a June 8 note.

All these negatives have fueled a six-month drop in benchmark 10-year debt, and analysts at Citigroup Inc. are among those who predict that yields may climb as high as 8 per cent from around 7.48 per cent now. They last reached 8 per cent in 2018.

Bear Flattening

The yield curve is likely to continue bear flattening, with shorter yields rising faster than longer rates, according to Sinha.

“As more and more hikes get delivered, the five-year part of the curve will remain under pressure,” said Sinha. “The longer end demand is growing at a good pace -- the 15- to 30-year part of the curve remains well-anchored with demand from insurance companies.”

Local investors who were sitting on excess cash have deployed some funds after yields climbed to the highest in over three years, said Sinha. She added that the RBI was unlikely to carry out another major bond purchase program like it did in the previous fiscal year, when it bought Rs 2.2 trillion of debt.

“We are not in the camp that expects any big bond purchases from the RBI,” said Sinha. “If inflation cools down and big rate hikes don’t happen, you won’t anyways need to do that kind of intervention.”

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The ongoing downturn in the domestic stock market has seen nearly 83 percent of the stocks forming the Nifty 500 index, a collection of the biggest companies in the country, deliver flat or negative returns in 2022 so far.

Many of these stocks are hovering below their 52-week lows and their 200-day moving average (DMA), data compiled by Moneycontrol showed.

So far this year, the Nifty 500 index lost 12 percent, while the BSE Sensex and Nifty 50 have declined nearly 10 percent each.

Companies that have seen the most erosion in their stock prices since the start of this year include Dhani Services, Solara Active Pharma, Brightcom Group, Indiabulls Real Estate, Metropolis Healthcare, Hikal, Indiabulls Housing Finance, Dilip Buildcon, Welspun India, Nazara Tech, One97 Communications, Zomato and Sterlite Tech, which have lost 40-80 percent.

Nifty 50 stocks such as Hindalco Industries, Tata Steel, BPCL, IndusInd Bank, Shree Cement, HDFC Bank, Asian Paints, Wipro, Infosys, HDFC, HCL Technologies, Bajaj Finance, Tata Consultancy Services, Tech Mahindra, and Grasim Industries hit one-year lows recently. All these stocks are down between 8-40 percent this year.

"The broader market has been under pressure mainly due to the heavy FII selling. Concerns of premium valuation and higher impact of inflation on their profitability led to sharper fall in broader markets" said Sneha Poddar, AVP, Research Analyst, Broking and Distribution, MOFSL

However, the sharp correction in the market is also being seen as an opportunity by some market participants.

“I think it's the right time for long-term investors to add to good growth stocks, which are available at attractive valuations,” Narendra Solanki, Head-Equity Research (Fundamental), Anand Rathi Shares & Stock Brokers, said.

Solanki believes investors should continue to hold existing stocks in their portfolios, if growth prospects of the company are intact as the “current volatility is more in the short-to-medium term, while long-term prospects for our economy remain promising”.

Analysts attribute the negative or low returns in some popular consumer durables, auto, banking, realty and metal stocks that are actively traded in futures and options (F&O) on the perception that higher cost of borrowing and product prices will hurt demand at a time when companies are grappling with persistently high input prices.

Metal stocks have already been under pressure since the government’s decision to impose export duty on steel to cool domestic prices.

Among IT stocks, volatility in the global markets amid higher inflation and expectations of tightening by central banks, along with the Russia-Ukraine war, which is unlikely to end soon, may see a slowdown in order books. Most Indian IT companies are moving their operations out of Russia, while helping clients maintain business continuity by shifting work to other locations. This is likely to increase margin pressures further, analysts said.

Oil & gas stocks were under pressure as investors feared that interest rate hikes from major central banks could slow the global economy and cut demand for energy.

Vikram Kasat, Head-Advisory at Prabhudas Lilladher expects markets to remain volatile for the next three months as he believes inflation is likely to remain high and geo political tensions will not end soon.

"We believe that inflation expectations have run ahead of themselves and the scaling back of consumption through increasing interest rates and tightening liquidity would result in inflation softening. However, markets have typically moved either sideways or down during this process. Nifty is also currently trading at 19x forward assuming a 10 percent cut in earnings, which does not give a screaming ‘buy’ yet,” said Vinit Bolinjkar, Head of Research, Ventura Securities.

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The Tata Group took control of loss-making and debt-ridden Air India on January 27 after successfully winning the bid for the airline on October 8 last year.

The government on Monday took stock of credit growth and the performance of public sector banks (PSBs) on parameters including asset quality, financials, and recoveries from bad loans.

State-owned lenders have been asked to expedite the resolution of non-performing assets (NPAs).

Finance ministry officials took stock of PSBs’ NPAs of over Rs 100 crore, an official said.

The meeting was scheduled to be chaired by Union Finance Minister Nirmala Sitharaman, but she could not attend it.

Minister of State for Finance Bhagwat Karad presided over the meeting, which was attended by Financial Services Secretary Sanjay Malhotra and senior officials of the Department of Financial Services (DFS).

With PSBs conducting a credit outreach programme during the Azadi ka Amrit Mahotsav last week, the progress made on sanctioning loans was reviewed.

Growth in lending by PSBs improved to 7.8 per cent in March 2022 from 3.6 per cent a year ago, but was lower than the 15.1 per cent by private banks in the same month, according to the Reserve Bank of India’s quarterly statistics.

An evaluation of PSBs’ capital-raising plans and efforts made to improve investor relations was also done.

After the launch of the EASE 5.0 reforms agenda earlier this month, banks were asked to share the progress on preparing a three-year bank-specific strategic road map, the official said. Finance ministry officials reviewed the off-Budget borrowings by state government entities from PSBs.

With regard to financial inclusion, which was the second broader theme for review, the progress made by state-owned lenders on opening Jan Dhan accounts, and various schemes of the Centre such as the Agriculture Infrastructure Fund (AIF), Animal Husbandry Infrastructure Development (AHIDF), Pradhan Mantri Formalisation of Micro Food-Processing Enterprises (PMFME), was also assessed.

Banks have been asked to put up branches in unbanked villages, the official said.

The progress made by banks on setting up 75 digital banking units, as announced by Sitharaman in the Union Budget 2022-23, was looked at.

Banks have identified 75 districts that cover all states and Union Territories in the country. All PSBs, along with some private banks, have initiated work on having these units operational for launch in August this year.

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After nearly hitting a deadlock over fisheries subsidies, the 164 member nations of the World Trade Organization (WTO) forged a bouquet of deals in the wee hours of Friday in Geneva by significantly lowering their ambitions.

The four-day conference, which kicked off on Sunday, was scheduled to end on June 15. However, it was extended by two more days to push trade ministers to hammer out a deal to maintain a sense of purpose at a multilateral organisation that is fighting for its relevance.

The deal included patent waiver to fight the pandemic, limited only to production and exports of vaccines that India had earlier termed as “too late in the day as the pandemic has run its initial course”. India’s demand to allow it to export food grain from its public stockholding could also not be agreed upon. On fisheries, though millions of Indian fishermen will not face any cut in state subsidies, countries were able to agree to only a partial deal to cut down illegal unreported, unregulated (IUU) especially by China and countries of the European Union.

India also climbed down from its demand to end

moratorium on customs duty on electronic transmission, which anyway was considered as a bargaining tool. At the end of the day, India was happy that it won’t have to take fresh disciplines in any sector even as a deal could be agreed up on.

ALSO READ: WTO's vaccine patent waiver may have little impact on ground now: Industry

Commerce and Industry Minister Piyush Goyal said perhaps this was the first ministerial where India set the agenda. “We were on the front foot. We were telling other countries what need to be done.”

The outcome of the WTO is not only emblematic of the importance of a multilateral trading system but is also seen as an image makeover effort by India to be seen as a deal maker than a deal breaker.

Biswajit Dhar, professor of economics at the Jawaharlal Nehru University said countries have deliberately lowered their ambitions to at least get something on the table. “If you have high ambitions and fail, then it would have sent a signal that WTO can’t take decisions,” he added.

However, the WTO’s failure to include diagnostics and therapeutics in the patent waiver deal along with vaccines drew strongest criticism. Max Lawson, Co-Chair of the People’s Vaccine Alliance and Head of Inequality Policy at Oxfam said this is absolutely not the broad intellectual property waiver the world desperately needs to ensure access to vaccines and treatments for everyone, everywhere. “This so-called compromise largely reiterates developing countries’ existing rights to override patents in certain circumstances. And it tries to restrict even that limited right to countries which do not already have capacity to produce COVID-19 vaccines. Put simply, it is a technocratic fudge aimed at saving reputations, not lives,” he added.

ALSO READ: Goyal says India's 'firm stamp' visible in outcome of every WTO meeting

In October 2020, India and South Africa and 63 co-sponsors of the waiver proposal had made the TRIPS waiver proposal to help middle and low income nations get access to Covid-19 vaccines and drugs. However, the discussions reached a deadlock in the TRIPS Council. The final agreement fell short of the original proposal.

The global trade body was also able to build a consensus on the agreement on a 21-year old issue that aims to eliminate subsidies for illegal, unreported and unregulated (IUU) fishing and promote sustainable fishing. The final agreement removed the contentious clause, which proposed a ban on overfishing subsidies within seven years. India had called for a ban on subsidies in 25 years for countries fishing in areas beyond their exclusive economic zones.

According to the final deal, there will be checks on illegal unreported, unregulated fishing in India’s waters and elsewhere. Besides, no subsidies will be provided for fishing in areas outside exclusive economic zones.

The outcome document of the ministerial committed to work towards necessary reform of the WTO while reaffirming the foundational principles of the WTO and promised to revive the dispute settlement body in next two years.

Outcome of WTO MC12

E-commerce

What India wanted

No extension of customs duty moratorium on electronics transmissions

What it got

18-month extension of e-commerce moratorium

Review of scope, definition, and impact of moratoriumReview of scope, definition, and impact of moratorium

Agriculture, food security

What India wanted

Permanent solution to public stockholding for food security purposes

No exemptions for food purchases by WFP from export restrictions

Permission for exports of food grains from public stocks on govt-to-govt basis

What it got

No export restrictions on WFP purchases. Internal food security concerns to take precedence

Solution to public stockholding again deferred to next ministerial

TRIPS waiver

What India wanted

IP waiver for vaccines, therapeutics and diagnostics

What it got

TRIPS waiver only on vaccine with exports up to five years

Decision on diagnostics and therapeutics after six months

Fisheries

What India wanted

Exemption from subsidy cuts for developing countries fishing within EEZs

25-year ban on subsidies for countries fishing in areas beyond their EEZs

What India got

No restriction on subsidies for fishing within EEZs

No subsidies for fishing in areas outside EEZs

Check on illegal unreported, unregulated (IUU) fishing by developed countries and China