India Inc desires a Fed rate cut, although it may not necessarily need one.

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The big story

This year, the Federal Reserve has been keeping emerging markets on edge by hinting at the possibility of an interest rate reduction.

Historically, when U.S. interest rates decline, other currencies become more attractive.

Last week, any hope of relief from the first rate cut was dashed as forecasts were pushed back to September, with a possibility of a further delay until December.

India Inc might not care this time.

According to Sumant Sinha, CEO of India's largest clean energy producer and a Nasdaq-listed firm, the increase in interest rates has not affected their business standpoint.

Although the Reserve Bank of India increased interest rates in line with its global counterparts, Indian companies have experienced unprecedented growth. For example, ReNew reported strong sales growth in its latest financial report, and it achieved profitability as a public company for the first time.

Renew is skillfully serving both the U.S. and Indian markets. The $2.3 billion company is entirely based in India, but its major shareholders are U.S. and Canadian institutions. Renew borrows money in U.S. dollars, but it takes precautions to protect against any depreciation of the rupee.

Recently, the French bank has agreed to lend up to $1 billion to the company, which has already secured billions more in funding from non-bank financial institutions. This additional funding will enable the company to produce about 10 gigawatts of clean power in the current market environment over the next three years.

""We have refinanced nearly a billion dollars' worth of international bonds through the rupee market over the past 18 months, resulting in a 60 basis point reduction in borrowing costs," Sinha stated."

Despite the increase in rates, businesses and industries are still expanding throughout the country, as if it's standard practice.

In 2024, India's interest rate regime remains the same as it was in 2018.

During the Covid-19 pandemic, India's interest rates were only 4%, in contrast to the negative rates in the euro zone and the challenges faced in Japan.

Fitch forecasts India's economy to grow by 7.2% this year, with its GDP growth rate increasing since it is the world's fifth-largest economy.

If financial conditions become even more restrictive, wouldn't it be reasonable for corporate borrowers to default at a higher rate in a prolonged period?

According to Rahul Jain, head of India research at Goldman Sachs, no instances of bad loans have been observed.

Despite forecasts of a two-fold increase in earnings per share over the next two years, ReNew Energy's shares have fallen 16% this year. The stock has sold off alongside others in the industry that face unique fundamental problems. Meanwhile, the lies in the doldrums while the reaches new highs.

The disconnect between the economy, the stock market, and a single stock is evident.

Although companies may experience growth and profitability during periods of high rates, their stock prices do not always reflect this.

Could it be argued that Wall Street requires a rate reduction more urgently than Main Street?

Sinha stated that he was not merely counting down the days until a cut but was eagerly waiting and had been doing so for a long time.

Need to know

The U.S. and India have committed to enhancing their trade partnership. During his visit to India this week, National Security Advisor Jake Sullivan was the first high-ranking American official to visit the country since the election results. Following their meeting, the two nations pledged to strengthen their defense and technology cooperation, among other declarations.

If Modi wants to achieve his goal of making India a developed economy by 2047, he must focus on four critical areas, as highlighted by CNBC's Charmaine Jacob.

This month, foreign investors will purchase $2 billion worth of Indian government bonds, marking a decade-high inflow, as they will be included in a widely-followed JPMorgan index. Over the next 10 months, more than $200 billion in assets will track the benchmark, with India's allocation gradually increasing to 10%.

India experiences its longest heatwave, with Delhi facing a severe water crisis as some parts of the city soar above 45 degrees Celsius. CNBC has compiled pictures from around the country as the dry spell is expected to continue over the next four to five days.

What happened in the markets?

Despite slow progress, Indian stocks are maintaining their year-to-date gains following the general election results. The index is expected to achieve a 0.4% increase this week, and it has already risen 8.45% in 2021.

The Indian government bond yield has been low, dropping below 7% and approaching record lows.

This week on Biz Focus Hub, Raamdeo Agrawal, chairman of Motilal Oswal Financial Services, stated that private investment will increase as consumer growth occurs in the next six months. He anticipates the positive effects of increased capital expenditure, which is not dependent on government spending, to become apparent over the next two years.

According to Goldman Sachs' Head of India Research Rahul Jain, the "goldilocks" period for Indian banks has ended as they face pressure. As a result, shares of lenders such as HDFC have underperformed the broader market this year, with investors focusing on the credit losses on their balance sheets. Despite the caution, Jain still prefers Indian private banks to state-owned lenders.

What's happening next week?

This weekend, India will compete against Bangladesh in the T20 World Cup cricket tournament, and on Monday, they will face Australia.

On Wednesday, engineering firm DEE Development Engineers and non-bank lender Akme Fintrade India will make their stock market debut.