Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened; we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

In today’s edition of The Daily Brief:

1. Reliance opens the year on the front foot
   Reliance delivered a strong start to FY27, with robust growth across O2C, Jio and Retail, showing how operational flexibility, strategic investments, and improving business fundamentals helped offset a challenging global environment.
   

2. Who decides if you should answer the call?
   TRAI’s clash with Truecaller highlights a deeper debate over who should determine the trustworthiness of business calls—regulators through verified number series or caller ID apps using crowdsourced user feedback.

   ---

Amit Tripathi noted on CNBC that India’s largest AAA banks were paying 225 basis points over the repo rate for three-month money, spreads that show up in a crisis. We sat down with him, CIO for fixed income at Nippon, to unpack why the repo rate isn’t really how banks fund themselves, why liquidity sets real borrowing costs, and why shrinking CASA deposits are pushing securitisation back to the centre of Indian banking. Watch the full podcast episode below:

You can also listen to the full conversation on Spotify and Apple Podcasts. The full transcript of the podcast is below if you prefer to read.

Subtext by Zerodha

Amit Tripathi on how monetary policy transmission happens

Hi, I’m Kashish and sometime towards the end of May, Amit Tripathi said something on CNBC that I couldn’t let go of…

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3 days ago · 6 likes · Zerodha

While The Daily Brief covers structural macro trends, Aftermarket is our quick, noise-free daily wrap-up tracking how Indian markets moved, top sector drivers, and key trading stories. Subscribe to Aftermarket to get our daily market recap delivered straight to your inbox every evening.

Reliance opens the year on the front foot

Reliance had a strong start to FY27.

In the first quarter, their revenue grew 24.5% year-on-year to ₹3.4 lakh crore, recurring EBITDA rising 10.1% to a record ₹54,067 crore and recurring profit increasing 6.1% to ₹23,196 crore.

But the profit figure needs some context.

On paper, RIL’s profit fell nearly 25% from the same quarter last year. That is because Q1 FY26 included a one-time gain of ₹8,924 crore from the sale of its stake in Asian Paints. Once this exceptional gain is removed, giving us a fairer comparison of the underlying businesses, RIL’s profit actually grew by 6.1%.

So, the reported profit was lower, but largely because it was being compared with an unusually high base. The individual businesses themselves have performed better.

As always, the story doesn’t change significantly between two consecutive quarters. But the nuances of the individual businesses have certainly become more interesting especially as the external environment has changed.

O2C (Oil to Chemical business)

Let’s start with Reliance’s core business: oil-to-chemical, which is where it converts oil to oil products like naphtha, ethane and other products that feed into plastics and polymers.

O2C revenue grew by 30.4% compared to last year, while EBITDA rose 17.2% to ₹17,010 crore. This is the segment’s highest quarterly EBITDA in four years, and management themselves described it as an extraordinary quarter.

But, in their own words, it was hard-fought as it was impressive.

After all, last quarter, the EBITDA for this business fell 3.7% y-o-y. Getting crude oil to the refinery itself had become extremely expensive because of the closure of the Strait of Hormuz. Reliance had to pay heavy crude premiums per barrel. Freight rates for cargo ships increased nearly tenfold, while insurance costs also multiplied. The company had no choice but to work around the clock to source crude from alternative regions.

On top of this, shipping blockades disrupted India’s imports of LPG, the cooking gas used by millions of households. To prevent a domestic shortage, the government asked Indian refineries to maximise LPG production. Reliance responded by increasing its LPG production fourfold, which also took away resources from their petrochemicals business.

Reliance also faced a disruption to its ethane supply. With the Suez Canal route unavailable, the company’s specialised ships carrying cheap ethane from the US had to take the much longer route around Africa.

So, what went right?

One big advantage came from Reliance’s ability to switch between ethane and naphtha. To make plastics and other petrochemicals, companies need to feed their chemical plants with raw materials such as naphtha or ethane, a gas that Reliance imports from the US, and is a cheaper substitute of naphtha.

During the quarter, crude oil prices rose sharply while US ethane prices actually declined. Reliance is among the few companies globally with the specialised infrastructure needed to import ethane and use it in its plants. This allowed the company to replace some of the expensive oil-based feedstock with cheaper ethane, saving significantly on raw-material costs. Reliance has also added three new very large ethane carriers to its fleet.

The second advantage came from a change in the geography. Reliance rerouted its exports away from Europe and towards fuel-starved, higher-paying markets in Asia, including Singapore and Australia, which actually earned them better margins per barrel. At the same time, reduced its dependence on Middle Eastern crudes by sourcing more discounted crude from Latin America, Canada, Africa, and Russia.

Reliance Retail

Now, we tackle the fast-growing retail business.

Reliance Retail’s distribution numbers don’t look real, with its physical stores spread across more than 20,000 physical stores in over 19,000 pincodes across India. And it isn’t limited to physical stores. Its digital platforms, JioMart and Ajio, allow customers to order doorstep service for everything from a packet of milk to a pair of jeans.

However, while its gross revenue grew by 7.4% year-on-year to over ₹90,400 crore, its net profit actually declined 14.1% year-on-year.

There may not be massive cause for alarm in this profit decline, though. It appears to be part of a deliberate investment phase.

For one, Reliance is spending heavily to build dark stores for its quick-commerce business, ad wants to get to scale before monetizing it. Interestingly, that’s a subtle shift from their old strategy of relying heavily on their physical stores as delivery hubs. This obviously requires upfront investment, but it also increases depreciation expenses, putting pressure on short-term profits. Its grocery business is already expanding rapidly, with average daily online orders growing by 116%.

When it comes to Reliance’s physical business, things look healthy. Its electronics business recorded an impressive 16% like-for-like (LFL) growth. LFL measures sales growth only at stores that were already operating last year while excluding newly-opened stores. What’s more, this came at a time when the world has been facing high prices and shortages of memory chips. Reliance’s scale and strong relationships with global manufacturers helped it secure inventory earlier than its peers.

Meanwhile, Reliance also relaunched the global fast-fashion platform Shein in India through its retail ecosystem. The app has already crossed 30 million downloads. Meanwhile, Ajio Rush, which promises to deliver fashion products within four hours, recorded a 136% quarter-on-quarter increase in orders.

There is one catch in the overall growth numbers, though. Last year, Reliance’s consumer-brands business, which includes Campa, was counted under Retail but has since been demerged into a separate company. Once this is adjusted for a fair comparison, Reliance Retail’s underlying revenue grew 11.6%, rather than the reported 7.4%.

Jio Platforms

From retail, we move on Jio.

Jio has only recently launched their IPO — we broke down their DRHP. It is only natural that India’s largest telecom operator has its own ambitions separate from the parent company, and requires its own independence. During the quarter, Jio Platforms reported revenue of ₹45,961 crore, with its PAT increasing by 9.2% to ₹7,764 crore.

But, of course, the most important indicator in the telecom business is average revenue per user (ARPU).

Jio’s ARPU increased by 3% year-on-year to ₹215.6. Notably, in the past 12 months, Jio did not introduce a tariff hike. Customers actually spent more by upgrading to higher-tier 5G plans, consuming more data and using more services within Jio’s digital ecosystem.

One growth engine Jio is relying on is home broadband through JioAirFiber. Traditionally, providing high-speed home internet requires companies to dig up roads and lay fibre-optic cables directly to individual homes. Fixed wireless access, or FWA, avoids much of this work by transmitting internet from a nearby 5G tower to a receiver installed at the customer’s home. JioAirFiber has now reached around 14 million homes and accounted for 78% of India’s new fixed-wireless home connection.

Jio’s main competitor, Airtel, has a higher ARPU of ₹257 on account of its subscriber base leaning heavily towards premium. Airtel has recently tried to push for priority 5G access to persuade customers to upgrade to costlier postpaid plans — this, as we covered recently, led to a tussle with TRAI. We recommend taking a look at The Ken’s recent story on Airtel’s survival strategies.

Oil and Gas

How is Reliance’s oil and gas mining business faring?

The business line primarily revolves around KG-D6, a deepwater oil and gas block located in the Krishna-Godavari Basin off India’s eastern coast. Reliance operates the block with BP, extracting natural gas from reservoirs located deep beneath the seabed.

During the quarter, the oil and gas segment reported revenue of ₹6,298 crore, up 3.2% from last year. EBITDA stood at ₹4,973 crore, translating into an exceptionally high operating margin of 79%.

However, KG-D6 is now experiencing the natural pressure decline that occurs as an underground reservoir matures. KG-D6 produced 7.4% less gas during the quarter than it did a year ago. These lower volumes placed some pressure on the segment’s earnings.

During the quarter, the government lowered the price ceiling for deepwater gas to $8.90 per MMBtu. Reliance consequently realised an average price of $8.89 per MMBtu, down from $9.97 in the same quarter last year.

Reliance partly offset this pressure through condensate, a light form of crude oil produced alongside natural gas. Unlike deepwater gas, condensate was not subject to the same price ceiling. As global oil prices surged during the West Asian shipping crisis, Reliance realised an average price of $107.40 per barrel for condensate, 53.6% higher than last year.

The company also benefited from its coal-bed methane operations on land. This is natural gas extracted from coal seams, and its price is not restricted by the deepwater gas ceiling. Reliance was therefore able to capture more of the increase in market prices, selling this gas at an average of $12 per MMBtu.

New Energy

New Energy is hardly the biggest of Reliance’s divisions, but they keep calling it one of the most important parts of Reliance’s future. And, as we’d mentioned in our coverage of their Q3 results, Reliance has been making a strong push to move to higher value-add products in solar.

Within solar, the company is placing a major bet on heterojunction technology, or HJT. Reliance became the first Indian manufacturer to have HJT cells included in the ALMM List-II, which is the government-mandated list of Indian solar cell suppliers that has come into effect since last month. This is one of Reliance’s biggest bets to move up the solar value chain and reduce dependence on Chinese upstream imports.

Most solar panels today use cell technologies such as PERC or TOPCon. PERC, the older technology, reflects unused sunlight back into the cell to improve output but is now nearing its efficiency limits. TOPCon adds a thin oxide layer that reduces energy loss and has become the industry’s mainstream upgrade because existing PERC factories can be converted to manufacture it relatively easily.

HJT is a newer design that combines different layers of crystalline and amorphous silicon to capture sunlight more effectively.

The biggest advantage of HJT is efficiency, which measures how much of the sunlight falling on a panel is converted into usable electricity. While conventional commercial panels generally operate at around 20–23% efficiency, Reliance says its HJT cells have achieved efficiencies of up to 25.6%. This allows them to produce more electricity from the same amount of land.

HJT panels are also better suited to hot climates. Solar panels become less efficient as their temperature rises, which is a major concern in a country like India. HJT cells have a better temperature coefficient, meaning their electricity output falls less sharply when they heat up under intense sunlight.

But this has some downsides too.

HJT is more expensive and complex to manufacture than TOPCon, and existing PERC factories cannot be converted as easily. It has also historically consumed more silver and indium, both of which are expensive materials exposed to global supply risks. Manufacturers, including Reliance, are working to replace silver with copper, but this still needs to be proven at scale.

Conclusion

Despite facing several operational challenges, Reliance delivered a strong quarter. What do we look out for in the next quarter?

For one, can O2C sustain its margins as global energy markets change. Then, can Reliance’s dark stores help take away share in the quick commerce industry from incumbents? For Jio, watch its ARPU, AirFiber additions and progress towards the IPO. In Retail, look for signs that its investments in quick commerce are beginning to improve profitability. And in New Energy, the focus will be on the scale-up of HJT manufacturing and whether it begins generating meaningful commercial revenue.

Who decides if you should answer the call?

Most of us decide whether to answer an unknown call based on what appears on our phone screen. If it says “Spam” or the screen turns red, we usually don’t pick up. Those very spam labels are now at the centre of a regulatory tussle over two specific number series in India.

On July 10, TRAI said that calls from numbers starting with 140 and 1600 must not be tagged, blocked, or filtered, whether by a caller ID app or a telecom operator’s own network-level filtering. The regulator had spent years making these numbers trustworthy by design, and spam labels would defeat that purpose.

Truecaller pushed back within days, saying its own users were flagging calls from these series as spam anyway, and that hiding those warnings wasn’t protecting anyone.

This may sound like a small fight over two obscure number prefixes. But the story goes back almost two decades.

Why do 140 and 1600 numbers exist?

In the 2000s, as phones reached more and more people, telemarketing took off. TRAI had built a Do Not Disturb registry to block spam calls, curb unwanted promotional messages, and protect consumer privacy. But it barely worked. Nothing stopped telemarketers from simply calling from ordinary phone numbers instead of registered ones.

TRAI’s fix to this was giving commercial callers their own dedicated number series, a phone number that anyone could recognise on sight as coming from a commercial entity, and not a stranger.

Getting one of these numbers isn’t as simple as buying a SIM card. A business first has to register itself as a “Principal Entity” with a telecom operator, declaring who it is and how it plans to use the number. That registration is recorded on DLT (Distributed Ledger Technology). Think of it as a shared Google Sheet that every telecom operator can access, instead of each maintaining its own separate records. Everyone sees the same information, making it a single source of truth.

Once registered, businesses who want to make promotional calls can be assigned numbers from the 140 series. The 1600 series is meant for service and transactional calls, only from entities regulated by bodies such as RBI, SEBI, IRDAI and PFRDA, as well as government-to-citizen calls.

Now, customers can use their DND preferences to block selected categories of 140 promotional calls, but 1600 calls are intended to remain reachable because they may contain important account or transaction-related information.

TRAI also runs the DND app, where consumers can report unsolicited commercial calls. Separately, the Department of Telecommunications runs a portal for reporting suspected fraud. Complaints through these platforms have led to lakhs of phone numbers being disconnected.

So, TRAI does a lot of the heavy lifting to verify who’s calling. Apps like Truecaller don’t. They don’t rely on registrations or telecom operators to identify callers. Instead, they rely on crowd behaviour like how many people report a number as spam or block it. Over time, their algorithms pick up these patterns from millions of phones.

That’s where the two systems begin to clash.

Take an example of a bank’s recovery team calling about an overdue payment. Annoyed customers may report the number as spam, even though the call is perfectly legitimate. The same goes for a loan EMI reminder. People might label it as spam on a third-party app, even if it’s a genuine 1600 number being used for a legitimate transaction-related call.

TRAI vs Truecaller

TRAI created the 140 and 1600 series so these numbers would be trusted by design. If an app can still slap a spam label on a verified 1600 number, that trust breaks down at the very moment it’s supposed to matter. That’s why, on July 10, TRAI ordered that these numbers must not be tagged as spam.

The problem is that TRAI can’t order Truecaller around the way it can order a telecom operator. Telecom companies like Airtel and Jio operate under licences issued by the government and must follow TRAI’s rules or risk losing those licences. Truecaller doesn’t operate under such a licence. Instead, it falls under the Ministry of Electronics and Information Technology (MeitY), which oversees internet companies and apps in India.

So, to make apps like Truecaller comply, TRAI has asked MeitY to designate them as “authorised agencies” under India’s IT Act. That would give TRAI the legal authority to act directly against apps like Truecaller, Hiya, and Whoscall — something it currently cannot do.

Beyond this, TRAI has also proposed changes to its own telecom rules that would impose two more requirements on caller ID apps.

The first is relatively straightforward. Today, if users report a number as spam on an app like Truecaller, that information mostly stays within the app’s own system. TRAI wants those complaints to be shared with its official Do Not Disturb (DND) platform as well, so telecom operators and regulators can use the same data while taking action against spam.

The second proposal is more significant. Under India’s IT laws, apps like Truecaller are generally not legally responsible for information posted or generated by their users, as long as they follow certain rules. This protection is known as safe harbour. TRAI’s proposal says that if a caller ID app repeatedly ignores its directions, it could ask MeitY to start the process that may strip the app of this protection. That wouldn’t automatically make the app liable, nor can TRAI revoke safe harbour on its own. But losing that protection would expose the app to much greater legal risk for the content and labels it displays.

This hasn’t gone down well with the industry either. The Internet and Mobile Association of India, which represents these apps, has objected on three counts.

First, it argues that TRAI simply has no legal authority over internet apps like Truecaller, so trying to regulate them amounts to regulatory overreach. Second, it says forcing apps to share their spam data would mean handing over information they have spent years collecting and refining. That data is a key part of how these apps work and a valuable commercial asset. Third, it argues that whether an app should lose its legal protection is a question for India’s IT laws, not telecom laws. In other words, TRAI shouldn’t be able to use telecom regulations to influence protections that exist under an entirely different legal framework.

Truecaller’s own argument is that its users block more than five lakh calls from these two series every day, and suppressing that signal is the real consumer harm. CEO Rishit Jhunjhunwala also argued that forcing an app to hide user-generated warnings is MeitY’s job, not TRAI’s. The company also says, by its own count, over 5.1 crore calls from these ranges go unanswered daily. It’s proof that people already distrust these lines regardless of tagging.

Who else this affects?

Truecaller isn’t the only player here. Airtel has taken a different approach with a feature called Business Name Display. Instead of waiting for users to report bad numbers, it verifies legitimate businesses beforehand and shows the company’s name on your screen before you decide whether to answer.

Google’s Phone app and Hiya — whose spam database also powers caller ID on many Samsung phones — also rely on user reports to identify spam, although their data sources and algorithms differ from Truecaller’s. TRAI’s order protecting 140 and 1600 numbers applies to them just as much.

There’s also an entirely different route that bypasses TRAI’s numbering system. Truecaller sells a paid product called Verified Business Caller ID. Businesses that subscribe get a green verified badge, their name, logo, and even the reason for the call displayed before you pick up. In effect, businesses are paying Truecaller to establish trust directly with its users, regardless of whether they’re using a 140 or 1600 number.

You can see why that might bother TRAI. The regulator spent years building a system where trust comes from a number verified by telecom operators. But if people trust Truecaller’s badge more than a TRAI-assigned number, that shifts the centre of trust away from the regulator and towards a private app. In that sense, Truecaller’s verification system competes with the one TRAI has spent years trying to build.

Where this leaves us

This isn’t an abstract regulatory fight. A 1600-series call could be your broker warning of a margin shortfall or your bank asking you to update your KYC before your account is frozen. These are exactly the time-sensitive calls the series was created for.

Both sides have a point. TRAI spent years building a system where these numbers could be trusted by design, so a crowd-sourced spam label undermines that effort. But apps like Truecaller aren’t creating the distrust either. They’re reflecting what users experience.

The deeper issue may lie elsewhere. In practice, the line between a genuine service call and a promotional one has become increasingly blurry. Many calls may be perfectly legitimate under TRAI’s framework, but they don’t necessarily feel that way to the person receiving them. Users aren’t judging whether a call complies with telecom regulations; they’re judging whether they wanted it in the first place. That’s why they mark these numbers as spam. Going after caller ID apps addresses where that frustration shows up, not necessarily what causes it.

Tidbits:

1. Amazon has laid off employees within its Artificial General Intelligence (AGI) division as part of an ongoing corporate restructuring. The tech giant stated these targeted cuts will help redirect resources toward the most important AI projects.

Source: Reuters

2. The government has officially approved QDENGA, India’s first-ever dengue vaccine, for individuals aged 4 to 60. The two-dose vaccine protects against all four virus strains and can be given without the need for prior dengue testing.

Source: The Hindu

3. HCLTech is investing ₹730 crore to build its first company-owned, AI-optimised data centre in Bhubaneswar. This major digital infrastructure project is expected to create 6,000 high-skilled tech jobs in the state.

Source: Business Standard

4. The Indian government has dedicated a massive ₹40,000 crore fund to safely and scientifically close exhausted coal mines. The reclaimed land will be repurposed for renewable energy, eco-tourism, and agriculture to support local communities.

Source: The Hindu BusinessLine

5. German automaker Volkswagen is in advanced talks to sell a majority stake in its Indian business to the Sajjan Jindal-led JSW Group. This potential deal aims to inject fresh capital to boost the company’s local manufacturing and electric vehicle ambitions.

Source: Business Standard

- This edition of the newsletter was written by Kulsum & Vignesh.

The Chatter by Zerodha

Our team at Markets spends a lot of time reading earnings call transcripts and listening to management interviews. Along the way, we come across plenty of interesting insights that are worth sharing.

That’s what The Chatter is for.

It’s a weekly newsletter where we dig through what India’s biggest companies are saying and bring you the most interesting insights into businesses, industries, and the wider economy.

The Chatter by Zerodha

The Chatter: Reliance, Axis Bank, Tata Power, UltraTech Cement & More

Welcome to the 70th edition of The Chatter — a weekly newsletter where we dig through what India’s biggest companies are saying and bring you the most interesting bits of insight, whether about the business, its sector, or the wider economy. We read every major Indian earnings call and listen to the interviews so you don’t have to…

Read more

4 days ago · 8 likes · Zerodha

What we’re reading

Our team at Markets is always reading, often much more than what might be considered healthy. So, we thought it would be nice to have an outlet to put out what we’re reading that isn’t part of our normal cycle of content.

So we’re kickstarting “What We’re Reading”, where every weekend, our team outlines the interesting things we’ve read in the past week. This will include articles and even books that really gave us food for thought.

Subtext by Zerodha

What We're Reading #21

Hi folks, hope you’ve had a great week…

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7 days ago · 9 likes · Zerodha

Join us on WhatsApp, where we share interesting soundbites from concalls, articles, and everything else we come across throughout the day. You’ll also get notified the moment a new video or article drops so that you can read or watch it right away.

Join us

Thank you for reading. Do share this with your friends and make them as smart as you are 😉

Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened; we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

In today’s edition of The Daily Brief:

1. Is the moat of the FMCG industry changing?
   Driven by Gen Z consumers shifting toward niche, personalized products and quick commerce consolidating distribution power, the traditional FMCG moat of mass-market branding and kirana-store reach is resetting—forcing legacy giants to buy digital-first challenger brands while navigating rising platform fees and lost control over consumer data.
   

2. A temperature check on India’s trade moves
   Facing global trade unpredictability and heavy reliance on Chinese supply chains, India is aggressively pursuing bilateral deals with resource-rich nations like Indonesia, Australia, and Canada to lock in critical minerals for its energy and defense ambitions, though persistent manufacturing gaps threaten to widen trade deficits if domestic product strength fails to keep pace.

The Chatter by Zerodha

Our team at Markets spends a lot of time reading earnings call transcripts and listening to management interviews. Along the way, we come across plenty of interesting insights that are worth sharing.

That’s what The Chatter is for.

It’s a weekly newsletter where we dig through what India’s biggest companies are saying and bring you the most interesting insights into businesses, industries, and the wider economy.

The Chatter by Zerodha

The Chatter: Reliance, Axis Bank, Tata Power, UltraTech Cement & More

Welcome to the 70th edition of The Chatter — a weekly newsletter where we dig through what India’s biggest companies are saying and bring you the most interesting bits of insight, whether about the business, its sector, or the wider economy. We read every major Indian earnings call and listen to the interviews so you don’t have to…

Read more

4 days ago · 8 likes · Zerodha

Is the moat of the FMCG industry changing?

Indian FMCG has long been one of the most dependable ways to make money in this country. These companies have compounded through recessions, demonetisation and even a pandemic, while consistently generating cash. The market has rewarded that consistency too, valuing FMCG companies at a premium to most other sectors in our economy.

There could be many reasons for that, but the one that stands out to us is their moat.

A moat is simply a lasting advantage that helps a company stay ahead of rivals and protect its profits. And for decades, some FMCG companies built strong moats around them.

We’re no experts here—just curious observers of businesses. But from everything we’ve read, the FMCG moat has always come down to one thing: winning the consumer. And there were two ways to do that. Reaching their hands, or reaching their minds.

Getting in front of them meant distribution. For years, that mostly meant being present at the neighbourhood kirana store. Getting into their head meant branding: memorable TV ads, catchy jingles and products people instinctively reached for. Everything else was in service of those two goals.

Now a report from HDFC Securities argues that this moat might be resetting. It’s even titled The Great Moat Reset.

That’s a bold claim. FMCG is one of India’s oldest industries, and industries like this rarely change overnight. But we do think there’s something interesting in the argument. And the easiest way to understand it is to go back to the question that has always – according to us – defined this industry: how do you win the customer?

Think of it all as a mental model, not a prediction.

The customer changed, and so did their preference

Almost every projection about Indian consumption leans on the same demographic trend: millennials and Gen Z are becoming the country’s dominant consumers. More importantly, they’ll make up a much larger share of India’s working population. By the end of the decade, these two generations are expected to account for almost 75% of all consumer spending in India.

Much of what follows is anecdotal, but this generation behaves differently. They want different products, shop differently, and are influenced by different things. That’s a challenge for legacy FMCG companies that spent decades understanding a very different customer.

It also changes the answer to the question we asked earlier: how do you win the customer?

Part of the answer lies in what you sell. For most of FMCG history, companies built products for an entire category. HUL had Clinic Plus. P&G had Head & Shoulders. These were products designed to serve the broad haircare market, with line extensions like Pantene or TRESemmé filling a few gaps along the way.

The report argues that this playbook is breaking down. Today’s customer doesn’t want a product made for everyone. They want one made for them.

They don’t just want a shampoo. They want a sulphate-free shampoo for coloured hair. In other words, one large category is splitting into dozens of smaller needs, or what the report calls “partitions”. Instead of one product serving everyone, each need gets its own product.

There’s some evidence this is already happening. Broad, mass-market categories are slowing, while a long tail of focused brands chips away at their market share.

Take Dr. Melaxin, the South Korean skincare label that just launched in India through Reliance’s Tira platform. It isn’t trying to solve “skincare.” Instead, it sells clinically positioned products for specific concerns like pigmentation, texture and firmness.

This is where incumbents are starting to lose ground. Their overall market share may still look intact, but the incremental customer—the young, urban, first-time buyer—is increasingly choosing these focused brands. In other words, a disproportionate share of new industry growth is flowing to challengers, not incumbents.

So how does a hundred-year-old FMCG giant respond? It has two choices. It can build a niche brand from scratch, but that’s slow and often goes against its instinct for scale. Or it can buy one.

If you can’t build it, buy it

The faster route is to buy, and over the last few years the biggest names have gone shopping for exactly the focused, digital-first brands the new customer likes.

HUL acquired Minimalist, a brand built around ingredient-led skincare with products like niacinamide serums and salicylic acid cleansers. This is very different from the mass-market beauty brands like Pond’s or Glow & Lovely it built over decades.

Marico, meanwhile, has spent the last few years acquiring and backing digital-first brands like Beardo, Just Herbs, Plix and Cosmix, each catering to a much narrower consumer need than its traditional portfolio. Most of these started online, spoke a very different language, targeted specific consumer problems, and built loyal communities before they ever reached supermarket shelves.

That’s why buying them often makes more sense than building them. Marico could have launched its own wellness nutrition brand to compete with Cosmix. But a legacy FMCG company would have struggled to create the same credibility, community and identity that Cosmix had already built with its audience.

Of course, buying brands isn’t cheap. And that brings us to the next question: who can actually afford to play this game?

The balance sheet gives the answer. ITC sits on the largest cash pile in the sector. Dabur has the biggest cash reserve relative to its own size. HUL also has a comfortable war chest. At the other end, Godrej Consumer and Gopal Snacks are in net debt. Any meaningful acquisition would likely require them to borrow first.

But cash on hand is only half the tell. It shows the ability to spend, but not the intention to.

Britannia has long preferred to hand money back to shareholders through dividends rather than chase acquisitions. On average 80% of their profits have been handed back to shareholders in the past 5 years, which is more than what an average FMCG company has given.

Even Honasa, the Mamaearth parent and the sector’s poster child for new-age growth, declared its maiden dividend this year after a strong run. Dry powder left unused is itself a choice.

We’d add one caveat of our own here: buying growth in FMCG is tricky. The industry’s history is full of expensive deals that looked sensible on paper but aged badly.

HUL’s roughly ₹3,000 crore purchase of Horlicks and Boost is a good example. The deal was meant to give HUL a stronger foothold in health food drinks, but the category itself was already losing momentum. At the same time, products like Horlicks and Boost were facing growing scrutiny over how healthy they really were. HUL eventually had to move away from the old “health food drinks” label and reclassify them as Functional and Nutritional Drinks.

Which shows, the winners here probably won’t be whoever spends the most; they’ll be whoever buys the way Marico has, slowly and cheaply and close to the trend, rather than in one splashy cheque.

The reach that no longer belongs to you

FMCG used to be a world of consolidated brands and fragmented distribution: a few giant labels pushed out through millions of tiny shops.

This arrangement is, arguably, inverting. The brands are fragmenting into a long tail of niche labels and distribution is consolidating into a handful of platforms. And the fastest-consolidating platform of all is quick commerce.

Quick commerce has gone from novelty to the single fastest-growing sales channel in FMCG, and for several large companies it now drives up to 75% of all online sales.

The channel’s economics are alien to everything the industry knew. For example, as per calculations a kirana does ~₹15,000 of revenue a year per square foot; but a dark store does closer to ₹1.23 lakh. A kirana stocks around 600 items; a dark store carries 15,000. In simpler words, quick commerce gives so much more volume at much lesser inconvenience to the brands.

Now, let’s not forget that Kiranas still account for the overwhelming majority of Indian grocery. So, the old moat of kirana’s reach isn’t gone but being poked by this small but fast growing alternative.

What does this mean for brands? As these platforms have scaled, power has started to flow to them. As a kirana shop operator, you are too little to have any negotiating power with the big brands or their distributors. But, that’s not the case with quick commerce.

Quick commerce companies are now doing to FMCG what only the biggest modern-retail chains — a D’Mart, a Reliance Retail — could once do: dictating terms. They’re demanding higher margins and bigger marketing budgets. The cost of selling through the channel has jumped about 20% in a year, and as much as 40% around festivals and weekends.

This is worrying because brands don’t control this new reach. It belongs to the quick commerce platforms.

There’s another interesting shift. Not every FMCG product fits the quick commerce model. Some purchases are urgent or impulsive. Others can wait until the monthly grocery run. But if quick commerce continues to drive most of the industry’s incremental growth, brands will increasingly have an incentive to design products specifically for these platforms—smaller pack sizes, impulse-friendly products and formats that suit a 10-minute delivery experience.

Which brings us back to the same question: if the platform owns the shelf, the search bar and the customer data, where exactly does the brand’s new moat live? Hold that thought.

The data moat built on the wrong side

Which brings us to the industry’s favourite new buzzword: data.

Every time a customer shops online, they leave behind a digital trail. What did they search for? Which products showed up? What did they click on? What did they finally buy? The entire purchase journey gets captured as data—something a kirana store could never offer.

That data can be incredibly valuable. The companies that can use it to spot emerging consumer needs, build the right products and pitch them the right way could have a real advantage.

New-age brands like Honasa claim to have built AI systems to try exactly this.

We’d treat “data is the new moat” as the most debatable part of the entire thesis. So far, the evidence that it creates a lasting advantage is thin.

Take Honasa’s AI systems. They’re meant to predict which products and marketing messages will work before the company spends real money on them. But the report itself shows that the products selected by the AI succeeded less than 5% of the time. In another case study, AI-driven recommendations improved conversion rates from 88% to 90%. Useful, perhaps, but hardly game-changing.

There’s also a more fundamental problem. The richest data about today’s customer—what they searched for, what they skipped, what they bought late at night—doesn’t belong to the brands. It belongs to the quick commerce platforms.

So if data really is the next moat, there’s a good chance it’s being built on the platform side, not the brand side.

Does any of it actually pay?

All of this — new products, acquisitions, ten-minute shelves — costs money. So it’s fair to ask whether the reset is profitable or merely expensive.

It’s hard to say. For now, margins are under pressure, but much of that seems cyclical rather than structural.

A big reason is higher input costs. Prices of key raw materials like palm oil and crude-based derivatives have risen. Palm oil, in particular, has become more expensive because Indonesia—the world’s largest exporter—has been using more of its own production to make biodiesel instead of exporting it. Since India imports a large share of its palm oil from Indonesia, lower exports mean higher prices for FMCG companies here.

The sector has also had to deal with one-off disruptions such as GST rate changes, which temporarily affected demand and inventory across the distribution chain as retailers adjusted purchases.

So while margins look weak today, much of the pressure appears to come from temporary cost and policy headwinds, not necessarily from a permanent deterioration in the economics of the business.

But, unlike the cost pressures if there’s one way the moat reset could eventually show up in the numbers, it’s through premiumisation.

The new customer doesn’t only want made-for-me products; they also want to trade up—the nicer face wash, the fancier coffee, the premium single-serve. Quick commerce is the ideal place to sell exactly that. It’s where discovery happens, where the basket skews upmarket, and where—by the companies’ own account—the channel earns better margins because it pushes a richer mix of premium products.

Ironically, the same platform squeezing brands on listing fees is also giving them their best chance to sell premium products in the first place.

For now, premium products are the clearest sign that the new customer is willing to spend more.

The bigger question is whether the market believes this shift will create value. So far, it seems unconvinced. FMCG valuations have fallen close to the lower end of their historical range, and the sector’s long-standing premium over the broader market has narrowed.

Read gloomily, that’s possible the market pricing in eroding moats. But if you look a little closer, there are two names still trading at a premium — Nestlé and Marico. They are precisely the ones the report rates highest on adapting to the new customer. Perhaps the market isn’t sitting around waiting for a moat reset to arrive; it’s already sorting the companies winning the new cohort of customers from the ones that aren’t, and paying up for the winners.

A temperature check on India’s trade moves

Earlier in July, Prime Minister Modi embarked on a three-nation Asia-Pacific tour. In Indonesia, he and President Prabowo signed multiple cooperation documents, three of them on critical minerals and steel. In Australia, he pushed for an early conclusion of the India-Australia Comprehensive Economic Cooperation Agreement (CECA). New Zealand was the third destination.

During this time, Indian and Canadian trade negotiators wrapped up the third round of talks for a trade deal that both sides want closed before the year is out.

A thread runs through the deals with Indonesia, Australia and Canada. India needs nickel, lithium, cobalt, potash, and rare earths — the raw materials of its energy transition, its defence ambitions, and its dream of becoming a serious manufacturer. Indonesia, Australia, and Canada have them. And, of course, this is happening in the wake of increasing trade weaponization by the two biggest superpowers of the world.

But trade deals are more complicated than shopping lists.

Two months ago, on our podcast series Subtext, we sat down with Ajay Srivastava, founder of the Global Trade Research Initiative and a veteran of the Indian Trade Service. He’s been in the rooms where these deals get made, line by line, tariff by tariff. What he told us offers a useful framework for understanding what these new deals might actually deliver — and what India has to offer in return.

We’ll be using the frameworks from that episode to look at the potential that the deals hold.

The world that made these deals urgent

First, let’s look at the world that made these deals urgent.

India has signed twenty regional or free trade agreements in its history. Nine of them have come in the past five years alone, covering the EU, the UK, the UAE, EFTA, Oman, and New Zealand. It is one of the more remarkable stretches of trade diplomacy by any large developing country. But the urgency comes from a world that has become deeply unpredictable.

Ajay Srivastava’s reading of the past year is blunt. After Trump imposed sweeping tariffs on America’s trading partners using emergency powers, one major economy after another caved.

Then, in February 2026, the US Supreme Court struck down those emergency tariffs entirely, ruling that the president had no authority to impose them. The Trump administration pivoted within hours to a flat 10% tariff on all imports under a different legal provision. Suddenly, every country that had surrendered was paying the same tariff as those that hadn’t. Malaysia even declared its deal with the US “null and void“.

And the pressure hasn’t stopped. The US Trade Representative has since launched two sweeping Section 301 investigations, which is widely seen as the legal groundwork for a new, permanent tariff architecture. The WTO’s fourteenth ministerial conference in Cameroon couldn’t even produce a final declaration. The e-commerce moratorium — a commitment not to tax digital transmissions that had held since 1998 — lapsed for the first time.

Srivastava puts it simply: except for the US, every country honours its trade agreements. Once you negotiate a deal, you are assured of a certain tariff — zero, five, ten percent — and you can predict it. In a world where American trade policy changes by the week and the WTO has no enforcement power, bilateral FTAs become the only reliable source of tariff certainty. That’s the strategic logic behind India’s sprint.

But he also adds a provocation. FTAs only help at the margins: they lower the tariff, smooth the paperwork, give your exporters a slight edge. But they don’t create competitiveness. The real question is what Srivastava calls complementarity — whether the two sides make fundamentally different things, so that trade benefits both without destroying either’s domestic industry.

That’s the lens we want to apply to the three deals India is chasing right now.

Three countries, one mineral hunger

Here’s something worth noting first. Indonesia, Australia, and Canada are not major trade partners for India. India’s total merchandise trade crossed a trillion dollars in FY26. China alone accounted for over $150 billion of that. The US accounted for $140 billion. Indonesia ($30 billion), Australia ($24 billion), and Canada ($8 billion) together add up to about $60 billion — less than half of India-China trade. These are firmly second-tier partners, and their share of trade with India was even smaller 5 years ago.

India’s trade diplomacy has historically been oriented around the big blocs — the US, the EU, ASEAN as a group, the Gulf. These three countries, individually, didn’t make the cut.

What’s changed is minerals. The energy transition, the push to build batteries and EVs domestically, the semiconductor ambition: all of it requires raw materials India doesn’t have.

Indonesia holds the world’s largest nickel reserves — 62 million metric tons — and accounts for more than half of global nickel production. Australia is the world’s largest exporter of lithium and ranks in the global top five for cobalt, rare earths, tantalum, and zircon. Canada has significant deposits of potash, nickel, cobalt, lithium, and uranium. Between them, these three countries hold a large share of the raw materials India needs for batteries, EVs, solar panels, steel, defence hardware, and semiconductor packaging.

India currently gets 60-70% of its lithium from China and ~40% of its rare earths. Every deal India signs with a non-Chinese supplier is a supply-chain diversification play.

Beyond this, the specifics vary by country, and so does the texture of each relationship.

Indonesia

Let’s start with Indonesia. In 2024, bilateral trade stood at about $30 billion, but India exported just $6 billion while importing nearly $24 billion.

The deficit of roughly $18 billion is driven almost entirely by two commodities: coal ($8 billion) and palm oil ($4.4 billion). India needs Indonesian coal for its power plants and Indonesian palm oil for its food processing industry. India’s exports to Indonesia are small-scale and fragmented: refined petroleum, agricultural products like groundnuts, some commercial vehicles and auto parts.

Trade experts have pointed out that Indian companies have focused almost entirely on selling products to Indonesia rather than investing in Indonesian manufacturing to integrate supply chains. Without that deeper integration, the export gap has been impossible to close.

In our visit to Jakarta, 3 of the 12 MoUs signed were minerals-related. That included a major joint venture between Steel Authority of India and Krakatau Steel — a major flip from the history of us shying away from investing in Indonesia.

But Indonesia has a blunt ban on the export of raw nickel ore. It wants the processing, the smelting, the value addition to happen on Indonesian soil. India can’t just buy nickel the way it buys Indonesian coal. We have to invest in Indonesian processing capacity, build joint ventures, and set up factories.

Australia

Meanwhile, Australia may look different on paper, but, much like Indonesia, reality hasn’t met expectations.

The two countries signed an interim trade deal in 2022, and it was supposed to be the start of something bigger. Bilateral trade did grow since then, but over the last year, merchandise trade actually declined. In FY26, Indian exports to Australia fell by 15% and imports from Australia dropped 11%.

The broader deal, the CECA, has been negotiated on and off since 2011 and remains stuck on domestic political sensitivities. India’s dairy lobby resists concessions on Australian dairy and wine, while Australia hesitates on visa access that India demands for its IT professionals.

Where things are moving, though, is, again, minerals.

The two countries have set up a Critical Minerals Investment Partnership, which has identified five target projects — two lithium, three cobalt — for detailed due diligence. Most notably, at the July summit in Melbourne, India and Australia finally agreed to operationalize commercial uranium exports to India, even though we’ve had an agreement on nuclear energy with them for 12 years.

The complementarity is cleaner here than with Indonesia. Australia supplies minerals, coal, LNG, and education services. Historically, India has exported pharmaceuticals, IT services, textiles, and refined petroleum to Australia. While India has historically had a trade deficit with Australia, neither side undercuts the other’s domestic industry for this deficit to harm us. But the CECA deadlock is a reminder that complementarity on paper doesn’t automatically translate into a signed deal.

Canada

Canada is the smallest of the three in trade terms, but the diplomatic context underlying the relationship raises the stakes significantly. India-Canada relations have been in crisis for a few years over the Nijjar affair, in the wake of which India expelled Canadian diplomats, Canada recalled its own, and trade talks froze entirely.

But that ice has thawed. Now, Prime Minister Carney is calling the proposed deal a “game changer”. The complementarity case is straightforward: Canada has potash, which is a key input in fertilizer. And India is one of the world’s largest consumers of fertiliser. Canada is also a powerhouse in critical resources, with reserves of nickel, cobalt, and uranium. India’s biggest exports are pharma, textiles, and IT services.

The deal, if it gets done, would be as much a symbol of diplomatic normalisation as it is a trade agreement.

What does India bring to the table?

In each of these partnerships, the other side’s offering is tangible and in demand. These are the building blocks of the twenty-first-century industrial economy. Countries that have them hold real leverage.

What India offers beyond what we already export to these countries is different in kind.

One of the key anchors on our side is defence. For instance, with Indonesia, we signed a deal that includes $600 million worth of defence goods. Chief among them is our Brahmos missile, which has become a popular export for us lately, with the Philippines becoming the first customer in 2022. It also includes air-to-air missiles. One reason for this defence push is to hedge against the growing influence of China, who has repeatedly encroached on Indonesian waters, which also serve as trade routes.

Similarly, with Australia, trade talks have been dominated less by conventional goods and services, and more by defence and national security needs. Defence manufacturing was held as a priority sector in our July meeting at Melbourne.

On top of this, the promise of being a reliable partner in a world where China’s dominance over critical mineral supply chains makes everyone nervous. India has also removed import duties on 41 critical minerals to sweeten the deal.

There is, of course, market access to 1.4 billion consumers in one of the world’s fastest-growing economies. The standard categories of services, pharma, refined petroleum and auto parts, which have made up most exports to Australia and Canada, still exist.

However, Ajay Srivastava’s provocation about India’s industrial strength lingers.

India’s product profile, he argues, hasn’t changed much since the 1990s. We were competitive in labour-intensive goods like garments, textiles, leather, and low-end engineering. And then, we stopped developing new products. The categories that emerged after liberalisation — synthetic garments, sportswear, electronics, advanced chemicals — are those where India barely competes globally.

A deal works when both sides can actually sell into the other’s market. India is opening its doors to Australian lithium and Canadian potash, but what are we sending back? The deficits with Indonesia and Australia aren’t accidents. It reflects the possibility that India needs these countries’ commodities more than they need Indian manufactured goods.

What comes next

In a world where the US is unreliable, the WTO is fractured, and every country is scrambling to lock in predictable trade terms, signing deals with resource-rich partners is exactly what you’d want to do. The critical minerals thread connecting Indonesia, Australia, and Canada is a reliable way of avoiding dependence on a historic geopolitical rival of ours.

But, as we’ve covered before, the old FTAs with ASEAN and South Korea taught a hard lesson: a deal without product strength just widens your deficit. Whether this round turns out differently depends less on the tariff schedules and more on whether India can build the industrial depth to make these partnerships genuinely two-way.

Tidbits

[1] The Reserve Bank of India has released draft rules to completely overhaul and simplify the country’s foreign investment framework. The new policies aim to reduce compliance burdens and make it easier for foreign investors to fund Indian companies.
Source: RBI Press Release

[2] Swedish furniture giant IKEA is exploring an entry into India’s booming quick commerce platforms to boost its online sales. The retailer is also planning to expand its physical stores beyond major metros as it heavily increases its investments in the country by 2030.
Source: Financial Express

[3] To boost green fuel production, India utilized 3.9 million tonnes of government rice and 6.8 million tonnes of maize for ethanol blending by June 2026. This massive procurement supports the government’s push to mix 20% ethanol into petrol to reduce reliance on imported oil.
Source: The Hindu BusinessLine

[4] Ships carrying essential fertilisers are stranded at major Indian ports due to severe congestion, limited railway availability, and shipping disruptions in the Middle East. This delay is raising critical supply concerns for farmers during the peak Kharif crop sowing season.
Source: The Economic Times

[5] Ozempic-maker Novo Nordisk has sued rival Eli Lilly for false advertising, claiming Lilly’s ads deceptively state its weight-loss drugs are superior. The lawsuit alleges Eli Lilly intentionally compared high doses of its drug Zepbound to outdated, lower doses of Novo’s medications.
Source: Livemint

- This edition of the newsletter was written by Kashish & Manie.

Suyash Singh on the madness of the space business

Space is hard, a cliché that becomes reality when you try to build hardware that operates in a vacuum, extreme radiation, and wild thermal cycles with zero tolerance for failure. For Earth observation companies, this difficulty is compounded by a business reality: satellite imagery is essentially a data business hampered by inconsistent supply due to cloud cover. To make sense of all this, we spoke to Suyash Singh, Co-founder and CEO of GalaxEye, who is attempting to solve this by building India’s first OptoSAR satellite. Our conversation dives deep into the technical hurdles of synchronizing optical and SAR sensors traveling at seven kilometers per second, the realities of miniaturizing radars for drones as a frugal testing ground, how the IN-SPACe reorganization catalyzed the Indian private space ecosystem, and what it is actually like to book a launch slot with SpaceX.

Subtext by Zerodha

Suyash Singh on the madness of the space business

Space is hard. It is a cliché that gets thrown around a lot, but its realities are difficult to grasp until you try to build hardware that operates in a vacuum, extreme radiation, and wild thermal cycles—all with zero tolerance for failure. For Earth observation companies, that hardware difficulty is compounded by a business reality: satellite imagery i…

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6 days ago · 8 likes · Zerodha

You can also listen to the full conversation on Spotify and Apple Podcasts. Watch the full podcast episode below, where Suyash breaks down the technical hurdles of space hardware and the economics of Earth observation.

Points & Figures by Zerodha

We’re always chasing the day’s biggest stories. But every now and then, we come across a dataset that deserves a closer look than a Daily Brief allows.

That’s what Points & Figures is for.

It’s where we step back from the news cycle and use data visualisations to tell stories about the Indian economy, financial markets, and investing. Our latest edition traces how India’s power landscape is transforming, using electricity generation, capacity, and emissions data to reveal why simply building solar panels isn’t enough to dethrone coal.

Points & Figures by Zerodha

A Guide to India’s Power Transition

Hello, welcome to this week’s edition of Points & Figures. This edition is done by Mridula & Kulsum…

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8 days ago · 18 likes · 2 comments · Zerodha

What we’re reading

Our team at Markets is always reading, often much more than what might be considered healthy. So, we thought it would be nice to have an outlet to put out what we’re reading that isn’t part of our normal cycle of content.

So we’re kickstarting “What We’re Reading”, where every weekend, our team outlines the interesting things we’ve read in the past week. This will include articles and even books that really gave us food for thought.

Subtext by Zerodha

What We're Reading #21

Hi folks, hope you’ve had a great week…

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7 days ago · 9 likes · Zerodha

Subscribe to Aftermarket Report, a newsletter where we do a quick daily wrap-up of what happened in the markets—both in India and globally.

Join us on WhatsApp, where we share interesting soundbites from concalls, articles, and everything else we come across throughout the day. You’ll also get notified the moment a new video or article drops so that you can read or watch it right away.

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Thank you for reading. Do share this with your friends and make them as smart as you are 😉

Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened; we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

In today’s edition of The Daily Brief:

1. No more critical minerals for the world?
   While China’s dominance over refining and its tightening export controls are driving up global metal prices, recent Middle East sulphur disruptions and collapsing processing fees have triggered a drop in new mining investment, leaving import-dependent nations like India deeply vulnerable across their green energy and technology supply chains.
   

2. The hidden gap in India’s mobile internet ecosystem
   Despite crossing 1 billion broadband connections, less than 5% of India's internet runs on fixed wireline, an imbalance driven by high broadband costs, slow BharatNet execution, and over ₹1 lakh crore in unutilized public funds that leaves the country's mobile-heavy network lacking the reliable optical-fibre backbone needed to power advanced cloud AI, telemedicine, and digital governance.

No more critical minerals for the world?

Almost everything we imagine our future running on depends on a very specific set of metals.

Electric cars, solar farms, wind turbines, giant data centres and even modern weapons all need them. Lithium, cobalt and graphite go into batteries, while copper is the wiring that holds everything together. Rare earths make the magnets that spin inside electric motors and wind turbines.

Then there’s a long list of metals you’ve probably never heard of, like gallium and germanium, sitting inside your phone and every computer chip.

These are called “critical minerals.” They’re critical because, for one reason or another — whether geopolitical or geographic — they’re hard to secure, yet it’s difficult to imagine a modern economy without them. Every country has its own definition of what counts as “critical.” India does too, and its current list includes 30 minerals.

Every year, the International Energy Agency (IEA) publishes a major report on critical minerals. For most of the past decade, the big question was whether the world was mining enough of these metals to keep up with demand.

This year’s report puts emphasis on something else. Instead of worrying about how much is in the ground anymore, it highlights how a handful of countries control a lot of its supply. That became problematic, when last year, these countries started weaponizing this control.

To be fair, people had been warning about this for years. But it only grabbed everyone’s attention once it started disrupting industries around the world.

That’s just one takeaway from a report that runs over 300 pages. We can’t cover all of it, but here are five things that stood out.

Supply problem is much larger than just digging

How critical minerals are distributed across the world is largely a geographic lottery. Some countries are simply more naturally endowed than others. But that’s not the real problem, nor are we running out of these minerals anytime soon. The problem is that a lump of raw ore is useless for any factory. It first has to be cleaned and refined into an extremely pure form, and that refining is a huge, difficult, dirty industry all on its own.

Unsurprisingly, China dominates this business. It refines most of the world’s lithium and cobalt, and almost all of its battery-grade graphite. Indonesia plays the same role for nickel. Together, over the past two years, those two countries accounted for more than three-quarters of all the new refining capacity added anywhere in the world.

In other words, the biggest players kept expanding their lead in the minerals they already dominated. That only made the world’s dependence on them even deeper—a concentration that should make any country uncomfortable.

So why doesn’t everyone else just build their own refining capacity?

For one, it’s expensive. China’s expertise has brought prices down within the country. The same refinery outside China, however, costs 20% to 150% more to build. It is also roughly 50% more expensive to run, in large part because power and materials are pricier everywhere else. On top of that, the by-products of refining rare earths are incredibly toxic, and many countries have simply been unwilling to subject their citizens to the same levels of pollution.

As a result, even though the world understands the importance of diversifying away from China in theory, its hold over critical minerals only grows stronger.

This creates a massive dependency, even for countries that have critical mineral raw materials. You can dig up your own lithium in Australia, for instance. But as long as China maintains its chokehold on refining the metal, the dependency remains.

That might be changing, however. Many countries that have critical mineral deposits are trying to prevent it from leaving their shores. For instance, Congo, Zimbabwe and Mozambique have all put controls on their raw cobalt, lithium and graphite. To access those deposits, investors have to set up refineries in those countries — giving them both investment and resilience.

Export controls becomes the new normal

For years people knew that China’s dependency on refining was a huge deal and last year this became a little more evident. Then in April 2025, China put export controls on seven of the heavy rare earths. These rare earths make the magnets inside electric motors, and there’s no easy substitute for them.

The Chinese exports to the world dried up and carmakers in the US and Europe couldn’t get the magnets they needed. Consequently, some automarkets slowed their production lines while others flat-out stopped building cars.

This also showed up in prices for these metals. For the minerals that China restricts, there are now basically two prices. A cheaper one inside China, while hefty premiums for the same metals in European markets.

For context, in Europe, gallium and the heavy rare earths cost around five times the Chinese price. Across 2025, tungsten, used for making cutting tools, shot up sixfold and lithium more than doubled.

Then in October 2025, China went a lot further.

It floated rules saying that any product, made anywhere on earth, that contains Chinese rare earths, or was even made using Chinese technology, would need a Chinese licence to trade. That’s a wild reach, stretching into products that never even touch China.

The IEA estimated that if this were fully enforced, roughly $6.5 trillion dollars a year of production outside China would be at risk. China paused this tougher version for a year, until November 2026. Everyone rejoiced, but knew that the threat was not gone, just delayed.

China also announced controls on the battery supply chain, including graphite anodes and the machines used to make batteries, putting another 300 billion dollars a year of outside production at risk.

The dependency on Middle East

As we all know, the closure of the Strait of Hormuz broke a lot of things globally.

One such thing was sulphur. Its key use is in being converted into sulphuric acid, which is essential for processing copper, nickel, cobalt, lithium and rare earths. It’s also a key ingredient in fertilizers.

The Middle East supplies about a quarter of the world’s sulphur, and half the world’s shipped sulphur passes through the Strait of Hormuz. That’s because sulphur is recovered as a by-product when crude oil and natural gas are processed. Since the Middle East is a major producer of both, it has also become the world’s biggest hub for sulphur exports.

So what happened when the Strait was disrupted? Naturally, sulphur prices jumped. That pushed up the price of sulphuric acid as well. For lithium refiners, sulphuric acid, which had accounted for about 3% of production costs, suddenly rose to roughly 11%. That made lithium more expensive to produce. Higher sulphuric acid prices also raised fertilizer costs just as planting season began, creating a food security problem, especially for poorer countries.

And it wasn’t just the well-known minerals that got caught up in this. Lesser-known metals like gallium, germanium, tungsten and antimony also rely on sulphuric acid during refining. These metals ultimately end up in AI hardware, data centres, defence equipment and clean energy technologies. In other words, a disruption in sulphur supply left industries ranging from automakers and chipmakers to defence firms competing for the same critical input.

The same turmoil in the Middle East also knocked out a meaningful share of the world’s helium supply. Now that’s a gas without which semiconductors can’t be manufactured.

Not a good time to be a middlemen

You’d expect that with all this chaos and prices rising, investors would be rushing to build new mines and refineries to cash in. After all, one person’s problem is another person’s opportunity. But the opposite happened. Investment in critical minerals actually fell 9% in 2025, the first decline in years. What stood out the most was lithium companies slashing their investment budgets by around 40%.

That raises an obvious question: how do refineries shy away from investing when metal prices are soaring?

Because refineries don’t make money by selling the metal. They make money by charging miners a fee to process raw ore. China built so many refineries that there simply isn’t enough ore to keep them all running at full capacity. So they started undercutting each other to win business. Those processing fees collapsed to zero in 2026, the lowest level on record. As a result, miners pocket the profits from high metal prices, while refineries process increasingly valuable ore for almost nothing and bleed cash.

This is something that we looked at in our previous story on copper as well.

There’s another interesting angle. Many of the rarest critical minerals aren’t mined directly at all. They are recovered as by-products when base metals like copper and zinc are smelted. So if those refineries start shutting down because they aren’t profitable, the world also loses one of its few sources of these niche but essential minerals.

Where does India sit in all of this?

Put all of that together, and India is in a pretty awkward spot.

Our appetite for these minerals is only growing. India added renewable energy capacity at one of the fastest rates among major markets in 2025. That also makes us more vulnerable, because our solar farms, batteries and EVs all depend on supply chains we have little control over. We own almost none of the global refining capacity.

Then there’s helium. Qatar supplies more than half of India’s helium, and we need it to manufacture everything from MRI scanners to electronics. India is also a major producer of sulphuric acid, but it relies on imported sulphur to make it.

So we’re heavily dependent on importing the raw materials, yet we’re also struggling to stay competitive in exporting the products made from them.

India’s manganese-alloy exporters are a good example. They’re facing a difficult 2026 because Europe, their biggest market, is capping imports and introducing a carbon levy that could halve India’s shipments.

The one hopeful thread is recycling—recovering metals from used batteries and old electronics. It could significantly increase India’s domestic supply by 2040, and matters more for a country with limited mineral deposits than almost anywhere else. But that’s still a distant goal. Building a large-scale recycling ecosystem is a challenge in itself, with no easy answers.

The hidden gap in India’s mobile internet ecosystem

Without a doubt, India’s mobile internet story is one of the great infrastructure achievements of the last decade, especially after the advent of Jio. Today, India has over 1 billion broadband connections. Mobile data costs a fraction of what it does in most countries.

Of those 1 billion connections, only 47 million, or less than 5%, are fixed wireline. The rest is mobile data. That sounds fine; after all, for us, internet consumption was normalized through the smartphone.

But that’s not true for other countries, including and especially those at a similar stage of development as us. Elsewhere, fixed-line networks carry the bulk of internet traffic. India is one of the few countries in the world where mobile networks carry more total data than fixed-line ones.

It’s an imbalance that didn’t matter much when the internet was mainly about WhatsApp messages and YouTube videos. But as cloud computing, AI applications, telemedicine, and digital governance scale up, the absence of a reliable fixed-line backbone may become a structural vulnerability. That is the hypothesis of a new policy brief from the think-tank ICRIER, that we’ll be looking into today. We recommend reading it in full if you have the time.

But, there’s a disclosure about the report that’s worth noting upfront.

This report comes from ICRIER’s InVict Centre, where “Vict” stands for Vodafone-Idea Centre for Telecom. This research centre is co-backed by Vi, the third-largest telecom operator in the country — a company with a troubled history, trying to make a comeback. It would directly benefit from many of the report’s recommendations. That doesn’t make the analysis dubious or incorrect, but it is worth keeping in mind as we get into the policy prescriptions.

Why wireline matters

So, if mobile data is cheap and widely available, why does India need wireline at all? The answer comes down to three things.

The first is capacity. When hundreds of people in a neighbourhood are streaming, working from home, or running cloud applications at the same time, a mobile network congests — because everyone in the cell tower’s radius is sharing the same airwaves. But a fibre connection to your home doesn’t have that problem. A single fibre-optic cable can carry orders of magnitude more data than a cell tower. The bandwidth is yours; it doesn’t degrade because your neighbour started a video call.

The second is reliability. Mobile signals are affected by weather, building walls, distance from the tower, and how many other people are connected. Fibre is a physical cable that delivers consistent speeds regardless of what’s happening around it.

That consistency matters enormously for the kind of applications India is betting its future on. Cloud-based AI services, remote healthcare where a doctor in a city hospital monitors a patient in a rural clinic in real time, factory automation, digital governance — all of these need connections that don’t drop or slow under strain.

The third factor is the most interesting of all: it’s that mobile networks themselves depend on wireline. The cell tower your phone connects to needs a fibre-optic cable running from it back to the core network. This is called “backhaul“. The last hop to your phone is wireless, but everything before that should be fibre. Without good fibre backhaul, even a 5G tower delivers mediocre speeds.

India’s tower fiberization rate, which is the share of cell towers connected to fibre, stands at roughly 36%. The government’s own target was 70% by 2024. In contrast, the same number in North America is 70%. In South Korea and Japan, where fibre broadband penetration exceeds 85%, the figure is even higher. Building wireline isn’t a separate agenda from mobile, but a precondition for the quality of mobile data itself.

Slow, expensive, and stuck in a loop

So, what is the state of India’s fixed-line infrastructure?

India’s average fixed broadband download speed is about 64 Mbps, while mobile broadband clocks in at around 101 Mbps. In essence, in India, your phone gives you faster internet than your home broadband. We’re one of the very few countries in the world where that’s the case. In most places, fixed-line speeds are two to four times faster than mobile.

That’s less a reflection on India’s mobile internet, and more on the poor health of our fixed-line infrastructure. And some of the reason has to do with economics.

See, fixed broadband in India is expensive. A fixed broadband basket costs about three times the price of a mobile data plan as a share of monthly gross national income per capita, and about double the global average. So you have a product that’s slower than its mobile alternative while also costing significantly more. Why would anybody buy that?

Low demand, in turn, creates a vicious cycle. Service providers can’t justify investing in upgrading fixed-line networks when few people are subscribing. Without investment, quality stays poor. Poor quality keeps demand low. The cycle reinforces itself, and India’s wireline infrastructure falls further behind.

Jio and Airtel are the biggest fixed-line providers. But regional ISPs like Excitel and legacy cable operators like GTPL also play a role. BSNL, the state-owned operator, still runs much of its last-mile delivery on ageing copper lines laid decades ago.

BharatNet’s unfinished promise

It was to fill this gap that, in 2011, the Indian government launched BharatNet, a nation-wide programme with ₹1.3 lakh crore worth of commitment to bring fibre connectivity to every village in the country. By 2020, the scope had expanded to cover all inhabited villages, and a public-private partnership (PPP) model was approved for 16 states to bring in private operators for last-mile deployment.

The results have not matched the ambition, though. As of September 2025, only a little over 2 lakh villages out of a target of more than 6.5 lakh have been connected. The budgeted expenditure for BharatNet in FY 2025-26 was ₹22,000 crore, but only 25% of it was utilised.

Part of this underperformance is slow execution, but, as per ICRIER, the biggest reason lies in the flawed design of the funding mechanism itself.

India finances its broadband push partly through the Universal Service Obligation Fund, now renamed the Digital Bharat Nidhi (DBN). The fund is built on a simple idea: telecom operators pay a 5% levy on their revenue, and that money is used to extend connectivity to underserved areas. The problem is that this levy flows into the Consolidated Fund of India, which is the government’s general kitty. That, then, has to be re-allocated through the annual budget process before it reaches the DBN.

This creates a structural gap between collection and disbursement. Money collects in the fund, gets stuck in the budgetary pipeline, and sits unused. As of March 2026, over ₹1 lakh crore remains unutilised.

What the rest of the world did differently

Other countries faced similar challenges, and their approaches offer a useful contrast.

Chile, for instance, built its fibre backbone through PPPs. The Fibra Óptica Nacional, a 10,000-kilometre network, received about $120 million in government subsidies.

Chile’s network is wholesale access: meaning multiple ISPs, no matter how big or small, can access the same infrastructure on equal terms. This also implies that there is little duplication of fibre-laying efforts by operators. To incentivize the network buildout, the country also ran reverse auctions, where the operator that bid the lowest subsidy while meeting defined service levels won. By 2022, nearly 60% of Chile’s fixed connections were fibre, and its broadband speeds led Latin America.

Brazil, which is often compared with India for its size and development challenges, built a competitive and fragmented market where smaller providers hold more than half the fixed broadband base. Much like Chile, wholesale networks have been crucial to this. Fixed broadband connections grew by about 43% between 2020 and 2024.

Meanwhile, Singapore structurally separated the passive infrastructure (the fibre cables) from the active infrastructure (which are the routers and switches) in its nationwide broadband network, and mandated equal wholesale access for all downstream operators. This prevented the fibre owner from favouring its own retail services. Today, over 85% of Singapore’s homes have access to speeds of at least 1 Gbps.

South Korea used PPPs specifically for rural areas, bringing together central and local governments with major ISPs to connect about 1,300 villages between 2020 and 2022.

The fixes India needs

The ICRIER brief maps India’s existing initiatives against these international experiences and identifies several gaps.

The most fundamental fix is to ringfence the Digital Bharat Nidhi. That will involve either bypassing the Consolidated Fund entirely or establishing a time-bound transfer obligation backed by legislation. Without this, no amount of additional funding translates into outcomes.

The second fix that ICRIER recommends is accelerating BSNL’s copper-to-fibre conversion.

Combined, BSNL and MTNL have the largest fibre footprint of any single entity in India — roughly 15.85 lakh route kilometres when you combine their own network with BharatNet. BSNL alone accounts for about 37-38% of the country’s entire fibre footprint. Yet much of its last-mile delivery still runs on ageing copper, which caps broadband speeds and reliability.

So, while it continues to lay new fibre connections, the old ones keep rusting without being decommissioned, and effectively, it pays maintenance costs for both. And, given BSNL’s budgetary issues, those costs are unaffordable.

The conversion needs capital ringfenced from BSNL’s ₹1.64 lakh crore government revival package, measurable annual targets for copper retirement, and a defined schedule for decommissioning copper.

The third fix is on the question of competition, which is where the incentives behind the report come into play.

We all know that India’s telecom sector has gravitated towards a duopoly, with the two largest players capturing 75% of market share. India doesn’t impose wholesale access obligations on its dominant telcos — it is technically permitted under unified licence conditions, but it’s not mandated. Each large operator builds its own last-mile network, duplicating investment in profitable urban areas while leaving unprofitable areas unserved.

The brief recommends mandatory wholesale access, transparent interconnection pricing, and an offset in the AGR duty levied on telcos if they invest in rural fibre capex. These are legitimate policy ideas with international precedent.

But notice who benefits most. Mandatory wholesale access would let operators who haven’t built their own fibre (like Vi) piggyback on networks that Jio and Airtel spent billions constructing. An AGR levy offset gives proportionally more relief to a company whose AGR liabilities nearly bankrupted it. As such, Vi has been successfully lobbying for reductions in their AGR dues in the past few months.

None of this means the recommendations are wrong, though. The duopoly structure indeed discourages investment in unserved areas. These reforms are meant to help all competition, big or small. But Vi would be the most immediate beneficiary.

Conclusion

India built one of the world’s most impressive mobile-first internet ecosystems. The next challenge lies in building the second layer successfully across the whole country. The fixed-line backbone is what every mature digital economy relies on.

We don’t necessarily lack capital to make this happen. But the report highlights where we do lack institutional capacity. That includes fixing the plumbing of public funds, mandating infrastructure sharing, and recognising that cloud AI, smart manufacturing, and remote healthcare can’t run on mobile networks alone.

Tidbits

[1] RBI said it received $17.41 billion via FCNR(B) deposits swapped under a zero-cost facility, $1.97 billion through overseas foreign currency borrowings by banks, and $1.34 billion via external commercial borrowing swaps: totalling $20.7 billion. The crisis-era measures, announced amid sustained rupee pressure from elevated oil prices, were aimed at boosting dollar inflows. We covered the FCNR deposits here.
Source: Business Standard

[2] Minister of State for Finance Pankaj Chaudhary told the Lok Sabha that UPI processed 24,162 crore transactions worth ₹314.23 lakh crore in FY26, up from 18,587 crore transactions worth ₹260.56 lakh crore the year before. NPCI International is also expanding UPI’s global reach, with cross-border payments now live in Greece, Nepal, and Cambodia.
Source: Fortune India

[3] Honeywell Aerospace has landed a deal to supply Indigo’s new Airbuts A320neo jets with auxiliary power units, weather radar, traffic collision avoidance systems, and flight management systems. This was the largest new-aircraft-selectable equipment win in the history of Honeywell, which has supported IndiGo’s operations since 2015.
Source: ET Now

[4] Coca-Cola appoints JPMorgan, Citi, Kotak, and Morgan Stanley for its Indian bottler’s 2027 IPO. The beverage giant confirmed in June that it is preparing to list Hindustan Coca-Cola Holdings and may sell part of its stake, joining a broader wave of global companies — including Pernod Ricard and Carlsberg — looking to tap India’s equity markets.
Source: The Economic Times

[5] NPCI is developing an offline tap-and-pay UPI for flights and underground metros. The feature will let users load money onto an on-device UPI Lite wallet and tap their NFC-enabled phone on a certified PoS terminal to pay up to ₹2,000 — no internet needed on either end. NPCI is expected to begin certifying merchant terminals from leading PoS manufacturers this year.
Source: Business Standard

- This edition of the newsletter was written by Krishna & Manie.

Suyash Singh on the madness of the space business

Space is hard, a cliché that becomes reality when you try to build hardware that operates in a vacuum, extreme radiation, and wild thermal cycles with zero tolerance for failure. For Earth observation companies, this difficulty is compounded by a business reality: satellite imagery is essentially a data business hampered by inconsistent supply due to cloud cover. To make sense of all this, we spoke to Suyash Singh, Co-founder and CEO of GalaxEye, who is attempting to solve this by building India’s first OptoSAR satellite. Our conversation dives deep into the technical hurdles of synchronizing optical and SAR sensors traveling at seven kilometers per second, the realities of miniaturizing radars for drones as a frugal testing ground, how the IN-SPACe reorganization catalyzed the Indian private space ecosystem, and what it is actually like to book a launch slot with SpaceX.

Subtext by Zerodha

Suyash Singh on the madness of the space business

Space is hard. It is a cliché that gets thrown around a lot, but its realities are difficult to grasp until you try to build hardware that operates in a vacuum, extreme radiation, and wild thermal cycles—all with zero tolerance for failure. For Earth observation companies, that hardware difficulty is compounded by a business reality: satellite imagery i…

Read more

5 days ago · 8 likes · Zerodha

You can also listen to the full conversation on Spotify and Apple Podcasts. Watch the full podcast episode below, where Suyash breaks down the technical hurdles of space hardware and the economics of Earth observation.

Points & Figures by Zerodha

We’re always chasing the day’s biggest stories. But every now and then, we come across a dataset that deserves a closer look than a Daily Brief allows.

That’s what Points & Figures is for.

It’s where we step back from the news cycle and use data visualisations to tell stories about the Indian economy, financial markets, and investing. Our latest edition traces how India’s power landscape is transforming, using electricity generation, capacity, and emissions data to reveal why simply building solar panels isn’t enough to dethrone coal.

Points & Figures by Zerodha

A Guide to India’s Power Transition

Hello, welcome to this week’s edition of Points & Figures. This edition is done by Mridula & Kulsum…

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7 days ago · 18 likes · 2 comments · Zerodha

What we’re reading

Our team at Markets is always reading, often much more than what might be considered healthy. So, we thought it would be nice to have an outlet to put out what we’re reading that isn’t part of our normal cycle of content.

So we’re kickstarting “What We’re Reading”, where every weekend, our team outlines the interesting things we’ve read in the past week. This will include articles and even books that really gave us food for thought.

Subtext by Zerodha

What We're Reading #21

Hi folks, hope you’ve had a great week…

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6 days ago · 9 likes · Zerodha

Join us on WhatsApp, where we share interesting soundbites from concalls, articles, and everything else we come across throughout the day. You’ll also get notified the moment a new video or article drops so that you can read or watch it right away.

Join us

Thank you for reading. Do share this with your friends and make them as smart as you are 😉

Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened; we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

In today’s edition of The Daily Brief:

1. The OYO IPO: Through a new Prism?
   As Oravel prepares for its third IPO attempt under the new "PRISM" brand, its pivot from a pure-play budget hotel chain into a complex, five-engine global distribution platform has finally generated cash-positive operations, though a lingering ₹3,000 crore debt load and shrinking direct demand raise questions about whether its business can truly justify its ambitions.
   

2. The economics of ship-breaking in India
   India is attempting to revitalize its Alang scrapyards by rolling out the world's first Shipbreaking Credit Notes and upgrading to global green standards, yet persistent geopolitical shocks, a weaker rupee, and the lucrative demand for aging tankers in sanctions-evading "shadow fleets" continue to incentivize owners to keep old vessels sailing rather than sending them to the beach.

Suyash Singh on the madness of the space business

Space is hard, a cliché that becomes reality when you try to build hardware that operates in a vacuum, extreme radiation, and wild thermal cycles with zero tolerance for failure. For Earth observation companies, this difficulty is compounded by a business reality: satellite imagery is essentially a data business hampered by inconsistent supply due to cloud cover. To make sense of all this, we spoke to Suyash Singh, Co-founder and CEO of GalaxEye, who is attempting to solve this by building India’s first OptoSAR satellite. Our conversation dives deep into the technical hurdles of synchronizing optical and SAR sensors traveling at seven kilometers per second, the realities of miniaturizing radars for drones as a frugal testing ground, how the IN-SPACe reorganization catalyzed the Indian private space ecosystem, and what it is actually like to book a launch slot with SpaceX.

Subtext by Zerodha

Suyash Singh on the madness of the space business

Space is hard. It is a cliché that gets thrown around a lot, but its realities are difficult to grasp until you try to build hardware that operates in a vacuum, extreme radiation, and wild thermal cycles—all with zero tolerance for failure. For Earth observation companies, that hardware difficulty is compounded by a business reality: satellite imagery i…

Read more

6 days ago · 8 likes · Zerodha

You can also listen to the full conversation on Spotify and Apple Podcasts. Watch the full podcast episode below, where Suyash breaks down the technical hurdles of space hardware and the economics of Earth observation.

The OYO IPO: Through a new Prism?

You’ve probably heard, already, that Oravel — the company behind Oyo — is gearing up for an IPO.

This is the company’s third attempt at going public. It first flirted with the idea back in 2021, when it was reportedly looking for a valuation of $12 billion. It pulled back then, only to file a new offer document in 2023. It’s trying yet again. But this time, its offer documents talk of a different-looking business.

One hint of that shift comes from its name itself. In its previous avatar, the company rested heavily on the ‘Oyo’ brand. Last September, though, it rebranded itself as “PRISM” — after the software that runs its hotels. The choice was meant to reflect a new reality: the company had pivoted to running a “diversified ecosystem” of brands under its umbrella. Oyo was now just one brand among many.

Oravel’s changing DRHP branding, from 2021 to 2026

Nine months hence, the company has made a new set of filings to go public. This time, it wants to pick up ₹6,650 crore, entirely from selling new shares. Neither its founder, Ritesh Agarwal, nor SoftBank, its largest shareholder, is selling any shares.

How investible is Oravel, now, in its third attempt? For that, it’s worth looking at the business it has now morphed into, and what dreams it is chasing.

The case for Oravel

Oravel’s investment pitch rests on the incredible potential of the market it is in.

The world’s hospitality industry is worth roughly $1.3 trillion. Most of that is broken and unorganised; made of independent, unbranded properties, which run without a technological backbone, or a way to reach customers. This is true of India, of course — where 92% of hotel storefronts are unorganised. It is also true of advanced markets like Europe, where 77% are in the same boat.

Oravel wants to become the software and distribution layer to this massive market. Any small hotel can sign up and list on its service. Within half an hour, the listing shall be up on the OYO app, as well as 230-odd other travel sites. Oravel will handle check-ins, keys and payouts, all for a share of the booking amount.

Oravel promises a large base of direct demand for anyone who signs on. Around seven in every ten bookings come to the company through its channels. They save the 15-20% commissions other sites charge on each of those. The company boasts a high number of returning customers, and a loyalty program with 16.64 million members in India.

Till recently, most of its offerings were limited to budget Indian hotels. Then, it began to expand its footprint. It captured a foothold in the United States by acquiring G6 Hospitality, which ran the Motel 6 chain. It also picked up vacation-home brands in Europe. More than 80% of revenue now comes from outside India. But most of its staff still sits in India, and is paid Indian salaries.

This is the dream. For the first time, it can back the dream with earnings as well. Oravel’s operating profit has gone from ₹274 crore two years ago to nearly ₹2,000 crore in the latest nine months, as its bookings have doubled.

But can its business really match its ambitions, the way it currently stands?

The machine, up close

Looked at up close, Oravel barely seems like a single business.

On the surface, Oravel claims to operate nearly 3 lakh storefronts, across 35 countries. Few of those resemble what you think of when you hear “Oyo hotel”, however. Just over 24,000 of those storefronts — or around 8% — are “hotels”. In contrast, it runs almost 1.25 lakh “homes”, most of which are vacation homes in Europe, managed by firms like Belvilla and DanCenter. It also has over 1.44 lakh third-party listings, all of whom pay it a flat fee to sit on its platform.

Based on offerings alone, Oravel is partly a hotel booking website, and partly a company that manages short-term rentals in Europe — with a small hotel arm appended to it. Each business makes money in a different way.

Start with hotels.

The simplest is the classic “OYO room” you’re probably familiar with. Once an independent owner signs up under a brand like OYO, Oravel takes over the pricing and the listing. From this point, Oravel is the one selling the room. It sets the price. It recognises everything a guest pays as its own revenue. Later, the hotel owner is paid separately. Between April and December last year, it recorded almost ₹4,300 crore in revenue from this vertical.

This model came with a problem, though: as long as its hotels were run by others, they would be plagued by quality issues. Rooms would be unclean, or wouldn’t match the photos uploaded online. They infamously even had privacy issues. Being “asset-light” may have appealed to investors, but it didn’t guarantee customer delight.

To get around this, Oyo began a new vertical: leasing hotels itself, or signing management contracts to run them directly. These were listed under its upscale ‘Sunday’, ‘Townhouse’ or ‘Clubhouse’ brands. Its business model, here, is different: the costs shift from the hotel owner to Oravel’s own books. As recently as March 2023, the company just had four properties of the type. By the end of last year, that had ballooned to 1,573 properties — making up almost half of all its Indian bookings. This shift marked a huge change to the costs the company was bearing. In the less than two years between March 2024 and December 2025, for instance, its lease liabilities went up more than tenfold — from ~₹240 crore to nearly ₹2,800 crore.

In December 2024, then, Oravel added a completely different creature to its P&L statement: when it added the American chains Motel 6 and Studio 6 to its portfolio. On paper, they practically doubled the booking values Oravel received overnight. But that didn’t translate directly into revenue. After all, while the brands were owned by Oravel, the motels themselves were run by franchisees. Guests would pay them directly. Oravel would only get a royalty for their brand and booking systems. Of the nearly ₹11,000 crore these rooms received in bookings, Oravel’s own revenue was just over ₹1,000 crore.

These are three entirely different business models under Oravel’s “hotels” vertical alone.

Homes, meanwhile, run on different economics. Like with Oyo hotels, guests book through Oravel, and pay Oravel for their stay. But Oravel must pass most of that through to the homeowner. It only gets a commission, and a few add-ons like cleaning fees and cancellation insurance. Of the nearly ₹3,900 crore this vertical generated between April and December last year, almost ₹2,900 crore went to homeowners.

For listings, on the other hand, Oravel isn’t paid by the booking at all. Property owners simply pay Oravel a flat subscription fee to appear on its platform. Even though these listings make up more than half the “storefronts” the company talks about, they together netted just ₹144 crore of subscription revenue between April and December 2025.

This is what makes Oravel such a complex company to study: under the hood, there are five businesses they run at once.

Does the money hold up?

For all this complexity, there’s one thing Oravel can now boast of, which it couldn’t before: the company has been cash-positive for every year since 2023. Between April and December last year, it brought in almost ₹1,600 crore in cash.

The problem, however, is that most of that cash would drain back out immediately.

Take rents. Over those same nine months, for instance, the company paid out over ₹400 crore as lease principal, and almost ₹300 crore, in addition, as lease interest. This was simply the cost of keeping those company-managed hotels in its hands. The company also paid nearly ₹700 crore in interest payments. With all those outflows, it could barely hold on to ₹215 crore in cash.

This interest, in particular, has been bogging the company’s books down.

Consider this, the company has been making operating profits before you consider interest and tax since March 2024 — at ₹1,080 crore. But the burden of its interest has constantly pushed it into the red. In FY 2024, it saw a pre-tax loss of ₹184 crore. The next year, its pre-tax loss had grown to ₹334 crore. It’s only between April and December last year that, for the first time, the company finally saw a pre-tax profit — of ₹230 crore. But a generous portion of that — ₹225 crore — came from other income, rather than running hotels.

This is, perhaps, one of the major reasons the company even wants to go for a public issue. Three-fourths of the ₹6,650 crore it plans to raise — or nearly ₹5,000 crore — shall go into repaying its dollar debt. But even that wouldn’t eliminate the debt load. Even with all that fresh IPO money going to lenders, the company will be left with roughly ₹3,000 crore in borrowings. That will keep adding the drag of interest to its books.

The challenge, for Oravel, is to make enough profit, once its debt load becomes manageable, that it can keep the company growing fast enough to justify its valuation.

A pitch too high?

Let’s return to the investment pitch we began with: that there were hotels scattered all across the world, and all the company had to do was bring them under its own platform. Perhaps that was the vision the company once started with. That vision, however, was beginning to blur well before this IPO.

In fact, even as far back as 2024, the company’s revenue from hotels was beginning to fall. The company’s own channels — the Oyo app and website, corporate channels, partnerships, etc. — have been bringing in a steadily smaller share of bookings. This “direct demand” has fallen from over 72% two years ago, to under 68% last year. This is despite the fact that the company spent over ₹1,150 crore in marketing alone between April and December last year.

The original Oyo promise, it seemed, had created a company that was struggling and perpetually in debt.

Perhaps this is why the company felt the need to create a constellation of brands for itself. In India, the company began buying more control, even at the cost of lease liabilities. Abroad, it began assembling new properties — acquiring a franchise network in America, servicing vacation homes in Europe. But these are heavily contested markets, and its share is small. It currently holds under 1% of Europe’s homes market and about 1.8% of the hotels in the markets it competes in. If it does well, this is a massive runway ahead. But it’s nowhere near being dominant, anywhere it does business.

In fact, many of its western businesses aren’t even booked through its platform — for more than six in ten nights, its European rooms are booked through other travel websites.

This doesn’t resemble the picture Oravel wants you to see, of a technology platform turning into an entry point into a massive, broken hospitality industry. This is not India’s answer to AirBnB.

For all that, Oravel is maturing as a business. It is finally chasing profits instead of a thesis. And as its reward, it is finally breaking even. But what business is it maturing into? Is this still a tech company that touches hotels? Or is it yet another hotel company offering budget stays across a few geographies?

That’s the question this IPO forces you to answer.

The economics of ship-breaking in India

In May, India’s shipping ministry issued the world’s first Shipbreaking Credit Note to Bella Shipping India Pvt Ltd, which recycled a bulk ship carrier, at an Indian yard. The note was worth ₹29.81 crore, valid for three years, and freely tradeable.

Once the scrapping is complete, they receive a credit note equal to 40% of the vessel’s fair scrap value. This can only be spent on building a new ship at an Indian shipyard, which has to be registered under the Shipbuilding Financial Assistance Scheme (SFAS).

We will get into details of what the credit note entails. But what’s more fascinating is the process the credit note is established for: ship-breaking, or ship recycling. That’s what our story today is about.

What is ship-breaking?

See, commercial ships are commonly recycled after roughly 25-30 years. After that period, corrosion sets in, machinery starts failing, and repair costs climb to the point where keeping the vessel sailing costs more than it earns. At that point, the owner sells the ship to a recycler, who breaks it and sells the pieces.

Like other recyclable objects, ships are bought and sold for scrap by weight, but the difference is that they are weighed in light displacement tonnage (LDT). This measures the ship’s own physical mass, its hull, machinery, equipment, and spares. But this metric excludes the fuel, cargo, or crew on board.

Roughly 90% of a ship’s LDT is steel, which is split into two grades. About 60% is re-rollable, meaning it can be reshaped into new bars and plates without first being melted down. The other 30% is melting-grade, and goes to furnaces for recasting. The rest non-steel 10% is machinery, cabling, furniture, and fittings, almost all of it resold rather than landfilled.

The trade exists for a simple reason. Shipowners like Bella Shipping get one last payout on an asset about to be written off, and recyclers get large volumes of high-grade steel at a fraction of the cost of making it from iron ore. The International Maritime Organization notes that recycled steel uses roughly one-third of the energy required to make steel from raw material.

In India, the Shipbreaker, or the ship-breaking plot operator, buys the ship outright and owns whatever comes off it. A plot is simply a part of the beach that the operator takes on lease from the Maritime Board. Some names include Leela Group and Shree Ram Group.

Now that’s clearly a win-win situation. But, obviously, ships are huge entities, and it is difficult to suddenly transport them by any means to a scrapyard. That, in itself, is another process that’s limited to very specific shipyards that could actually be far away from the origin city.

A concentrated industry

The world’s ship-breaking industry is unusually concentrated. In 2025, 80% of global shipbreaking by tonnage was handled by India, Bangladesh, and Turkey. India alone accounted for~ 35% of the global total. In other words, roughly one-third of all ship tonnage recycled globally in 2025 was processed at Indian yards.

Within India, the industry is almost entirely one yard: Alang-Sosiya, on Gujarat’s Gulf of Khambhat coast, which handles about 97% of the country’s ship recycling. The Alang cluster began operating in 1982–83, stretches across around 10 km of coastline, and has dismantled more than 8,800 ships since its inception. It has 150 plots of land to host old ships, of which 128 are operational. Its main global peers are Chittagong in Bangladesh, Gadani in Pakistan, and Aliağa in Turkey.

So, why is the ship-breaking industry cluster just in a handful of coastal towns in Asia?

One reason is economic: ship breaking is labour-intensive rather than capital-intensive.

Alang uses a ship-breaking method called beaching, in which, at a suitable high tide, the vessel is manoeuvred, sometimes with tug assistance, onto a gently sloping beach and grounded close to the recycling plot. As the tide recedes, workers begin dismantling the whole ship section by section. That needs a lot of cheap labour in a beach town, along with adequate shipping infrastructure. Not many places can provide for all three conditions.

The second reason is regulatory: developed countries have tightened environmental rules over the decades. An old ship can often be packed with hazardous materials, such as asbestos in the insulation, oil in the tanks, and toxic paint on the hull. Handling all of that to meet Western environmental standards is expensive. Western companies eventually stopped doing it because they couldn’t make money out of it.

As a result, the work moved eastward where cheaper labour was available environmental rules were looser at the time. India has since tightened its own rules regarding ship-breaking, but the migration had already happened. And even then, our rules are less strict than what Europe imposes on its own recyclers.

Where does the scrap go?

The scrap steel from Alang doesn’t travel far; it’s just transported roughly 50 km inland to Bhavnagar, which has grown into a steel-processing town around the yard. The town contains more than 60 induction furnaces and 80 re-rolling mills. When India passed the Recycling of Ships Act in 2019, the government said ship recycling could meet about 10% of India’s secondary steel needs.

The re-rollable steel has two possible destinations: it can either be melted down and recast into fresh steel, or it can be reheated and reshaped directly into construction rebar without a full melt. The second route pays more per tonne because rebar is a finished, higher-value product that, with a few more steps, can be ready to use in buildings.

However, the construction industry itself wasn’t ready for it.

For years, most re-rollable steel from ships ended up in the melting route. That’s because Indian building rules didn’t allow ship-derived steel in construction rebar because rebar has to meet strict strength standards. Even if it did, construction players needed to verify where a ship’s steel came from or how it was originally made, and they couldn’t do that. In the absence of any buyer for rebar made from scrap, re-rolling mills o only resorted to melting.

In January 2026, there were reports that the Centre was planning to relax these norms. This would allow ship-derived steel to qualify for re-rollable bars based on its composition, quality and strength tests, rather than where it comes from. If implemented, this could raise the price that Alang’s recyclers receive for the steel.

Beyond steel, everything else off the ship moves through a chain of buyers. As workers strip items down, the shipbreaker sells them in bulk to dealers. Some buy entire cabin contents, others deal in engines, mechanical parts, or electrical fittings. The dealers then hold silent auctions where local shopkeepers write down what they will pay and the highest bidder takes the lot. Those shops line roughly 10 km of road running inland from Alang. Anyone can walk in and buy anything from tea sets, to mattresses, to ice cream machines and lifeboats.

The whole ecosystem employs about 15,000 workers directly and supports another 150,000 in ancillary businesses.

External shocks

For years, Alang has been operating at a fraction of what it was built to handle. In 2011–12, the yard dismantled a record 415 ships in a single year. FY25 saw only 113, its lowest in over a decade, before a marginal recovery to 119 in FY26.

It’s not because of a single reason, though. There have been several overlapping shocks that have pointed in the same direction, keeping old ships in service rather than scrapping them.

For one, the Red Sea, which is a popular shipping route, has been disrupted since 2023 because of attacks from the Houthis, who are backed by Iran. So, most large carriers had to divert around the Cape of Good Hope in South Africa, which added nearly 2 weeks of travel to ships on Asia–Europe voyages. Container shipping, which dominates the route, felt the brunt of this the most. Since a ship now completes fewer round trips per year, carriers had to keep older vessels in service to move the same volume of cargo.

In the first seven months of 2025, only five container ships were sent for recycling worldwide, a fraction of the usual rate.

The second reason is a factor that loves playing spoilsport for shipping: geopolitics. The US and EU have banned imports of Russian, Iranian, and Venezuelan oil. To keep exporting anyway, those countries move their oil on old tankers whose real ownership is hidden. This “shadow fleet“ consists of nearly 1000 tankers that have been used since 2021, most of which are older than the global fleet average and would otherwise have been scrapped.

There’s a currency problem, too. Alang’s shipbreakers buy old ships in US dollars but sell the recycled steel in rupees. When the rupee weakens against the dollar, the ships cost more to buy while the steel earns the same or less. That, of course, had become an acute problem earlier in the year with the rupee’s depreciation.

India has done two things to try to fix this. The first is the credit note scheme itself, meant to make scrapping in India more attractive. Once recycling is complete, the vessel owner receives a transferable credit note equal to 40% of the vessel’s fair scrap value. It can partly be redeemed against a new vessel ordered from an Indian shipyard.

The second is Hong Kong Convention compliance, which is the universal standard for ship scrapping. India passed the Recycling of Ships Act in 2019 to align its domestic law with the treaty. As part of compliance, each Alang yard reportedly invested between $560,000 and $1.2 million (₹5-12 crore) to meet its environmental and safety standards. That premium is what Indian yards are betting will attract shipowners who face growing pressure to scrap only at compliant facilities.

Conclusion

The bet behind both the credit note and the compliance push is that a wave of scrapping is coming. BIMCO estimates that as many as 16,000 ships could be recycled globally over the next ten years, about twice the number recycled during the previous decade. If India’s compliant yards are ready when that surge arrives, Alang could capture a much bigger share of it than it does now.

But the forces that have suppressed volumes over the last few years are still somewhat active: longer routes, sanctions-driven demand for old tonnage, and a weaker rupee. As long as it pays to keep old ships sailing, they will keep sailing. India’s credit note nudges that but it doesn’t fully rewrite it.

What the credit note could do is make sure that when the calculation eventually shifts, Alang is where shipowners bring their tonnage. And perhaps, if the demand rises, there is a possibility that the Indian ship-breaking industry expands beyond a single yard.

Tidbits:

[1] India’s First Hydrogen Train Begins Operations
India crossed a milestone in green transportation with its first hydrogen-powered train commencing commercial service on July 19, 2026. The train currently operates between Jind Junction and Sonipat Junction in Haryana.
Source: ET Now

[2] Ethanol Could Soon Power Indian Kitchens
The Indian government is developing a policy to introduce ethanol as a mainstream, clean cooking fuel to reduce the country’s reliance on imported LPG. The plan could include dedicated spaces at fuel stations where consumers can purchase the fuel for specialized household stoves.
Source: The Economic Times

[3] China’s AI Startup Moonshot Plans IPO
The Chinese AI company Moonshot, maker of the popular Kimi chatbot, is planning to go public in Hong Kong soon and could be valued at over $30 billion. This major move comes after the company reached $300 million in revenue following the launch of its newest AI model.
Source: Bloomberg

[4] Centre Launches ‘White Rabbit’ Tech for Secure Indian Standard Time
To reduce India’s dependence on foreign GPS systems and protect critical infrastructure like digital banking, the government has launched a new network using “White Rabbit” technology to safely broadcast India’s exact time across the country.
Source: Business Standard

[5] Apple Overtakes Nvidia as World’s Most Valuable Company
Apple has overtaken Nvidia to reclaim its spot as the world’s most valuable company, driven by investor excitement over its upcoming AI-powered iPhones.
Source: The Hindu

- This edition of the newsletter was written by Pranav & Vignesh.

Points & Figures by Zerodha

We’re always chasing the day’s biggest stories. But every now and then, we come across a dataset that deserves a closer look than a Daily Brief allows.

That’s what Points & Figures is for.

It’s where we step back from the news cycle and use data visualisations to tell stories about the Indian economy, financial markets, and investing. Our latest edition traces how India’s power landscape is transforming, using electricity generation, capacity, and emissions data to reveal why simply building solar panels isn’t enough to dethrone coal.

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Our team at Markets is always reading, often much more than what might be considered healthy. So, we thought it would be nice to have an outlet to put out what we’re reading that isn’t part of our normal cycle of content.

So we’re kickstarting “What We’re Reading”, where every weekend, our team outlines the interesting things we’ve read in the past week. This will include articles and even books that really gave us food for thought.

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What We're Reading #21

Hi folks, hope you’ve had a great week…

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The Chatter by Zerodha

Our team at Markets spends a lot of time reading earnings call transcripts and listening to management interviews. Along the way, we come across plenty of interesting insights that are worth sharing.

That’s what The Chatter is for.

It’s a weekly newsletter where we dig through what India’s biggest companies are saying and bring you the most interesting insights into businesses, industries, and the wider economy.

The Chatter by Zerodha

The Chatter: Jio Financial, Wipro, Polycab, Piramal & More

Welcome to the 69th edition of The Chatter — a weekly newsletter where we dig through what India’s biggest companies are saying and bring you the most interesting bits of insight, whether about the business, its sector, or the wider economy. We read every major Indian earnings call and listen to the interviews so you don’t have to…

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9 days ago · 12 likes · Zerodha

Join us on WhatsApp, where we share interesting soundbites from concalls, articles, and everything else we come across throughout the day. You’ll also get notified the moment a new video or article drops so that you can read or watch it right away.

Join us

Thank you for reading. Do share this with your friends and make them as smart as you are 😉

Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened; we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

In today’s edition of The Daily Brief:

1. A knockout at the XBOX-ing ring of death
   
   Microsoft’s gaming strategy is under pressure after years of costly acquisitions and its Game Pass push, highlighting how fierce competition, hardware challenges, and changing gaming economics have left Xbox struggling to keep pace with Sony and Nintendo.
   
   

2. The anatomy of the AI bubble
   
   A new BIS paper argues that the AI race is encouraging hyperscalers to overbuild data centres and AI infrastructure, raising the risk that intense competition today could create a painful industry-wide bust if demand fails to justify the investment.

Points & Figures by Zerodha

We’re always chasing the day’s biggest stories. But every now and then, we come across a dataset that deserves a closer look than a Daily Brief allows.

That’s what Points & Figures is for.

It’s where we step back from the news cycle and use data visualisations to tell stories about the Indian economy, financial markets, and investing. Our latest edition traces how India’s power landscape is transforming, using electricity generation, capacity, and emissions data to reveal why simply building solar panels isn’t enough to dethrone coal.

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Compliance cannot override the investor's interest

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Compliance cannot override the investor’s interest

Editor’s note: The original piece was first published by Financial Express and is republished here with permission. It argues that the Supreme Court went wrong in its recent ruling against Kotak Mutual fund [context here]. A regulatory philosophy that says outcomes are immaterial cannot govern actors whose defining legal duty is to produce good outcomes…

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A knockout at the XBOX-ing ring of death

We can finally say that we got a gaming industry story on The Daily Brief before GTA 6!

It’s been one hell of a year for the Microsoft XBOX, one of the top three video game consoles in the world. And we’re still half a year away.

Microsoft is letting go of 3,200 employees across the XBOX division, the biggest layoff in XBOX history. The company is also shutting down or selling off multiple loss-making game studios. This decision came only a few months after XBOX got a new CEO, Asha Sharma, who previously led Microsoft’s CoreAI division and was COO of Instacart before that.

This brutal restructuring points to an undeniable truth: Microsoft’s gaming strategy has misfired badly. Over the last few years, the tech giant went on an unprecedented acquisition spree, and introduced Netflix-like subscriptions to gaming. So, why is one of the wealthiest tech firms on earth retreating from a war it just spent billions of dollars to win?

There are plenty of reasons and missteps. We won’t be able to cover all of them, but hopefully, with this story, you get enough of a glimpse into how much their own DNA as a software company mattered to this point in their lifecycle.

Razor-and-blades

Before we look into Microsoft XBOX standalone, it’s worth zooming out into the game console industry as a whole.

In 2001, Charles Herold, a video game journalist, summarized the history of this industry in one succinct, but scary sentence: “Historically, whenever three consoles have competed, one has died.”

Whenever a fourth or fifth major console manufacturer has entered the fray, one has eventually been bled dry and forced out. In the 1990s, for instance, when 3D graphics became popular, there were 5-6 players who tried to cash in on this wave. Out of this, only three remained: Sony, Nintendo, and Sega. Then, a few years later, Microsoft nudged out Sega, which had already lost tons of money in the first 3D graphics war.

But why is this the case? Why does the market reset to this equilibrium so often?

Well, the video game console business is a two-sided market platform. On one side are gamers, and on the other like game developers. Gamers will only buy a console when it offers a solid catalog of games, and developers will only make games for the system when there are enough gamers. More competitors fragment the user base, and also increase costs for developers, since they have to tweak their games for multiple systems.

So, the goal is to start a feedback loop where more consoles sold leads to a larger user base, and therefore more developers come in, and so on and so forth. To kickstart that feedback loop, console manufacturers often price their devices aggressively, even at net operating loss. They offset this by charging game developers high royalty fees on each copy of a game sold.

This model was first truly popularized with the razor and blades, as the competitors of Gillette wanted to steal market share from the pioneer. Much like the razor, the console hardware is sold at a loss. The actual profit comes entirely from the blades: in this case, royalty fees from each copy of a game sold.

A software giant’s hardware gamble

Any company that enters the console business has to ace both software and hardware. Which is where Microsoft has a far more unique story in comparison to its competitors.

Think about it. Microsoft built its empire on the back of software alone. Unlike, say, Sony, it had little to do with manufacturing devices until the XBOX. Microsoft’s entry into the gaming market was motivated by Bill Gates’ fear that home consoles would eventually encroach upon the PC business. So, Gates approved the original Xbox project with the intention of building a “PC-in-a-box“.

Microsoft’s software dominance helped it move fast. The company leveraged DirectX, its dominant programming interface for graphics processing, and built the console around it. This made it incredibly easy for PC game developers to transition to the new platform, allowing them to develop games for the first Xbox much faster. In fact, as per Ed Fries, who was a founding member of the XBOX team, the first model was supposed to be called DirectX-Box.

In contrast, developers for the Sony PlayStation 2, which was part of the same generation as the first Xbox, initially found it notoriously complex to write code for the system.

But this “PC-in-a-box” approach came with fatal structural flaws.

To begin with, both Sony and Nintendo were Japanese hardware-first companies who owned or co-developed much of their electronic stack. For instance, the PS2’s custom CPU and GPU chips were built in partnership with Toshiba. And it was this ownership that allowed Sony to fuse them and shrink the size of the combined chip, which used less power and was cheaper to mass-produce. Nintendo had similar arrangements with IBM and Matsushita.

Microsoft, on the other hand, did not initially own the IP for its hardware. In fact, it took the “PC-in-a-box” approach too seriously — the first XBOX relied on generic PC commodities, such as NVIDIA GPUs and Intel CPUs. Microsoft could not modify its chips to drive down costs or make it suitable for a console.

Because Sony and Nintendo controlled their silicon, both enjoyed a learning curve that steadily reduced manufacturing costs over the lifespan of their consoles. Microsoft, buying off-the-shelf parts, did not.

Later, Microsoft did repair their lack of ownership, with the XBOX 360 indeed having its customized chips. But even then, there was another aspect of their approach that spoiled the release of the XBOX 360.

It was that Microsoft gave hardware the software treatment.

For instance, in 2005-06, desperate to beat the Sony PS3 to market, Microsoft rushed the launch of the XBOX 360. It reportedly shipped out consoles knowing there was a critical flaw that caused the hardware to run too hot too fast. They assumed that, much like a buggy Windows update, they would be able to issue a fix later. But you cannot patch melting silicon with a quick code fix — it takes much, much longer to fix manufacturing issues.

The result was a massive wave of console failures permanently burned into gaming history as the “Red Ring of Death”: each faulty XBOX 360 would show three red quadrants close to the power button. The extended warranty program to repair this cost Microsoft $1.15 billion to fix.

Winning the battle, losing the war

Despite the failures, the Xbox 360 and PS3 fought to a near tie in lifetime sales, with each moving around 85-90 million units throughout their production run.

Both were comfortably beaten by the Nintendo Wii, which had reached 100 million units before either Sony or Microsoft touched 85 million. They played a different game by choosing to not optimize for the highest frontier of gaming technology, and focusing on a younger, more casual-gamer demographic compared to Sony or Microsoft.

However, by the next generation, the gap between Sony and Microsoft would widen significantly. The turning point occurred during the 2013 Electronic Entertainment Expo (E3).

At E3, Microsoft announced that its upcoming Xbox One console would require a daily internet connection. It also detailed a strict digital rights management (DRM) system that prevented the resale or renting of pre-owned discs. Microsoft forcefully bundled the Kinect motion-tracking camera with the XBOX One, making the console too expensive. Gamers violently rejected these proposals.

Sony swooped in and took the exact opposite approach. They launched the PS4 at a price point that undercut the Xbox by $100 and heavily championed physical game ownership. It also made the hardware more friendly for game developers. Furthermore, at launch, gamers noticed that XBOX One’s performance was noticeably weaker than the PS4.

What also helped was that Sony also had its own established game studios that consistently produced highly popular titles which were entirely PS-exclusive. These include Spider-Man, The Last of Us, Ghost of Tsushima and God of War.

Microsoft lacked the internal capability to produce its own beloved games on the same scale. Many of the games that were meant to be XBOX exclusives, like Fable Legends, were canceled. Microsoft did have the beloved first-person shooter franchise, Halo, but its later editions were so buggy that the developers had to issue a public apology.

With this generation of consoles, Sony had decisively won the field against Microsoft. By 2022, the PS4 sold over 117 million units, while the XBOX One had less than half that number.

Two radical pivots

Realising it had lost ground in the console war with its missteps, Microsoft made two major strategic changes.

First, in order to create a line of exclusive XBOX games, Microsoft went on a spree of game studio acquisitions. One such acquisition was Bethesda, the makers of The Elder Scrolls and Fallout franchises, for $7.5 billion. Then, in one of the biggest acquisitions in its history, Microsoft took over Activision Blizzard, the makers of Call of Duty, World of Warcraft, and owners of Candy Crush Saga, for ~$69 billion.

Secondly, Microsoft introduced a strategy that changed the industry forever: a subscription service for gaming. Perhaps, it was best suited to do so, as a firm that earned its bread-and-butter through recurring software and cloud revenue. In fact, Microsoft leveraged its world-class Azure infrastructure to build the cloud capabilities of the Game Pass.

This even forced Sony to revamp its own subscription offerings. For once, Microsoft had some semblance of an upper hand.

Self-cannibalization

However, these key changes in Microsoft were, sadly, in vain.

In the short term, the subscription strategy appeared successful. Console sales surged, Game Pass subscribers increased, and the game catalog got better.

However, Game Pass ultimately cannibalised Microsoft’s own buyers.

Given the choice, consumers obviously preferred a cheap monthly subscription over buying expensive individual games. Over the long term, this crunched XBOX’s operating margins down to a meagre 3%. And while Game Pass exploded initially, subscriber growth has slowed dramatically, and is now stuck at ~30 million subscribers — a far cry from XBOX’s 2026 projection of 77 million.

The Game Pass was being torn apart by a single tension: its incentives and that of the game studios began to clash.

See, developing a modern video game is highly expensive, so its physical copies would also be expensive. But launching it on a subscription service that’s far cheaper than the physical copy would simply depress potential revenue. Third-party game developers were strongly against launching their games on the Game Pass on the first day of the game release.

This, as per tech analyst Ben Thompson, is also partly why XBOX bought so many game studios at once. It would help them bypass this problem, and promise subscribers a “day one” release. However, these acquisitions bloated their balance sheets, most likely at a hefty premium. With subscriptions, there was no way XBOX could reap their acquisition value anytime soon.

To make the finances work, Microsoft was forced into a corner. They had to start launching their games on Sony and Nintendo’s platforms, thereby destroying the entire point of game exclusivity.

Game over?

In hindsight, a software-first firm having a hold this long over a hardware-heavy business is truly impressive. Microsoft changed the market like no other with subscriptions. It is forcing console makers to do away with physical sales.

Yet, the economics of producing games still haven’t aligned with offering them at a flat monthly rate. Meanwhile, the Sony PS5 and the Nintendo Switch are among the best-selling consoles of all time. Sony’s own subscription service reached record profitability last year.

There is still no clarity whether their restructuring exercise will help them survive. They’ve effectively given up on game production capacity by laying off developers. The PS5 already outsold the Series S and X combined 2 years ago. Plus, consoles will only get more expensive with memory chip prices skyrocketing.

Historically, whenever three consoles have competed, one has died. That might just still be true today.

Anatomy of an AI bubble

This year, the major hyperscalers — the American giants that dominate cloud computing — will spend more than $700 billion on capital projects. Much of that will go into data centres and AI chips.

Beyond a point, big numbers stop making sense entirely. But let us explain what that means. Think of every single rupee the Union Government spends in an entire year. Think of every highway it builds, every salary and pension it credits, every bondholder it pays, every subsidy it grants, every agency it runs, every rocket it launches, every military base it maintains, every school or hospital it runs, everything. All of that costs a hundred billion dollars less than what a handful of American companies will spend this year.

How do you even begin to conceive the effects of such an incredible wave of spending? If its scale is so far beyond the limits of human imagination, how can one even imagine how things could go wrong?

A recent working paper from the Bank for International Settlements — the central bank for central banks — is a careful, formal attempt at conceiving what is happening. Its author, the economist Phurichai Rungcharoenkitkul, argues that the industry is building far more than it should, not because of genuine need, but because the incentives push each company to try and one-up its competitors. This dynamic, however, could turn into a time bomb for the entire sector.

To be clear, the paper isn’t predicting that the AI bubble will collapse anytime soon. It simply points to why the race to build AI infrastructure is creating conditions that would make a bust, if it ever comes, much worse.

Why the industry overbuilds

The paper argues that there’s a peculiar dynamic to the current AI build-out: the major hyperscalers aren’t chasing demand, as much as they’re trying to outdo their rivals.

This isn’t vanity alone. AI, the paper argues, is being played as a ‘winner-take-most’ contest. Everyone is betting that the firm that reaches the frontier first shall capture most of the users, the data and the revenue. The rest will have to divide what remains. An early lead can lock in users, generate more data, and attract developers who want to build the best models.

In a contest like this, companies spend dollars on compute for two reasons. For one, it buys them real capacity — better models, and more bandwidth for inference. But more perversely, it also makes it likely that the improvements in performance shall pry customers away from their rivals. The industry is entering conditions of structural overcapacity.

Beyond a point, what’s good for a company might be bad for the industry as a whole. It might make sense for Lab A to try and steal a customer from Lab B, but the revenues flowing into the industry as a whole, will remain the same. Effectively, the industry keeps spending an ever-larger sum of money to wrest the same pool of revenue away from each other.

The paper tries to size this waste. In its model, even by conservative estimates, if five labs were to keep competing this way, they would end up building one and a half times the capacity the market could actually use. By less conservative estimates, they would end up building thrice the supply the market could absorb.

This gap — between what the industry spends, and what the market needs — is what the paper sees as over-investment.

That said, it’s important to remember that this is just a model, based on the author’s estimates. It assumes a certain trajectory for how the industry’s revenues grow. Those assumptions may or may not be right.

The trap of building early

All businesses put money into building assets before they know if they’ll ever find the revenues to match. Even your local shopkeeper spends on putting up a shop before it’s completely clear if it will pay for itself. Any business is a gamble.

What, then, sets AI apart?

To the paper, the biggest issue is that the AI race doesn’t let individual companies wait uncertainty out. For most ordinary businesses, this is a key lever. You can choose to only act once you have a degree of certainty. If you aren’t there, you can wait for the fog to clear.

To an AI lab, however, waiting looks unusually costly, because the first firm to reach a certain threshold wins the entire market. Any firm that waits to deploy its cash risks entering a market where the users, the data and the developers are all committed elsewhere. While patience is usually a virtue, here, it carries a competitive cost.

So firms must commit before the payoff from AI is known. And worse still, much of that commitment is financed with debt. As a result, the industry is sitting on a large stock of debt-funded capital, sunk into machinery that can be used for few other things.

The bust

This creates a board that looks something like this:

One, there’s machinery. To the paper, AI infrastructure is highly specialised — valuable in serving AI demand, but hard to redeploy anywhere else. Companies could reuse the land, buildings and power connections, but the chips themselves have few other uses.

Two, all of this is financed by debt — and that cash that is already committed.

On top of this, as we’ve written before, these labs are tied to each other in a massive web. A weird sort of arrangement is flourishing across the industry: companies with data centre capacity are “investing” in AI labs, but those investments are going straight back into buying the investor’s own computing power. Some $46 billion of equity capital has already been deployed this way. Alongside it sit commitments to buy $879 billion more of compute in the coming years — money that hasn’t been spent yet, but is promised on the books.

The more money that is committed like this, the better returns AI must deliver tomorrow. If the industry’s revenues justify the spending being carried out today, you will see more rounds of investment, and the boom shall continue. But it doesn’t, there will be a problem that cascades across the industry.

One, the debts will come due. New infrastructure will no longer be built. These companies will be forced to sell their machinery to raise the money they need to repay their dues.

Only, the only companies that buy AI equipment will be other AI companies. If these companies are all currently over-investing at the same time, when the crash comes, everyone will be in the same bind. Just as companies will be forced to sell AI equipment, all the other potential buyers will leave the market. According to the paper’s models, if this is to happen, that capital will lose half its value at once, with losses rising as high as 80% as more equipment keeps hitting the market. The more the industry borrows now, the worse it shall be.

This is a pattern you see in many market busts.

The problem, however, is that the entire industry is interconnected through financing networks. When a lab fails, the stakes of its investors shall lose value. Those stakes, however, would have been collateral for loans. So, as labs fail, their investors lose borrowing power. They, in turn, would have to liquidate their investments elsewhere in the industry — which will pull compute off the table for other labs. Because the industry is currently rigged together, in case of a crisis, the contagion will travel all across the industry at once.

To be fair, this isn’t a forecast. It’s simply one stylised map of how a crisis could happen. According to the author’s models, there is roughly a 50% chance that the industry will see such a bust. But that’s far from certain.

What the model measures, and what it doesn’t

The paper is interesting as a stylised description of what could happen. It’s based on assumptions, though, some of which are worth questioning.

Here’s one example. The paper projects that over the course of its simulation, the industry will process anywhere from seven to twenty-fold as many tokens as it currently does, while revenues shall only grow by three to four times. Even assuming that’s true, though, the paper doesn’t account for how much cheaper those tokens could get. After all, you can process more tokens by running machines harder, or improving the quality of the underlying software, without increasing how much you invest. The paper’s main assumption — that the industry is building excess capacity — sits on these assumptions.

There’s also a deeper difference. The paper’s models of the ideal amount the industry should build are built around its revenues. It’s completely possible that this spending creates tremendous value for the users of AI, without showing up in the industry’s revenues. If that’s the case, a financial crisis could still play out as it suggests, but the build-out could still have longer term benefits.

This is a pattern we’ve seen before.

Take the railway bubble in Britain. Investors spent too much money on building Britain’s railway infrastructure, and suffered heavy losses. But the greatly expanded rail network it created carried its economy for generations. Or consider the dotcom crash. When it happened, it wiped out vast amounts of shareholder wealth, and saw company after company go bankrupt. But the fibre lines it left behind ultimately let millions of people access the internet for much less than it would otherwise have cost.

History is filled with examples of some people being ruined financially, only for their investments to be hugely valuable to those who come later.

Will that be the case with AI? We don’t know. Over the last year, the cost of a token has fallen to a tenth, even as its usage has soared. Does this mean too much has been built, and firms are selling under cost? Does it mean technology has improved, and the advantages have passed on to consumers? These are hard questions to answer.

And it’s harder, still, to predict how all of this will eventually end.

Tidbits

1. The District Consumer Panel of Raipur has ordered Maruti Suzuki to replace a customer’s car in the first-ever legal fight regarding E20 fuel. The car owner claimed the fuel caused issues, but Maruti Suzuki plans to appeal the decision to protect its reputation.

Source: ET

2. Chinese LLM lab Moonshot released Kimi-K3, which has hit the number one spot on the Frontend Code Arena test, beating Anthropic’s Claude Fable 5 on certain benchmarks. It also scored incredibly high on a separate technology test, ranking just behind the top-tier GPT-5.6 Sol model.

Source: Techmeme

3. The Serum Institute of India (SII) signed a deal with the Gates Medical Research Institute to manufacture a highly promising new vaccine for Tuberculosis (TB). If final testing goes well, this could become the first new vaccine to protect adults from lung TB in over 100 years.

Source: BS

4. Wipro reported a nearly flat consolidated net profit of ₹3,352 crore for Q1 FY27, up just 0.6% year-on-year, even as revenue jumped 10.6% to ₹24,479 crore. The outlook for Q2 remains muted — the company guided for constant-currency IT services revenue between -1.5% and +0.5%, reflecting continued caution in discretionary tech spending by clients.

Source: The Hindu

5. SBI successfully raised $1.9 billion in foreign money using a special financial scheme, leaving other competing banks far behind. This move gives SBI a huge amount of extra cash to fund its large projects and boost its lending power.

Source: ET

- This edition of the newsletter was written by Maine & Pranav.

What we’re reading

Our team at Markets is always reading, often much more than what might be considered healthy. So, we thought it would be nice to have an outlet to put out what we’re reading that isn’t part of our normal cycle of content.

So we’re kickstarting “What We’re Reading”, where every weekend, our team outlines the interesting things we’ve read in the past week. This will include articles and even books that really gave us food for thought.

Subtext by Zerodha

What We're Reading #21

Hi folks, hope you’ve had a great week…

Read more

7 days ago · 9 likes · Zerodha

The Chatter by Zerodha

Our team at Markets spends a lot of time reading earnings call transcripts and listening to management interviews. Along the way, we come across plenty of interesting insights that are worth sharing.

That’s what The Chatter is for.

It’s a weekly newsletter where we dig through what India’s biggest companies are saying and bring you the most interesting insights into businesses, industries, and the wider economy.

The Chatter by Zerodha

The Chatter: Jio Financial, Wipro, Polycab, Piramal & More

Welcome to the 69th edition of The Chatter — a weekly newsletter where we dig through what India’s biggest companies are saying and bring you the most interesting bits of insight, whether about the business, its sector, or the wider economy. We read every major Indian earnings call and listen to the interviews so you don’t have to…

Read more

9 days ago · 12 likes · Zerodha

Join us on WhatsApp, where we share interesting soundbites from concalls, articles, and everything else we come across throughout the day. You’ll also get notified the moment a new video or article drops so that you can read or watch it right away.

Join us

Thank you for reading. Do share this with your friends and make them as smart as you are 😉

Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened; we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

In today’s edition of The Daily Brief:

1. The three bodies that couldn’t kill Airtel

2. How NRIs are being called to defend the rupee

   ---

Today’s edition is slightly different from the ones we’ve done before.

Our first story today is authored by Rohin Dharmakumar, CEO of The Ken, one of the best independent business journalism publications in India. It is based on their deep-dive into the history of Airtel, which was released as part of their long-form podcast series Intermission. If you have the time, we highly recommend watching it in full.

They also have a cool companion site for the episode containing charts and visualisations created by Anuj Debnath, The Ken’s data visualisation journalist.

The three bodies that couldn’t kill Airtel

Picture Sunil Mittal, the founder of Airtel, surrounded by three very powerful planets orbiting him. Physics has an analogy for this situation, called the three-body problem. You might be aware of it through the hit book franchise of the same name by science-fiction author Liu Cixin, and the adapted Netflix show.

The three-body problem says that when three bodies are orbiting each other in space, it is virtually impossible to predict their path. Eventually it starts to become chaotic, and they crash into each other. In his book, Liu Cixin described an alien race that lives under three suns, making their world’s climate unpredictable and forcing them into brief windows of order punctuated by devastating collapse.

Swapping for a different setting, Liu could have just as easily been describing India’s telecom sector. For 30 years, Airtel has lived inside exactly the chaos that has fogged the industry, and changed it.

In our real world, the three bodies are regulation, technology, and competition. Airtel has been hammered by India’s regulators, by every wave of telecom technology you can think of, and by its biggest competitor, Reliance, twice. Yet, it has managed to come back stronger each time.

But first, why was the fight even worth it?

See, telecom is fundamentally a regulated oligopoly. In any market anywhere in the world, this sector typically has at most three or four players. It is essentially a business where the regulatory moat is disguised as a license, and those with that license sell an incredibly addictive and recurring service. Nobody cancels their mobile number. You might cancel your OTT subscription, you might decide not to order from a quick-commerce platform, but you’re never going to cancel your number.

I got my number from Airtel in 2001. That’s 25 years of paying Airtel bills every month, and I could buy a very good car today with what I’ve spent to keep my one number. Once you build that pipe, you have the optionality to sell many services over it, so the business compounds on itself.

Meanwhile, high fixed costs act as a moat against new entrants, and that’s paired with nearly zero marginal cost. Airtel’s incremental EBITDA on a new 4G customer is north of 80%.

In some ways, it’s the holy grail of business models. That’s why Airtel was always going to be on the radar of very powerful entities.

The first body: regulation

Let’s start with the first body, regulation.

Indian telecom regulation is a shape-shifting reality. One of the truths of Indian regulation of any kind is that everything is always open to subjective interpretation. Who knows the pattern until it’s settled in a court, and who knows whether that’s true until it’s settled at the Supreme Court?

To start with, in the mid-1990s, the state awarded licenses in four cities based on qualitative points; Airtel almost lost out before lucking into Delhi. That was entirely subjective, almost as if it were a beauty pageant — which is exactly what industry insiders called this process. And naturally, it was prone to flip-flops.

Then, for the expansion of the next 18 cities, auctions were introduced. They were more objective, and for the first time, spectrum was unbundled from licenses and priced separately. But the payment schedules were heavily front-loaded: you were forced to match the highest bid, and roughly 57% of the value was due in the first three years, even though building networks took much, much longer.

That combination broke companies. By 1999, the whole sector was on the verge of collapse. Every company had defaulted on its license fees. One of the former CEOs I spoke to called it a night with no end. The flaw in the system was bidding fixed license fees, because nobody had a clue how much money they would make. Even in the best case, you were broke before you got rich.

Then, the same year, the government announced a new telecom policy, NTP, which was a welcome change. It was a recognition of the fact that if every company in the sector went under, there would be nobody left to offer telephony. The NTP helped make a shift from a fixed license fee to a revenue-share model, gave spectrum an explicit value, and carved out an independent regulator in TRAI.

For the first time, the industry had a viable business model. A consultant who has watched the sector for 25 years told me NTP 1999 is still the best policy document, even if you compare it to those that came after it, because it first set out to explain what it wanted to do, and then changed the paradigm.

As for Airtel, it not only survived the regulatory body, but kept emerging as the biggest player as it contended with every change.

The second body: capital and technology

Surviving those challenges means continually building, and building serious networks takes cold, hard, up-front cash, the kind that Airtel, as a first-generation company with no oil business to lean on, simply didn’t have. Airtel had to learn to grow on money that wasn’t in its hand. That’s the second body.

One of the pivotal moments in the company’s history was a lunch between Mittal and Ericsson president Kurt Hellström.

“I have one request,” Mittal said. “I don’t have the money to pay you.”

Hellström asked if Airtel could pay 15% upfront, and when the remaining 85% could be settled. Mittal said, “I will pay you in happiness. Happiness is when people are making calls on the street and they are happy.”

This lunch — which Mittal notably even didn’t have enough money to pay for — was meant to be a pitch for a $27 million equipment order, but it turned into a revenue-share deal between Airtel and Ericsson. And this was done well before anything was even built.

I think of this whole era as a bid-first, build-later philosophy. Key to this philosophy was Akhil Gupta, the long-time vice-chairman of Bharti Enterprises. In his view, perfection can always be achieved as you move ahead, but an advantage lost because of slow implementation can never be recouped. Airtel opted for speed over perfection, and speed won.

As part of this philosophy, Gupta cracked the idea of outsourcing everything that wasn’t core. It was a concept so unheard of that colleagues reacted as if he was suggesting they sell the family jewels. It’s why they made a decision no telecom CEO had ever made before: outsource their whole network to third-party vendors. In this case, that was Ericsson.

In his book, “Some Sizes Fit All”, Gupta outlines the details of the Ericsson deal in 2004. See, usually, a telecom equipment vendor wants to sell more boxes, while the telco operator needs to buy fewer to control costs. Gupta wanted to find a way to flip those incentives and ensure both of them were on the same page.

So, he deciphered the Erlang, a unit of radio-wave capacity, and offered to pay Ericsson per Erlang their customers actually used, while Ericsson would have control over how to design the network. That, as per Gupta, was the first time in telecom history where both the equipment vendor and the telco operator were on the same side of the table; both wanted more consumption.

Airtel transferred 1,100 engineers to Ericsson. They created a similar contract for IBM to handle its IT systems. Wildly, an Indian company was reverse-outsourcing its network to the West.

The next frontier to conquer was the tower network.

The cost of having exclusive towers is enormous, because the same asset can cater to four or five operators. It’s like the cost of travelling by chartered plane versus a commercial airline. So, in 2007, the bitterest rivals — Airtel, Vodafone, and Idea — pooled their towers into an entity called Indus Towers. In Gupta’s words, Indus was “a unique model in which a company makes more money when it charges its existing customers less, not more”.

If the Airtel of the 1990s was Mittal learning to survive in a dog-eat-dog world, then the Airtel of the 2000s was him and Gupta learning to use scale and money so cleverly that they needed less to grow faster. The technology body moved relentlessly with 2G, 3G, 4G, and 5G, each roughly 10 times faster than the last, with spectrum you might gain one year and lose the next. Airtel thrived in all of this.

The third body: competition

In 2002, Airtel launched its IPO. That should have been a moment of celebration.

Instead, it was a life-and-death moment, because Reliance had the company in its crosshairs by offering free incoming calls and absurdly cheap outgoing calls. Importantly, it installed a fiber network that helped them legally bypass a “limited mobility” license that technically prevented users in one state from accessing the network of another. They’d essentially ensured national coverage now.

Airtel’s stock, meanwhile, fell from ₹45 to ₹20. Mittal wrote about it afterwards with a candour I’ve almost never seen from a CEO on the record: “I felt that if we stood up at this time, the storm would just blow us away[…] Lie low, I said, and we will live to fight another day.”

He also told his colleagues, “Everyone expects us to lose, but if we don’t, we will make history.”

As it turned out, they did. Airtel walked in as a high-margin, low-volume company, then walked out understanding that India was a high-volume, low-margin market. Scale is the ultimate advantage in telecom.

15 years later, Reliance came back as Jio, with everything being free. Voice was free forever; it was just data on an all-4G network. Meanwhile, 65–75% of every incumbent’s revenue was voice. One person I spoke to put it bluntly: he didn’t give Airtel more than a 30% chance of surviving.

But Airtel prepared for Jio like it was war. They wouldn’t let a single premium customer go. The focus of Gopal Vittal, now the CEO of Airtel, was maniacal. If you slipped a new SIM into your phone, Airtel would obsessively figure out why and would offer you a deal to come back.

And then, Airtel made a move that went against the grain of scale in telecom: it shed its own customers.

Airtel went from having 333 million subscribers to 284 million, shedding 49 million, by simply re-defining who a subscriber was based on a minimum ARPU plan. They were willing to lose what was equivalent to a small country’s population, because those low-value users clogged the 2G network that could be re-farmed for 4G.

There’s a beautiful irony in this: Airtel started as a premium player, was forced by Reliance to go mass, and then went back to premium when Jio emerged, but this time of its own choosing. As someone told me, when the sector started collapsing, it was like taking candy from a kid, and Airtel did it best.

Everyone thought Airtel would roll over like Vodafone. But if Jio were honest, they’d admit Airtel shattered their dream.

Mittal spent his whole career selling visions to partners far larger than himself and getting them to bet on him even if Airtel’s presence was tiny. Now, he’s free to make bets with a multi-decade horizon, even riding the AI and hyperscaler wave. Mittal has consistently been irreplaceable, but he’s now building a plan to make himself irrelevant to the future of Airtel.

Can the RBI bring in the big bucks?

A few weeks ago, the RBI effectively gave local banks the green light to offer NRIs up to 7% interest when they deposited dollars. Those same deposits paid around 3-4% until then. For that rate to practically double, that too on a dollar-denominated asset, is an abrupt change.

When the banking system suddenly starts paying a steep premium to get its hands on foreign currency, it’s a sign something is wrong. That should come as no surprise. In the first half of 2026, India faced a severe shortage of dollars, while the Rupee kept getting hammered in forex markets.

The rupee crisis

There were many reasons for this, some of which we ourselves aren’t sure about. But one facet of the problem, at least, was that India imports roughly 85% of its crude oil, and when war broke out in the Persian Gulf, the price of those imports skyrocketed. As recently as January, the average barrel of crude oil cost India somewhere between $62-64. With the war, that price shot up to nearly twice as much — to an average of $114 by April.

The consequences were terrible. In May alone, for instance, our oil and gas import bills surged by 75% year-on-year, to $17.5 billion — even though the number of barrels we imported barely changed.

Meanwhile, Foreign Portfolio Investors (FPIs) — overseas funds that invest in Indian securities — were fleeing Indian markets. The war didn’t start this outflow, by far, but the moment coincided with a trough in the foreign ownership of Indian equities, to a 14-year low of 14.7%.

Not every pipe was leaking. Net foreign direct investment — large, long-term stakes foreign entities take in India — actually improved to $6.6 billion in FY26, from an abysmal $1.6 billion the year before. Trade, too, had held up better than feared. Even while our imports were becoming more expensive, strong services exports and record remittances from Indians living overseas, made our current account look brighter. In fact, we posted a current account surplus in the March quarter. For all the fear and despair, our current account deficit for FY 2026 was just ~0.6% of GDP — an entirely manageable level.

In all, though, money was leaving the country. Through FY26, India saw a net outflow of about $30.8 billion in FY26 — more than six times the $5 billion outflow of FY25 — and that trend continued into the new financial year. It was a crisis. With demand for the rupee falling well short of supply, the rupee dropped to a record low of almost ₹97 against the dollar by mid-May.

The RBI intervened, selling over $60 billion of its foreign reserves since the war broke out, to prop up demand for the rupee. But it couldn’t burn through these emergency savings forever. The RBI needed to attract a massive, stable supply of new dollars.

There was one page in its playbook that it had used in a far worse crisis, back in 2013. That’s what it went for.

The FCNR bazooka

In 2013, the US Federal Reserve hinted that it might taper down its bond-buying program — which had been pumping easy money into the global economy ever since the Global Financial Crisis. This triggered a global panic called the “taper tantrum.” Investors aggressively pulled their money out of emerging markets. The rupee was crushed.

To survive that moment, the RBI turned to the Indian diaspora. They offered them a special window to deposit their dollars here, at home, through Foreign Currency Non-Resident (FCNR) deposits. It brought $26 billion into the country, stemming the tide.

The RBI is using that tool again.

The exchange rate problem

An FCNR deposit allows eligible NRIs to place their savings, like US dollars, directly into a fixed deposit with an Indian bank. The money stays denominated entirely in dollars. When the deposit matures, three to five years later, the bank returns the principal and the interest — all in dollars.

This can be a great deal for a depositor. They’re paid interest, of course. But more importantly, they take zero currency risk. Even if the rupee keeps falling through those years, their repayments are still calculated in dollars, leaving them unaffected.

This possibility has been around for a while. Historically, though, Indian banks would pay just 3-4% interest on them — barely beating inflation in the US. This was understandable — after all, those banks were taking a mountain of risk.

When an NRI deposits $100 with a bank in Mumbai, the bank doesn’t simply lock a physical hundred-dollar bill in a vault. That money feeds into its business. And since its business is in India, those dollars are sold in the open market in exchange for rupees — which are then loaned out.

There’s a problem, though. The bank now holds rupees, but eventually, it still has to pay the NRI back in dollars. If the rupee falls, that burden blows up.

Say, the exchange rate today is ₹90 to the dollar. The bank takes that $100, converts it, and gets ₹9,000 to lend out. Three years later, the deposit matures. If the rupee has weakened to ₹100, the bank suddenly needs ₹10,000 to repay the principle of $100. On top of interest, it also has to put aside an extra ₹1,000.

That’s a huge risk. So, on day one, the bank purchases a forward contract or a currency swap. Effectively, it locks an exchange rate for three years later, so that there are no surprises when it has to pay the NRI back. Only, this insurance is highly expensive — historically, costing banks roughly 3% to 3.5% every single year.

If the bank earns 8% on a rupee loan, and has to subtract 3.5% to pay for this hedge, there’s very little money left over to pay the NRI and cover the bank’s own costs. All it could offer NRIs, at the end of this all, was a dull 3-4%.

The RBI changes the math

On June 8, 2026, with a package of three regulatory changes, the RBI re-engineered that risk calculus.

First, the RBI removed the bank’s hedging burden by taking the currency risk onto its own balance sheet. Under this special window, banks sell the dollars to the RBI at the current spot exchange rate. When the deposit matures, the RBI will return the dollars at the same rate.

If a bank gives the RBI $100 today at an exchange rate of ₹90, it receives ₹9,000. But three years later, RBI will give back those $100 for the same ₹9,000 — even if the rupee has dropped! The bank simply bypasses the hedging cost. The swap only covers the principal, though, so banks must still manage the foreign currency required to pay the interest. Even so, it kills the risk the bank takes on the principal.

Second, the RBI exempted these fresh FCNR deposits from both the Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR). Ordinarily, banks must keep a portion of every deposit locked up as idle cash (CRR) or parked in safe, low-yield government securities (SLR). They couldn’t lend out 100% of its deposits. The effective return on that money was stunted. By waiving both requirements for this window, however, the RBI allowed banks to lend nearly every single dollar they raised as high-yielding commercial loans — boosting their earning potential.

Third, the RBI removed the ceiling that capped the maximum interest rate banks were legally permitted to offer on FCNR accounts. The interest they could offer, now, could be decided by the free market. Each bank could determine its own rate, based on how urgently it needs funding and what yields it can generate — hence the wide 5.5% to 7.1% range visible today.

With these moves, the RBI effectively allowed banks to fish for high quality capital, without risk, all of which could generate returns.

The leverage story

But there’s another ingredient. While a 7% interest rate is great, that alone doesn’t bring in tens of billions of dollars. The real engine is leverage.

The RBI explicitly permitted Indian banks and their overseas branches to lend money directly to non-residents against these FCNR deposits. Since these loans are backed by the deposits itself — as collateral in their hands — lenders were happy to provide massive leverage.

Consider this: an NRI invests $1 million of their own savings. The overseas branch of an Indian bank steps in to lend that NRI an additional $9 million in dollars. The NRI places the combined $10 million into an FCNR deposit.

This is incredibly lucrative for investors. At a standard 6% rate, the full $10 million deposit would generate $600,000 in returns. Of that, let’s say the NRI pays 5.5% interest on the $9 million loan, or $495,000. That leaves $105,000 for the NRI. Their net return climbs up to 10.5% on their actual $1 million investment.

Meanwhile, India registers a fresh $10 million inflow, even though the NRI only brought in $1 million of original wealth. The remaining $9 million was generated from within the banking system. These would eventually have to be serviced and repaid, but for now, it stems the tide.

This is just one of the weapons the government has deployed. It also scrapped withholding and capital gains taxes for eligible foreign portfolio investors buying Indian government bonds, and opened a pipeline for foreign capital through GIFT CITY.

How much money is actually coming in?

According to recent updates, more than $9 billion has been mobilized under this special FCNR drive. That is substantial, but it remains below analyst forecasts of $30 billion to $55 billion.

The mechanics of the leveraged trade, to be fair, suggest that this would take time. For an NRI to borrow $9 million to deposit $10 million requires complex legal documentation, intense credit approvals, tax compliance reviews, and offshore funding lines. Such deals take weeks to assemble. And because the special window remains open until September 30, 2026, both banks and wealthy investors have a natural incentive to negotiate rates till then, and finalize their allocations closer to the deadline.

But does this make sense?

There’s one thing worth noting, though: the RBI has essentially assumed the risk for how the rupee moves over the next few years. This is practically a subsidy, meant to draw dollars in over the short term. It could suppress near-term currency volatility. But is it justified?

As Samir Arora from Helios argues, the subsidy basically pays for itself. If India can attract $40 billion to $50 billion through this scheme, that massive inflow will naturally strengthen the rupee. This will make it much easier for us to handle the national oil bill. To him, the money India we save on cheaper oil imports will outweigh whatever cost the RBI incurs by subsidizing the hedge.

But that’s not the only view. To former SEBI official Ananth Narayan, for instance, this can too easily descend into an economic game of whack-a-mole. The scheme props up the rupee today, but these dollars are not being earned organically by the Indian economy. They’ll go back out in three to five years.

In a best case, it buys us time — if we can plug the gaps in our economy over that period, it’ll make us more resilient when that outflow happens. If we can’t, however, this would ultimately have bought us little. We would simply have kicked a financial deadline down the road.

Tidbits

1. The Indian government has approved a massive ₹1.9 lakh crore investment scheme, including Mobile PLI 2.0 and Semicon 2.0. This initiative aims to boost local design capabilities and achieve self-reliance in semiconductor and mobile phone manufacturing.

Source: The Hindu BusinessLine

2. Smartphone brand OnePlus is reportedly ceasing its operations in the US and Europe due to financial challenges and a lack of market momentum. This move is part of a larger restructuring effort by its parent company, Oppo.

Source: Bloomberg

3. The Tata Group is planning to enter the shipbuilding industry with a massive ₹10,000 crore project in Kerala. This major investment is expected to significantly boost India’s maritime manufacturing and commercial vessel production capabilities.

Source: Business Standard

4. Tata Motors has asked the government to change the newly proposed Corporate Average Fuel Economy (CAFE) rules regarding carbon credits. The automaker argues that the current draft would actually make it cheaper for companies to pay penalties rather than invest in cleaner green technology.

Source: Business Standard

5. MakeMyTrip is reportedly preparing to file draft papers for an Indian initial public offering (IPO) using SEBI’s confidential pre-filing route. The issue is expected to exceed $1 billion.

Source: ET Now

- This edition of the newsletter was written by Rohin (CEO, The Ken) and Mridula.

Points & Figures by Zerodha

We’re always chasing the day’s biggest stories. But every now and then, we come across a dataset that deserves a closer look than a Daily Brief allows.

That’s what Points & Figures is for.

It’s where we step back from the news cycle and use data visualisations to tell stories about the Indian economy, financial markets, and investing. Stories that are difficult to tell in a ten-minute podcast or a daily newsletter.

Our latest edition traces how India’s retail lending landscape has transformed, using credit bureau data to reveal why lenders are moving away from unsecured loans and betting increasingly on collateral-backed credit.

Points & Figures by Zerodha

The Tale of Two Borrowers: India's K-Shaped Credit Reality

Hello, welcome to this week’s edition of Points & Figures. This newsletter is a rebranding of what we used to publish as The Chatter, and the idea behind it is simple: to tell stories about the Indian economy, financial markets, and investing through data visualizations. The goal isn’t to send you a bunch of random, out-of-context charts, because pretty…

Read more

16 days ago · 10 likes · Zerodha

What we’re reading

Our team at Markets is always reading, often much more than what might be considered healthy. So, we thought it would be nice to have an outlet to put out what we’re reading that isn’t part of our normal cycle of content.

So we’re kickstarting “What We’re Reading”, where every weekend, our team outlines the interesting things we’ve read in the past week. This will include articles and even books that really gave us food for thought.

Subtext by Zerodha

What We're Reading #20

Hi folks, hope you’ve had a great week…

Read more

14 days ago · 5 likes · Zerodha

The Chatter by Zerodha

Our team at Markets spends a lot of time reading earnings call transcripts and listening to management interviews. Along the way, we come across plenty of interesting insights that are worth sharing.

That’s what The Chatter is for.

It’s a weekly newsletter where we dig through what India’s biggest companies are saying and bring you the most interesting insights into businesses, industries, and the wider economy.

The Chatter by Zerodha

The Chatter: LTM, HCL, L&T, ICICI Prudential & More

Welcome to the 68th edition of The Chatter — a weekly newsletter where we dig through what India’s biggest companies are saying and bring you the most interesting bits of insight, whether about the business, its sector, or the wider economy. We read every major Indian earnings call and listen to the interviews so you don’t have to…

Read more

11 days ago · 3 likes · Zerodha

Join us on WhatsApp, where we share interesting soundbites from concalls, articles, and everything else we come across throughout the day. You’ll also get notified the moment a new video or article drops so that you can read or watch it right away.

Join us

Thank you for reading. Do share this with your friends and make them as smart as you are 😉

Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened; we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

In today’s edition of The Daily Brief:

1. Birla buys a renewable firm from Shell for $1.8 billion

2. What does iron ore really cost?

The Chatter by Zerodha

Our team at Markets spends a lot of time reading earnings call transcripts and listening to management interviews. Along the way, we come across plenty of interesting insights that are worth sharing.

That’s what The Chatter is for.

It’s a weekly newsletter where we dig through what India’s biggest companies are saying and bring you the most interesting insights into businesses, industries, and the wider economy.

The Chatter by Zerodha

The Chatter: LTM, HCL, L&T, ICICI Prudential & More

Welcome to the 68th edition of The Chatter — a weekly newsletter where we dig through what India’s biggest companies are saying and bring you the most interesting bits of insight, whether about the business, its sector, or the wider economy. We read every major Indian earnings call and listen to the interviews so you don’t have to…

Read more

11 days ago · 3 likes · Zerodha

Aditya Birla buys Sprng Energy from Shell for $1.8 billion

Aditya Birla Renewables, a subsidiary of Grasim Industries, made headlines recently for acquiring a renewable company from Shell for ₹17,200 crore ($1.8 billion).

Obviously, this sounds like a really big deal. But before touching that number, if you are wondering when Birla entered the renewables space, we did too. Turns out, they have been in this sector for quite some time, having silently built up a portfolio of roughly 4.4 gigawatts of capacity.

However, perhaps one reason their renewables division hasn’t made all that noise is because, up until now, they essentially acted as an internal utility provider. They set up wind and solar farms almost entirely to run their own sister companies. Their UltraTech Cement plants and Hindalco aluminium smelters are power guzzlers, so it probably only made sense to build captive power capacity for them.

On the other side of the equation, Shell has been trying to get rid of Sprng Energy for a while now. Technically, what Birla is buying is Solenergi Power, a Mauritius-registered holding company that owns the Sprng Energy group of companies. But what matters is what sits inside it: a portfolio of 5 gigawatts. About 3.3 gigawatts of that is already operational and generating power, while another 1.7 gigawatts is under construction.

When you add Sprng’s 5 gigawatts to Birla’s existing 4.4, you get a combined portfolio of around 9.3 gigawatts. The deal flips Aditya Birla Renewables from a business that mostly built solar and wind farms to power the group’s own factories, into one of India’s larger commercial power producers, selling bulk electricity to the state grid under long-term contracts.

And they aren’t stopping there. The group had set itself a 10 gigawatt target, which this single deal nearly completes ahead of schedule.

Chairman Kumar Mangalam Birla laid out where they go next:

“Together, we will have a diversified portfolio and a deep development pipeline that puts us on course to scale to 20 GWp+ in the coming years. More importantly, it positions us to participate meaningfully in one of the largest energy transformations underway anywhere in the world.”

Crude reality

Now, we come to that $1.8 billion headline figure.

What’s funny is that, just 4 years ago, Shell bought Sprng for roughly $1.55 billion (₹12,000 crore). Back then, it only had 2.1 gigawatts up and running. Over the next four years, Shell burned capital to build that up to 3.3 gigawatts. When you add the construction bill to the original purchase price, Shell’s total spend likely comes close to the $1.8 billion it’s getting today, and may even cross it.

Essentially, after four years of holding this business, Shell is walking away roughly flat, maybe worse. But, probably to them, selling the business at that price seems like a better option than holding it any longer.

The party that actually made money here was Actis, a private equity firm that built Sprng from scratch starting 2017. They acquired the land, fought the red tape, won the contracts, and then sold the finished business to Shell.

So why would Shell sell when everyone is getting in on this space? Because Shell in 2026 is a very different company from Shell in 2022. To understand what changed, you have to remember what 2020-2022 felt like for oil companies.

For one, the pandemic had crushed oil demand so badly that US crude prices briefly went negative. There was lots of doubt on how quickly these prices would recover. In general, over the past decade, there were signs that oil prices would continue to remain low because the world structurally faced a glut of oil. This, as we’ve covered before, reduced the pricing power that OPEC countries had over oil, and likely even depressed the profits of conventional oil firms like Shell.

But secondly, and more existentially, trillions of dollars were flowing into ESG funds, and money managers wanted their oil stocks to show a plan for a post-oil world. The pressure wasn’t just from markets either. In May 2021, a Dutch court ordered Shell to cut its emissions 45% by 2030, and in the same month, a tiny activist fund called “Engine No. 1” managed to win three board seats at ExxonMobil on a climate platform.

The message to every oil major was clear: show us your green future or we’ll force one on you.

So they all moved at once. BP promised to cut oil production. Total went as far as renaming itself TotalEnergies. And it was at the peak of this ESG wave that Shell bought the business from Actis because it was the fastest possible way to look green.

Then, the world flipped again, as Russia invaded Ukraine in 2022. Oil and gas prices soared, and the American majors that had ignored the green pressure and stayed loyal to fossil fuels posted record profits while their shareholders got rich. The European majors that had pivoted away watched their stocks lag.

Under its current CEO, Shell’s priority has flipped entirely to shareholder payouts. It has promised to return 40 to 50% of its operating cash flow to investors, even as its net debt jumped from $45.7 billion (₹4.3 lakh crore) to $52.6 billion (₹5 lakh crore) in the first quarter of this year.

Shell began to exit green projects everywhere, from a $1 billion (₹8,800 crore) write-off on a US offshore wind project, to pulling out of home electricity retail in the UK and Germany. Sprng was roughly four-fifths of everything Shell owned in renewable power generation. When a company needs cash that badly, a flat exit is a good exit.

How Sprng makes money

To understand both sides of this trade, you have to understand how a company like Sprng earns its revenue.

When Sprng builds a solar farm, it signs a power purchase agreement, or PPA, typically for 25 years. Under this contract, the buyer agrees to purchase every unit the farm produces at a fixed price for the entire period. The buyer is usually a state electricity distribution company (or DISCOM), which are often broke, partly because of its PPAs with India’s legacy coal plants. A central agency like NTPC or SECI often sits in the middle because banks won’t lend against the promises of DISCOMs. We’ve covered them extensively in the past.

Then, the central agency buys the power from the farm, sells it onward to the states, and its credit rating is what makes the project financeable in the first place.

In a way, this is what a fixed-price annuity looks like. The tariffs are locked, with some of Sprng’s older contracts at rates as low as ₹2.17 a unit, so revenue only grows when a new plant comes online. This structure explains everything about Sprng’s numbers: as per the deal filing, the company made around ₹1100-1200 crore in the last 3 years.

Birla is paying an enterprise value of nearly fourteen times revenue, which sounds absurd until you remember that what it’s really buying is 25 straight years of contractually-guaranteed cash flows.

And by the market’s own yardstick, the price seems somewhat reasonable. Over the last eighteen months, a joint venture of ONGC and NTPC bought Ayana Renewable Power’s 4.1 gigawatt platform for ₹19,500 crore, and JSW Energy bought O2 Power’s 4.7 gigawatts for about ₹12,500 crore.

What Birla actually bought

So Birla has the money and the ambition. But why buy an existing company instead of building from scratch?

Well, building a new solar or wind farm, what the industry calls a greenfield project, is no easy feat in India. You have to buy massive tracts of land, settle local disputes, get environmental clearances, and import thousands of panels. That whole process can take more than a couple of years.

But the worst bottleneck isn’t the land or the panels, but the grid, which is something we’ve covered in a previous story.

India is installing solar panels far faster than it is laying the high-voltage lines needed to carry the electricity. The grid is severely choked. It has gotten so bad that state grid operators routinely call solar farms in the middle of the day and order them to shut off, because the wires simply cannot handle the surge. The industry calls this curtailment, and for the company it means power that was generated but can never be billed.

Adani Green, the biggest player in the space, told its investors it lost an estimated ₹500 crore in a single year because it was forced to throw electricity away.

The grid is also administratively blocked.

Under rules from 2022, developers could reserve a spot on the national power lines simply by showing a letter saying they had won a government bid, even if they didn’t have the money or the final contracts to actually build. But by mid-2026, the government realised that up to 22 gigawatts of grid capacity was blocked by these stalled ghost projects, while companies that were ready to build couldn’t get permission to plug in.

So on July 11, the electricity regulator CERC stepped in with an ultimatum: developers holding stalled reservations have 60 days to either prove they are building, or surrender their grid access. Do nothing, and heavy penalties kick in. Whatever gets surrendered will be auctioned off to companies that can actually build.

Sprng’s plants are already legally connected to the grid, which means Birla skips most of this grind.

Conclusion

India crossed 50% non-fossil fuel capacity in June 2025, five years ahead of its own target, and sits at roughly 280 gigawatts of non-fossil capacity as of March 2026, racing toward 500 gigawatts by 2030.

Oil majors tried to get a piece of this renewable build-out in a bid to “go green”, but that hasn’t panned out for them very well. Indian conglomerates, however, are leading the solar charge: Adani, Tata, JSW, NTPC and ONGC, and now Birla, which is helped along by new RBI rules that, for the first time, let Indian banks fund up to 75% of an acquisition like this one.

Shell looked at single-digit returns and a choked grid and decided its money was better spent elsewhere. Birla looked at the same asset and saw 25 years of guaranteed cash flows, plus a grid connection that money alone cannot buy quickly. Both can be right.

Whether this deal ends up a steady annuity or an expensive queue ticket depends on the one thing neither company controls: distribution.

What does iron ore really cost?

On July 13, the Supreme Court upheld the royalties India demands from iron ore miners. We know, this seems like an unforgivably dry, technical matter — and it would be, except that thousands of crores of rupees hang in the balance.

The matter hinges on a formula. Kirloskar Ferrous Industries, an iron-ore miner and pig-iron producer, challenged the way the Indian government calculates the royalties owed by iron ore producers. Their argument, fundamentally, was that the government’s formula forced companies to pay a charge on top of a charge. Those royalties are computed on a base that already contains a royalty.

The court settled the matter in the government’s favour. The government claimed their way of doing things helped prevent underpayment, and the burden it placed on individual miners was not so onerous that it delegitimised the formula. The Supreme Court concurred, settling the legal question.

Did it come to the correct answer? We aren’t sure.

Then again, this is a space filled with distortions. Consider this: between August 2022 and January 2023, Odisha’s official benchmark for iron-ore lumps with 51–55% iron content fell by roughly half. The wider iron ore market hadn’t moved nearly as much. Individual mines were still quoting prices in broadly the same range they had been before. But the benchmark — the number the government uses to calculate what it is owed — had halved. The government’s revenues took a direct hit.

Mining is an opaque, slippery world. It operates within an unusual permitting regime. It is replete with bad solutions chasing bad problems. This is the story of one such situation.

Not mine, but ours: the royalty problem

In principle, the minerals under India’s land belong to all of us.

The government — our representative, at least in theory — only gives miners the right to extract them. It extracts a cost for this privilege, however; miners must pay the state royalties for whatever they dig out. These royalties are charged ad valorem, that is, according to the ore’s value. For iron ore, those royalties are charged at fifteen percent.

Calculating royalties

Fifteen percent of what, however? How do you calculate the “value” of ore? There’s no one price for it; the price that ore is sold at can vary — by the state, by its grade, by the mine. How do you benchmark it?

For this, the government looks at the ‘Average Sale Price’, or ‘ASP’ — a monthly benchmark published by the Indian Bureau of Mines. This is a weighted average, broken down by grade and state, built on prices and quantities the miners themselves report in monthly returns they file with the government.

There are extra charges atop this royalty. For one, miners pay an extra 10% of the royalty amount as their mandatory contribution to the ‘District Mineral Foundation’, or DMF — a body that looks after communities that live around mines. In addition, they pay an extra 3% of the royalty amount to the National Mineral Exploration Trust, or NMET, which finances the exploration of new mining sites.

And finally, there’s an “auction premium” — a little sweetener miners offer to the state. Since 2015, most new mining leases in India have been auctioned. Bidders compete with each other on the share of the ore’s value they’re willing to give the state.

The amount a miner must pay in these extra fees, like the base royalty, depends on the all-important ‘ASP’ figure the government announces. And that, in turn, depends on the data miners give the government. This set-up is at the heart of the case before the Supreme Court.

Getting to a ‘right’ price

This fee structure exists because the government faces a fundamental problem: it wants a fair value for mineral resources a private entity extracts. Except, it doesn’t actually sell any ore. It has to construct a price for a commodity it doesn’t deal in. To do so, it needs data, and a formula to turn that data into a price.

The easiest solution is to charge a single flat fee per tonne. This would be easy to administer, and hard to game. At the same time, a standard price would struggle to deal with the difference in quality coming out of any mine. A miner that dug out a tonne of low-grade rubble would pay the same amount as someone that drew out a tonne of high-grade ore, even though the market would reward them very differently.

Alternatively, you could plug in a lot of data to construct an index. Coal has something like this: the government tracks a National Coal Index, built atop notified public-sector prices, auction prices and import prices. These inputs are hard to spoof, making this index hard to game.

But you don’t find that quality of data everywhere. India doesn’t have a clean domestic index for iron ore prices, for instance. It’s hard to know what price any one grade would attract. The best available benchmark is the price of cargo delivered to China, and that might bear little connection to the price or quality of ore Indian miners actually have.

This is why India collects miners’ self-declared transaction prices to get to a royalty figure.

Pliable benchmarks

The government takes in data given by the mines in an area, and then averages the price out. These averages are weighed by quantity. Consider a market with two consignments of supply — one with a hundred thousand tonnes, and the other with just a hundred. The average price will take the quantity of each consignment into account, along with the price they attracted.

These average prices aren’t drawn from the whole Indian iron ore market. They’re calculated separately, for each grade, in each state, every month. There are often just a handful of mines feeding into any one number. Miners, as a result, are benchmarked to a narrow slice of the market.

Perversely, if you’re one of the big miners in your area, this lets you move your own benchmark. The royalty, the DMF, the NMET, the auction premium you’re expected to pay — everything is tied to just that month’s benchmark. With some planning, you can change this amount meaningfully.

This is especially true of captive mines: for instance, when a steel-maker owns their own iron ore mines. You can simply declare your dispatches at times when the ASP has fallen, and pay lower royalty.

That is what the Indian Bureau of Mines found in Odisha. Mines that had reported the highest ex-mine prices in their band in one month would make no dispatches, or very few, in the months that followed. As long as their prices turned out to be above the average, it made sense to hold back on declaring sales, so that they didn’t hike the ASP. This is why the ASP could halve in a short period, despite the outside market looking the same.

In fact, the larger the premium you’ve agreed to part with in the mining auction, the greater is your incentive to play this game.

A charge on a charge

Now, we come to the rule Kirloskar challenged — one that had been part of the framework since 2016.

When the government was calculating the “sale value” feeding into the ASP, it did not deduct royalty, DMF or NMET. Effectively, the fifteen percent was calculated against a number that already contains the levies.

Imagine a mine has sold ore worth ₹100. If you were to plainly add royalties and other fees to that amount, a simple calculation would tell you that the miner would owe the government roughly ₹17. But the government doesn’t take those ₹100 as the base. It takes a higher figure — one that already includes all these fees. It is a royalty, charged on a rate that already includes the very same royalty! That, in itself, adds a few percent to what the government is owed.

This effect is magnified even further when you add auction premiums to the equation — when the difference could be as high as a quarter of the actual value of the ore they’re sitting on.

The government, meanwhile, defends this as protection against the revenue it loses because of how miners manipulate the ASP.

On the surface, these differences might sound small. But they are calculated on a massive base. India’s iron ore output in the year ending March 2024 was worth roughly ₹1 lakh crore. According to the government, if this rule is removed, states’ revenues from mining could fall by about ₹6,200 crore every single year. Over the lifetime of these mining leases, this is cumulatively a question of lakhs of crores.

What the court did

In its judgement, the Supreme Court upheld the formula the government used.

At its heart, this is a fair call to make. Courts are poorly placed to design royalty formulas. For a court to invalidate economic regulation, the bar it must cross is deliberately kept high. A fee might look weird as policy, but that doesn’t make it unconstitutional.

Moreover, entities that had bid for mines already knew this formula. More than 585 mineral blocks have been auctioned since 2015. Every winning bid was made under this definition of ASP. They should have calibrated the premium they were willing to pay according to this formula. One way or another, ten years of auctions have embedded the rule in the price of these leases. Changing the formula now would improve the winner’s economics after the contest was over — which would be unfair to those who made losing bids.

Somewhat problematically, however, the court didn’t stop at saying that. Instead, it justified the government’s claims, endorsing the notion that iron ore miners were evading their dues, and this was a measure meant to counter evasion.

In doing so, it didn’t attempt to match the measure to the problem it was trying to solve. Protecting one’s revenue, after all, is different from preventing evasion. The government’s concern was that miners could report artificially low values and reduce what they owed. That, however, was a matter of how the weights in the ASP were determined. The question of whether royalties should be charged on top of royalties barely had any bearing on this. A miner can still vary their reported despatch according to the prevailing ASP — the formula does little to address that.

The anomaly gets a second life

In 2022, the government’s own expert committee — chaired by a retired IAS officer, with members from NITI Aayog, the ISI, the Steel Ministry and the Bureau of Mines — concluded that the formula does charge royalty on top of royalty. It called this an anomaly, and proposed a fix: exclude royalty, DMF and NMET when determining the ASP.

Then, the government reversed course, deciding not to amend its rules after all. Its stated reason was that doing so would seriously impact the revenue of the states. States such as Odisha and Jharkhand, after all, rely heavily on mineral revenue.

The court, however, went further than that — instead of accepting that this is the way things are run, it endorsed the rule. Where the government’s own committee saw an anomaly, the court saw a defence against evasion. Instead of weird hold-over from an old rulebook, in this framing, a royalty atop a royalty became a stated tool of government policy.

Tidbits

1. Hero MotoCorp approved a fresh cash investment of up to ₹1,000 crore (about $104 million) into the electric scooter company Ather Energy. Hero is already the biggest shareholder in Ather and is making this move to boost its position in the fast-growing electric vehicle market.

Source: Reuters

2. The cost of items sold in bulk (wholesale) in India jumped by a record 9.9% in June, mostly because food and fuel prices went up. This puts a lot of pressure on companies making goods, which could eventually make everyday items more expensive for regular shoppers.

Source: ET

3. US politicians changed a proposed law to lower threatened taxes on countries buying Russian oil, like India and China. Instead of a massive 500% tax, the highest tax is now capped at 100%. This helps avoid breaking trade ties with India and China while still putting some pressure on Russia.

Source: NDTV

4. The long-awaited trade agreement between India and the United Kingdom officially starts on July 15. The deal will remove or lower taxes on many goods traded between the two countries. This is expected to create new jobs and make it much easier for businesses to grow in both places.

Source: Deccan Herald

5. IKEA plans to invest over ₹21,000 crore in India by 2030, which is double what they originally planned. They want to open around 30 stores, sell more items made locally in India, and grow their online shopping business.

Source: BS

- This edition of the newsletter was written by Krishna and Pranav.

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In today’s edition of The Daily Brief:

1. Full Charge, No Power

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Full Charge, No Power

Recently, a weird series of videos had surfaced from across India.

E-rickshaws, weaving through traffic, were coming to an abrupt halt. The driver would have no idea why. Nothing would appear broken. As it would turn out, a few people on a nearby footpath had choked the ride from their phones.

This became enough of a menace that India’s IT ministry had to act. Officials initially said two applications had been removed. Shortly thereafter, the ministry directed Google and Apple to remove seven battery-management apps, including BAT-BMS. These apps linked, through bluetooth, to the vehicle’s Battery Management System — the onboard software that watches over a battery pack. They were originally meant for maintenance, but they became a portal for wider misuse.

To us, though, this triggered a more interesting question: why did this vulnerability even exist? Why could these vehicles be stopped so easily? Turns out, while modern petrol cars use software, to the incoming era of electric vehicles, software is everything. It is the lifeblood these cars need to run. It could also become a liability. This is the shift we wanted to explore.

The moment of acceleration

Think of an old petrol car.

You press the accelerator. A physical process follows. A cable pulls open a valve inside the engine, injecting fuel where it can be burnt. There’s a mechanical link between you and the engine.

Things are different in an electric vehicle. Here, the accelerator sits atop a sensor. When you press the accelerator, it measures exactly how far you’ve pushed it, and turns that measurement into an electrical signal. It is that electrical signal, and not mechanical ones, that the battery and the motor respond to. There’s nothing inside that your hand or foot physically moves.

Not every request gets approved

In many modern EVs, the signal from your accelerator goes to something called the vehicle control unit, or VCU, a component that decides what a vehicle should do next. In simpler two- and three-wheelers — like the e-rickshaw in this story — that job often falls to the motor controller instead, which directly controls how much power reaches the motor.

Either way, there’s a component between the accelerator and the engine that checks whether the vehicle should actually do what you’re asking for. It looks at your speed, whether the brake is pressed, whether the battery or motor is too hot or too cold, and whether anything else has gone wrong. Only then does the vehicle decide how much power to deliver.

Then, there’s the ‘BMS’ or Battery Management System. If you don’t know what you’re looking at, this can just seem like a fancy battery percentage detector. But to NXP and Texas Instruments, the two major suppliers of this technology, the BMS is actually a safety system. Even if the rest of the vehicle asks for full power, if the battery itself isn’t in a safe state, the BMS can say no.

This is what, it is believed, were behind the e-rickshaw cases. The apps reportedly connected to the system over Bluetooth, and triggered a command that stopped it from supplying power. When the vehicle asked the battery for power, the tampered BMS refused it.

There are other software systems too that can limit power. The motor, for instance, can cut back if it’s overheating. Traction control can do the same if a wheel starts slipping. And so on.

Keeping everyone in the loop

All of these systems — the VCU, the BMS, and others — carry information. But having information localised to one component isn’t enough; that information must quickly reach the rest of the vehicle. If a vehicle is skidding, for instance, that information can’t remain in the wheel; it must be carried to the VCU so that it can adjust what’s happening.

That’s the job of the ‘CAN bus’, or the ‘Controller Area Network’.

In modern EVs, controllers like the VCU and the BMS pass messages to each other over one or more of these networks. These work a little like a shared line that every part of the vehicle can read from. The battery, for instance, might post that available power is reduced. The brakes might post that they’re not being pressed. Any component that needs that information, then, reads it off the same line, avoiding the need for a private wire running to every other part.

Simpler vehicles work a little differently. Basic e-rickshaws, for instance, may use simple. analogue wiring instead of a CAN network.

From signal to spin

Once the VCU and the BMS agree on how much power to allow, that power has to reach the motor in a form it can actually use. This, again, is the domain of software.

A battery only gives out direct current, or DC. Picture it like water flowing steadily, in one way, down a pipe. Basic electric vehicles, including simple e-rickshaws, use this power directly — with DC motors running on a simple motor controller.

But modern EVs need alternating current or AC. Picture this current like water alternatively being pushed and pulled rapidly in both directions, instead of flowing one way. And so, something has to sit between the battery and the motor, converting the DC power to AC power. That something is the inverter, which Texas Instruments describes as the main power-processing system inside an EV. It adjusts current thousands of times a second.

Only once the inverter has done its job does the motor actually turn, in turn spinping the wheels. Even then, the system keeps watching itself. Sensors report back how fast the motor is spinning, how much current is flowing, and in more advanced vehicles, whether a wheel is slipping — and the car adjusts accordingly. These decisions get revised many times a second.

All of this is orchestrated by software. An EV doesn’t simply receive one instruction and carry it out. It keeps measuring, calculating, and correcting, for as long as the wheels turn.

Slowing down, charging up

The same works in reverse when you slow down.

Lift the accelerator or touch the brake, and the motor now acts as a generator. Electricity goes back into the battery rather than flowing out. This is called regenerative braking — a standard in most modern passenger EVs.

Where it exists, it takes the same kind of coordination as speeding up. The BMS decides how much energy the battery can safely take in. The motor controller decides how much regenerative braking the motor can produce. In more advanced EVs, software decides how much the vehicle slows because of the motor winding down, and how much comes from the actual brake pads. Software also checks when the battery is full or too cold, cutting off the motor and letting regular brakes do more of the work. Slowing an EV down, in other words, is partly a software decision too.

Likewise, charging an EV takes software too.

You can’t plug in an EV the way you fill a tank. The vehicle and the charger first exchange safety and power information, working out whether the connection is safe and what the battery’s temperature and charge level allow.

A battery, for instance, can only take in DC, but the power from a wall socket is A. Something has to convert it. During ordinary home charging, the vehicle does this conversion itself. During DC fast charging at a public station, the station does that conversion itself before the power reaches the car. But because these chargers push much more power, the car and charger keep exchanging information throughout the session, checking things like current and temperature again and again as the car charges. Meanwhile, the BMS keeps monitoring the pack throughout, looking for any issues that might need charging to stop midway.

Why EVs go online

All of this takes connectivity.

There is, of course, connectivity inside the vehicle, as its components talk to each other. But the vehicle also communicates with the outside. EVs plug into nearby wireless, Bluetooth or Wi-Fi — matching with things like a diagnostic tool, phones, keys, or a battery app. This is the kind of link the BAT-BMS app used.

Many are also connected to the internet or the cloud, usually over a mobile network. This supports things like navigation, remote monitoring, fleet tracking, and software updates sent from much further away.

This connectivity isn’t inherently a flaw. In fact, it’s usually a feature. It’s what lets an owner check charge remotely, or have a fleet operator track dozens of vehicles at once. This is what makes over-the-air updates possible, letting a manufacturer push new code to a vehicle already on the road, much like a phone receiving an update. India’s Ather has built much of its scooter business around this idea, publishing a running history of updates to its vehicles’ software.

But if there’s one thing the e-rickshaw episode has taught us, it’s that there’s a flip side to this connectivity. If it lets someone outside tap into the system without checking who they are, the level of control they get can be powerful. Since so much of the vehicle runs on software, a malicious party can meddle with anything — from what its screens and dashboards show, to how it charges, to its different ride modes, and more. The e-rickshaw’s discharge control, for instance, likely existed for a legitimate reason, such as maintenance or battery protection. But once an unauthorised phone connected with it, it became a killswitch.

Who owns the code EVs run on

Who, then, is responsible for making sure nothing goes wrong?

Like so much of the auto industry, every car bears the fingerprints of many vendors. The code rarely comes from one place. A battery-pack company or specialised electronics supplier, for instance, might provide the BMS hardware and firmware. A different company might build the app that talks to it. A third company might supply the vehicle’s central computer. Firms such as Bosch, KPIT, Tata Elxsi, and Vector all work as engineering partners across this stack. This spread makes responsibility harder to pin down.

Say, a battery from one company carries Bluetooth hardware. It is controlled by an app from a second company, and talks to the rest of the vehicle through a third company’s software. If someone interferes with the car, who is responsible?

In fact, software can become a persisting problem. When mechanical parts break down, they can usually be inspected and fixed by any independent workshop. Software is different — most workshops are unlikely to have the tools needed to even diagnose software issues. If the company behind some software shuts down, or a manufacturer switches off its servers, some features can simply stop working.

The answer lies in standards. India, for instance, has developed AIS-189 and AIS-190, modelled on UN regulations called R155 and R156. These make sure vehicle software is built and updated securely, avoiding the kind of problem the e-rickshaw incident revealed. But these rules are built mainly around cars, trucks, and buses.

Small two- and three-wheelers like e-rickshaws are exempt. Unfortunately, these are the very vehicles improvised together with batteries, BMS hardware, mobile apps, and vehicle components all coming from different suppliers. They’re also more likely to be serviced by independent workshops that may lack diagnostic tools.

Back to the stalled rickshaw

We began this story looking into a prank carried out with a Bluetooth app. That revealed something much larger, however: a modern EV isn’t simply a battery replacing a fuel tank in a regular car. It’s an electronically controlled system, with software orchestrating the battery, motor controller, and other components repeatedly.

That software can make vehicles safer and more efficient. It can allow faults to be diagnosed or corrected through remote updates. But it can also produce failures. Everything mechanical in the vehicle can work just fine, and it can still sit still, because somewhere inside, a computer has said no.

Where are the priorities in India’s priority sector lending norms?

Recently, SBI Research published a report in support of an interesting request on behalf of the country’s largest commercial bank. It wants roads, highways, airports, ports, and energy corridors to qualify as priority sector lending (PSL).

If adopted, SBI could count the massive infrastructure loans already sitting on its books towards the 40% of lending that the RBI mandates must flow to underserved sectors of the economy.

But wait. Does that mean infrastructure is being considered an underserved sector? After all, infrastructure is a hot sector where loans tend to be highly-rated and often backed by the government. If the numbers are to be believed, it’s not starving of credit currently.

What does it even mean to be underserved, then?

You see, the PSL framework was first formalised in the early 1970s with a simple ethos: left to themselves, commercial banks would lend to the safest, most profitable borrowers, ignoring everyone else. Sections of society like small farmers, tiny businesses, and artisans, who were most in need of credit, were precisely the ones the banking system left behind. PSL was the government’s attempt to force banks to fill that gap by demanding they lend 40% of their credit to designated sectors, or face penalties for falling short.

But what counts as a “priority sector“ has never stayed still.

Over the past five decades, the PSL basket has expanded, contracted, been fought over by regulators, bankers, and politicians, and expanded again. It has changed significantly from what PSL set out to be. The story of PSL is really the story of a perpetual negotiation between the government’s social objectives and the banking system’s commercial instincts.

And, as we shall see, the compromises that emerge are rarely clean.

The purpose of PSL

To understand why PSL generates so much friction, you need to understand that the framework deals with three separate questions whose answers often clash with each other.

Social safety or industrial policy?

The first question: is PSL a social safety net, or is it industrial policy?

What do we mean by this? Like we said earlier, when PSL was instituted after the large-scale nationalization of Indian banks in the 1970s, the intent was overwhelmingly social. Banks were directed to lend to agriculture, MSMEs, or even social infrastructure like schools and healthcare facilities that the formal financial system neglected.

But PSL also serves a second function: steering credit toward sectors the government considers strategically important. In fact, this is the story of many of the East Asian economic successes, like Japan, South Korea, and China. They forced cheap bank loans to be channelled into heavy industry and manufacturing sectors like cars, toys, clothes, and so on.

These two functions can complement each other, of course. However, they can also contradict each other at times. With industrial policy, you may often end up directing loans primarily to large enterprises in important markets because that’s the easiest way to bolster economic output. But those businesses need credit far less than small, struggling firms.

India has often tried to do both social equity and national development under a single 40% target. Export credit was once added in the PSL norms. Meanwhile, renewable energy got its own category in 2015. Other social infrastructure sectors have always been folded in. But the tension between those two goals has never been truly resolved.

Priority status

The second question: when does a sector actually deserve priority status?

By the early 2000s, the PSL basket had ballooned with additions across successive decades, and the RBI knew this had become a problem. After all, if so many industries get priority status, you dilute credit away from the places that truly need it.

In 2005, the RBI constituted an internal working group chaired by C.S. Murthy to figure out what should stay and what should go. They noted that the PSL norms suffered from a “loss of focus” by granting PSL status to so many sectors.

The panel defined 5 conditions for inclusion into PSL. A sector deserved priority status only if it:

1. affected large sections of society,

2. was important to the national economy,

3. primarily benefited small borrowers,

4. faced difficulty in accessing bank credit,

5. generated substantial employment.

The committee recommended narrowing PSL down to just four core segments: agriculture, small-scale industries, small business, and education loans.

Incentives of banks

The third question: what do commercial banks actually want?

Banks love lending to large, well-rated corporates, as well as individuals with high credit scores. The risk of these loans going bad is very low, and the return is assured.

PSL loans have historically been the opposite: small-ticket, high-transaction-cost, and at high risk of turning into non-performing assets (NPAs). The Narasimham Committee, which was formed in the wake of the 1991 liberalization, pointed out that 47% of all bank NPAs at the time came from priority sectors, and recommended slashing the target from 40% to 10%. But the government rejected the proposal outright, fearing political backlash and credit disruptions in rural constituencies.

The disagreements

These three questions have caused multiple historic disagreements in Indian banking. We’ll cover three of those disagreements.

Sector creep

The first was sector creep.

In the 2000s, you had new industries emerge: like software, venture capital, and so on. Their lack of maturity implied that they might have needed credit support. In fact, venture capital was once included in the PSL norms!

Which is where you probably asked the question the RBI eventually asked itself — why does venture capital need credit support? Raising loans for an industry like that should be very easy, and it was. That’s why eventually, VC’s PSL status was revoked.

Such problems even occurred within sectors that were non-emerging.

Take housing, which is a PSL category. The initial logic of making housing a priority sector was that shelter was a universal human need. If the only housing loans doled out were high-ticket, urban ones, rather than small and rural, that would violate the spirit of PSL.

Except, it is that inclusion of high-ticket loans that made it a favorite of bank managers. In 2015, a primary survey of 60 bank branch managers conducted by economists from SBI found that all of them considered housing as the easiest PSL category to underwrite. By contrast, almost none of them found renewable energy or social infrastructure easy categories to lend to, and hence had very limited exposure there.

The result was predictable. The share of PSL directed to agriculture fell from 43% in 1980-81 to 35% by 2014-15. Small-scale industries saw an even sharper decline, from 38% to just 17% over the same period. The basket was growing, but the grassroots sectors that PSL was designed to serve were getting a shrinking share of the pie.

David and Goliath

The PSL norms have not just swung back and forth between sectors, but also between sizes of the businesses they should lend to.

Take, for instance, agriculture. Banks were constantly routing huge loans to agribusinesses and wealthy farmers while claiming to meet their agricultural PSL obligations. That’s why, in 2005, the Murthy committee said that loans above ₹1 crore to corporates would only get one-third weightage when counting toward direct agriculture targets. You could still lend to big agri-businesses, but it wouldn’t count for much in the final PSL ratio calculation.

Another similar example was that of export credit. Export credit typically involves large-ticket loans to big corporates, since those are often the most powerful Indian exporters. But the RBI has typically restricted its inclusion in the PSL norms because such exporters often have access to other forms of capital, like bonds and external commercial borrowings. They don’t need PSL, and their inclusion would crowd out grassroots sectors.

The denominator problem

A third disagreement in PSL norms stems from how it’s calculated.

Before 2007, a bank’s PSL loans were calculated as a percentage of a metric called Net Bank Credit (NBC) — if it met 40%, the bank met its PSL obligations. But the calculation of the NBC required deduction of deposits from non-residents, and off-balance sheet instruments like trade finance. Now, foreign banks with Indian presence had portfolios loaded with exactly those, while having far fewer domestic deposits. That would lower their NBC denominator considerably, inflating their PSL ratio unfairly compared to domestic banks.

Another issue with the NBC was that it was calculated based on a bank’s outstanding advances at the end of a single, specific day. But PSL is a long-term mandate of how many loans were disbursed in a whole year.

So, if a bank recovered some bad debts better, it would reduce both numerator and denominator by the same amount. When that happens, the PSL ratio actually falls, and the bank is penalized for doing its job better. Conversely, unrecovered bad debts counted as outstanding credit, meaning that, In turn, they would be included as PSL loans, inflating the ratio artificially.

So, in 2007, the RBI came up with another metric called Adjusted NBC (ANBC), which improved over NBC’s issues.

But the ANBC had new problems of its own. For one, the ANBC allows banks to deduct the outstanding amounts they raise through bonds for long-term projects like infrastructure and housing. This lowers the denominator, seemingly making it easier for banks to get closer to their PSL requirement. However, the loans that banks dole out for those projects are not counted as PSL, offsetting the earlier deduction in the denominator. This is also directly relevant to SBI’s request to include infrastructure in PSL.

Both NBC and ANBC suffer from a structural issue: it is a credit-based metric that ignores statutory reserve locks. When banks collect deposits, they must immediately lock away a sizable portion of those funds to meet the state-mandated Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). No deduction is made in the ANBC for these ratios even though this money cannot be used for loans. This is why banks have been advocating moving away from ANBC towards a metric that represents their lendable resources.

Why infrastructure, and why now?

This is the context in which SBI’s demand lands.

India is in the middle of a historic infrastructure push that includes national highways, dedicated freight corridors, high-speed rail and metro, port modernisation, etc. The capital being deployed is enormous, and banks like SBI are natural financiers for these projects. If infrastructure qualified as priority lending, SBI could instantly reclassify a significant chunk of its existing corporate loan book as PSL-compliant.

And SBI has plenty of incentives to push this.

As per the EAC-PM, SBI’s direct priority sector lending averages just 26.5% of its ANBC, well below the 40% mandate. SBI pays the penalty for this, which is parking 8% of its ANBC in low-yield RIDF deposits. Over the last few years, SBI has also been the biggest net buyer of PSL certificates among public-sector banks, which are issued by banks who have excess PSL loans and want to monetize it. Including infrastructure in PSL would significantly trim these costs.

SBI isn’t wrong that infrastructure matters for national development. But the same argument was made for venture capital and software in the early 2000s. Credit growth in infrastructure has been quite robust through normal commercial channels.

But at the same time, the frictions in today’s PSL norms can’t be ignored. SBI’s document specifically highlights the mismatch between making exemptions for long-term bonds and not exempting loans to those projects. There are many valid concerns raised by banks about the calculation of the ANBC. In fact, it wasn’t until 2019 when each type of bank crossed the 40% PSL threshold.

This is only emblematic of the long-standing, unsettled fight over PSL’s identity. Every expansion of the PSL basket makes it easier for banks to meet their targets but harder for the framework to serve its original purpose. Every contraction protects grassroots credit but intensifies the burden of risk and compliance on banks. As India’s economy sees new sectors demanding capital, the pressure to redefine “priority“ will only intensify.

But if every sector gets priority, no sector really has it.

These are the costs of having a single regulatory mandate simultaneously serve as a social safety net, an industrial policy tool, and a commercially-viable lending framework.

Tidbits

1. Two Irish aircraft lessors have applied to deregister four Boeing 737 Max planes leased to SpiceJet, citing mounting unpaid lease rentals. The airline, which currently operates around 60 daily flights on just about a dozen aircraft, says the targeted planes have been out of service for over a year, and their removal won’t affect active operations.
Source: Economic Times

2. HCLTech’s board has approved a strategic investment of up to ₹3,500 crore to build AI-dedicated data centres in India. The company wants to offer full-stack services — power, storage, compute, GPUs, and models — under one roof for enterprise and government clients. The move comes right after HCLTech’s recent $150 million investment in AI lab Sarvam.
Source: The Hindu BusinessLine

3. Scientists have identified erythrulose, a four-carbon sugar, swirling in a molecular cloud near the centre of the Milky Way, making it the most complex sugar ever found beyond our Solar System. The discovery strengthens the hypothesis that sugars essential to life may have originated in space and arrived on Earth via meteorites.
Source: Nature

4. A coalition of 12 Attorney-Generals has filed an antitrust lawsuit seeking to block Paramount Skydance’s ~$111 billion acquisition of Warner Bros. Discovery, arguing it would reduce competition in theatrical distribution, blockbuster releases, and basic cable licensing. We covered how Paramount battled Netflix to land this deal earlier.
Source: Livemint

5. Record-breaking heatwaves in Europe are squeezing the centuries-old Parmesan cheese business in Italy, causing cows to eat less and produce up to 10% less milk. Energy costs at the climate-controlled warehouses that store cheese wheels have spiked 30% during peak heatwaves. With production restricted to just five provinces and cows required to eat only locally grown hay and grass, the industry has little room to adapt geographically.
Source: Reuters

- This edition of the newsletter was written by Vignesh and Manie

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Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened; we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

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In today’s edition of The Daily Brief:

1. SBI Funds is going public

2. Why it’s so hard to gather land in India

SBI Funds is going public

SBI Funds Management’s IPO opens today, and it comes to market as the largest asset manager in India. It has held the top spot since 2021, and the prospectus opens with a very big number: it manages around ₹29.5 lakh crore.

But there’s a catch.

While SBI manages more money than its peers, ICICI Prudential or HDFC AMC, it earns less revenue than them. This is not a knock on the company, but a signal that “largest” is a slippery word in this business. The SBI Funds business is far more nuanced than the headline assets-under-management (AUM) number.

When ICICI Prudential’s AMC listed last year, we used its prospectus to walk through how an asset manager makes money in the first place. We won’t repeat the basics here. This piece is about what makes SBI its own kind of animal.

Not all AUM is the same money

Start with that ₹29.5 lakh crore.

It isn’t a single pool. Only about ₹12.5 lakh crore of it is actual mutual-fund money. The bigger chunk of roughly ₹16.9 lakh crore sits in portfolio management services (PMS) and advisory. SBI is, in fact, the country’s largest PMS manager, with close to 40% of the market.

That sounds like a diversified franchise, but of SBI’s roughly ₹4,400 crore in operating revenue, around 96% comes from the mutual-fund business. That enormous PMS-and-advisory book brings in only around ₹155 crore of profit: measly in relation to the revenue.

The reason is that most of it is low-margin institutional money — basically, statutory and provident-fund-style mandates from EPFO that arrive in gigantic size but pay next to nothing. For context, our back of the envelope calculations tells us that, SBI earns around 35 paise a year for every ₹100 mutual funds it manages. On everything else, it earns close to a single paisa.

Clearly, not all AUM is the same, and that’s true even inside the mutual-fund book. Active equity funds, where a manager actually picks stocks and charges a real fee for it, make up about 42.5% of the mutual-fund AUM but throw off roughly three-quarters of its fees. Passive funds, which are index funds and ETFs that just track a benchmark cheaply, are about a third of the book but contribute barely 5% of the fees. A rupee parked in an active equity fund is worth around ten times a rupee parked in a passive one.

This is the thread that explains why SBI’s peers seem to fare better on revenue. While it earns about 35 basis points on its mutual-fund assets, ICICI earns around 52, and HDFC around 44. That gap is easily explained by what kind of money each one holds: active equity is a much larger portion of the book for ICICI and HDFC compared to SBI’s.

None of this makes SBI a worse business, but just a different one. It got to be the biggest partly by piling up low-hanging fruit like huge passive and institutional books. But the trade-off is that that’s exactly the money that drags down what it earns per rupee. Simply, this is a volume-rather-than-value play.

The one number moving in its favour

If that were the whole story, SBI would look like a giant slowly being out-monetised. But the mix has been shifting, and in the right direction.

Between FY24 and FY26, SBI’s equity-oriented assets grew at 22% a year. In comparison, its passive assets grew around 13%, and its low-fee liquid funds crawled along at under 6%. The share of equities in the mutual-fund book rose from 39% to 42.5%; passive’s share actually fell. As a result, the fee it earns on each rupee climbed up.

The shift might sound small, but it’s also why SBI’s revenue compounded at nearly 28% a year over that stretch, even though its assets grew only about 17%. The company didn’t just gather more money; the average rupee it manages became more valuable.

What the prospectus doesn’t tell us is how much of this is SBI winning new customer money, versus a rising stock market simply lifting the value of what it already held. A bull run flatters both the mix and the fee yield without proving the company is taking market share.

The real edge

In asset management, price is a weak weapon. Fees are largely set by the regulator, while competitive pressure does the rest, so nearly no one has pricing power. What you can control is cost, and this is the one dimension where SBI is genuinely, measurably ahead of everyone.

SBI’s operating costs run at about 8 basis points of assets, the lowest among the ten largest AMCs (all of which operate on 10-25 basis points). Its core operating margin sits near 79%. Once the research team, the compliance systems, the technology and the distribution machine are built, another ₹10,000 crore of assets costs almost nothing extra to run. The whole thing is a fixed-cost factory, and SBI’s is the biggest and cheapest one on the street.

Now, the top three AMCs have held roughly 40% of the market for years, and small, nimble players have been gaining share. But the mid-sized firms in between have been steadily squeezed, with their combined share sliding from about 41% to 36% in five years. There are giants at one end, niche specialists at the other, and a thinning middle class. In a world where fees only ever fall, the least efficient managers get squeezed first, and SBI’s cost base means it can absorb that pressure longer than almost anyone.

Also, notice what the moat is not. It isn’t investment brilliance. SBI’s own disclosures show about a quarter of its equity schemes land in the top quartile of performance.

What that means is SBI became the biggest AMC in the country without demonstrably beating its peers at investing. That’s the clearest possible evidence that in Indian asset management, distribution and trust is equally, if not more important than just performance.

The reach goes wide, not deep

The second half of the moat is distribution, and it’s strongest exactly where the industry is thinnest: outside India’s biggest cities.

The RBI classifies everything beyond the top 30 cities as “B30“, and this is SBI’s home turf. B30 makes up about 22.8% of its assets against an industry average near 18%, and about two-thirds of its systematic investment plans originate there. In smaller towns trust matters more, making it difficult for SBI’s peers to replicate this success.

But that reach shows up as breadth far more than depth. SBI runs about 1.6 crore live SIPs pulling in roughly ₹4,000 crore a month, and has about 15.5% of the industry’s SIP accounts but only 11.4% of its SIP money. The average SBI SIP is roughly a quarter smaller than the industry’s. Its share of SIP rupees has also been slipping, from 12.9% in FY24 to 11.4% in FY26.

So, it’s winning accounts faster than it’s winning money. That also corroborates with the higher market share in B-30 cities, because those cities are likely to have investors starting their journey with smaller amounts. But it also points to data where SBI needs to nudge small tickets upward, adding step-ups, and selling more products per customer.

Growth levers

An AMC has only two real levers: manage more money, or earn more on the money it manages. SBI is already number one on the former, so raw asset growth is the slower, defensive game. The richer lever lies in the latter, which is a mix of a) converting its vast low-fee base into higher-fee active equity, and b) affluent-customer products.

That mix explains all the shiny new categories in SBI’s prospectus. It touts leadership in specialised investment funds (a new SEBI-created category), fast growth in alternative investment funds (AIFs), offshore products including GIFT City offerings.

These are genuinely higher-fee businesses but every one of them is tiny today. Its 28% share of the SIF market is a share of an industry barely ₹10,000 crore in size, and its AIF book is about 0.2% of total assets. This is optionality, not earnings. For now, SBI is still a scale-and-cost story rather than a premium-fee one.

Pushing the other way is a headwind that lands right after the numbers on display. FY26, the last year in the prospectus, happens to be the best-looking year in the book, with the highest fee yield, the highest margin, and the fastest revenue growth. But all of this predates SEBI’s new Base Expense Ratio (BER) framework, which took effect on 1 April 2026, and will trim what levers funds can charge. FY26 shows none of it. But at SBI’s scale, the number can be unforgiving because every single basis point shaved off its fee yield is worth about ₹125 crore of revenue.

Reading the numbers

A couple of the celebrated headline figures need a second look.

The first is which profit to use. SBI reported PAT of about ₹3,067 crore, but that includes income from its own treasury and investment portfolio. Minus those, the fund-management franchise itself is closer to ₹2,606 crore. That’s pure operating profit.

The second is the eye-catching 43% return on equity, up from about 34% a year earlier. Some of that jump is mechanical rather than a genuine leap in profitability. Ahead of the IPO, SBI Funds paid out a dividend of roughly ₹5,515 crore — about 1.8 times its annual profit — funded partly by selling its investment portfolio. That shrank the company’s equity base from around ₹8,300 crore to under ₹6,000 crore. So a smaller denominator increases the return-on-equity ratio even if the underlying business hasn’t changed.

Beyond these numbers, though, at the very core, SBI Funds is a very particular kind of business. It’s not the best stock-picker, nor is it a proprietary tech platform. But it is a trust-and-cost machine that works at a scale nobody else can match.

The conundrum the IPO poses is whether SBI can turn its enormous base of small, low-fee relationships into higher-value ones faster than regulation, while also managing the mix between active and passive that determines what it earns on every rupee of AUM.

Why land is a nightmare in India

Land, in India, can be a nightmare.

Just last month, a thousand tractors rolled into Gandhinagar. Farmers across Gujarat were protesting the high-tension power lines being run across their fields to carry electricity out of the state’s solar and wind projects.

In 2015, the newly divided Andhra Pradesh tried to build a new capital city in Amravati without taking anyone’s land by force. Farmers pooled some 34,000 acres, anticipating that the new capital would make their land appreciate. But the project soon fell into an extended limbo, sparking half a decade of protests. When it returned, the state had to acquire around 1,800 acres compulsorily from those that lost trust in the scheme.

Sometimes, land is acquired, only to lie vacant later. Karnataka, for instance, had acquired a plot of land for an infrastructure corridor in 2008. Only, it stood vacant for the next seventeen years, until the Karnataka High Court asked for it to be released once again.

Often, if land is not vacant, it’s bogged down by corruption and malfeasance. In Greater Noida, for instance, the national auditor found that nearly half of around 2,580 plots the government had acquired lacked a working unit, while the rest had irregularities of all sorts — from payment issues to unauthorised transfers.

For our economy to develop, we need land to go into productive projects. Only, the process of acquiring land regularly falls apart, at multiple junctures. In fact, we have no idea how bad the problem even is. There’s simply no public data on how India’s land is put together, and in what manner. Information is scattered across separate sectoral systems, which have never been put together.

There are at least two challenges we see, however: how does one assemble land, and how does one turn that land into something you can actually build on. This is what we’re discussing today.

Hurdle 1: Getting land

Of all the things a flourishing economy needs, land is arguably the hardest to put together. You can’t manufacture it. You can’t move it from place to place. From highways to factories, everything needs an unbroken block of land, often just in the right place.

Only, getting that land often feels impossible. Large parts of our country are split into innumerable, tiny parcels of land. It’s hard to know who any parcel of land belongs to. There’s no authoritative record that tracks every inheritance, sale or family partition. Even government land records don’t prove ownership over land. In many places, in fact, there’s a clear mismatch between what a map shows, and what the registers say.

Even if you know who to buy land from, there’s no guarantee you’ll get it.

There is, of course, the problem of hold-outs — a fact that exists everywhere land is privately held. Imagine you’re building a factory that needs 200 plots of land in one continuous stretch. You could get 199 of 200 of those plots, and yet, if a single owner in the middle says no, the whole project could stall. The more fragmented that land is, the worse the problem gets. In India, where land is often shared by several people at once, this gives a large number of people a veto over any project.

To complicate things further, even if you can agree to buy land, there are state rules that can come in the way. Some states, for instance, restrict purchases of farm land by non-agriculturists. Others set ceilings. There are few guarantees that you can get the land you need.

What can one do? Often, the answer is to get the government to do that dirty work.

This began with an old 1894 law that granted the British colonial government the power to compulsorily take people’s land away. Instead of having to hunt for each land owner and strike a separate voluntary deal with them, this law allowed the government to set up a single compulsory process for a tract of land — and once that was done, it could simply take possession. All the old claims that were attached to that land would fall off. The government would get clean title, while any old disputes over land would become disputes over who was owed compensation. This land could then be used for public works, industrial estates, townships, or projects whose eventual users were private companies.

The colonial-era law was replaced in 2013, by a statute that made acquisition more demanding, expensive and consultative. It even asks governments to take only the minimum land needed, and to lease rather than buy where they can. But the fundamental power — of taking people’s land without seeking their consent — was retained.

To be clear, this is not unique to India. Most parts of the world permit compulsory acquisition of land, at least as a backstop. In England, official guidance tells authorities to make a genuine effort to buy by agreement — but if negotiation fails, in parallel, they also prepare a compulsory purchase order.

The question, in India, is why that backstop has become the ordinary route to get land.

Hurdle 2: Owning land alone doesn’t let you build

Let’s say you own a factory, and the state has given you a hundred acres of claims-free land. The hard part still isn’t behind you. Ownership is only one of the rights you need over land — you also need permission to use the land how you want.

If you’ve bought farmland, for instance, it has to be formally converted to industrial or residential us in the government’s revenue system. Separately, your use of that land needs to conform to the area’s master plan. Both are run by separate agencies. The parcel could clear one test and fail the other. You can convert your field and still find the plan doesn’t permit a factory there; the plan can zone your area for industry while the revenue record still calls it farmland.

This mismatch is changing in some states. Late last year, for instance, Karnataka reformed its revenue rules — now, if a master plan demarcates an area for industrial development, it can be converted from agricultural to industrial land without special permission from the deputy commissioner. But this only goes to show how bad things were before.

At around the same time, the Karnataka high court was dealing with a different variant of the same problem: it found that land records, forest boundaries and planning zones worked on completely different maps, which described the same parcels differently. Highlighting this as a systemic failure, it asked the government to unify these into a single record.

Effectively, you can do everything right — buy the land legally, from the right person, at a fair price — and still not have a right to develop that land as you see fit.

This is separate from the other touchpoints where you must interact with the government. You need a road to the site, and power and water to the edge of it. Depending on the project you may also need environmental approval, pollution-control consent, forest clearance, or permission to draw water. Separate agencies control all of this. Much of it is discretionary — and a clearance from one doesn’t guarantee approval from the next. There’s no way to simply look at a map and know what one can do.

Hurdle 3: Why develop when you can hoard?

Because these issues were formidable, India built a class of institutions — often in the form of industrial development associations, like KIADB, MIDC, or the Noida authority — to get around them.

These entities assemble a contiguous site, designate it for industry, lay the internal roads and utilities, divide it into plots, and allot those plots on lease or sale. What they offer isn’t land alone, but land with most of the legal and physical work already done. That is a massive relief for any investor.

But this, too, can break.

For one, Take KIADB. The state auditor found it holding around 6,600 acres of developed land lying unused, and more than 30,000 acres undeveloped. Some of it is lying waiting for infrastructure, some is tied up in litigation, some is held for later phases. At every stage — possession, building approval, production — there were fewer and fewer plots that had gone through. The body, the auditor found, even lacked a proper inventory of what it owned.

What holds projects like this up?

The story of Greater Noida gives us a hint. Industrial plots are cheap by design — sold at an administered price meant to lure industry. This, however, makes the plot worth more than it cost, almost from the first day. For many allottees, it paid more to hold on to an industrial plot without building than actually building anything. These became speculative assets. If you build a factory, you take on demand risk, construction risk and years of sunk, illiquid capital. But instead, you could keep the empty plot, wait for the area around it to develop and values to climb, then seek a transfer. Authorities failed to cancel these allotments and take the land back.

Authorities, it turned out, acquired only one skill — acquiring land and allotting it. This was politically rewarding. The work of cancelling idle allotments, clawing land back, and fighting lawsuits, on the other hand, is thankless. And so, they never managed to succeed at actually ensuring that somebody actually built on that land.

Is there another way?

If we want to break away from this logjam, what other models can we follow?

The best alternative is land pooling. Here, a number of farmers can give their land into a common pool. The government can turn part of that pooled land into roads, drains and public space. Some can be sold to raise revenues. The rest can be handed back to the original owners. The plots are now smaller, but with roads, water and power, can be worth much more.

Some parts of India already have such programs in place. Gujarat, for instance, has used town-planning schemes to reshape its cities this way for decades.

This is a gentler method than taking land outright. But to run such programs, you need trust. Take the case of Japan, which has followed this model for over a century. Its land pools begin with a credible, binding plan, and precise land records. It then has rules around valuation and settlement, so that nobody feels cheated. And it has run these programs through authorities that have won a reputation of delivering. If you can’t win trust, pooling projects can fall apart — as one saw in Amravati.

Moreover, pooling only works in some types of projects. For infrastructure projects — like highways or power lines — you often need a thin but long strip of land. Sometimes you need even less. For underground pipes, for instance, you just need a right to lay and maintain the pipe, and nothing else.

A fundamental challenge

Land acquisition, to some extent, is a challenge that simply can’t be wished away. Most countries across the world deal with some variation of these problems.

But there are ways of doing it better. India has routinely reached for the heaviest answer to the challenge of collecting land. This is often because of failures elsewhere down the line: inaccurate data, unreliable authorities, byzantine regulation, and more.

Put differently, the challenge in gathering enough land, in India, isn’t the availability of land itself. It is everything else it takes to actually build on it.

Tidbits:

1. India’s ONGC is planning to build a massive 175-million-ton strategic oil reserve to strengthen the country’s energy security. This major infrastructure project aims to act as an important buffer against future global oil supply disruptions.
Source: Reuters

2. Bangladesh is building its first nuclear power plant, a $13 billion project that could eventually supply up to 15% of the country’s electricity. This move aims to cut their dependency on imported fossil fuels and is being closely watched as a test case for other developing nations who want to adopt atomic energy.
Source: Bloomberg

3. Russia is facing domestic fuel shortages and is now indirectly importing petrol produced in India. The fuel is being routed through international traders rather than direct sales.
Source: ET

4. Apple has filed a lawsuit against OpenAI, claiming that former Apple engineers stole confidential trade secrets about unreleased products when they left for the AI company.
Source: The Guardian

5. Investments in Indian equity mutual funds bounced back strongly in June, jumping up to 26% after hitting a one-year low in May. Most of this new money went into funds that support small and medium-sized businesses rather than massive corporations.
Source: Reuters

- This edition of the newsletter was written by Kashish & Pranav

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Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened; we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

In today’s edition of The Daily Brief:

1. Cult.fit’s IPO promises to lift heavier weights, but can it?

2. How AI is eating the web that feeds it

Points & Figures by Zerodha

We’re always chasing the day’s biggest stories. But every now and then, we come across a dataset that deserves a closer look than a Daily Brief allows.

That’s what Points & Figures is for.

It’s where we step back from the news cycle and use data visualisations to tell stories about the Indian economy, financial markets, and investing. Stories that are difficult to tell in a ten-minute podcast or a daily newsletter.

Our latest edition traces how India’s retail lending landscape has transformed, using credit bureau data to reveal why lenders are moving away from unsecured loans and betting increasingly on collateral-backed credit.

Points & Figures by Zerodha

The Tale of Two Borrowers: India's K-Shaped Credit Reality

Hello, welcome to this week’s edition of Points & Figures. This newsletter is a rebranding of what we used to publish as The Chatter, and the idea behind it is simple: to tell stories about the Indian economy, financial markets, and investing through data visualizations. The goal isn’t to send you a bunch of random, out-of-context charts, because pretty…

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15 days ago · 10 likes · Zerodha

Cult.fit’s IPO promises to lift heavier weights, but can it?

For most of its life, Cult.fit has worn a convenient label of being “fitness-tech”. It’s an app with lots of data about customers and even an AI that decides where to open the next gym apparently. Maybe “omni-channel fitness platform” is a better description?

But labels aren’t all that useful in understanding nuances of running and understanding a business.

So, here’s a number that cuts through this one. As of March 2026, Cult.fit employed 6,331 people. Of them, 3,529 were trainers and another 1,665 ran its centres. The number working in technology and product was just 125.

That ratio is the company. Cult.fit is clearly a gyms business with some software bolted on with a physical operation of leases, trainers, floor space and treadmills. It makes Cult.fit a more interesting company to understand because a brick-and-mortar business has brick-and-mortar economics: rent, utilisation, footfall, whether people actually show up. The app layer, meanwhile, affects all these things in weird but intuitive ways.

So instead of asking whether the IPO is cheap or dear, let’s do something more useful. Let’s understand the business from the floor up, and ask the questions that decide whether it works.

Two businesses, and one of them does the work

Cult.fit is really two companies under one brand.

The first is fitness services subscription with gym access, group classes, personal training, sports, at-home workouts, sold mostly through CultPass memberships. In FY26, this brought in about ₹1,198 crore, or roughly 70% of revenue.

The second is products like activewear, footwear, treadmills, massagers, accessories, sold through its own stores, its app, or e-commerce marketplaces. That was about ₹523 crore.

Obviously, services is the more predictable business: members pay upfront, come back (ideally), and can be upsold over time. The product side is closer to a retail operation stitched onto a fitness brand.

This IPO is primarily a bet on the services engine. The company might have you believe that you are buying the whole “integrated ecosystem,” but the ecosystem as a whole still has much left to prove. We’ll get back to this eventually.

The setting, at least, is promising. India’s organised fitness market, which includes branded gyms rather than neighbourhood setups, is estimated at only about 12% of the fitness-services market, and expected to reach 17-19% by 2030. Fitness-centre membership runs to roughly 1% of the population.

What remains to be answered is whether Cult.fit can gain the most from the potential that exists. More existentially, does India even go down this trajectory in the first place?

Repeat business

Every gym membership is a small bet against human nature. People sign up in January full of intent, only for disappointment to set in a few months later, and the treadmills empty out by April.

So an important number in this business is whether members renew. It’s easier to get the existing, already-fit customers to stay, than actually finding new people who want to get fit. And these renewals are what makes a subscription model viable.

Here, Cult.fit has an improving story. Its retention rate climbed from ~41% in FY24 to ~51% in FY26. That’s progress, but hard to describe in absolute terms of it being good or bad. We can read it the other way too, roughly half its members don’t renew. It might be better than a typical local gym, but a long way from the stickiness of a software subscription.

What makes the improvement believable is where it’s coming from. Marketing spend, which is what a business would burn to keep replacing the members it loses, has fallen sharply from ~20% of revenue in FY24 to 10% in FY26. Over the same stretch, ~39% of new paid members came in through referrals. That’s an encouraging signal that the brand needs less paid ads to build a reputation.

Personal training also points the same way. It grew 73% in a single year, to ₹122 crore, and is now a tenth of services revenue. That’s a company deepening its grip on existing customers, rather than endlessly chasing new ones.

But it’s far more difficult to say this is evidence of large-scale habit formation. Cult.fit doesn’t disclose what share of paid members are active in a given month, or how a batch of members who joined in 2024 behaves two or three years on. Those are the numbers that would settle stickiness.

Asset-light, but blame-heavy

Now, Cult runs its gyms in three different ways.

Of its 708 centres, only about 218 are gyms. Cult pays to build and fills payroll itself, carrying the full cost but keeping the most control and the biggest share of the money.

The other 490 centres (nearly 69%) come in two lighter forms. The first is a franchise centre, which is built with a partner’s capital but run by Cult under its own brand, systems and trainers, with the two sides splitting the revenue. Then, there’s the lighter marketplace gym, which Cult neither builds nor staffs. But this gym is simply plugged into the CultPass app so members can walk in, with Cult paying the operator for each member it sends over. In FY26, over three-quarters of new centres came through these two asset-light routes.

From a cost standpoint, the appeal of building more asset-light gyms sounds obvious, but so is the trade-off. The further it moves towards being asset-light, the more of every rupee it has to hand a partner, and the less say it keeps over what actually happens on the floor. Across its franchise and marketplace centres together, 64% of the revenue goes to their actual owners to services Cult members. Being asset-light isn’t free.

But beyond actual cash, Cult also makes a sacrifice on brand control. See, when a member walks into a grubby, overcrowded, badly-staffed gym, they don’t blame the franchise partner. They blame Cult.fit. The more Cult leans on partners to grow, the harder its audits and app-based monitoring have to work to keep the experience consistent across hundreds of locations it doesn’t fully own.

A national company that lives in four cities

Cult.fit calls itself India’s largest fitness brand, and by centre count, it is — more than four times the size of the next player.

But “national” needs an asterisk. Just four cities brought it ~90% of its fitness-centre revenue, and that concentration has only risen, not fallen, from 85.5% two years earlier. Bengaluru alone runs 247 centres and occupies over 30% share of the city’s gym market. It’s a company dominant in a handful of metros and thin almost everywhere else. Nationally, its share of the fitness-services market is just 4-6%.

Those four cities are only about 40-42% of India’s fitness-services market but the other 58-60% sits in cities where Cult barely earns anything today.

Cult wants to expand across the top 100 cities, led by two formats: Cult Elite, its hybrid gym-plus-classes format, and Cult Neo, a leaner, value-focused gym aimed squarely at the price-conscious mass market that makes up the bulk of Indian fitness demand. On paper, Neo is the right weapon for smaller cities.

But that’s exactly the bet that’s unproven. The economics that work in high dense cities with higher incomes and people willing to pay for a premium format may not survive the trip to a Tier-2 city with lower willingness to pay and thinner trainer supply. Whether the model travels is the difference between Cult.fit being a very good metro business and a genuinely national one.

The products puzzle

Now, we come to the other business.

The product pitch is seductive for a fitness brand with a million members. Effectively, Cult has access to tons of workout data that should be able to sell their customers shoes and apparel more cheaply and cleverly than a direct-to-consumer (D2C) label. And, to a degree, that’s happening, with product sales growing 60% in FY26.

But look closer and the “ecosystem“ gets blurry. The products segment still loses money. Only about a quarter of product sales come through Cult’s own stores and apps, while ~39% run through third-party marketplaces. Only ~32% of product revenue comes from people who were fitness members, showing that the cross-sell flywheel story is not as strong. Meanwhile, the number of distinct products it stocks has doubled.

All of this changes the economics of the overall business. On one hand, you have a subscription platform. But that has mixed with the messy working capital cycles that consumer retail demands. Apparel and footwear are brutally competitive categories where incumbents like Decathlon, Nike and Adidas roam.

The money question

Lastly, we get down to the bottom line.

Cult.fit’s adjusted EBITDA in FY26 finally turned positive at ₹145 crore — less than 10% of revenue. That reads like a turning point, but a good chunk of that figure is one-off gains and accounting add-backs, not money earned from running gyms. Minus those, the real operating margin is wafer-thin. And once every cost is counted, Cult.fit still lost ₹252 crore for the year.

With cash-flow, Cult.fit had both a milestone and a catch. For the first time, after years of burning it, Cult.fit’s day-to-day operations actually generated positive cash of ~₹94 crore in FY26. But it then spent more than that building new gyms and paying rent on the old ones. That shows up on the balance sheet with nearly ₹900 crore of lease commitments.

Which brings us to the IPO. Cult is raising ₹950 crore in fresh capital. Existing investors are also selling a large block of shares in a parallel “offer for sale”, from which the company itself keeps nothing.

The single largest use of the raise will be building more physical gyms. The second largest is paying rent on gyms it already runs. And the loans it wants to clear were themselves taken out to open gyms. Put those three together and roughly two-thirds of the fresh capital — about ₹614 crore — is going into physical floor space, its rent, and the debt raised to build it.

What’s also worth noting is that the company hasn’t yet picked the locations for its new gyms or signed final deals with vendors. So these are estimates to be deployed over three years to 2030, not shovel-ready projects.

What you’re actually deciding

Cult.fit is a real business that has gotten meaningfully better by growing fast, churning less, spending less to win customers, finally throwing off operating cash. None of that is hype. The services engine, in its core cities, is a good business.

But the leap the IPO asks you to make is that it will go from a strong metro fitness operator to a more national player, which also manages to make money selling physical products.

The answer to that lies behind a lot of tough questions. Does the model work outside four cities? How fast do centres become profitable at standalone level? Does the product business make profit, or just add to the revenue? Does adjusted EBITDA ever turn into real cash after the rent is paid?

A growing fitness market may not necessarily answer those, either. A rising tide floats new gyms, new D2C brands and the trainer down the road just as easily as it floats Cult.fit.

How AI is eating the web that feeds it

As per Axios, between 2023 and 2025, Google Search referral traffic to small publishers, which get between 1,000 and 10,000 daily pageviews, fell by 60%, while medium publishers lost 47%. Even the large ones, with over 1 lakh daily views, saw a 22% drop. At the same time, traffic from AI chatbots still accounts for less than 1% of all publisher page-views.

Everywhere you look, websites themselves are generating less traffic. Even when a chatGPT or Gemini throws up an answer to your query, you’re not likely to click on the link that was the source of truth for what the LLM spewed out.

A new paper by Harvard economist Alex Chan looks exactly into this problem and formalizes it in a mathematical model. It doesn’t assume bad actors, nor does it need misinformation, irrational users, or even hallucinatory AI answers. All it looks at is how AI has changed the viability of the contract under which content on the old web used to work.

The bargain that built the web

So, what did the old internet look like?

The open web, which was built on shared standards like HTML and HTTP, where anyone can publish, has always run on a basic bargain. Publishers produce content, and search engines and social platforms send users to that content.

Those visits do two things. First, they generate revenue through ads, subscriptions, affiliate links, and so on. Second, they generate information about the value and trustworthiness of the publisher. When a user clicks, returns, subscribes, bookmarks, shares, or links to a page, they’re leaving behind signals about its quality. Future users and search engines use those signals to find good sources.

These are the two pillars of the open web’s economic loop. And AI answer systems are pulling both of them away from publishers at the same time.

When you ask Claude a question, the AI reads publisher content, synthesises an answer, and serves it to you at the AI interface. You got your answer, but most likely, the publisher lost a visit because you didn’t check the source.

Now, multiply that across billions of queries a day. A Pew Research study found that when Google’s AI overviews appear at the top of search results, just 1% of users click on the cited links. Without AI overviews, 15% of users click the organic links below. With them, that drops to 8%. The AI answer is absorbing the attention that used to flow to the sources.

Catch-22

On one front, assuming that AI’s answer is always correct (which it isn’t), one could say that with AI answers, the user has been served their immediate needs much faster. They don’t have to do tons of searching anymore.

But Chan’s paper argues that this view misunderstands the true impact of LLM-generated content. The AI answer is consuming costly human information without paying at all for its reproduction.

If AI scrapes the work of, say, a finance newspaper for free, what incentive does that leave the owners and employees of that newspaper to publish? Their work involves a lot of scarce inputs: reporting, testing, judgment, verification, observation, real fieldwork, and so on. All of that has value, and therefore a high cost compared to other forms of content.

Any such human information, be it a deeply reported investigative story, a maintained technical database, or even a niche expert forum, does more than merely generate immediate traffic. It also creates durable assets, like backlinks, search authority and reputation. All of these assets are attention which can potentially be turned into more revenue.

But these assets also have their own shelf-life. After all, subscribers can churn, links often go stale, and bookmarks gather dust. If the content isn’t refreshed and reproduced, these assets eventually wither with no viable replacement.

Chan formalises all of this into what he calls the “open-web reproduction number”, or R-web. The mathematical construction of R-web is extremely complicated even for us to grasp fully, but in simple terms, it is determined broadly by three factors:

1. The traffic share that actually reaches publishers (T)

2. The strength of its existing body of content on the web (N) — this itself is determined independently of T, by factors such as how much revenue per visit a publisher can make, the behavior of users in the old web, and attention built through assets

3. The rate at which old content turns stale (S).

Expressed in simple math terms, R-web checks for one condition: “T x N > S”.

If this condition holds, the system sustains itself; meaning, each generation of costly content generates enough attention, which in turn can result in more monetization, and therefore a higher ability to fund new content. However, if it doesn’t, that feedback loop basically ceases to exist, the knowledge base contracts, and eventually, it collapses.

This condition can fail across individual publishers, but on average, it would still hold true as a way of how the open-web works. But as per the paper, AI puts this entire equation in an existential crisis, with failure being the default mode.

AI lowers the T variable, since publishers get much less visits. T is also hurt by what Chan calls “genuine-source visibility“, which refers to how well search engines surface real, original sources amid a rising tide of synthetic content. We’ll come to this as well.

The extent of monetisation a publisher can resort to is the product of these two forces. You don’t need full AI diversion to collapse the system. Even a moderate level of answer diversion, combined with polluted search results, can do the job. Even if N is high in the short-term, the fall in T alone is substantial. Over the long-term, N also falls because of lower T.

Slop begets slop

While AI collapses the demand for high-value sources, it also floods the supply side with cheap AI-generated content.

An Ahrefs study of 9 lakh newly-created web pages in April 2025 found that roughly three-quarters contained detectable AI-generated content. Automated traffic via bots now exceeds human traffic on the web.

Chan calls this the “abundance paradox“. The web can get bigger in raw page count while getting thinner in actual knowledge. More pages and URLs, but fewer facts, and less valuable writing or journalism. And each of those pages increasingly refer back to other AI-generated pages.

This also degrades the search systems that everyone (including AI models) relies on. After all, the original insight behind the PageRank algorithm that defined Google Search was that hyperlinks are decentralised quality signals.

When a real person reads something and links to it, that link encodes information about trust. People rely on Bloomberg or Reuters because they’ve established themselves as authoritative finance news outlets, and therefore get backlinked and bookmarked often. But when cheap synthetic pages flood the web with their own link structures, those signals get diluted. If synthetic pages dominate the web’s link graph, and they reference each other more, the PageRank mass on genuine pages converges to zero.

Then, Google’s ranking of pages becomes a measure of who can produce the most content cheaply, not who has the best information. And since AI models are trained on web content and rely on retrieval systems to stay current, this degradation feeds back into AI quality itself. That is what the peak of the wave of AI slop looks like.

When we zoom out from each step in this chain, we get to a self-reinforcing spiral.

It starts with AI answers diverting traffic from publishers, as a result of which publishers earn less revenue and produce less costly content. With less fresh content, search engines have fewer genuine signals to work with and search quality deteriorates. Users notice that search results are getting worse and shift further toward AI answers. That raises AI diversion further, which removes more visits and links, which degrades search quality more, until publishers get no monetizable traffic to themselves.

This sounds like a fully-abstract concern, but the signs of this spiral manifesting itself, even if partly, are already here. Media executives surveyed by the Reuters Institute in early 2026 expect search engine traffic to fall by 43% within three years. Many publishers now plan to reduce investment in traditional SEO. Publishers are already adapting by filing lawsuits, negotiating licensing deals, and blocking AI crawlers.

The fix

Chan’s paper also provides solutions to this problem.

First, if an AI answer satisfies a query that would have driven a publisher visit, someone needs to pay the publisher what that visit was worth. Chan calls this a “visitor-replacement royalty“. If the AI diverts 40% of a publisher’s monetisable traffic, and the publisher would have earned ₹100 per visit, the royalty is ₹40 per diverted query.

Secondly, even if you pay publishers, you still need to distinguish costly human information from cheap AI imitations. If an AI platform pays for “quality”, but can’t tell the difference between a meticulously fact-checked original piece and AI slop, that effectively creates a subsidy for slop content that AI platforms eventually gravitate toward to reduce costs.

As per Chan, the audit system needs to be informative enough to overcome the cost advantage of imitation. One example of an attempt at building such an audit system is Pangram, the AI writing detector. Another is Google’s SynthID, which watermarks AI-generated content.

Third, compensation shouldn’t be allocated by clicks alone. There are some “keystone topics“ which incur the highest fixed costs, but often the lowest direct click monetisation. That could be a research paper (like this one), local news, niche technical databases, or even public-interest investigations. Few people read them, but those who do, reference them as their source of truth in blogs (like we are right now). These are the topics whose loss would do the most damage to the web.

Finally, Chan proposes a market clearinghouse where AI platforms, publishers, auditors, and even regulators can measure displaced visits, verify provenance, run audits, and settle payments.

Conclusion

The market is already groping toward partial solutions. OpenAI has signed licensing deals with roughly 20 publisher groups covering over 160 outlets. The UK’s Competition and Markets Authority also imposed regulations in June 2026 requiring Google to give publishers opt-out controls over AI search features.

But licensing deals with a handful of large publishers could create a two-tier web where major outlets get paid, while the long tail of local, niche, and independent sources keep losing traffic with no compensation. It raises questions about the very nature of text as a medium of expression, a far cry from an era where self-hosted blogs had become so commonplace.

A magazine like The New York Times has enough capital to survive. But a lot of smaller sources, or even academic journals, which are far smaller, but collectively make the web worth searching cannot keep going without the market design adequately reflecting what AI is doing to the web.

Tibits

1. Government waives import duty on battery and display manufacturing inputs

The government has exempted customs duty on 85 capital goods used in lithium-ion cell manufacturing and key inputs for display assemblies and wireless charging modules until March 2029. The move aims to lower manufacturing costs and boost domestic electronics and battery production.

Source: The Indian Express

2. TCS posts strong Q1 as AI business crosses $2.6 billion run rate

TCS reported a 4.7% rise in Q1 net profit to ₹13,420 crore and a 14% increase in revenue to ₹72,275 crore. The company secured $9.5 billion in new orders, while its annualised AI revenue run rate crossed $2.6 billion, reflecting growing enterprise spending on AI-led transformation.

Source: The Hindu BusinessLine

3. Dr. Reddy’s halts semaglutide supplies over quality concerns

Dr. Reddy’s has temporarily halted commercial supplies of its generic semaglutide after detecting a quality issue linked to the drug’s active ingredient. The company said there is no impact on patient safety, but fresh supplies are expected to resume only by late October or early November.

Source: The Hindu

- This edition of the newsletter was written by Kashish & Manie.

What we’re reading

Our team at Markets is always reading, often much more than what might be considered healthy. So, we thought it would be nice to have an outlet to put out what we’re reading that isn’t part of our normal cycle of content.

So we’re kickstarting “What We’re Reading”, where every weekend, our team outlines the interesting things we’ve read in the past week. This will include articles and even books that really gave us food for thought.

Subtext by Zerodha

What We're Reading #20

Hi folks, hope you’ve had a great week…

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13 days ago · 5 likes · Zerodha

The Chatter by Zerodha

Our team at Markets spends a lot of time reading earnings call transcripts and listening to management interviews. Along the way, we come across plenty of interesting insights that are worth sharing.

That’s what The Chatter is for.

It’s a weekly newsletter where we dig through what India’s biggest companies are saying and bring you the most interesting insights into businesses, industries, and the wider economy.

The Chatter by Zerodha

The Chatter: TCS, Indian Bank, Amagi, CMR Green & More

Welcome to the 67th edition of The Chatter — a weekly newsletter where we dig through what India’s biggest companies are saying and bring you the most interesting bits of insight, whether about the business, its sector, or the wider economy. We read every major Indian earnings call and listen to the interviews so you don’t have to…

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15 days ago · 19 likes · Zerodha

Join us on WhatsApp, where we share interesting soundbites from concalls, articles, and everything else we come across throughout the day. You’ll also get notified the moment a new video or article drops so that you can read or watch it right away.

Join us

Thank you for reading. Do share this with your friends and make them as smart as you are 😉

Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened; we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

In today’s edition of The Daily Brief:

1. The world’s investment outlook gets bigger and gloomier

2. When informal businesses become legible

The world’s investment outlook gets bigger and gloomier

Every year, the UN puts out a report that tries to answer one simple question: where is the world’s money going? Here, we aren’t talking about stock market flows but companies building factories in other countries, buying up businesses across borders, funding roads and power plants that they’ll be tied to for decades.

This year’s report just came out, and the top line looks great. FDI investment went up 6% in 2025, to $1.6 trillion.

After a few brutal years, money seems to be flowing again. Except that number is lying to you a little. Or rather, it’s hiding a lot.

One example of what’s being hidden is that a big company will route billions through a financial hub like Switzerland for tax reasons, or to shift cash between its own subsidiaries in different countries. Technically, that money crossed a border, so it counts as “investment“.

But it built no factory and didn’t hire anybody. It’s just money passing through on its way somewhere else. Economists call these conduit flows, and they’re such a big distortion that when the UN strips them out of the global total, that headline 6% growth shrinks to 4%. The report singles out Switzerland and Ireland — some of the world’s biggest tax hubs — as the two centres that drove most of the difference this year.

There are some big impressive numbers on top, and a lot of important nuance buried underneath this 200+ page report. We will look at the most important things that stand out to us.

Where the money actually went

Let’s start with the money itself.

The first thing to understand is that “investment went up 6%“ is an average, and averages hide things. When you split the world into rich countries and poorer ones, the picture splits too. The investment into developed countries like the US and Europe jumped 11%. But on the other hand, investment into developing countries went up 2%.

In a rich country, foreign investment is a bonus. Companies there already have banks, stock markets, and investors lining up to fund them. But in a developing country, foreign investment is often the event. It’s how you build roads, power grids, and factories, because there just isn’t much local capital to do it. Roughly half of all the outside money developing countries get comes from this kind of investment.

And it gets worse at the very bottom. The poorest countries in the world pulled in $43 billion between all of them, which is under 3% of the global total. And almost all of it went into digging things out of the ground — oil, metals, minerals — rather than building anything that could employ people for the long term.

The factories nobody’s building

So where is all the money going, if not into poorer countries?

The answer is technology. In essence, that boils down to AI, and, of course, the hardware needed to support it: memory chips, interconnected semiconductors, critical minerals, and to some degree, clean energy. The report groups these as “strategic sectors,” and the shift here is dramatic.

In 2020, these sectors made up 16% of new investment projects. By 2025, they were 44%.

By now all of us know that AI runs on giant data centers, and those data centers need land, a reliable supply of huge amounts of electricity, and water to keep the machines from overheating.

Only a few countries can host all those things: a stable power grid, water, land, and an entire ecosystem of suppliers and engineers. So this money clusters. The top three countries getting strategic-sector money grab 56% of it between them. Poorer countries don’t even have the infrastructure to build a data center in the first place.

Meanwhile, the kind of investment that used to help poorer countries grow is drying up.

Once you strip out the strategic sectors, the value of new manufacturing projects — textiles, clothes, basic electronics, the ordinary stuff — has fallen about 17% over the past several years. For decades, this was the escalator: a poor country offers cheap labor, foreign companies build factories, millions of people get jobs, and slowly the country moves up. That escalator is slowing down. The companies that used to chase cheap labor are now chasing chips and data centers, and those don’t go to the places that need the jobs.

Who’s doing the investing is changing, too. It’s not just Western private firms anymore. State-owned companies from China and sovereign wealth funds from the Gulf states are using their national wealth to snap up assets abroad. More than a quarter of the companies on the UN’s list of the world’s 100 biggest multinationals are now at least partly state-owned.

What governments are doing about it

That brings us to the second big theme: governments have stopped sitting back and letting the market decide. In 2025, governments around the world passed 229 new rules affecting foreign investment. That’s the most ever recorded.

For years, the standard playbook was to cut taxes, get out of the way, and let money flow to wherever it made the most sense. That era is over. Governments are now actively steering where money goes, and they’re doing it in two opposite directions at once — pulling some money in, and keeping other money out.

Pulling in

The “pulling in” part has changed shape. It used to be broad tax cuts for everyone, but now it’s targeted cash. Rich countries are handing out massive subsidies — billions of dollars in grants and tax credits — but only to companies that build the things they want, like chip plants and battery factories, and only if they build them at home.

The US and the EU are essentially in a bidding war, throwing money at the same handful of tech companies to get them to build locally. But developing countries find it harder to win a bidding war with such an approach.

So they’re trying something different: instead of a blank tax holiday that costs them money for a decade, they’re tying incentives to results. You get the tax break only if you actually hire local people, or transfer some technology, or use local suppliers. It’s less them begging for investment, and more attaching some strings to it.

Keeping out

Meanwhile, the “keeping out“ part is growing fast. More and more countries are setting up systems to screen foreign investment for national security reasons. They’ve increased their power to review and block a foreign company from buying something sensitive. In 2016, 21 countries had this. By 2025, it more than doubled to 52.

What’s more, the definition of “sensitive“ has ballooned. It used to mean weapons factories and power plants, but now, it can even include data centers, AI startups, telecom networks, and lithium mines. That being said, few deals actually get blocked, but that’s almost beside the point. The mere existence of these reviews can make foreign buyers nervous, slows deals down, and racks up legal costs. And the mere existence of these reviews may be a sign of a bigger expansion on what the term “sensitive” means.

There’s one more thing worth mentioning here, because it lands hard on poorer countries.

See, old investment treaties often let a foreign company sue a government directly — not in that country’s courts, but in an international tribunal — if a new law hurts the company’s profits. In 2025, companies filed 56 of these lawsuits, and 80% of them were against developing countries. Many involved mining. So when a poor country tries to tighten environmental rules or demand a bigger cut from a mining project, a foreign company can drag it into arbitration and sue for billions in lost future profit.

Supply chains reorganize

For four decades, companies built their supply chains on one rule: find the cheapest place to make something, and ship it wherever it needs to go. It worked as long as nothing broke.

Perhaps, that should be changed to “if nothing broke”. The last five years saw the pandemic, the Suez Canal getting blocked, war in Ukraine, the US and China going after each other with tariffs and, of course, the Strait of Hormuz being choked. It didn’t matter anymore how cheap a supply chain was if it was highly fragile.

So, companies are rebuilding, and they’re willing to pay a bit more to feel safe. They’re moving factories out of countries they see as risky and into friendlier ones, or closer to their customers.

India is gaining, and so are places like Malaysia and Thailand, because of the so-called “China+1“ strategy. But that doesn’t mean companies aren’t leaving China — why would you let go of the country where you continue to have the most advantages? Instead, they’re building backup factories elsewhere so that, in case trade with China gets blocked, they’re not stuck. In all this, the consideration of cheap has gone out the window in place of geopolitical uncertainty.

India is a good example of how the headline figure of investments attracted can deceive someone.

The money coming into the country jumped 44% last year to $39 billion. That was one of the biggest jumps anywhere, and it was enough to make us the 11th-biggest destination in the world. On its own, that sounds like nothing but good news.

But there’s a catch. The money going into brand-new projects actually fell, dropping from ~$111 billion the year before to $74 billion. So the money is still coming in, but it’s just going into what already exists rather than greenfield projects.

Conclusion

In summary, the world’s investment story is one of developed nations attracting new funds for emerging technologies. However, the appetite for old ones is dying, and there is a dearth of greenfield investment in developing and poor nations.

A few are pulling it off. Kenya, for instance, generates almost 90% of its electricity from clean sources, and it’s using that to attract data centers because companies under pressure to go green will pay to build where the power is clean. Indonesia, meanwhile, banned exporting raw nickel ore, forcing battery companies to build processing plants inside the country if they wanted the metal. It turned itself into a hub instead of just a mine. But these are pockets of leverage that they have.

At the same time, investment flows are becoming increasingly siloed with increasing de-globalization. Countries are putting stricter marks on what kinds of foreign investment (or, for that matter, imports) they can allow. We’ve known all of this for a while, but the massive numbers put it in a scarier context.

While the $1.6 trillion headline is eye-popping, the outlook is pretty glum for most countries trying to play catch-up. The world is just investing in fewer places, in fewer things, for reasons that have less to do with growth and more to do with fear.

Seen, but not formal

Picture a small cottage tailor; the sorts with two sewing machines in a rented room, stitching blouses and school uniforms for the neighbourhood. It’s the kind of business you see in every corner of India. It takes small pieces of work, for small sums of money, creating a job or two in the process.

Most of India’s business activity looks somewhat like this. Nine in every ten Indian workers work in conditions like this. Only, these don’t exist in documents, databases or really, in any formal context. To a bank, a tax database, or a labour inspector, they might as well be invisible. This is one of the perennial problems of India’s economy. If you can’t see who your economy comprises, you’re hamstrung in everything else you might want to do.

This June, Soumya Kanti Ghosh and others at the Prime Minister’s Economic Advisory Council came out with an interesting working paper. It has ideas that, while perhaps a tad optimistic, is worth engaging with: they argue that businesses like this are slowly being drawn towards formalisation. Not completely, and not equally in all dimensions. But they’re becoming easier to identify, count and lend to. They’re becoming legible.

What can this legibility do for our economy? Where does it still fall short? For that, let’s dive in.

The seen and the unseen

The “informal economy”, if you don’t know better, sounds shady — like businesses deliberately kept off books to dodge taxes or do something illicit. The truth is more banal. This is the part of the business-world that isn’t yet visible to the rubric of formal systems. These are ordinary, legal businesses, carrying out routine transactions. They simply haven’t entered the world of registers and record-keeping. Our cottage tailor might stitch beautiful blouses, and might still lack tax filings, payslips, or a recorded financial history.

This is surprisingly common, all across the world. According to the ILO, two hundred crore people — three in every five of the world’s workers — earn their living informally. The picture is even more skewed for India. Most Indian farming, of course, is entirely informal. But even leaving those aside, India’s roughly 8 crore informal businesses employ close to 13 crore people.

There are serious downsides to the invisibility of this dark economy, both for the businesses themselves and those they employ.

To a business, the formal economy, above all, opens into the financial system. Banks usually only lend to businesses they can see. You need audited books and earnings records to prove that you’re a good borrower. Without that, capital — the lifeblood of any business — becomes inaccessible.

But the bigger downside, arguably, is for the worker. The basic protections a job comes with — a written contract, paid leave, social security — are all creatures of the formal economy. The informal economy, in contrast, only comes with gigs, which can disappear without notice.

It isn’t easy for a business to cross the barrier and become visible, however, because visibility brings friction and scrutiny. Formality brings paperwork, and in India, a lot of it. You need to register yourself repeatedly — with corporate registrars, tax departments, labour departments, and more. You need to handle questions and subject yourself to investigation by everyone from the municipality to licensing authorities. There are benefits to crossing this hump, of course. But as the economists Rafael La Porta and Andrei Shleifer have argued, not everyone can actually avail them.

Our cottage tailor shop, for instance, might just be too small for formality to actually pay for itself. Why make the shift?

Almost formal

This is the world the paper tries to make sense of, using two surveys from 2025 — the Periodic Labour Force Survey (or PLFS), which looks at workers, and the Annual Survey of Unincorporated Sector Enterprises (or ASUSE) tracks unincorporated businesses.

At first glance, the paper seems to suggest that India’s informality problem is only growing. Across three recent rounds of these surveys, the number of unincorporated firms (other than farms) rose from about 6.5 crore to 7.9 crore. The number of workers they employ grew as well, from roughly 11 crore to 12.8 crore. As the number of such businesses has grown, so has their role in the economy, from marginally below a tenth of our economic output, to marginally above a tenth.

From those numbers alone, India’s informality seems more severe.

It points to something curious, though. Somewhere, buried in its methodology, the paper introduces the idea that formality isn’t a yes-or-no question. A business doesn’t need a full package of legal registrations to become visible. It can register for some things, and have a set of records for some purposes, without being entirely formal.

The paper studies unincorporated businesses — that is, businesses that don’t run as companies. These could be partnerships, family businesses, shops run by sole proprietors, or follow other configurations. They could still have some registrations, though: they could have GST numbers, for instance, or carry a trade license from their local governments. Over the period the paper looks at, the share of such businesses that have some registration have barely grown. Two years ago, they were barely under 37%; now, they’re closer to 37.5%.

But those registered firms aren’t all equal. In fact, the paper creates a 0-100 scale based on how formal they are. Some registrations seem to be overwhelmingly more useful than others. A firm that has an Udyam or Udyam Assist registration, for instance, gets almost twice as much financing as those with any other registration. We’ll come to this shortly.

More interestingly, there are other ways in which these firms are becoming visible, which have nothing to do with the government. Consider internet use: what has become, in our times, one of the first traces businesses are leaving behind — through QR codes, WhatsApp orders, online payments, and the like. Just two years ago, one-fifth of these unincorporated businesses were online. Now, that number has nearly doubled, to two-fifth.

Beyond this, in our humble view, some of the paper’s conclusions are a bit of a reach. But it got us thinking: if there are different levels of formality, what does that tell us? If the government can’t push businesses through the full set of compliances, are there side-doors that can help them get some benefits?

The side door

The government, it turns out, has been thinking on these lines as well.

In January 2023, for instance, the Ministry of MSMEs launched the ‘Udyam Assist Platform’, which runs through the Small Industries Development Bank of India, or SIDBI. This was meant, specifically, for a class of firms that didn’t fit the normal registration route. These firms are too small to cross the regular GST threshold, and file no GST returns at all. Ordinarily, most registrations require their own paper trail, but such businesses would usually have none.

To get around this barrier, the government allowed approved middlemen — like banks, NBFCs, microfinance lenders, and even government departments — sign such businesses up and issue a certificate on their behalf.

Take our cottage tailor once again. If she needed a loan to renovate her shop, before this, she would have to scramble for proof to carry to the bank counter — rent receipts, a passbook, or whatever — and it might or might not suffice. Udyam Assist replaces that with a single document that the bank must recognise.

This doesn’t make the establishment formal. But it gives it a narrow slice of legibility, which the financial system can act on. This comes without the costs of formality — registrations, filings, records — making it easier for a small business to take to. It makes it visible to a credit institution, specifically, without demanding that the business transform itself completely.

There’s more — banks are incentivised, structurally, to give loans to these entities. Under ‘priority sector lending’ rules, banks have to reserve a share of its loans to certain specific groups of borrowers — like small businesses or farmers. These targets have to be hit. Most such borrowers are informal. But now, by government notification, and in the Reserve Bank’s own rulebook, a Udyam Assist certificate is treated exactly like full Udyam registration. This legibility, in other words, helps banks as well.

Meanwhile, the government has stepped in as a backstop, de-risking the decision to lend to such a firm. Through its credit guarantee fund, it covers 85% of loans of up to ₹20 lakh, with no collateral asked of the borrower. If things go wrong, this caps what a lender could lose.

To scale this, interestingly, the government is leaning on another lever of visibility — the internet. Many small businesses were already networked into online platforms. The government turned these into a distribution channel. In September 2025, for instance, the payments app PhonePe began letting merchants generate a Udyam Assist certificate inside the app itself. This was then tied into a credit arrangement with SIDBI.

See this from the eyes of our tailor. A UPI app they once signed on to now gives them a slice of visibility, which makes them eligible for loans — all without having turned “formal”.

Side-stepping formality

Udyam Assist, in just a few short years, has managed outsized success. By July 2026, nearly 3.85 crore firms had signed up through Udyam Assist, alongside almost 9 crore across the full Udyam system. Many of these firms technically lie on the wrong side of the formal-informal divide. But even limited visibility goes a long way in opening doors for them.

But as the economists La Porta and Shleifer have noted, being seen helps at the margin, but it doesn’t turn a subsistence workshop into a thriving business. Businesses are often informal for a range of reasons, and a single intervention may not help them cross the line. This is visible in the Udyam experiment as well. While SIDBI had registered nearly 9 crore enterprises by the end of 2025, a much smaller number — just 3.6 crore — had actually taken a loan.

Meanwhile, for informal workers — the intervention has done very little. In fact, even among India’s regular, salaried workers, more than half have no written contract, and no social security. Selective visibility hasn’t changed their lives.

For all this, however, this experiment points to something interesting. The stubborn informality of India’s economy can sometimes make it feel like an impossible dead-end — a problem so large that nothing can fix it. As it turns out, that is far from the truth. Visibility isn’t an all-or-nothing game, and informal businesses are not static businesses.

Making just a single document easy to attain, in itself, can change the fate of a firm.

- This edition of the newsletter was written by Krishna & Pranav

Tidbits

1. NPCI is developing a Unified Agent Protocol (UAP) to register, verify, and authorise AI agents to make UPI payments autonomously — pending RBI approval — as UPI hit 22.71 billion monthly transactions worth ₹28.92 trillion in June 2026.
   Source: BS

2. The India-UK FTA takes effect July 15, offering zero duty on 99% of Indian exports. GJEPC projects gem and jewellery exports to rise from $754 million to $2.5 billion, with overall bilateral sector trade reaching $7 billion.
   Source: ET

3. Dr. Reddy’s has delayed commercial supplies of its semaglutide generics — sold as Obeda, Mashlo, and Olymviq — after finding out-of-specification API batches; the stock fell 5.9%, its steepest drop in four months.
   Source: Bloomberg

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Tamal Bandyopadhyay on the microfinance industry cycle

After going through 144 concalls across 18 microfinance companies just to watch a single credit cycle play out in slow motion, we were left with a bigger question: why do these crises keep happening, over and over, roughly every few years like clockwork? To make sense of all this, we spoke to Tamal Bandyopadhyay, who has covered Indian banking for nearly three decades, is a senior advisor at Jana Small Finance Bank, and authored the book Pandemonium. Our conversation dives deep into what caused the latest microfinance cycle, how this time is different, and what the industry can do to avoid repeating the same mistakes. Listen to the full conversation on Spotify and Apple Podcasts. Read the key takeaways on Subtext.

Subtext by Zerodha

Tamal Bandyopadhyay on microfinance industry cycle

Hi, I’m Kashish and a while ago, I did something slightly unhinged. I went through 144 concalls, across 18 microfinance companies, spanning eight quarters, just to watch a single credit cycle play out in slow motion. The idea was to see, in the actual words of the people running these businesses, how an entire industry lends its way into a crisis and th…

Read more

18 days ago · 6 likes · Zerodha

Watch the full podcast episode below, where Tamal breaks down the recurring cycles of the microfinance industry.

What We’re Reading

Our team at Markets is always reading, often much more than what might be considered healthy. So, we thought it would be nice to have an outlet to put out what we’re reading that isn’t part of our normal cycle of content.

So we’re kickstarting “What We’re Reading”, where every weekend, our team outlines the interesting things we’ve read in the past week. This will include articles and even books that really gave us food for thought.

Subtext by Zerodha

What We're Reading #19

Hi folks, hope you’ve had a great week…

Read more

21 days ago · 8 likes · 2 comments · Zerodha

Points & Figures by Zerodha

We’re always chasing the day’s biggest stories. But every now and then, we come across a dataset that deserves a closer look than a Daily Brief allows.

That’s what Points & Figures is for.

It’s where we step back from the news cycle and use data visualisations to tell stories about the Indian economy, financial markets, and investing. Stories that are difficult to tell in a ten-minute podcast or a daily newsletter.

Our latest edition traces how India’s digital economy got here, through the data buried in Jio’s IPO filings.

Points & Figures by Zerodha

The price war that built India's internet

Hello, my name is Krishna and this is our third edition of Points & Figures…

Read more

21 days ago · 7 likes · 1 comment · Zerodha

Join us on WhatsApp, where we share interesting soundbites from concalls, articles, and everything else we come across throughout the day. You’ll also get notified the moment a new video or article drops so that you can read or watch it right away.

Join us

Thank you for reading. Do share this with your friends and make them as smart as you are 😉

Our goal with The Daily Brief is to simplify the biggest stories in the Indian markets and help you understand what they mean. We won’t just tell you what happened; we’ll tell you why and how too. We do this show in both formats: video and audio. This piece curates the stories that we talk about.

You can listen to the podcast on Spotify, Apple Podcasts, or wherever you get your podcasts and watch the videos on YouTube. You can also watch The Daily Brief in Hindi.

In today’s edition of The Daily Brief:

1. The coordination puzzle staring at India’s EV story

2. The second coming of Micromax

Tamal Bandyopadhyay on the microfinance industry cycle

After going through 144 concalls across 18 microfinance companies just to watch a single credit cycle play out in slow motion, we were left with a bigger question: why do these crises keep happening, over and over, roughly every few years like clockwork? To make sense of all this, we spoke to Tamal Bandyopadhyay, who has covered Indian banking for nearly three decades, is a senior advisor at Jana Small Finance Bank, and authored the book Pandemonium. Our conversation dives deep into what caused the latest microfinance cycle, how this time is different, and what the industry can do to avoid repeating the same mistakes. Listen to the full conversation on Spotify and Apple Podcasts. Read the key takeaways on Subtext.

Subtext by Zerodha

Tamal Bandyopadhyay on microfinance industry cycle

Hi, I’m Kashish and a while ago, I did something slightly unhinged. I went through 144 concalls, across 18 microfinance companies, spanning eight quarters, just to watch a single credit cycle play out in slow motion. The idea was to see, in the actual words of the people running these businesses, how an entire industry lends its way into a crisis and th…

Read more

18 days ago · 6 likes · Zerodha

Watch the full podcast episode below, where Tamal breaks down the recurring cycles of the microfinance industry.

The coordination puzzle staring at India’s EV story

A few weeks ago, on our podcast series, Subtext, we sat down with Zohra Khan, the founder of IPEC, a Bangalore-based company that designs and manufactures EV chargers for India’s leading two- and three-wheeler makers.

Everyone knows about India’s subsidy architecture: PM E-DRIVE, state-level incentives, the GST differential versus petrol cars. But one of the key points of discussion that stuck with us well after the chat had little to do with it. It was that India’s EV transition needed a lot more than just getting those right.

For instance, here’s what she said about India’s grid:

“But I think what India has is a distribution problem. And that’s where the DISCOMs and a lot of these players come into the picture. This distribution layer, which is mainly the 11 kV and the 415 volt lines — that’s what actually connects the grid to your neighborhood. Right now a lot of these lines are overloaded. For example, transformers which are serving these residential areas were probably installed with requirements from ten years ago, or a long time ago. So they are overloaded. They need to be upgraded. Even the air conditioning loads that are coming into effect right now will be causing a strain on the grid, let alone EV charging coming into the picture.”

When we dug deeper, we realized that electricity itself is just one part of the EV story.

Think about it. For one, charging stations need a lot of land, so land acquisition becomes a factor. Each state is in control of its own transport, but they’ll have to coordinate when it comes to charging infrastructure.

And India needs all of this to happen at roughly the same pace, because the vehicles are already here. India sold nearly 25 lakh EVs in FY26. But every one of those vehicles has to plug into a grid, at a station, on a piece of land, and the policies governing those three things were never designed to talk to each other.

This story is about those frictions that exist between some of the crucial parts of India’s EV policy that don’t have much to do with EVs, but couldn’t be more important to our EV ambitions.

Fight or freight

Let’s first examine the state of electric freight.

You see, India’s EV push has overwhelmingly focused on passenger two-wheelers and three-wheelers — and understandably so, given that they make up the vast majority of vehicles on Indian roads.

But freight is just as important. Medium and heavy-duty trucks make up just 2% of India’s vehicle fleet, but they contribute around 40% of all road transport emissions. If we want the EV transition to matter to reducing emissions, electrifying freight has to be a priority. Yet, it is still a policy afterthought: of the nearly 1.8 lakh public charging stations India has, only about 9,000 of them can charge a heavy-duty truck.

But what makes freight a unique problem is that, unlike passenger vehicles that are mostly used within a city, a long-haul truck crosses multiple state borders in each trip. Its success depends fundamentally on coordination between states. But each additional crossing of a state border is emblematic of how difficult this is.