Navigating global turmoil: Experts on managing liquidity, financial risks

Top treasury and market heads from Citi, ICICI Bank and HDFC Bank discuss how India is balancing fiscal support, and fund flows in a volatile world economy at the BS BFSI Insight Summit in Mumbai

As global markets grapple with persistent geopolitical uncertainties, inflationary pressures, and monetary policy shifts, experts at the Business Standard BFSI Insight Summit 2025 agreed that despite the turbulence, both the global and Indian economies continue to demonstrate remarkable resilience. The discussion among India’s top treasury and markets heads centred on how fund managers, policymakers, and investors are balancing liquidity, growth, and financial risk amid an evolving macroeconomic landscape.

 

Global markets show resilience amid uncertainty

Aditya Bagree, managing director and head – markets, India & South Asia at Citi, believe global equity markets have held up surprisingly well despite multiple shocks in recent years. “There have been several events over the past three to four years that could easily have caused global turmoil. Yet, the global economy and markets have held up remarkably well. Much of that is due to strong policy support and new growth drivers like AI investments,” he said.

 

 

Bagree pointed out three key trends shaping the United States economy: high unemployment rate, concerns about inflation due to Trump tariffs, and the concentration of growth in AI-related sectors, such as data centres and energy infrastructure. He said while the US is likely to begin its rate-cutting cycle soon, it is likely to be gradual and spread across the coming year.

 

AI driving growth

Shailendra Jhingan, head – treasury & economic research at ICICI Bank agreed that AI-driven investments are underpinning current growth in the US, though this growth is narrowly concentrated. “Almost two-thirds of US GDP growth in the first half of the year came from AI-related investments, not just in chips but in power, air conditioning, and supporting infrastructure,” Jhingan said. “However, weak labour market means weak consumption, and that is a real concern.”

 

While Jhingan expects the US Federal Reserve to cut rates to support employment, he warned that inflationary pressures could return once corporates begin passing on higher tariff costs to consumers. “So far, US corporations have absorbed most of the cost increases, but that can’t continue indefinitely,” he added.

 

However, the wave of AI-led investment was also leading to layoffs in some technology sectors, pointed out Arup Rakshit, group head – treasury, HDFC Bank. “Job losses are becoming visible, and that’s another reason rate cuts are likely to begin soon,” he said. Rakshit expects the US Fed to pause after two or three cuts to reassess the inflation trend.

 

India’s growth outlook and policy support

Turning to India, Jhingan said the need for aggressive rate cuts by the Reserve Bank of India (RBI) appears limited at this stage. “Growth indicators are improving, liquidity remains stable, and fiscal measures, including tax relief and capital expenditure, have already provided a cushion,” he said.

 

He pointed out that RBI’s earlier 100 basis point rate cut, combined with ₹7.4 trillion liquidity infusion, has already begun showing impact. “We are seeing early signs of capex recovery. So, while RBI may opt for another rate cut in December, the broader stance will likely be to pause and observe,” Jhingan said.

 

Bagree echoed the sentiment, noting that while India’s inflation remains comfortably within the target range, the case for another rate cut remains debatable. “Inflation has averaged around 2.3 per cent this year, and the rural economy has held up well. Between monetary easing, fiscal incentives, and GST cuts, enough stimulus has already been injected,” he said.

 

Rakshit of HDFC Bank added that the RBI might still go ahead with a “symbolic rate cut” in December, particularly if the US begins easing. “If inflation numbers remain benign and the festive momentum sustains, a rate cut in December becomes more likely,” he said.  

 

FPI flows: Passive money stable, active money cautious

On foreign portfolio flows, panellists at the Business Standard BFSI Insight Summit agreed that while passive inflows into Indian debt have been steady following the JP Morgan index inclusion, active flows remain strategic and rate-sensitive.

 

Aditya Bagree of Citi pointed out that Foreign Portfolio Investors (FPIs) currently hold only about 3.2 per cent of outstanding Indian government paper, with room for growth if Bloomberg includes Indian bonds in its global index next year. “The trend in FPI flows into emerging market debt remains strong, as emerging markets today have better fiscal and inflation metrics than many developed economies,” he said.

 

“On the equity side, we’ve seen around $15–16 billion in outflows this year, largely due to concerns around corporate profitability, valuations, and tariff uncertainties. Interestingly, much of the global equity capital has moved to AI-linked markets such as China and South Korea. We expect that as tariff concerns fade, growth stabilises, and valuations normalise, equity flows will start returning to India,” Bagree said.

 

Rakshit agreed, saying, “Passive flows will continue, but foreign money will not dictate Indian yields as domestic investors will remain the main driver.”

 

Corporate bonds lose steam

The panel also spoke about the slowdown in corporate bond issuance as companies increasingly turn to the loan market. Jhingan said, “With repo-linked loan rates proving cheaper than corporate bonds, corporate bond issuances have dipped from ₹3.6 trillion in the first quarter to ₹2 trillion later.”

 

Bagree drove the conversation to India’s bond market that continues to be dominated by domestic institutional investors such as mutual funds, insurance companies, and banks. “The bond market in India is largely driven by domestic institutional investors. Demand has eased recently due to certain regulatory and tax changes, raising the question of how we can revive that appetite,” Bagree said.

 

Rakshit added that accounting changes and the revised large exposure framework have further dampened demand for corporate bonds. “The loan market offers more flexibility and lower costs, so the preference shift is evident,” he said.

 

The rupee outlook

Talking about rupee, Bagree acknowledged recent underperformance but attributed it largely to seasonal factors such as education and defence outflows during the July–September quarter.

 

“This quarter is typically weak for the rupee, but we expect some recovery as portfolio inflows return and seasonal outflows ease,” he said. “Foreign investors have been underweight on India, but improving corporate profitability and global rate cuts could change that.”    Catch all coverage of the Business Standard BFSI Summit 2025 Day 1 here.