Elevated crude prices following the West Asia war could feed into broader inflation expectations and force the Reserve Bank of India (RBI) to intervene. However, monetary policy is more effective at moderating demand-side excesses than at addressing external supply constraints. Given this, a calibrated rate hike won't hurt, but prolonged tightening could impact rate sensitives and raise the cost of funds for lenders, says Nirmal Jain, founder of IIFL Group.
June quarter (Q1FY27) earnings were particularly strong for global-facing companies like metals and financials. What do you make of the Nifty earnings trend?
Q1 earnings have been encouraging. Nifty EPS (earnings per share) growth accelerated to the low-to-mid teens, improving meaningfully over the previous two quarters. More importantly, after several quarters of downgrades, FY27 estimates have broadly stabilized, and FY28 has seen upgrades in several sectors. Financials, metals and domestic investment-linked sectors contributed to the improvement.
India’s macro and earnings outlook remains constructive, subject to global macro and geopolitical conditions not deteriorating materially. Domestic consumption, infrastructure and private investment, financialization and formalization remain strong structural drivers. From here, earnings delivery rather than further valuation expansion will increasingly determine market returns.
Globally, rising interest rates in the US and Japan could spook financial markets amid uncertainty in crude. Is that a challenge?
Sustained high global yields and crude would certainly challenge India through inflation, the current account, the rupee and capital flows. However, much of the current crude pressure is geopolitical and linked to Iran and the Strait of Hormuz. If there is a durable settlement and normalization of traffic, crude could correct sharply, simultaneously reducing inflation, yields and rate-hike expectations. India would be a major beneficiary.
India also has stronger buffers today—large reserves, a well-capitalized financial system and much deeper domestic institutional participation. We should distinguish short-term volatility from any fundamental derailment of India’s growth story.
There is a school of thought that believes in an AI bubble, which could result in a revival of foreign investor flows to India...
There is certainly a risk of excesses in parts of the global AI trade. Korea and Taiwan have increasingly become proxies for the semiconductor and memory cycle, making emerging-market weights and flows more cyclical. As substantial new capacity comes on stream, if the AI hardware cycle corrects, India’s relative attractiveness within emerging markets could improve, attracting flows.
More importantly, India’s AI opportunity is not limited to manufacturing GPUs (graphics processing units). We can become one of the world’s largest users of AI across financial services, healthcare, manufacturing, education and government. Capabilities are also developing in high-tech and defence manufacturing, AI models, semiconductors, data centres and electronics. The perception that India is outside the AI trade should progressively fade.
The minutes of the RBI meeting indicate we could be entering a rate-hike cycle, maybe as early as October. How could this impact markets?
I would not assume an October hike is inevitable. The RBI is rightly vigilant, but much of the current inflation impulse is supply-driven. Monetary policy is better at moderating excess demand than resolving an external supply constraint.
If crude remains elevated and feeds into broader inflation expectations, the RBI may need to act. But if geopolitics improves and crude normalises, inflation, global yields and tightening probabilities could decline quickly. Strong FCNR(B) inflows also provide an external buffer. A modest hike need not derail growth, but a prolonged tightening cycle would affect leveraged and rate-sensitive businesses and raise lenders’ funding costs.
On FCNR(B), how would this impact the rupee and buttress against potential FPI outflows?
The exceptionally strong FCNR(B) response provides an important near-term buffer for the rupee and greater capacity to manage volatility from FPI outflows. But we should distinguish borrowed reserves from permanent capital: these deposits ultimately carry repayment obligations.
India remains a capital-hungry economy with enormous investment opportunities. We should attract patient, long-duration global savings through a stable, predictable and globally competitive regulatory and tax framework. Sustained foreign inflows support the currency, currency stability improves investor confidence, and that can attract further capital—a powerful virtuous cycle.
Climate change is a big problem that could have economic impact globally. What is your view on its impact on the global economy in general and India in particular?
Climate change is increasingly an economic and financial issue. Rising temperatures and extreme weather can affect agricultural yields, labour productivity, food inflation and infrastructure. India is particularly exposed because of our large agricultural population, water stress, coastline and rapidly growing cities.
But the energy transition is also a major opportunity. Renewable power, transmission, storage, electric mobility, green hydrogen and climate-resilient infrastructure will require enormous investment. India can build globally competitive manufacturing capabilities across this ecosystem. Capital goods, power equipment and renewable-energy supply chains can be important beneficiaries, creating investment, innovation and employment.
NBFCs have gone through significant regulatory tightening. IIFL Finance itself faced an RBI embargo on its gold loan business in 2024. What was the learning?
We took the RBI action seriously and used it to examine not merely the specific observations but also our entire operating architecture. We have significantly strengthened governance, risk management, compliance, internal audit, technology, Board and management oversight, systems and accountability. In gold loans, processes around valuation, LTV monitoring, auctions, customer communication, charges and documentation have been strengthened.
The larger lesson is that at scale, governance and controls must evolve ahead of growth. Technology helps, but commitment to compliance and customer fairness must come from the top. It was a difficult period, but it made us a stronger institution. The subsequent recovery of our gold loan business, with much stronger controls, demonstrates that growth and governance can—and must—go together.