When Trading Tremors And Policy Fault Lines Collide

Dear Insighter,

Nature, it seems, is conducting a global stress test. Himachal Pradesh reels from heavy rain and landslides. Texas, meanwhile, buckles under floods that have killed 120. And Japan’s Tokara Islands have clocked over 1,300 earthquakes in two weeks, triggering evacuations and rekindling eerie, comic-book visions of tsunamis. When reality gets shaky, we cling to pulp fiction.

A stark reminder: the ground beneath us is rarely as solid as we think. Much like market integrity when a firm like Jane Street allegedly decides to play Jenga with the Bank Nifty.

SEBI isn’t whispering about tremors; it’s alleging an earthquake. The case centres on trades executed in January 2024. As Sanjay Mansabdar notes, SEBI sees manipulation. Jane Street’s defenders see aggressive arbitrage—an assertive flex in a market unused to that scale. Was it a hazy overstep or calculated market muscle?

But this goes beyond one firm’s P&L. As Krishnadevan V points out, the Nifty50 and Bank Nifty are the market’s bedrock indices. The real eyebrow-raiser? Despite NSE’s cautionary letter to Jane Street in February 2025, the trading pattern continued. Which raises an uncomfortable question: was the exchange’s surveillance asleep on expiry day?

Enter Kunal Vajani’s legal lens. This isn’t about penalising smart traders. SEBI’s interim order, he argues, lays out a textbook case for orchestrated price movement. The legal test? Pattern, intent, and effect. SEBI alleges all three. And when that trifecta lands, fair play—not innovation—is on trial.

As regulators parse trading logs, the economy is dealing with paradoxes of its own. Monetary transmission, as Yield Scribe observes, is both alive and dead. The RBI has cut rates by 150 basis points and injected ₹9 trillion in liquidity. Yet credit growth limps along below 10%, trailing nominal GDP. Why? Because, as the Governor said, policy can’t jumpstart demand when the engine itself is sputtering.

Meanwhile, the government plays a curious game of fiscal discipline paired with political calculus. As the BasisPoint Groupthink notes, India’s quiet commitment to deficit reduction is a long bet on rating upgrades, cheaper capital, and sustainable investment. But that prudence clashes with frozen small savings rates. For a sixth straight quarter, the government ignored its own formula, keeping rates on instruments like 5-year post-office deposits and NSCs up to 130 basis points higher than warranted—comfortably above bank rates. It's populism over policy—fiscal prudence for global lenders, sweeteners for domestic voters.

Corporate India mirrors this ambiguity. TCS reports rising profits and margins. But as Dev Chandrasekhar notes, strip away the weaker rupee and constant-currency revenue actually declined 3.1% year-on-year. Margin gains, yes. Growth? Not so much. Meanwhile, the IPO circus continues. Belrise Industries’ stock soared post-listing—conveniently timed with a ‘Buy’ rating from Jefferies, its own co-manager. Chandrasekhar again flags the optics: rules are followed, but the tension between banker and analyst is alive.

Then there’s SEBI’s new Specialised Investment Funds, in which Sridhar Sattiraju sees the emperor’s new clothes. Instead of exciting themes like unlisted gems and pre-IPOs, we get complex hedging in a shallow derivatives market. Promising sophistication, delivering jargon.

Even monetary navigation looks misaligned. Richard Fargose questions the RBI’s continued reliance on the Weighted Average Call Rate as its compass. With call money volumes down to just 2% of overnight trades, it’s like steering a ship with a cracked compass.

Globally, things are no steadier. The US and Europe are running massive deficits. As R. Gurumurthy notes, the once-fashionable Modern Monetary Theory is now the ghost at the fiscal feast. Emerging markets don’t have that luxury. Ratings agencies pounce on far smaller slips.

And hanging over all is Trump’s tariff sword. Ajay Srivastava warns India’s FTA talks aren’t traditional; they’re a YATRA: Yielding to American Tariff Retaliation Agreement. Sectors like textiles, seafood, and gems are on the line. Opening agricultural markets, including for GM crops, may be the price. G. Chandrashekhar concedes GM soybean imports could help, but the power asymmetry is hard to miss.

This agricultural vulnerability is deeper than trade. China’s grip on rare earths—vital for EV motors—tightened last year. India imports 80% of its REM magnets from China. Nilanjan Banik calls for urgent diversification, both abroad and at home. Dhananjay Sinha adds urgency: automakers have only a few weeks of inventory. EV prices are already up 5-8%, and further disruption could stall production in an already glutted market.

Even India’s soil demands reform. KL Prasad argues that reactive policy like stock limits and export bans only fuels inflation. What’s needed? Smarter pricing, e-platforms to connect farmgates, and standards to close the consumer-farmer gap.

Sinha unpacks the government’s boast about India being the world’s fourth most equal society. He calls it sleight of hand, based on consumption, not income, and distorted by new survey methods. Behind the headline: stagnant rural wages, stressed urban jobs, and a fall in real incomes since 2018–19. 

At the root of all growth is credit. K. Srinivasa Rao highlights the imbalance: credit growth regularly outpaces deposit growth. Banks need innovation to attract stable deposits while staying within the RBI’s guardrails. Rabi N. Mishra echoes that: supervisors must move beyond checklists and nurture real resilience—better risk signals, stronger early warnings, and robust internal controls.

So, from alleged market tremors in Mumbai to literal quakes in Japan, from monetary paradoxes to policy tightropes, it’s a world where stability feels like the eye of the storm.

Until next week, forever in pursuit of steadier ground. 

Phynix

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