India's Balance Sheet

Ananth Narayan was the guest speaker at a Bombay CFO session, on the 6th May, bringing to the discussion his experience in banking, markets and regulation. Rather than begin with a prepared lecture, the session opened with observations and questions from participants, allowing the conversation to be molded by the issues most relevant to CFOs in the room. These included rupee volatility, long term corporate funding, foreign and domestic capital flows and regulatory change. This made the discussion practical. It was not a macroeconomic presentation in the abstract, but a wide ranging conversation on how global and domestic uncertainty is beginning to affect corporate balance sheets, funding decisions and risk management. The takeaways were pragmatic and provided a sense of likely peril.

The discussion focused on how Indian companies should manage risk when currencies, capital flows, geopolitics, regulation and technology are moving in cross directions all at once? The answer is that these issues can no longer be treated as background noise. For CFOs, in particular, the task is not merely to fund growth cheaply, but to understand where shocks may come from and what buffers the company needs before they arrive. The rupee was the first issue. In India, the currency is not just a market variable. It has worrying political implications. Sharp depreciation is quickly read as a sign of national weakness, so policymakers are unlikely to tolerate a disorderly fall. Be that as it may, recent policy has clearly leaned towards supporting growth, easing liquidity and encouraging credit, even if that means allowing some currency adjustment. The pressure points remain obvious. Oil prices matter greatly as a jump in crude widens the current account deficit, raises inflationary risks and makes the rupee harder to defend. India therefore still needs foreign capital. Strong domestic investors are welcome, but they are not yet a substitute for steady FDI and portfolio inflows.

This led logically to capital markets. India’s domestic savings machine has become extraordinarily powerful. Mutual funds, insurers, pension funds and retail investors have helped the equity markets absorb foreign selling, far better than in the past. This is a remarkable achievement. But it also creates distortions. When demand for equity far exceeds the supply of fresh paper, valuations rise, promoters and private equity investors sell and market activity becomes less about new capital formation and more about transfer of ownership. Foreign investors like India’s long term story, but they worry about valuations. They ask what India’s investible story is in a world dominated by AI, semiconductors and technology platforms. India has services exports, infrastructure and a large domestic market, but it has not yet converted these into a compelling market narrative.

A related weakness is the neglect of fixed income markets. Tax policy inconsistencies and inflation have pushed savers towards equity because fixed deposits and debt funds often deliver poor post tax returns. Banks, however, need stable term deposits to support longer tenor lending. This explains why companies seeking four or five year fixed rate finance struggle. Money does not disappear when households invest in mutual funds. It merely moves from one account to another. But from a bank’s perspective, a stable household deposit is far more useful than a short term or wholesale balance. The result is a genuine structural mismatch between the savings instruments households prefer and the long term funding that companies need.

The discussion on regulation was constructive. Expected credit loss norms may hurt banks, especially during transition, but the principle is sound. Likely losses should be recognised early. India has already learnt the cost of pretending that stressed loans are healthy. The same discipline is now needed in unsecured retail, SME and micro lending, where risks can be easier to hide. More broadly, regulators appear more willing to improve ease of doing business, but industry must engage seriously. It is not enough to say rules are cumbersome. Companies must explain what abuse the rule is trying to prevent and how it can be redesigned to target bad actors without burdening good ones. Geopolitics formed the next pillar. The Middle East matters to India through oil, capital flows, remittances, projects and investor sentiment. Conflict hurts India through energy prices and the external account, though reconstruction may later create opportunities for Indian firms. Taiwan is the larger tail risk. Any confrontation would disrupt semiconductors, shipping, insurance, technology supply chains and global risk appetite. Boards should treat Taiwan not as a distant foreign policy issue but as a business continuity scenario.

The final issue was private investment. There remains a gap between optimistic headline growth and cautious corporate behaviour. If companies can earn rich valuations without taking much incremental risk, many will prefer to protect margins, sell down stakes or return capital rather than invest aggressively. Yet the outlook is not gloomy. Domestic demand remains resilient, global capability centres are hiring, infrastructure spending is transmitting gradually and extreme pessimism can itself become a contrarian signal. The larger conclusion is that India remains attractive but not easy. It needs foreign capital, deeper bond markets, smarter regulation and a revival of private capex.

For CFOs, the lesson is clear. Currency exposure, funding tenor, capital structure, geopolitical scenarios and regulatory engagement are no longer separate technical subjects. They are part of one question. How does a company protect its optionality in a volatile world while still investing for growth? The best companies will not avoid risk. They will understand which risks to take, which to hedge and which require buffers long before the storm arrives.