Good afternoon, readers. The macroeconomic toll of the ongoing regional conflict is coming into sharper focus as EY joins global agencies trimming India’s growth forecast.

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But corporate dealmaking hasn’t ground to a halt. Abu Dhabi’s International Holding Company is moving forward with a massive USD 1 bn play for a controlling stake in Sammaan Capital. And the IPO pipeline in India is firing up despite volatile markets.

Plus: The Reserve Bank of India is fundamentally shaking up the capital markets by finally allowing domestic banks to finance corporate M&As. The central bank is also stepping in to extend a vital credit lifeline to exporters caught in the logistical crossfire.

Watch this space

ECONOMY — India’s GDP growth could erode by around 1 percentage point while inflation may rise by 1.5 pp if the war persists through FY 2027, according to EY’s Economy Watch report (pdf). This would drag growth from EY’s baseline estimates of 7% and push inflation above their predicted 4% mark. With India’s nearly 90% dependence on imported crude as well as reliance on imported natural gas and fertilizers, its economy is particularly vulnerable to external shocks.

Sectoral spillovers widen: Energy-linked disruptions are expected to hit labor-intensive industries such as textiles, chemicals, fertilizers, and cement. Lower employment and income in these sectors would tame aggregate domestic demand, causing adverse demand-supply conditions in the broader economy, according to EY.

Policy response in focus: The government may need countercyclical support, the report says, including deploying the INR 572 bn (USD 6.2 bn) Economic Stabilization Fund, as global volatility continues to test macro stability.

Pressure from the currency: The INR depreciated sharply on Monday, crossing a record low of 95 to the USD. The currency has declined 11% in FY 2026 (April to March), logging its worst performance in a decade amid rising crude prices and a foreign investor sell-off.

FERTILIZERS — India has enough fertilizer stocks ahead of the summer sowing season, with inventory at about 18 mn tonnes versus 14.7 mn tonnes a year ago, according to the Chemicals and Fertilizers Ministry. Demand for the April-September sowing season is estimated at 39 mn tonnes, with purchases in April-May typically used to build buffer supplies.

Diversifying supply chains: With Gulf disruptions, India is sourcing fertilizers from alternative markets including Egypt, Russia, Morocco, and Canada. Fertilizer supply arrangements have been put in place, including sourcing 2.8 mn tonnes from Russia, to reduce dependence on the Middle East, which earlier accounted for up to 30% of key imports like urea and diammonium phosphate.

Why it matters: Domestic urea output remains below normal at 1.8 mn tonnes per month due to plant maintenance. Higher LNG costs and freight rates are adding pressure, though the government continues to supply fertilizers at subsidized prices to shield farmers.

IN CONTEXT- We recently mapped how India’s fertilizer subsidy bill could increase by up to INR 250 bn (USD 2.7 bn). Plus: Indian refiners tapped an INR 6 bn (USD 72 mn) contingency fund to secure emergency gas supplies and prevent a collapse in fertilizer manufacturing.

ENERGY — Prices of commercial-use liquefied petroleum gas (LPG) and aviation turbine fuel (ATF) have increased in India as the economic fallout of US-Israel-Iran war ripples through the energy markets, Economic Times reports.

Price revision: Fuel retailers have increased the price of commercial-use LPG cylinders by about 10% across Delhi, Mumbai, Kolkata, and Chennai. ATF prices have surged by 8.6% to INR 207.3k per kiloliter.

Why it’s happening: The primary reason is a 44% surge in the Saudi Contract Price — the regional benchmark — driven by severe logistical bottlenecks in the Strait of Hormuz. Currently, between 20-30% of global LPG supplies are reportedly stranded due to the war.

IN CONTEXT- India is currently battling its worst gas crisis in decades, as the country sources around 90% of its gas imports from the Middle East. To protect households from the supply crunch, the government has kept the price of 14.2 kg domestic cylinders unchanged, choosing instead to redirect supplies away from industrial users to ensure cooking gas remains available for consumers.

What to watch: While commercial LPG represents less than 10% of total consumption, the price hike will likely add significant cost pressure to the hospitality and manufacturing sectors, which are already grappling with broader supply chain disruptions.

POLICY — The Reserve Bank of India (RBI) has extended export credit relief measures until 30 June, allowing exporters to continue accessing longer repayment timelines as the crisis continues to disrupt trade, according to a press release (pdf).

What’s changing: The RBI has extended the credit period of up to 450 days for all disbursals made until 30 June 2026, covering both pre-shipment and post-shipment credit. The earlier deadline for this relaxation was 31 March 2026. The central bank also said the existing relaxation on export proceeds will continue, allowing exporters up to 15 months to realize and repatriate earnings from the date of export, compared with the standard nine-month period. The 15-month window was first introduced in November 2025 to offset challenges arising from steep US tariffs.

Why it matters: The extension comes as disruptions along trade routes linking India with Gulf markets continue to affect shipment timelines and payment cycles. Delays in cargo movement, higher freight and ins. costs, and disruptions at transshipment hubs such as Dubai are extending working capital cycles for exporters.

Trigger for extension: The RBI said it received representations from stakeholders highlighting difficulties in meeting export realization timelines, with delays linked to logistical disruptions and uncertainty around trade routes.

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The big story abroad

The news cycle remains fixed on the war in our region, but there may be an end in sight, with US President Donald Trump telling reporters that US forces will leave Iran in two to three weeks. Washington has been able to disable Tehran’s nuclear infrastructure, which will take up to 20 years to re-establish, Trump said.

Watch this space: Trump will deliver “an important update on Iran” in a national address scheduled for later today.

The resulting energy supply shock still holds sway, with US gasoline prices surpassing USD 4 per gallon — but investors remain confident that the Federal Reserve won’t be hiking rates anytime soon. Instead, investors anticipate the Fed will hold rates or potentially pivot to cuts later this year, wagering that rising energy costs are more likely to stifle economic growth than trigger inflation.

Meanwhile, in the world of AI: OpenAI raised USD 122 bn in a record-breaking funding round, raising its valuation to USD 852 bn. “AI is driving productivity gains, accelerating scientific discovery, and expanding what people and organizations can build. This funding gives us the resources to continue to lead at the scale this moment demands,” the company behind ChatGPT said. The round was led by Japan’s SoftBank.

ALSO WORTH NOTING- US private equity firms are increasingly showing interest in Japan’s fast food industry. Notable investments include Carlyle Group’s USD 847 mn purchase of KFC’s Japan-based operations and Goldman Sachs’ JPY 70 bn acquisition of the country’s Burger King operations. The trend appears to be underpinned by demographic shifts and rising inflation, which make quick, convenient meals more appealing.

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