First, we believe that Global bond yields could edge higher. The US 10-year Treasury yield witnessed a sharp intraday spike on 14 October, crossing 5.32%, following higher-than-expected US inflation data that revived expectations of further mone tary tightening by the Federal Reserve. Although yields subsequently retreated to around 5.19%, the episode underscores growing nervousness in global bond markets. India's 10-year G-sec yield has also risen to around 7.38%, The RBI in conjunction with government has done a remarkable job in managing yields. The average spread between India’s and the US’s 10-year government bond yields over the last 25 years has been 408 bps with the spread between Indian and US 10-year yields standing at approximately 220 bps. We believe that India’s 10 year yield will likely touch 7.6% which will aid in price discovery in the future as well. The upcoming FOMC meet is live with respect to rate decision.

Second, the rupee could remain in an appreciating territory. The USD/INR forward implied yield opened at 4.60%, around 42 bps higher than yesterday's close. Higher hedging costs make dollar funding more expensive and could encourage corporates to shift towards INR-denominated borrowing, supporting demand for the rupee. We therefore believe the rupee could maintain an appreciating bias, although external uncertainties remain significant. The RBI has taken salutary steps to stabilize market conditions and can act up to a point, but further measures by the government on the taxation front, particularly concerning G-secs and ECBs clarity on AI policy, could help deepen domestic borrowing avenues and support capital flows. 

Third, non-essential LRS outflows warrant immediate attention. SBI Research, in its FY27 Outlook report dated 29 April 2026, had called for curtailing non-essential LRS outflows. The revised data show general-purpose travel expenditure at $665.8 million in July 2026 against $148.5 million for studies abroad (4.5 times), while the June ratio exceeded 5 times ($488.3 million against $96.8 million). During the five months up to July, Studies Abroad expenditure stood at $2.47 billion, against $6.36 billion under Travel. The Gifts category contributed around $1.2 billion, compared with $2.6 billion in FY26. These trends reinforce the case for reviewing non-essential outflows to conserve foreign exchange. 

Fourth, ODI outflows require closer scrutiny. Combined ODI debt and equity outflows, which remained within $15 billion between 2008 and 2024, rose to $27.2 billion in FY25 and $27.8 billion in FY26, against $13.4 billion and $13.7 billion in the preceding two financial years, respectively. Resident-individual ODI under LRS amounted to $2.6 billion in FY26, within the annual limit of $250,000 per individual. China's annual foreign-exchange quota system could offer useful lessons, particularly in addressing potential risks involving jurisdictional routing through unlisted investment structures. 

Fifth, an asymmetric corridor adjustment could provide additional monetary tightening. The RBI could initially raise the MSF rate by 50 bps, from 5.75% to 6.25%, followed by a 25 bps repo rate hike in December to 5.75%, taking the MSF rate to 6.50%. This would deliver a cumulative 75 bps increase in the MSF rate while limiting the repo adjustment to 25 bps, tightening overnight liquidity conditions and exerting upward pressure on short-term money-market rates. The peak policy rate could settle around 6.0%, in line with the inflation trajectory.

Sixth, India's AI policy needs a credible, time-bound implementation roadmap. A roadmap covering data governance, ac countability, compliance and infrastructure is essential to translate India's AI ambitions into investible opportunities. With out clear timelines and credible implementation, capital flows into India's AI ecosystem are unlikely to materialise at the desired scale. Overall, we believe that while the rupee could retain an appreciating bias, global financial markets are likely to remain volatile amid persistent geopolitical uncertainties, elevated US yields and evolving inflation dynamics. The RBI has done a stupendous job and now the government must step up in reducing structural frictions on taxation front, ECB policy, ODI and AI policy.