Week ending 29th March

Best wishes on new Samvat Year 2082 and Happy festivities including Chaitra Navratri, Gudi Padwa, Ugadhi, Bihu, Vishu across different States.

Perils of trying to explain equity market movement on weekly basis from “easing tariffs fears” in the beginning of the week to “tariff overhang” at the end of the week. Markets Wrap: Domestic Indices End Higher for Second Straight Week; Global Focus Ahead

Week ending 29^th March 2025

# 1 Markets

The Nifty50 and Sensex opened the week on a strong footing but failed to sustain momentum, trading largely within a narrow range. Nonetheless, both indices managed to post weekly gains for the second consecutive week. The Nifty closed at 23,519 and the Sensex at 77,414 on Friday. Despite this, FY25 closes on a subdued note, with market sentiment rattled by concerns over potential tariff escalations. Attention now shifts to key global developments and the onset of the Q4 earnings season in April. Early indications of a trade pact and SEBI’s recent, albeit cosmetic, measures to liberalise FII flows may help improve investor sentiment in the coming week.

On the macro front, the RBI’s anticipated rate cut brought yields lower, with the 10-year benchmark closing at 6.58% on Friday. The government has indicated a marginally lower borrowing program for H1FY26, although the share of short-term borrowings (3–7-year bonds) has increased year-on-year. This shift could keep long-term yields subdued while exerting upward pressure on short-term yields.

In the US, Q4 2024 GDP growth was revised upwards to an annualized 2.4%, driven by robust consumer spending and strong corporate earnings. Full-year growth stood at 2.8%, marginally below the 2.9% recorded in 2023, underscoring continued but moderated economic resilience. Core PCE inflation for Q4 was revised down to 2.6%, with updated consumer and trade data expected soon. However, tech stocks faced pressure due to concerns around a potential recession and softer tech spending. The Nasdaq fell 5% over the week, while the S&P 500 and Dow Jones declined by 2–3% on Friday.

US Treasury yields eased, with the 10-year yield closing at 4.25% on Friday, as dovish comments from the Fed Chair reignited expectations of rate cuts.

# 2 RBI

2.1 RBI’s revision to Priority Sector Lending (PSL)guidelines released last week:

            – Is it time now to reassess the need?

PSL was introduced in 1970s post-bank nationalisation (1969) to direct credit to underserved sectors and aimed to align bank lending with socio-economic priorities to ensure equitable credit flow — agriculture, small-scale industries, weaker sections. Key changes brought in last week include

• enhancement in loan limits under affordable housing from fixed limit of ₹30 lakhs across categories (Urban, Rural etc.) to a range of ₹35 lakhs to ₹ 50 lakh
  • Housing could become not only affordable but more sought after by Banks
• Enhancement in limits for renewable energy projects from ₹30 lakh to ₹35 lakh and introduction of new limit for households at ₹10 lakh.
  • This will encourage more households to adopt roof top energy models.
• While overall limits remain unchanged for banks, for Urban Coop Banks [UCBs], the PSL target has been revised downwards to 60% from erstwhile 75%.
  • UCBs never could achieve the PSL limit so far and thus timely.

• Gold loans originated by NBFCs and acquired by banks excluded from PSL.
  • This affects funding for gold-loan NBFCs like Muthoot Finance, Manappuram, increasing their cost of funds.

• Loan caps enhanced under Export Credit, Education, Social Infrastructure:to reflect current economic realities; Weaker sections now include transgender persons and cap on loans to women by UCBs removed.

Impact

1. Will this put more pressure on bank margins?

• Leading banks borrow at loaded marginal cost of ~9% (under special schemes) (including CRR, SLR, insurance, PSL) and yet offer home loans at 8.5% floating rate, implying negative spreads.

• • CASA (low-cost deposits) growth remains muted, adding to stress.

2. Why the need to increase limit under Renewable Energy?

1. 1. As per SBI Research data, while total credit to non-conventional energy tripled (₹98000 cr.) PSL segment grew twice (> ₹7500 cr.) as fast in the last 6 years. Banks any way find this space lendable independent of PSL benefits.
2. Should we continue with this directional lending anymore when the purpose has been accomplished?
   1. As per SBI research data, PSL stands at 45% for all banks (PSBs -42.6%, PvSBs 47.4%, Foreign Banks (FBs) 41.6%) and consistently more than 40% from 2019.
   2. The RBI also permitted banks that still struggled to meet PSL norms buy “Priority Sector Lending Certificates” from banks that exceeded their PSL targets. The market for these certificates has now ballooned to a massive ₹9 lakh crore, and many smaller banks see them as a separate stream of revenue
3. Can this prove counterproductive?

• Including funding to startups up to ₹50 cr. (less revenue, losses and negative cash flows) under PSL may be fraught with risk.
  • Loans to startup should preferably aligned with Venture Eco system and not standalone basis.

1. Decision to exclude gold loans originated by NBFCs and acquired by banks from priority sector lending (PSL) is expected to impact gold loan NBFCs by increasing their cost of funds, slowing growth, and limiting rural credit access.
   1. NBFCs have a strong edge in gold loan origination due to faster processes and deep rural reach.
   2. Banks investing in securitised gold loan portfolios have leveraged this to meet PSL targets while expanding rural exposure.

• With the PSL benefit withdrawn, the incentive for banks to buy such portfolios reduces, eroding NBFCs’ cost advantage and constraining credit flow to rural borrowers

1. Will RIDF lose its significance and significant part of funding to DIIs may be a challenge?
   1. Earlier FBs used to conveniently deposit shortfall in PSL with SIDBI/NABARD etc under RIDF as the rates paid by DIIs to FBs were attractive. This has now been moderated to Repo rate minus extent of shortfall. FBs have started achieving PSL.
   2. Going by allocation under RIDF last year to DIIs, now most of the penalties are from UCBs. Lowering PSL limit to 60% may eliminate the need for RIDF perhaps.

While the revision in limits is in tandem with market conditions and reflect a calibrated approach under directional lending, its impact cannot be ignored. RBI must undertake regulatory calibration to avoid compromising bank viability.

2.2 As per data released by RBI last week, Credit growth was muted at 12% (YoY)

• Credit card growth fell to 11.2% from 31%
• Personal loan growth dropped to 8.4% from 19.5%
• Industrial loan growth remained muted at 7.3%.

Loan growth slowed for the eighth consecutive month in February, down from 16.6% a year earlier. The deceleration was driven by a sharp drop in personal and credit card loans after the RBI tightened lending norms in late 2023. Loans to NBFCs and the services sector also saw significant slowdowns.

Though the RBI relaxed some capital norms recently, analysts expect any positive impact on credit growth to take a few months to materialize.

2.3 As per report released by CRISIL last week,

• Lenders exhibited increased caution towards issuing consumption-driven loans, particularly to new-to-credit (NTC) customers, with originations for this group declining 21% YoY by December 2024.
• Gen Z formed the largest segment of NTC borrowers (41%) followed by women (37%) and people from rural areas (32%).
• Meanwhile, originations to customers with established credit histories fell by 2%.
• The Credit Market Indicator (CMI) declined from 95 to 91, reflecting reduced credit supply. Segment-wise, credit card originations dropped sharply by 32%, home loans by 9%, personal loan growth slowed to 14% (from 24%), and consumer durable loans fell to 6% (from 17%).

On a positive note, personal loan delinquencies (>90 DPD) among below-prime borrowers showed improvement, dropping to 4.54% in Dec 2024 from 4.85% a year earlier, indicating early signs of portfolio stabilization.

2.4 Parliament has passed the Banking Laws (Amendment) Bill, 2024, The key provisions and updates under the amendment include:

1. Nomination Facility Enhanced

• Bank account holders can now nominate up to four individuals.
• Simultaneous nomination allowed for both cash and fixed deposits.
• For lockers, only simultaneous nomination is permitted.

2. Redefinition of ‘Substantial Interest’

• The threshold for a person’s ‘substantial interest’ in a bank has been raised from ₹5 lakh to ₹2 crore, updating a limit set nearly 60 years ago.

3. Audit & Compliance Reforms

• Banks will have greater discretion in determining remuneration for statutory auditors.

While customers interest has been addressed in permitting simultaneous nominations, greater flexibility would help banks in ownership with enhancement in ceiling of substantial interest.

# 3 SEBI

3.1 Key decisions by SEBI at its Board Meeting last week

1. Category II AIFs can now invest a larger portion in listed debt securities rated ‘A’ or below.
2. Threshold for granular ownership disclosures raised from ₹25,000 crore to ₹50,000 crore AUM.
   • Disclosure norms remain unchanged for FPIs with over 50% of AUM in India or concentrated in a single corporate group.
3. Registered Investment Advisors (RIAs) and Research Analysts (RAs) can now collect fees up to one year in advance (earlier: 3–6 months).
   • Addresses concerns around financial flexibility for market professionals.
4. High-Level Committee (HLC) to review conflict of interest norms for SEBI board members and officials, covering assets, investments, liabilities, and recusals.
   • Triggered by governance concerns and calls for enhanced transparency.
5. Appointment/removal of key personnel (e.g., CRO, CTO) in MIIs now requires full governing board approval, replacing Nomination & Remuneration Committee (NRC) clearance.
   • Cooling-off period for Public Interest Directors moving across MIIs removed.Bottom of Form

Changes proposed are likely to boost investor sentiments and improve market participation.

• SEBI has proposed to stock exchanges on Friday to restrict the expiry days for equity derivatives contracts to either Tuesday or Thursday.
• Currently, NSE and BSE already use Thursday and Tuesday, respectively, as expiry days for different derivative products. Formalising this framework will avoid unpredictable changes that can affect market integrity.

The move aims to enhance market predictability and stability.  However, Category III AIFs that use derivatives for hedging and alpha generation, have concerns, as flexibility in expiry tenors and maintaining liquidity in all contract types, especially monthly expiries, would support diverse trading strategies without disruption.

# 4 Economy

• As per data released by RBI last week

1. Current Account Deficit (CAD) rose to $11.5 billion (1.1% of GDP) in Q3 FY25 from $10.4 billion (1.1% of GDP) in Q3 FY24, moderated from $16.7 billion (1.8% of GDP) in Q2 FY25.

1. • CAD for Apr–Dec FY25 widened to $37 billion (1.3% of GDP) vs $30.6 billion (1.1% of GDP) in the same period last year.
   • Trade deficit rose to $79.2 billion in Q3 FY25 vs $71.6 billion in Q3 FY24.
   • Net services receipts increased to $51.2 billion in Q3 FY25 from $45 billion a year ago.
   • Private transfer receipts (mainly remittances) increased to $35.1 billion from $30.6 billion.
2. Capital Account Highlights:
   • Net NRI Deposit inflows of $3.1 billion, down from $3.9 billion last year.
   • Net FPI outflows of $11.4 billion vs inflows of $12 billion in Q3 FY24.
   • Foreign liabilities declined, reflecting reduced inward FDI and FPI.

This CAD moderation suggests improved external sector dynamics, despite persistent trade imbalances.

4.2 As per data released by Govt last week

• India’s core sector output slowed to a five-month low of 2.9% in February 2025, down from 5.1% in January, mainly due to a base effect and moderated growth across most infrastructure sectors.
• Six of the eight sectors saw growth, with cement (10.5%) and fertilisers (10.2%) leading. Crude oil (-5.2%) and natural gas (-6.0%) declined due to weak demand.
• Private capital expenditure (capex) accounted for only 33% of total investments in FY24 — the lowest in a decade.

• • Listed companies increased their capex by 28% in FY23 and 12% in FY24.
  • Unlisted entities, however, reduced their investments, dragging capex growth.
• Public capex and household investments in real estate have been key in sustaining Gross Fixed Capital Formation (GFCF).
  • The GFCF, which forms ~30% of India’s nominal GDP, has been slowing since FY23, mainly due to subdued private sector activity.
• Corporates chose to use excess cash to reduce debt, increase capacity utilisation rather than undertake fresh capex.
• Cash flow from operations to capex ratio rose to 1.6x in FY24 (vs. 1.3x avg. during FY14–FY20).

1. • Gearing levels fell to 0.9x in FY24 (from 1.1x in FY14), indicating healthier balance sheets.

According to report, strong corporate finances combined with possible RBI rate cuts and budgetary income tax relief could revive private capex in the near term.

4.3 As per report released by IMF last week,

• India is expected to surpass Japan by Q3 FY25 and Germany by Q2 2027, positioning it as the 3rd largest economy by 2027.

• India’s GDP has doubled from $2.1 trillion in 2015 to $4.3 trillion in 2025, marking a 105% growth over a decade placing India as the 5th largest economy, behind the US, China, Germany, and Japan.

• GDP per capita (PPP): Estimated at $11,940, reflecting rising living standards.
• Inflation estimated at 4.1%, with CPI-based retail inflation at 3.61% in Feb 2025, within RBI’s target range of 4–6%.

• India’s debt is significantly lower in absolute terms at $712 billion compared with US at $36.2 trillion and China at $2.52 trillion.

4.4 S&P Global Ratings in its report released last week

• has revised India’s GDP growth forecast for FY26 to 6.5%, down from an earlier estimate of 6.7%, citing external pressures like rising US tariffs and global pushback on globalisation that are likely to strain Asia-Pacific economies.

The US economic policy shift under a possible Trump administration — including broad-based tariffs and deregulation — could dampen global growth and investment sentiment, raising inflation and contributing to policy uncertainty

4.5 As per DHL Trade Atlas 2025 report which maps the shifting landscape of global trade

• India is projected to contribute 6% to global trade growth over the next five years, ranking third behind China (12%) and the US (10%),
• It is expected to retain its third spot in trade scale and rise to 17th in trade speed (from 32nd).
• Global trade to grow at faster pace over next 5 years than during preceding decade-Trump tariff may make the growth slower but cannot stop.
• US imports from other countries contain more inputs from China and US direct imports from China may be under reported- US reliance on made in China content therefore may not decline substantially.
• 3 countries ranked amongst top 30 on speed and scale of trade volume over past 5 years – UAE, Vietnam and Ireland.
• Even after decades of increases in integration of world economy via trade, only 21% of value of all goods and services produced around the world ends up in a different country from where it was produced. Thus, large potential for future trade growth.

Seen from the backdrop of impending trade war caused Trump Tariffs, the report is comforting on potential for future trade growth with India likely to scale third largest growth

4.6 As per HSBC PMI release made last week, India’s private sector activity moderated slightly in March 2025,

• HSBC Flash India Composite Output Index easing to 6 from 58.8 in February’25 and 61.8 in March 2024. This was primarily due to a slowdown in services, even as manufacturing showed stronger momentum.

• Manufacturing PMI rose to 57.6 (from 56.3 in February), marking the fastest output growth since July 2024.
• Services PMI slipped to 57.7 (from 59.0), the second slowest pace since November 2023, amid rising competitive pressures.

Despite the moderation, the survey indicated that India ended FY25 on a strong footing, with robust growth in new orders and output across sectors.

# 5 PE/VC

5.1 Key takeaways from Tracxn Geo Quarterly India Tech Report for Q1 2025 released last week

• India ranked 3rd globally in tech startup funding, behind the US and UK, and ahead of Malta and Germany.
  • Total funding raised: USD 2.5 billion – +13.64% QoQ (vs Q4 2024) and +8.7% YoY (vs Q1 2024)
• Late-stage funding grew 38.46%, while early and seed stage dropped by 23.7% and 23.8% respectively.

• While Auto tech witnessed significant increase in funding, enterprise apps and retail sector witnessed around 21% increase in funding.
• There were 38 acquisition deals growing at 40.74% (yoy)

• Zero unicorns in Q1 2025 vs two in Q1 2024.

Rising acquisition activity suggests a maturing market and there appears to be a strong investor interest in Auto Tech, Enterprise Applications, and Retail.

As per Global Data report

• India’s venture capital (VC) funding has seen a robust start in 2025, with a nearly 40% year-on-year increase in investment value during January and February, and an 11% rise in deal volume.
• This performance significantly outpaces global trends, where deal volume fell by ~9% and funding value rose by just 17%.
• India now ranks among the top five VC markets globally, contributing around 9% of total deals and over 4% of global funding value in early 2025.
  • The surge reflects rising investor confidence, an increase in average deal size, and a thriving innovation-driven startup ecosystem.

Titbits:

1. India ranks 4^th in HNI count (+$10 mn.) with 85698 HNIs while US leads the table with 9.05 lakh, followed by China (4.77 lakh) and Japan (1.22 lakh). As per the Hurun Global Rich List 2025. India ranks third globally with 284 billionaires worth ₹98 lakh crore
2. India’s household gold holdings at 25000 tonnes surpass reserves of top 10 central banks (US 8133 tonnes) Germany (3300 tonnes) while RBI holds 876 tonnes in gold reserves.