Week ending 13th April 2024

Week ending 13th April 2024

# 1 Markets

1.1 Two psychological barriers were breached on the bourses last week with India’s market capitalisation reaching ₹400 lakh crore, followed in quick succession by the benchmark Sensex cresting 75,000. It has taken less than a year to add ₹100 lakh crore to market value. Jubilation did not, however last, as India’s equity indices fell over 1% on Friday after the hotter-than-expected US March inflation data dimmed hopes of an interest rate cut in June, resulting in a spike in the US bond yields. Uncertainty associated with amendment to tax treaty with Mauritius also spooked markets, which we see in detail separately.

US CPI inflation rose 3.5% on-year in March, much higher than the Fed’s 2% target pushing the yield on the 10-year Treasury to 4.58%. U.S. stocks also slumped Friday after a mixed start to earnings reporting season. The S&P 500 was 1.5% lower and headed for its worst weekly loss since the turn of the year. The Dow Jones and Nasdaq composite was 1.6% lower.

Government bond yields jumped, the rupee weakened sharply versus the dollar, as a higher-than-expected US inflation print dented expectations of an early rate cut. Yield on the 7.18%, 2033 government bond, the most liquid security in the secondary market, rose 7 basis points to close at 7.18%.

The Euro fell to its lowest level this year as the European Central Bank looks set to cut interest rates before the Federal Reserve

1.2 What spooked markets?

Foreign portfolio investors based out of Mauritius currently claim tax exemption on capital gains on derivatives transactions. They are set to face greater scrutiny of their investments, with the two countries inking a protocol to amend their double-taxation avoidance agreement. This could also open exits of past investments to questioning, with no grandfathering provisions likely to insulate them from the amended rules. The Double Taxation Avoidance Agreement (DTAA) with Mauritius was amended in 2016 to allow India to tax capital gains arising from investments in the country.

  • New rules to dissuade companies and investors from locating capital or intellectual property in tax-advantaged jurisdictions meant to curb around $200 bn in taxes forgone by countries.
  • With Mauritius agreeing to set a higher threshold for availing treaty benefits, India is moving to foreign investment facilitation that de-emphasises tax avoidance.
  • Similar amendments with other tax havens will make India more compliant with the OECD’s anti-abuse provisions, the base erosion and profit-sharing (BEPS) framework.
  • This limitation on third-party countries will be a concern, along with the new requirement to demonstrate that tax relief is not one of the principal purposes of the investment,


  • Mauritius top source of FDI inflows between FY14 and FY18 and in FY 23 it was second largest source of FDI aggregating $ 6.1bn has already slipped to fourth spot now.
  • Mauritius owns 6% of total FPI assets in India and thus likely to come down.

Mauritius and India will have to notify a principal purpose test that would need to be satisfied before the benefits can be applied. The test raises the bar on establishing that tax benefits are not one of the main purposes driving investment from Mauritius to India.

# 2 Banking

2.1 So called on tap approval remains dry as RBI again rejected two applications for Small Finance Banks licence last week – Dvara Kshetriya Gramin Financial Services Private Limited and Tally Solutions Private Limited.

It may be interesting to note that out of 13 applications submitted by aspirants after this open tap policy, none got approval as yet.

Fit and Proper – none yet? Or does RBI feel there is unsustainable over competition!!

2.2 ICRA has revised the banking sector outlook to stable from positive as it expects credit growth and profitability metrices to moderate while the earnings would be healthy and will largely be sufficient for most banks to meet their regulatory as well as growth capital requirements.

  • Credit costs are estimated to remain steady at 0.8% of advances in FY2025, in line with FY2024.
  • Compression in the interest margins expected, leading to a mild moderation in the return on assets to 1.0-1.1 percent in FY2025 from an estimated 1.2 percent in FY’2024
  • gross NPAs and net NPAs (NNPAs) to decline to 2.1-2.3% and 0.5-0.6%, respectively, by March 2025 from 3.0% and 0.7%, respectively, estimated for March 31, 2024.

Estimates appear to be best metrics in more than a decade.

2.3 RBI’s forward-looking surveys indicate improving macroeconomic sentiments across various segments. Results of its 64th round of the quarterly order books, inventories and capacity utilisation survey (OBICUS), for Q4FY24 covering 813 manufacturing companies provide a glimpse of demand conditions in India’s manufacturing sector.

Encouraging highlights:

  • At the aggregate level, the capacity utilisation (CU) in the manufacturing sector increased to 74.7 per cent in Q3FY24 from 74.0 per cent in the previous quarter.
  • On an annual (y-o-y) basis, the value of new orders increased by nearly 10 per cent.
  • The finished goods inventory (FGI) to sales ratio increased marginally in Q3FY24 from its level in the previous quarter while the raw material inventory (RMI) to sales ratio remained stable.
  • The business assessment index (BAI) for the manufacturing sector increased marginally to 114.2 in Q4FY24 from 113.9 in the previous quarter.
  • The business expectations index (BEI) remained firmly in growth terrain at 127.2 in Q1FY25 though it moderated from its level of 130.3 in the previous survey round.

We hope that OBICUS, becomes more credible and soon replace PMI published by S&P and a reliable index for policy makers.

2.4 The National Consumer Dispute Redressal Commission (NCDRC), apex appellate body of Central Consumer Protection Authority [CCPA] has released standard operating procedures (SoPs) for hearing all cases online or hybrid mode from April 15, 2024.

  • NCDRC (10 benches) deals with cases exceeding ₹2 crore (in compensation), while 35 State consumer redressal commissions handles cases between ₹50 lakh and ₹2 crore and District consumer dispute redressal commissions (DCDRC) have jurisdiction over cases that entail up to ₹50 lakh in compensation.
  • Links would not be sent directly to advocates and aggrieved parties but be made available on the ‘cause list’ instead.

A long pending demand – hopefully consumers can get the grievances redressed faster!!

# 3 Economy

3.1 Inflation surprises!

  • The disinflationary trend in core CPI has sustained the longest time since the start of the series, printing the lowest number with each new release at 3.27% YoY (vs 3.41% in Feb’24). The headline number came in at 4.85% YoY (vs 5.09% in Feb’24). Major observations
  1. Sequentially it has remained steady, registering a 0% MoM growth.
  2. It is at a 9-month low.
  • This is the second-lowest reading since the repo rate pause.
  1. Food inflation, without doubt continues to be the largest contributor the overall CPI, at 8.52%.
  2. And the core component, such as the services, have been in a disinflationary trend.

3.2 Output shines!

The industrial output hit a four-month high of 5.7% in February, data released Friday showed.

  • Infrastructure and construction goods expanded 8.5% vs 5.5% in Jan.
  • Consumer durables moved to 12.3% vs 11.9% in Jan.
  • Consumer non-durables intensified at 3.8% vs 0.2% in Jan.
  • All three industrial sectors performed well in February, with mining expanding 8% compared with 5.9% in the previous month, electricity rising 7.5% from 5.6% and manufacturing recording 5% growth compared with 3.6% in the previous month.

It was evident growth is still not broad-based.

3.3 Energy – Renewed!

As per data released by Ministry of new and renewable energy last week, India renewables achieved the highest-ever annual new capacity addition at 18485 mw vs 15274 mw in FY23 to the grid,

  • Solar accounted for 81 per cent of the addition at 15033 mw (including ground, roof top, hybrid solar and off grid) vs 12784 mw in FY 23
  • Wind power added an annual capacity of 3253 MW in FY24 (2276 MW in FY23)

Overall, India appears well-prepared to achieve its renewable energy target of 500 GW installed capacity  by 2030.

3.4 Rating – Stable!

Closely following revised GDP projection to 8%, Moody’s maintains India’s Baa3 rating (lowest rating of investment grade Moody’s Long term corporate Obligation rating) but warns of risks from political tensions and weak debt affordability.

  • Fiscal metrics may improve with robust growth, but challenges like inflation and high interest rates persist, impacting spending control and debt reduction efforts.
  • Moody’s on the positive end noted that India’s economy has high growth potential, a relatively sound external position and low per capita income.

3.4 Development – not Diversified!

As per data released by Ministry of Statistics and Programme implementation last week, it is interesting to see that combined GDP of 13 districts match the total GDP of balance 692 districts in India.

  • Mumbai tops the list followed by Delhi, Kolkata, Bengaluru, Ahmedabad, Chennai and Jaipur.
  • Other than the above State Capitals, surprisingly in Maharashtra,5 districts figure in the list of 13 – Pune, Surat, Thane, Nagpur and Nashik

Maharashtra continues to rule the roost.

3.5 Growth forecasts – unabated!

ADB revised India’s GDP growth forecast for India for the fiscal year 2025 to 7%, up from 6.7% and growth of 7.2% for FY 26. Factors contributing to this growth are:

  • increased infrastructure spending, private investment, strong services sector performance, and improved consumer confidence.
  • improved exports, manufacturing, and agricultural output.

Despite global challenges, India’s strong domestic demand and supportive policies position it as the fastest-growing major economy. However, there are risks such as potential disruptions in crude oil supply lines and weather-related impacts on agriculture.

# 4 Startups – losing sheen?

The number of startups in India with a valuation of over $1 billion has dropped for the first time in four years, according to Hurun Global Unicorn Index 2024a report released on Tuesday. The total no of Unicorns is reported at 340.

  • Unicorns are now 67, down by one from the 68 reported last year as Byju’s valued at over $ 22 bn has been dropped off the list. This drop marks largest decline globally.
  • Swiggy, and Dream11 are India’s most valuable unicorns, each valued at $8 billion, followed by Razorpay at $7.5 billion, according to the report.
  • United States leads the global list with 703 unicorns, followed by China with 340 unicorns. The United Kingdom and the European Union rank fourth and fifth, respectively.
  • India has seen fewer new entrants compared to the US and China, with 60 AI-focused startups from the US and 37 from China joining the unicorn club this year.
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