Markets
After the relentless buying in December, foreign portfolio investors took to selling in January, even though. benchmark Nifty 50 clocked weekly gains of around 1% and also scaled a lifetime high of 21928 on Friday. The gains in the index were primarily driven by information technology stocks following their December quarter earnings, heavyweight Reliance Industries, and a few banking stocks. US stocks edged higher as investors digested a fall in core inflation in December.
The Mutual Fund industry’s total assets under management (AUM) crossed ₹50 lakh crore for the first time as per AMFI data released last week. The ratio of MF AUM to India’s GDP at market prices reached 17% implying an expansion of 380 bps over past 5 years. This compares with global average of 74% while the ratio for Singapore (180%), US (149%) and UK (75%) is between 75-180%. Still a long way to go.
Indian bond yields, the benchmarks for pricing corporate debt, have eased last week as a proposal by Bloomberg Index managers to include Indian securities in their emerging markets index and declining crude oil prices have improved the view on sovereign debt. Using data as of November 30, 2023, the index would include 32 Indian securities and represent 6.99% of a $5.96 trillion index.
As per Bloomberg report released last week global bond rally, (US 10Y has softened from 4.9% in Oct to 3.9%) is not sustainable, as Govt in US, UK, Eurozone and Japan will soon issue $ 2.1 trn. in new bonds to finance 2024 spending plans.
SEBI
1.Sebi introduces voluntary account freeze for investors starting July 1:
- Investors in India will be able to voluntarily freeze or block their trading accounts from July 1, 2024, to mitigate risks if investors detect suspicious activity.
- Similar to blocking ATM/credit cards, the facility addresses a current gap in trading systems.
- Stockbrokers will define the framework for requesting and processing freezes by April 4.
- Details like request methods, acknowledgements, and processing times will be specified.
Considered a good move as this facility would be similar to such facility already available for regular investments.
2.SEBI vide its circular released on Friday tightened investor onboarding rules for AIFs to comply with global AML/CFT measures:
- Amends framework due to revised Prevention of Money-Laundering rules.
- AIFs can’t accept funds from investors on UN sanctions list or from high-risk jurisdictions.
- Existing investors violating new conditions can’t contribute further capital.
3.SEBI formed expert committee, on Thursday recommended easing compliance for listed companies:
- Certain non-individual investors can contribute to minimum public shareholding without being labelled promoters.
- Easier refiling of IPO documents and more flexibility in filling key managerial positions.
As per present guidelines, promoters of a company need to hold at least 20% of shareholding in the company post listing. However, Startups raise several rounds of funding prior to listing and hence founders own less than 20%. Allowing certain non-individual shareholders who hold (post offer 5%) to contribute towards this limit. This will benefit especially PE/VC firms without being identified as promoter and thus will be highly favourable for Startups for listing in exchanges.
4.SEBI has implemented its November 2023 Board decisions, extending the mandatory appointment of custodians to all Alternate Investment Funds (AIFs), effective from Jan 5,2024, regardless of their corpus size.
- Earlier this was meant only for Cat III and other AIFs with corpus of Rs. 500 cr and above.
- Additionally, AIFs are now required to hold securities in dematerialized form, with some exceptions for instruments not eligible for dematerialization and liquidation schemes of AIFs.
- To appoint a custodian associated with a Manager or Sponsor of an AIF, certain conditions must be met, including a minimum net worth of ₹20,000 crore for the Sponsor or Manager, independent representation on the Custodian’s board, and an undertaking of independent dealings between Custodians and AIF Managers.
5.IFSCA is considering allowing mutual funds to invest in companies traded in Gujarat’s Gift City exchanges beyond the normal investment limits that apply to overseas investments.
- Currently, mutual fund investments in Gift City are considered overseas investments, subject to specific limits.
- IFSCA’s expert committee now has recommended a special carve-out for mutual funds in Gift City to create a separate investment limit, which would not be counted as overseas investment.
This move aligns with the government’s efforts to open up the special economic zone for direct listing of Indian firms.
Economy – Last week Snippets
Macros
- Retail inflation based on the Consumer Price Index (CPI) rose to 5.69% in December from 5.55 % in the previous month, as food inflation sped to 9.5%, according to data released Friday.
- Another set of data released showed the industrial output expanding at its weakest pace since March 2023. The Index of Industrial Production (IIP) rose 2.4% in November compared with 11.6% in October, pulled down by an unfavourable base and a decline in manufacturing activity during the festive month. This certainly is a cause of concern.
- Corporate bond public issuances hit a four-year high this fiscal year at ₹ 13,742 cr. due to growing retail investor interest and increased bank borrowing costs. Retail investors are drawn to public bonds for transparency, Sebi oversight, and collateral backing.
UBS
As per its report released last week,
- the Indian economy is projected to grow and stabilise at 6.2% in the next fiscal year, driven by neutral policy settings, positive credit momentum, manageable macroeconomic conditions, supported by consumption growth and pick up in capital expenditure.
- India aims to maintain medium-term growth of 6.5% annually from FY26 to FY30, driven by digitalization, increased services exports, and manufacturing growth.
However, there is concern about record high household debt levels, and bank credit growth is expected to remain strong.
World Bank
Brief from Global Economic Prospects Report released on Tuesday, by World Bank
- India’s economy will grow by 6.4% in 2024 and 6.5% in 2025, making it the fastest-growing major economy, compared to 1.6% in USA, 4.5% in China, and advanced economies at 1.2% and emerging economies at 3.9%.
- Investment will remain strong, supported by public spending and improved corporate finances.
- Despite some concerns about private consumption due to inflation, India’s growth outlook remains positive.
- Hobbled by high interest rates, persistent inflation, slumping trade and a diminished China, the global economy will slow for a third consecutive year in 2024.
SBI
SBI Research released last week, aims to challenge the idea of post pandemic ‘K-shaped recovery’ (where some parts of the economy may experience strong growth while others continue to decline) n India’s economy based on data from CBDT (IT returns) evidencing reduced income inequality among Indians. The study argues that using outdated indicators like low two-wheeler sales or fragmented land holdings paints an inaccurate negative picture of India’s economic performance.
Key findings from the study include:
- A rise in individual’s weighted mean income from ₹3.1 lakhs to ₹11.6 lakhs during FY14-FY21. 36.3% of taxpayers moved from lower income brackets to higher ones during this period. Decreasing income inequality, with the Gini coefficient of taxable income dropping from 0.472 to 0.402 from FY14 to FY22
- Significant growth in income patterns among MSMEs.
- Around 19.5 per cent of majorly micro-sized firms have been able to shift their income upwards.
- Out of these, 4.8 per cent of firms have transitioned themselves into small firms, around 6.1 per cent of firms transitioned into medium-sized firms, and around 9.3 per cent of firms have transitioned into large-sized firms.
- A notable increase in female labour force participation from 23.3% in 2017-18 to 37% in 2022-23.
But while the report challenges K Shaped recovery, it does not provide conclusive evidence:
- The report defines the lowest tax brackets as the ‘bottom of the pyramid,’ but this may not accurately represent the poorest individuals in the country, as many people do not file income tax returns.
- Furthermore, the report relies on the Gini coefficient as a measure of inequality, which may not capture the full extent of wealth disparity.
- There are also conflicting trends in savings, consumption, and public policies that make it difficult to definitively reject the idea of a K-shaped recovery.