Week ending 18th Jan 2025

Week ending 18th Jan 2025

# 1 Markets

1.1 Indian equity markets halted their 3-day positive momentum, with IT stocks and banking heavyweights pulling the Sensex down by 423 points to close at 76,619, while the Nifty settled at 23,203. The market downturn highlights concern over valuations, as macroeconomic factors continue to weigh heavily on investor sentiment. Market experts remain cautious about the near-term outlook, emphasizing that global economic developments and earnings reports from key index heavyweights will likely shape trends in the coming weeks. 

1.2 Over the past few months, inflation has steadily declined, peaking at 6.2% in October 2024 before easing to 5.5% in November. December’s inflation rate of 5.22%, marking a four-month low, was primarily driven by a drop in food prices. RBI’s announcement of daily Variable Rate Reverse Repo (VRR) auctions helped cool the bond markets, with yields softening. The benchmark 10-year government bond yield closed at 6.77% on Friday.

Across the globe, US stocks and bonds rallied following data published on Wednesday that indicated underlying price pressures were easing more than expected. This prompted renewed optimism among investors, who are now betting on swifter interest rate cuts by the Federal Reserve this year.

The US 10-year bond yield dropped to 4.62%, reflecting positive sentiment. Notably, despite the Federal Reserve cutting interest rates by 1% since September 2024, the 10-year yield has risen by over 1.15%, likely driven by a rebound in the term premium, which has shifted from negative territory to nearly 50 basis points. US equity markets also responded positively, with all three major indices posting gains of approximately 2% for the day.

# 2 RBI

2.1 RBI last week has eased regulations to promote the internationalization of the Indian rupee.

• Non-residents can now open rupee accounts with overseas branches of Indian-authorized dealer (AD) banks to conduct cross-border transactions, including both current and capital account transactions. Previously, non-residents could open rupee accounts only in India for a limited range of permissible transactions.
  • For example, a non-resident Indian (NRI) in the US can open a rupee account with the New York branch of an AD bank like SBI or Bank of Baroda and invest in rupee-denominated assets.
• Under the new guidelines, non-residents can also settle transactions with other non-residents using their rupee account balances. 
• Additionally, Indian exporters can open foreign currency accounts abroad for trade settlements.

This move aligns with recommendations from an RBI committee established in 2022 to internationalize the rupee. The changes aim to expand the use of INR in international trade and settlements, gradually reducing reliance on the US dollar. This is a welcome move and as a significant step towards making the rupee a global currency.

# 3 SEBI

3.1 SEBI on Friday advised MFs to disclose information ratio (IR), on a daily basis.

• IR is an established financial ratio to measure Risk Adjusted Return of any scheme / portfolio 
• IR is often used as a measure of portfolio manager’s level of skill and ability to generate excess returns relative to benchmark. It also helps to identify the consistency of the performance by incorporating standard deviation [SD] / risk factor into calculation. 
• IR is calculated using formula – Portfolio Rate of Returns less benchmark rate divided by SD of excess returns.

Given the importance of performance volatility in assessing the suitability of mutual fund schemes, the Information Ratio (IR) can assist investors in making informed allocation decisions. By evaluating both the consistency and volatility of returns, IR provides a valuable metric for comparing mutual fund schemes.

3.2 SEBI is proposing mandatory dematerialization of shares for corporate actions like splits and restructurings to reduce fraud, enhance efficiency, and lower costs. 

The initiative aims to phase out physical certificates completely and improve market transparency

# 4 Economy

4.1 As per latest Global Economic Prospects [GEP] report released by World Bank last week

• India is expected to remain the fastest growing economy among the major economies at a pace of 6.7% in both FY26 and FY27
• While the projection for FY26 is unchanged from June 2024, growth for FY27 has been revised downwards by 0.1 percentage point. 
• The world economy to projected to expand by 2.7% in both CY2025 and CY2026, on the back of a gradual decline in inflation and interest rates. 
• India’s services sector is projected to maintain its growth, while manufacturing activity is expected to strengthen, aided by government initiatives to improve logistics infrastructure and business conditions through tax reform.
• Private consumption growth (key component of India’s GDP) is likely to rise due to a stronger labour market, expanding credit, and declining inflation. 

4.2 The International Monetary Fund (IMF) on Friday in its latest World Economic Outlook,

• Revised downwards growth for current fiscal at 6.5% from 7% earlier.
• Projected a “solid” 6.8% and 6.5% growth for India in CY26 and CY27.
• Projected global growth of 3.3% both in 2025 and 2026 much below the historical average of 3.7% between 2000 and 2019.

IMF has noted that India is set to record highest growth among both advanced economies and emerging markets as well as developing ones. 

4.3 McKinsey Global Institute in its report “Dependency and Depopulation” released last Wednesday advised that

• India needs to increase the relatively low participation of its citizens in labour markets and sustain fast productivity growth as the country has just 33 years until it is as “old” as advanced economies.
• India still has some time to benefit from its demographic dividend for economic growth but is ageing faster than many realise.
• By 2050, there will be just 4.6 workers per senior under current projections and 1.9 by 2100—about the same as Japan today—compared to 10 working-age people (15-64 years old) for each senior aged 65 or older now, or 14 in 1997.

Confronting the consequences of a new demographic reality would be difficult.  First consequence of India’s demographic shift will be slower economic growth and second would be pressure on public finances and families to support older people. 

While India’s beneficial demographics added 7 bps / year to GDP/per capita growth from 1997 to 2023 lower population would decelerate the growth further and may stifle our efforts to become developed economy by 2047.

4.4 India’s goods and services exports for the October-December quarter stood at $208 billion, as per data released by Commerce Ministry last week

• The trade deficit widened to $21.94 billion in December, compared to $18.76 billion a year ago.
• Merchandise exports contracted for the second consecutive month, dipping 0.99% year-on-year to $38.01 billion in December, compared to 17.25% growth in November.
• Cumulatively for the period April-Dec., Exports increased by 1.6% to $321.71 billion, while imports rose 5.15% to $532.48 billion.
• December imports rose 5% year-on-year to $59.95 billion, with electronics goods exports at a 24-month high of $3.5 billion.

• Gold imports in December amounted to $4.7 billion, recording 55.39% growth year-on-year. Silver imports surged, registering a 210% growth.

• Petroleum products and gems and jewellery exports declined by 28.62% and 26.51%, respectively while Readymade garment exports grew 12.8% to $1.46 billion.

Though India imported goods worth more than it exported, it is comforting to note that the gap has actually narrowed.  While export growth reflects improved manufacturing competitiveness and government initiatives China continues to remain India’s largest import source. 

4.5 Directorate General of Foreign Trade [DGFT] last Monday updated the export policy for all products, 

• Detailed conditions  have now been specified for each item.  Earlier specific policy conditions were only outlined for goods which were subject to certain restrictions or fell under some norms. 
• The updated schedule contains the current export policy of all Indian Trade Classification [Harmonised System- ITC (HS) codes, along with specific policy conditions (if any) to be fulfilled. ITC (HS) helps in the systematic classification of goods across the globe.

 

As the changes would help in knowing policy condition for all products, this would enhance the ease of doing business in the country.

# 5 PE/VC

5.1 Summary of Tracxn’s Annual India Fintech Report 2024

1. India ranked 3rd globally in fintech funding (after the US and UK) with $1.9 billion raised in 2024. Total funding declined 33% YoY from $2.8 billion in 2023 and 66% from $5.6 billion in 2022.
2. Digital Lending dominated funding, accounting for 64% of the total raised while Payments Segment witnessed a sharper decline, attracting $194 million (-77% YoY).
3. Late-Stage was the most impacted, with $1.1 billion (-42% YoY) compared to $1.9 billion in 2023 and $3.1 billion in 2022.

5.2 Key Findings from Fintech Personal Loans Report (April 2018 – September 2024) released last week. This report analyses the trends in fintech personal loans by examining data from 71 Fintech Non-Banking Financial Companies (NBFCs) over the period from April 2018 to September 2024. 

• Fintech NBFCs, which primarily offer digital personal loans through their own apps, account for 12% of the personal loan market by sanction value but represent a significant 76% of sanction volume. This indicates a strong focus on smaller, underserved segments of the market.

• Since FY 2018-19, fintech loans have seen a nearly threefold increase in sanction value and more than double in sanction volume. 
• In H1 FY 2024-25 Over two-thirds of sanctioned value went to borrowers under 35 years old; 85% of borrowers are male, with a notable portion coming from Tier III cities and beyond.
• The average ticket size is approximately Rs 9,225, with a significant portion of loans being smaller amounts suitable for young borrowers. But of late Fintech loans are increasingly being issued in larger ticket sizes, with over half of the sanctioned value coming from loans greater than Rs 50,000. Due to revised RBI guidelines, there is a slight decrease in portfolio outstanding value as of September 2024 compared to June 2024.

The report concludes that fintech lending has transformed access to formal credit for many underserved segments. As fintech NBFCs continue to innovate and adapt their offerings, they hold significant potential for responsible and sustainable growth in the future. 

  You may like to read full report >>  Link to the report

# 6 Titbits:

6.1 Hindenburg shutdown? 

1. Its operations were consistently shrouded in secrecy, frequently publishing negative reports while taking short positions—often through hedge funds that did not disclose their holdings transparently.
2. The focus was never on truth-seeking but rather on a clear strategy: issuing damning reports on companies while pre-emptively shorting their stocks to capitalize on the ensuing market reaction.
3. Historical evidence suggests that short sellers rarely generate significant long-term returns, as their strategies often rely on short-term volatility rather than sustainable gains.
4. According to news reports, regulatory actions may have been initiated, and as part of a potential compromise settlement, the decision to cease operations could have been reached.

Love them or hate them, short sellers are impossible to ignore. The key takeaway for India—its regulators, government agencies, and institutional stakeholders—is the urgent need to develop robust, timely responses to mitigate the damage caused by entities operating with questionable motives. Such preparation is essential to safeguard millions of investors and maintain trust in the financial markets.

6.2 Crypto gets real boost!

Incoming U.S. president Donald Trump launched a $TRUMP meme coin 48 hours ahead of his inauguration. The coin is up over 14000% in 26 hours with the market cap reaching almost $70 billion. The $TRUMP token is capped at a total supply of 1 billion coins, with an initial release of 200 million. The remainder will be distributed over the next three years. Despite the token’s widespread attention, the ownership of $TRUMP remains highly concentrated. Approximately 80% of the coins are held by CIC Digital LLC, a subsidiary of the Trump Organisation, and Fight Fight Fight LLC, a newly established company based in Delaware.

What a time to be alive!!