Week ending 1st Feb 2025

# 1 Market

India marked a significant milestone in its space journey last week with the 100th launch of the GSLV rocket, underscoring the nation’s growing capabilities and ambitions in the sector.

Market sentiment remained optimistic ahead of the Union Budget, bolstered by the Economic Survey’s GDP growth projection of 6.3–6.8% for FY26. However, during the special Budget trading session on Saturday, market reaction was subdued, with the Nifty closing marginally lower and the Sensex ending flat at 23,482 and 77,505, respectively. Now, with the Budget behind, investors will turn their focus to global cues, the RBI’s policy decision, and corporate earnings to gauge near-term market direction.

Bond markets responded favourably to the RBI’s liquidity measures, paving the way for a potential rate cut. The 10-year yield dropped to 6.69% on Friday, aided by higher foreign inflows of ₹5,229 crore into Fully Accessible Route (FAR) securities in January.

Globally, the 10-year U.S. Treasury yield fell to 4.5%, a six-week low, as the Core Personal Consumption Expenditures (PCE) index met expectations, reinforcing hopes for Fed rate cuts. Additionally, weaker Q4 GDP data and trade tariff uncertainties contributed to the decline. In Europe, the ECB delivered its fifth rate cut since June after successfully bringing inflation down to 2%, while the Fed, as expected, held its benchmark interest rate steady after three consecutive cuts last year.

Despite strong economic data releases, all three major indices posted modest weekly gains of ~1% after giving up a portion of their gains on Friday. Despite Nasdaq falling 3% following DeepSeek tsunami, Nvidia and chip stocks rebounded due to Jevons Paradox!

# 2 RBI

2.1 As per Sectoral deployment data published by RBI last week,

  • Banks’ non-food credit growth moderated to 12.4 % in Dec 2024, vs. 15.8 % in Dec. 2023 due to deceleration in credit growth in all four sectors: agriculture and allied activities, services, personal loans and industry.
    • Credit to agriculture and allied activities registered a growth of 12.5 % vs.19.4 % last year. 
    • Credit growth in the services sector moderated to 13.0 % vs 20.0 % primarily due to decelerated growth in credit to NBFCs and trade segments. 
    • Credit growth in the personal loans segment moderated to 14.9 % vs 17.6 % a year ago, largely due to decline in growth in ‘other personal loans’, ‘vehicle loans’ and ‘credit card outstanding’. 
    • Credit to industry recorded a marginal decline in growth to 7.4 % vs.7.5 % last year

Reduction in credit growth broadly aligns with the recent directives of RBI aimed at curbing retail loan growth.

2.2 Govt last Wednesday approved the Mutual Credit Guarantee Scheme for micro, small and medium enterprises (MCGS-MSMEs), operated by National Credit Guarantee Trust Co. [NCGTC]. 

  • Collateral free loans up to ₹ 100 cr. is guaranteed under this Guarantee Scheme 
  • 60% guarantee coverage on credit facilities up to ₹. 100 cr. 
  • Loans up to ₹. 50 cr. shall have repayment period of up to 8 years with 2-year moratorium on principal instalments and higher repayment schedule for loans above ₹. 50 cr. 

Scheme is expected to facilitate the availability of credit for the purchase of plant and equipment and machinery by MSMEs and expand installed capacity of manufacturing units. 

2.3 As per S&P Global Market Intelligence report released last week

  • Indian banks are experiencing margin pressure due to slowing loan growth amid high interest rates.
  • Loan growth for six major banks—both private and state-owned—is expected to decline to 12.3% in FY25, a sharp drop from 22.5% in the previous fiscal year.
  • Net interest margins (NIMs) are likely to decline as deposit rates rise and monetary easing approaches. 

2.4 Key Takeaways from Payments Report (H124) published by RBI last week

  • The total payment system witnessed robust growth, with transaction volume increasing significantly from 3,248 cr. in CY-2019 to 20,849 cr. in CY-2024, reflecting a CAGR of 45.0%.
  • The total value of payments rose from ₹ 1,775 lakh cr. in CY-2019 to ₹ 2,830 lakh cr. in CY-2024, representing a CAGR of 9.8%.
  • India holds the position of the top recipient of remittances globally, receiving $125 billion in 2023, with a notable analysis on cost efficiencies across different remittance corridors.
  • UPI, accounting for 83% of the digital payment volume by the end of 2024 vs. 34% at the end of 2019 while share of others like RTGS, NEFT dropped from 66% to just 17% over the same period. 

The report emphasizes the significant shift towards digital payments, adaptation to changes in consumer behaviour with rising forms of digital transactions and showcasing the changing landscape of financial transactions in India.

# 3 SEBI

3.1 SEBI is planning a couple of initiatives to broaden financial inclusion

  • Planning to come out with a new combo product under which mutual funds can pair investments with Term life insurance, Currently, many financial products already bundle endowment insurance and investment options together.
  • It is also focusing on leveraging technology to enhance trust in the financial ecosystem. The proposed “pay right” initiative will enable investors to verify the authenticity of the UPI ID they are transferring money to, through robust KYC due diligence. This is designed to combat the growing threat of digital fraud. 

With these initiatives, SEBI aims to enhance the financial inclusion of Indian investors while tackling issues related to trust and security in the rapidly evolving digital landscape.

3.2 SEBI last Thursday came out with guidelines for Market Infra Institutions [MII] like Stock Exchanges, clearing corporations, and depositories.

  • MIIs are now required to appoint an independent external agency with SEBI approval to evaluate their performance and the functioning of their statutory committee once in 3 years.
  • The agency needs to have experience in the securities market and be free from conflicts of interest.
  • The evaluation will cover areas like roles and responsibilities of committees, the effectiveness of meetings, and governance aspects.

The guidelines aim to improve transparency and accountability in the functioning of MIIs and their statutory committees through an independent evaluation by external agency

3.3 SEBI in its circular last week has clarified that financial influencer cannot use livestock market data for educational purpose. Instead, educators can use stock price data with a three-month lag. Last year, SEBI came out with rules which mandated that any person providing advice directly or indirectly on securities must first register with it. 

The present move is aimed at regulating financial influencers who offer real-time trading advice disguised as education.

# 4 Insurance

4.1 Insurance Regulatory Authority of India [IRDAI] last week 

  • capped annual health insurance premium hikes for senior citizens at 10%, 
  • directed that insurers cannot raise premiums without prior approval 
  • prior approval would also be required in case of withdrawal of individual health insurance products offered to senior citizens.

The most vulnerable age group is the senior citizens having limited sources of income and this group is impacted the most when there is a steep increase in health insurance premium. This directive therefore is aimed to protect policyholders aged 60 and above, addressing concerns about escalating healthcare costs for seniors.

4.2 Key Insights from the Investec Bank Report on India’s Insurance Sector

  • Penetration remains low at 1% of GDP, compared to the global average of 4%, indicating a significant growth runway.
  • Public sector insurers (PSUs) are struggling, with three out of four PSU insurers below the required solvency margin of 150%.
  • Private players continue to gain market share, increasing from 50% in FY19 to 54% in FY24, while PSU market share declined from 41% to 31%.
  • Digital-first insurers like Acko and Go Digit have not yet reached scale, and most unlisted insurers are facing financial constraints. The industry’s profitability remains weak, with RoE below 10% for most players.
  • IFRS adoption from April 2026 will lead to deferred acquisition costs, discounted reserves, and mark-to-market (MTM) investments, resulting in an estimated 20% increase in reported PAT for most players.
  • Motor Third-Party (TP) remains under government pricing regulation, leading to uncertain profitability.
  • Standalone Health Insurers (SAHIs) have been the fastest-growing segment, with a 24% CAGR over the last five years.
  • The health insurance sector is growing at a 19% CAGR, with group health insurance (22% CAGR) growing faster than retail health (18% CAGR).

# 5 Economy

5.1 What we liked most from Economic Survey 2024-2025

  • Our CEA compares India to Europe—and not just any Europe—a crisis-ridden Europe where productivity is flatlining, innovation is lagging, and industries are struggling to compete
  • Urging both Govts to “get out of the way” and deregulate the economy or face a “high risk of economic growth stagnation, if not economic stagnation”. 
  • Real GDP growth estimated at 6.4 % for FY25, down from 8.2 % in FY24. Forecasting growth of 6.3 to 6.8 5 in FY26.
  • All sectors are performing well. 
  • India’s digital economy is expected to surpass $1 trillion by 2025
  • India would have to create an average of 78.5 lakh jobs annually in the non-farm sector by 2030 to cater to the rising workforce – primary challenge.
  • Report warns that excessive financialisaton—driven by rising asset prices rather than productivity—could pose risks to long-term growth. 
  • Corporates need to pay more – While revenue and profit of listed companies grew by 6% and 22% respectively, employment expenses have slowed to 13% from 17%. 

5.2 As per Govt data released on Friday,

  • India’s core sector output moderated to 4% in Dec 2024, as against 5.1% growth year ago and 4.4% in Nov 2024. The core sector includes eight industries, coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity.
  • The production growth of coal, refinery products, fertiliser, and steel moderated to 5.3%, 2.8%, 1.7%, and 5.1%, respectively, against 10.8%, 4.1%, 5.9% and 8.3% in Dec. 2023.
  • For April-Dec 2024 period, the growth was 4.2% vs 8.3% last year.

The eight core sectors contribute 40.27% to the Index of Industrial Production (IIP), which measures overall industrial growth. Slower growth is therefore a cause for concern and may have impact on overall GDP nos.

5.3 The MoSPI – Household Consumption Expenditure Survey (2023-24) reveals a decline in spending inequality between rural and urban areas and among social groups.

  • Rural-urban spending gap narrowed to 69.7% in 2023-24 (from 71.2% in 2022-23, and 83.9% in 2011-12).
  • Average monthly per capita expenditure (MPCE) increased: Rural: ₹4,122 (+9.2%) and Urban: ₹6,996 (+8.3%)
  • Non-food items remain dominant, but food’s share in spending increased slightly in both rural (47%) and urban (39.7%) areas.
  • Higher spending growth seen among SCs, STs, OBCs, and casual labourers/self-employed in both rural and urban areas.

Redeeming feature is overall, spending inequality has reduced, with rural and lower-income groups benefiting the most.

5.4 MoSPI released report on Wednesday on Annual Survey of Unincorporated Sector Enterprises (ASUSE).  Unincorporated enterprises are non-agricultural establishments that are not registered under the Companies Act

  • The number of establishments increased by 12.7%, rising to 73.4 million in 2023-24 from 65.1 million in 2022-23.
  • Rural areas had more establishments, with 39.7 million compared to 33.7 million in urban areas. 
  • The gross value added (GVA) by unincorporated enterprises rose by 16.5% to ₹18 lakh crore in 2023-24 from ₹15.4 lakh crore in the year before. Maharashtra, Uttar Pradesh and Gujarat contributed about one-third of the total GVA in 2023-24.
  • Small enterprises recorded a 10% growth in employment to 120.6 million in 2023-24 from 109.6 million in the previous year.
  • Although the number of unincorporated manufacturing establishments has risen from 17.2 million to 20.14 million, the workforce has fallen from 34.9 million in 2010-11 to 33.7 million in 2023-24. 

This decline in employment is possibly attributed to challenges like demonetisation, the introduction of GST, and pandemic-related lockdowns.

#6.0 A peek into Deepseek [DS] which made a Splash! 

  1. DS is a China-based startup, similar to OpenAI’s ChatGPT disrupted AI with its ‘O1’ model, cracking reasoning where others failed. 
  2. The emergence of DS caused a significant drop in tech stocks, including a 17% plunge in Nvidia’s share price. The Nasdaq index fell by 3.5% and later recovered.
  3. DS claims to operate at a lower cost repurposing weaker H800 chips using assembly language and reportedly developed for $5.6 million, significantly less than the costs incurred by U.S. companies. Key differentiators 
    1. Uses mixture of Experts: Activates only necessary model parts, reducing load.
      1. Illustratively a person with tooth ache referred to Dentist by a Hospital Receptionist instead of sending him to multiple specialists. 
      2. Memory Compression: Achieves reasoning with just 5% of typical memory.
      3. Data Optimization: Halves data size, doubling GPU efficiency.
  4. DS is open source, allowing other companies to adapt and build upon its code. This contrasts with closed-source models like ChatGPT and Alphabet’s Gemini.
  5. Bernstein in its report has clarified that that while DS models are cost-effective, the real cost is much higher when considering prior research, data preparation, and computational infrastructure. The report dismisses the “doomsday” fears surrounding DS impact on the AI hardware market. 

# 7 Union Budget 2025 – Key comments using investment lens

General:

  • Estimated tax relief of ₹1 trillion (0.3% of GDP) through rebates to income up to Rs. 12 lakhs likely to boost consumption, savings and investment.

According to estimates by PRICE – households earning between ₹6 lakh and ₹36 lakh annually at 2024-25 prices comprises over 560 million people across 126 million households – a driving force behind consumption, investment, and innovation in the economy. 

  • Borrowing costs likely to come down with stagnant market borrowings and targeted fiscal deficit 4.4% in FY26. But this looks highly optimistic – assuming 14% increase in IT collections on the back of revenue foregone through IT rebates and maintaining higher capex of Rs. 11 lakh cr. 
    • Setting up of a Partial Credit Enhancement Facility for corporate bonds for infrastructure would enable deepening of corporate bond market and enhance greater retail participation 
    • Revamping Central KYC Registry addresses a long-pending demand, to streamline the KYC processes across financial entities and intermediaries. This will significantly reduce time and administrative burden, enhancing ease of doing business.
  • Proposed high level committee for regulatory reforms to review India’s rules, certifications, licences, and permissions governing business as well as the creation of an investment friendliness index of states may help promote competitive federalism. A light touch regulatory framework based on principles and trust will unleash productivity and employment

MSMEs

  • Investment and turnover limits for MSMEs enhanced by 2.5x and 2x, respectively along with enhanced credit guarantee cover up to ₹ 10 cr. would help enhance credit penetration and technological upgradation. 
  • Customised credit cards up to ₹. 5 lakhs are an operationally easier model to access credit for micro enterprises.
  • ₹2 crore term loan scheme for 5 lakh first-time entrepreneurs (including women and SC/ST) will provide additional support to underrepresented entrepreneurs, strengthening grassroots-level enterprise development.

Start-ups and Growth Enterprises

  • Recognizing the ₹90,000 crore capital pool catalysed by the Fund of funds [FFS] initiative since 2016, the proposal to top up additional ₹10,000 crore allocation with expanded scope would significantly boost domestic capital availability for growth-stage startups through multiplier effect. 
  • A dedicated fund to catalyse next-generation startups, complementing the ₹20,000 crore R&D Innovation Initiative announced last year comes at a critical time when India’s Deep Tech ecosystem is poised for exponential growth. This is rightly complimented by ₹500 crore allocated for Centre of Excellence in Artificial Intelligence (AI) for Education and setting up of 50,000 Atal Tinkering Labs (ATLs) in government schools over five years.
  • The legal amendment to the definition of “capital asset” ensures Category I and II AIFs benefit from clear tax treatment on income arising from the transfer of securities resolving long standing issue and codifying CBDT’s 2016 instruction. This would help enlarge outreach of PE/VCs for the growth of startup eco system with certainty in tax treatment.
  • Extending the period of incorporation for startups to avail tax benefits by 5 years up to April 1, 2030, would help continue the momentum created by Startup India movement.
  • Credit Guarantee for Startups operating in focus sectors doubled to ₹. 20 cr. But the caveat is, to qualify, startups must show a steady revenue stream for the previous year. Tech and deep tech startups may not stand to benefit as banks do not lend to startups with no cash flow or those at an early stage of their product journey.

Insurance 

  • Raising of FDI cap in the Insurance Sector (74% → 100%) will unlock greater capital inflow and help realise Govt’s vision of “insurance for all” by 2047
    • Despite the increase in FDI cap, this would continue to be within the Individual Company Board specific cap (49% in HDFC Life). why would say, SBI Life Insurance Co. Ltd be happy to let their shareholding drop below 26%? Foreign investors may prefer minority stakes due to local distribution advantages. 
    • Though penetration is required, presently competition is high, with 24 life insurance companies and 34 general insurance companies. Not only existing limit of 49% underutilized, but their shareholding has also been gradually falling—from 31.4% in December 2023 to 25.3% in December 2024. Though economic survey has highlighted that insurance sector received the highest FDI (62%in the services sector) during H1FY25 we need to see how this is utilised.

Agri and Housing:

  • PM Dhan-Dhaanya Krishi Yojana to support 100 low-productivity agricultural districts complimented by increase in Kisan Credit Card limit to ₹. 5 lakhs likely to benefit 1.7 cr. farmers. This is likely to improve rural income and provide greater penetration opportunities for enhanced rural lending. 
  • Riding on the success of the Special Window for Affordable and Mid-Income Housing (SWAMIH) Fund, the proposed second tranche of ₹. 15000 cr. under a blended finance facility is likely to facilitate the completion of another 1 lakh dwelling units.
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