# 1 Markets
Though India Vix continues in a narrow range of 12-14, indicating lower volatility, markets did witness a spike and fall of 500 bps last week on the play of opposing forces between political stability backed by strong economic growth and rich valuations. On Friday, Sensex rose 190 points to close at 72831 while the Nifty touched back at 22000, buoyed by US market moves.
The US Fed keeps policy rates unchanged in the range of 5.25% to 5.5% for its fifth straight meeting and expects three rate cuts this year. The Fed Chair comments that despite recent inflation data coming in hotter than expected, the numbers have not really changed the overall story, boosting sentiments. All three indices, Dow Jones, S&P, and Nasdaq, went up by 400–500 points, and Indian markets followed the cue on Friday.
Indian government bond yields rose, with the 10-year yield ending at 7.0871%, the highest closing level since February 16, following its previous close of 7.0644%. US bond yields continued to rise, fuelled by indications of a robust economy and elevated inflationary pressures, with the yield hovering around the critical level of 4.30% while managing to close the week at 4.2.
In the East, the Bank of Japan (BOJ) ended eight years of negative interest rates and other remnants of its unorthodox policy on Tuesday, announcing the first rate hike in 17 years. It keeps rates stuck around zero as a fragile economic recovery force goes slow on increased borrowing costs.
The UK’s central bank voted for a fifth-straight meeting to keep policy unchanged at a 16-year high of 5.25%, hinting that edging towards policy easing is nearer.
# 2 Banking
2.1 Bank loans to exporters in late January reached their highest level in the past 12 months, in line with renewed global demand for Indian goods despite the Red Sea crisis that has affected trade since late autumn due to piracy raids and question marks over maritime security.
- Outstanding export credit for Indian banks was seen at ₹20,489 crore at the end of January 26, rising 5% this financial year, the highest since February last year.
- India’s merchandise exports surged 11.9% year-on-year in February to $41.4 billion – the fastest growth since June 2022 – after expanding 3.1% in January.
- Exports of drugs and pharmaceuticals rose 22.2% year-on-year in February against 6.8% in January.
2.2 RBI has rejected a demand from banks to scrap higher risk weights for loans to government-backed entities such as Power Finance Corp. (PFC), Indian Renewable Energy Development Agency (IREDA), and IIFCL.
- In November 2023, the regulator increased the risk weights for loans to NBFCs by 25 basis points, increasing the borrowing costs of NBFCs in general.
2.3 The RBI on Thursday issued an omnibus framework for recognising Self-Regulatory Organizations (SROs) for its regulated entities, under which SROs would be required to establish minimum benchmarks for their members.
- SROs enhance the effectiveness of regulations by drawing upon the technical expertise of practitioners and also aid in framing and fine-tuning regulatory policies by providing input on technical and practical aspects.
- With the growth of regulated entities in terms of number as well as scale of operations, an increase in the adoption of innovative technologies, and enhanced customer outreach, there is a felt need to develop better industry standards for self-regulation.
2.4 As per the report released by the Fintech Association for Consumer Empowerment [FAME],
- Fintech firms disbursed 2.5 crore loans in Q3—up by 12% compared to last year.
- The value of loans is increasing by 46% to reach Rs. 33922 crore.
- The average ticket size for loans disbursed is Rs. 11945.
- 80% of the 28 fintechs covered by FAME were profitable, compared to 68% in the same period last year.
2.5 As per data released by NPCI, bounce rates, or defaults in paying equated monthly instalments (EMIs), improved to a five-year low of 19.3% in February, suggesting no material signs of risk build-up and continued strong asset quality behaviour.
- The current unsuccessful auto-debit requests, or bounce rate, at 19.3% is around 50% lower than the peak of 38.1% in June 2020 registered during the COVID-19 pandemic.
- Overall, in FY24-TD, the average bounce rate in value terms has fallen to 20.8%, down from 22% YoY.
- By volume of transactions, the bounce rate also broadly continued its improving trajectory, with February’s print at 26.5% as against 28.3% YoY and 26.6% MoM.
- Historically, the volume-wise bounce rate has been higher than the value-wise, suggesting relatively higher stress in small-ticket transactions or products. Importantly, bounce rate (volume-wise), after being flat for several months, has also started to settle at lower levels, suggesting improved behaviour in small-ticket products.
# 3 SEBI
3.1 SEBI on Thursday put in place a framework to introduce the beta version of the T+0 trade settlement cycle (same day settlement) on an optional basis, effective March 28th.
- To begin with, this option will be available for a limited set of 25 scrips and with a limited number of brokers. This will be in addition to the existing T+1 settlement cycle in the equity cash market.
- The price in the T+0 segment will operate with a price band of +100 basis points from the price in the regular T+1 market. This band will be re-calibrated after every 50-basis-points movement in the underlying T+1 market.
It may be recalled that the settlement cycle to T+3 from T+5 was introduced in 2002 and subsequently to T+2 in 2003.
A shorter settlement cycle will bring cost and time efficiency, transparency in charges to investors, and strengthen risk management at clearing corporations and the overall securities market ecosystem. But market players feel that T+0 would be a major change yet to be tested in any of the overseas markets and would therefore be a big challenge for FPIs.
3.2 SEBI has asked AMFI to direct fund houses to stop accepting money in plans that invest in overseas Exchange-Traded funds (ETFs), as a $1-billion cumulative sectoral limit for such investments is close to being breached. Currently, there is an overall industry level limit of $7 billion for investments in overseas mutual funds and an additional $1 billion limit for foreign ETFs.
The present stoppage for overseas ETFs has blocked options on overseas investments through ETFs, considered a safer option for retail investors.
3.3 SEBI has proposed that IPO-bound companies should disclose details about the proposed issue, including the risk factors, in an audiovisual presentation of not more than eight minutes duration.
- The lead manager for the public issue should create the audiovisual in a bilingual version in English and Hindi.
- The total duration of the audiovisual would have to be equitably distributed among the material disclosures made under various sections of the public issue offer document, such as risk factors, capital structure, objects of the offer, business of the issuer, financial information, litigations, and material developments.
This will help create awareness among investors to not rely on unauthorised or unsolicited information about public issues and will also help in understanding the salient features of public issues easily.
# 4 Insurance
4.1 As per the government publication last week, the insurance sector, one of the focus areas of TVS Capital Funds, has received close to Rs 54,000 crore as foreign direct investment (FDI) in the last nine years on the back of further liberalisation of overseas capital flow norms.
- The government increased the permissible FDI limit from 26 percent in 2014 to 49 percent in 2015 and then to 74 percent in 2021.
- In 2019, the permissible FDI limit for insurance intermediaries, such as our portfolio entity, Insurance Dekho, increased to 100%.
- During the last nine years, the number of insurance players increased from 53 to 70 as of January 2024.
- Insurance penetration increased from 3.9 percent in 2013–14 to 4 percent in 2022–23, while insurance density rose from USD 52 in 2013–14 to USD 92 in 2022–23.
4.2 In accordance with the discussion paper from last month, IRDA announced a set of new regulations on March 19 to improve the regulatory framework for the insurance industry.
- Eight principle-based consolidated regulations were introduced.
- These regulations focus on safeguarding policyholders’ interests, rural and social sector responsibilities, the electronic insurance marketplace, foreign reinsurance branches, and aspects of registration, actuarial, finance, investment, and corporate governance.
The goal of these regulations is to strengthen the principles governing guaranteed surrender value with disclosures and to promote good governance in product design and pricing.
# 5 Economy
5.1 Is Inequality high in India? Key takeaways from the World Inequality Lab report released last week.
The income shares of India’s top 1% are among the highest globally, surpassing even countries like South Africa, Brazil, and the US.
India’s top 1% now holds 22.6% of income and 40.1% of wealth, reaching their highest historical levels in 2022–23, surpassing even developed economies like the US.
- The top 10% of income earners held 60% of the national wealth in 2022, compared to 30% in 1982, while the bottom 50% held only 15%.
- The top 10% of Indians earn 57.7% of their national income, which is higher than Brazil (56.8%), China (43.4%), and the UK (33.7%).
Income levels in India grew at an average of 2.6% per year between 1960 and 2022, with a higher growth rate of 3.6% per year between 1990 and 2022.
- There’s a stark disparity in wealth among different income groups, with the top 1% holding 40 times more wealth than the average Indian, while the bottom 50% hold only 0.1 times the national average.
The wealthiest 10,000 individuals out of 92 million Indian adults own an average of Rs 2,260 crore in wealth, 16,763 times the average Indian.
5.2 Key takeaways from the Morgan Stanley report released last week.
- Capex has become a significant driver of growth in India after a decade of declining investment-to-GDP ratios.
- The investment-to-GDP ratio increased from 27% in FY 2003 to 34% in FY 2021, with a projected further increase to 36% in FY 2027.
- The current expansion resembles the 2003–07 period, driven by investment outperforming consumption, with both public and private capex contributing.
- In the current cycle, real Gross Fixed Capital Formation [GFCF] growth remains strong, driven mainly by public capex, with signs of private capex gaining momentum.
- Private consumption is relatively weak, below pre-COVID levels.
5.3 India’s private-sector activity will end the fiscal year on a high, expanding at its fastest rate in eight months, as the HSBC Flash India composite Purchasing Managers Index [PMI] released on Thursday climbed to 61.3 in March based on a spike in fresh business orders and output this month.
- While manufacturing led the upturn with the fastest expansion in factory orders and production in nearly three-and-a-half years, service providers also notched a sharp increase in business activity, broadly similar to February.
5.4 S&P Global Market Intelligence on Tuesday raised India’s FY25 growth forecast to 6.8% from 6.5% projected earlier based on an improving global economic environment and an expected gradual easing of domestic financial conditions. The global analytics firm also raised India’s FY24 forecast upward to 7.3% from 6.9% projected earlier, compared to the government’s estimate of 7.6%.
5.5 As per a report released by the Indian Direct Selling Association [ISDA] on Wednesday, India’s direct selling industry grew over 12% year-on-year in 2022–23, clocking an overall industry turnover of Rs 21,282 crore.
- The report noted that the sector grew 8.3% by CAGR in the four-year period between 2019–20 and 2022–23.
- Wellness and nutraceutical products contributed 73.5%, while cosmetics and personal care accounted for 11.3% of the industry’s overall turnover.
- The number of active direct sellers touched around 86 lakh from 84 lakh in 2021–22.
# 6 PE/VC
As per the EY/IVCA report released last week,
- PE/VC investments declined by 39% from ₹ 3.7 billion last year to ₹2.2 billion in February.
- On a month-on-month basis, investments declined by 67%.
- The number of deals was higher at 120 in February, compared to 86 deals in January and 57 in February 2023.