Week ending 8th Feb 2025
# 1 Markets
Last week, markets opened on a positive note, buoyed by global cues as investors reacted favourably to Trump’s decision to pause tariff cuts. However, the RBI’s rate cut announcement on Friday, which met expectations without any surprises, led to profit booking amid foreign fund outflows. Consequently, the Nifty and Sensex closed lower at 23,559 and 77,860, respectively.
Valuation expert Aswath Damodaran reiterated that India remains the most expensive equity market globally, trading at 31 times earnings, 3 times revenue, and 20 times EBITDA—multiples significantly above global averages. While markets may react positively to the Delhi election results next week, broader trends will hinge on corporate earnings justifying current valuations, along with global market movements.
In the bond market, yields, which had been softening, spiked on Friday due to the RBI’s smaller-than-expected rate cut, an unchanged ‘neutral’ policy stance, and a lack of forward guidance on future cuts. The 10-year yield rose by 15 bps to 6.80%.
Meanwhile, in the U.S., job creation in January fell short of expectations, as per the Bureau of Labor Statistics (BLS) report. Weak employment data, coupled with escalating global trade tensions, led to a sharp decline in all three major U.S. indices by the end of the week.
# 2 RBI
2.1 Impacts on key measures from RBI’s policy announcements on Friday.
Policy rates:
- Policy Repo rate under Liquidity Adjustment Facility [LAF] reduced by 25 basis points to 6.25 per cent.
- First rate cut in 5 years.
- About 58% of all loans by commercial banks are linked to the repo rate and these loans will be repriced downward instantly. EMI for ₹ 1 cr. loan of 15 years would come down by ₹ 1450.
- Banks may not be able to adjust their deposit rates immediately while loans get repriced linked to external benchmark.
- As there was no shift in the ‘neutral’ stance and no announcement of durable liquidity infusion, banking stocks fell on Friday due to the likelihood of lower NIM
- Real GDP growth for 2025-26 is projected at 6.7 per cent
- This is higher than 6.3 – 6.8% estimated by Govt in its economic survey.
- Projected growth rate for FY25 revised downwards to 6.4% from 6.6% made in Dec meeting.
- Governor in fact expressed confidence that India can achieve 7% growth.
- CPI inflation for FY26 is projected at 4.2 per cent as against average inflation of 4.8% in FY25.
- It is important to note that the inflation projection by the RBI has factored in rupee depreciation to arrive at the forecast.
- Imported inflation in India has primarily been driven by crude oil. But even that dynamic has undergone a shift with Trump’s ‘drill baby drill’ policy on increasing energy production working in India’s favour.
Other measures:
- Introduction of forward contracts in Government securities:
- Bond forwards are derivative contracts between two counterparties to buy and sell a specific security on a future date at a predetermined price. This is expected to bring more depth in the country’s bond pricing benchmarks in line with advanced economies.
- Such forward contracts will enable long-term investors such as insurance funds to manage their interest rate risk across interest rate cycles.
- Access of SEBI-registered non-bank brokers to NDS-OM
- The Negotiated Dealing System – Order Matching (NDS-OM) is an electronic trading platform for secondary market transactions in government securities – now available to Banks and Primary Dealers. Opening to non-bank brokers will widen the reach to their clients and enable better price discovery.
- Enhancing Trust in the Financial Sector through ‘bank.in’ and ‘fin.in’ domains:
- To combat rising instances of fraud in digital payments, RBI is introducing the ‘bank.in’ exclusive Internet Domain for Indian banks and “fin.in” for other non-bank entities in the financial sector.
- Improve trust in digital banking and payment services.
- Enabling Additional Factor of authentication [AFA] in cross-border transactions:
- This will provide an additional layer of security in cases where the overseas merchant is enabled for AFA and will provide safety for online international transactions using cards issued in India.
- Significant latitude on implementation timelines for the following prudential norms – from April 1, 2025, to March 2026, due to triple whammy crippling growth of credit.
- Higher potential loss provision of 5% on infrastructure loans vs 0.4% presently
- Higher Liquidity Coverage Ratio [LCR] to account for quick withdrawal of deposits using digital payment methods.
2.2 RBI has asked large non-banking finance companies (NBFCs) to reveal the total rate charged to customers on each loan product.
- NBFCs have to disclose composite ceiling rates – comprising interest rate, processing fee, insurance and other charges if any – on various categories of loans such as mortgage, vehicle, property, gold and education etc.
- NBFCs would also have to get these rates approved by respective Board.
- In order to retain some flexibility most NBFCs likely to publish a matrix of rates depending on various parameters – credit score, LTV, repayment ability tenure and liquidity conditions.
The RBI is concerned that high-cost borrowing, and opaque pricing structures could lead to financial distress among borrowers, especially in the lower-income segments. This directive is therefore aimed at improving transparency in the lending ecosystem and ensuring that borrowers fully understand their financial obligations before availing loans.
In a free interest rate regime, RBI has no direct role in setting lending rates and technically cannot impose any caps. Through this measure, RBI would monitor breach by any NBFC of its own announcement. Amid concerns over rising household indebtedness, the move is likely aimed at curbing any usurious tendencies among NBFCs, which have fuelled retail loans in recent years.
# 3 SEBI
3.1 SEBI has permitted retail investors to participate in algorithmic (algo) trading, previously restricted to institutional investors since its introduction in 2012.
- Retail investors can engage in algo trading only through stockbrokers, who must obtain exchange approval for each algo before deployment.
- Every algo order will require a unique identifier for audit purposes. Brokers must also seek exchange approval for any modifications.
- Retail investors who develop their own algos must register with the exchange if their orders exceed a specified per-second threshold.
- In algo trading via APIs, the broker acts as the principal, while algo providers or fintech firms serve as agents. Two classifications of Algo logic
- White Box: Logic is disclosed and replicable.
- Black Box: Logic is unknown to users and not replicable. Providers of black box algos must register as research analysts, maintain detailed reports, and confirm compliance with exchanges.
Now, the advantages of timed and programmed order execution would be available to tech savvy retail investors, using programming knowledge. Experts believe these changes will enhance market integrity and investor protection (due to registration and monitoring of process) but may also increase costs and limit accessibility for new entrants due to complex approval process.
3.2 In its discussion paper, SEBI has proposed extending the automated trading window closure ahead of financial results announcements to the immediate relatives of designated persons in listed companies.
- This follows its implementation of framework introduced in July 2023 restricting trading by designated persons in all listed companies.
- Given the success of the above framework in reducing compliance burdens and preventing inadvertent insider trading, SEBI now proposes extending this to the immediate relatives of designated persons (spouse, parent, financially dependent sibling).
- The restriction period starts from the end of every quarter and lasts until 48 hours after the financial results are declared. Designated persons and their immediate relatives will be prohibited from trading during this period.
This proposed extension aims to enhance market transparency and strengthen insider trading controls, ensuring stricter compliance across all stakeholders in the securities market.
3.3 SEBI has proposed mandating a digital assurance report of financial statements for top 100 listed companies.
- The report will increase transparency, improve disclosure standards and enable better enforcement, and thereby provide greater investor protection and trust in the ecosystem.
- The ICAI released a guide on digital assurance to help its members adopt enhanced technology use in audits by implementing digitally available audit evidence and information
# 4 Economy
4.1 As per HSBC private survey release,
- The manufacturing Purchasing Managers’ Index (PMI) rose to a six-month high of 57.7 from 56.4 in December,
- The services PMI slowed to a 26-month low of 56.5 from 59.3 in December.
The manufacturing sector gained on the back of new export orders, while the services sector saw a loss in growth momentum due to slackening customer demand and a softer increase in sales and output. Favourable demand conditions, new business wins and investment in technology led to output growth.
4.2 CRISIL in its recent report released last week has estimated that
- India’s economy is expected to grow at 6.5 % in FY FY26, slightly higher than the 6.4 % growth FY25, but lower than 6.7% growth estimated by Economic Survey.
- Lower inflation and expected rate cuts by RBI will support growth, provided there are no major global shocks and India gets a normal monsoon.
- The outlook highlights that
- while government spending will continue to support economic growth, the overall fiscal impulse will reduce as fiscal consolidation progresses.
- global trade challenges, particularly tariff hikes by the United States, could create obstacles for exports.
- the current account deficit (CAD) will likely widen from 1.0 per cent of GDP in FY25 to 1.3 per cent in FY26 due to export headwinds from US trade policies.
- The Indian rupee is expected to depreciate gradually, averaging ₹86 per dollar in FY25 and ₹87 per dollar in FY26. Its noteworthy that Rupee has already crossed ₹ 87 in February 2025.
4.3 Key takeaways from NASSCOM Report: “Reimagining Security – A New Era Powered by Generative AI”
- India’s Cybersecurity Landscape
- Market size: $6B in 2023, growing at 30% CAGR (2019-2023).
- By 2028, India will represent 5% of the global cybersecurity market.
- 400+ cybersecurity firms operate in India, with Bengaluru, Delhi/NCR, and Pune/Mumbai leading.
- Rising Cost of Cybercrime
- Average data breach cost in 2024: $4.88 million (highest on record).
- 39% increase in breach costs in India since 2020, reaching $2.3 million.
- 88% of breaches stem from human error.
- Generative AI in Cybersecurity
- 5% YoY increase in cybersecurity spending as a share of IT budgets.
- 91% of organizations believe Generative AI will boost productivity in the next year.
- AI Integration by Cybersecurity Providers
- 35-40% of firms have integrated Generative AI within two years.
- Challenges: Model bias, data privacy risks, compliance complexities.
- Future Outlook & Recommendations
- Investments in AI-driven threat intelligence, cloud security, automated response – especially in BFSI, manufacturing, healthcare and retail lending.
- Focus on cybersecurity talent development & AI training.
- Government initiatives needed for AI security regulations & cybersecurity R&D.
India’s cybersecurity sector is set for exponential growth, with Generative AI at the forefront of security transformation.