Week ending Dec 31, 2023

# 1. Markets’ 2023- Aha Moment
Stocks globally ended 2023 near record highs, defying a year of higher rates though finished Friday in the red, powering through a year of economic uncertainty:  The Dow rose 13% (second best since 2009) for the year, S&P 500 enjoyed gains of 24% (best since 2010) Nasdaq swelled 43% (second best since 2009), Russel 2000 15%- US Small cap Index (Best December ever) in 2023.

Indian equity markets extended their winning streak for the 8th consecutive calendar year, with the Nifty gaining 20% in 2023 (second best since 2014), Sensex gaining 18% (second best since 2017). Mid-cap and small cap investors saw an even faster rise in wealth delivering stellar returns of 44% and 42% respectively.

India recorded 240 IPOs (58 in Main Board and 182 in SME exchanges) raising $ 7.1 billion recording 58% highest growth in the world, followed by China, South Korea and Japan. While 2 out of every 3 outperformed Sensex, 23 IPOs gained 50%.


  1. Stay long to make money in equity markets.

Since introduction in April 1979 while Sensex has delivered 15.5% in 43 years in the 11000 trading days, Positive and negative returns were observed as follows:

Weekly: 56% positive, 44% negative
Monthly: 61% positive, 39% negative
Quarterly: 64% positive, 36% negative
Yearly: 72% positive, 28% negative
3 years: 89% positive, 11% negative.
5 years: 96% positive, 4% negative.
10 years: 100% positive, 0% negative.

  1. In the 10-year period between 2013-2023, Small Cap reigned top of the charts for 5 years and bottom of the charts for 5 years. Cyclicity and volatility are therefore, clear factors to be reckoned while placing bets on small cap stocks.


  1. While the winners among asset classes keep rotating every year, the absence of any such pattern over the last 10 years reinforces the importance of asset allocation in building a balanced portfolio. As per study done for the past 10 years, different asset classes tend to do well in different phases of the markets. Thus, investors should build a well-diversified portfolio, wherein investments are allocated to various asset classes, as per their risk-return appetite.


  • Corporate bond and non-convertible debenture (NCD) issuances have hit a record high in 2023, with companies and financial institutions raising Rs 9.2 trillion through these instruments nearly 185 more than last year’s Rs. 7.63 trillion.
  • The reason for this surge in issuances, apart from regulatory factors, could be the interest rate differential between an AAA-rated bond and one-year marginal cost of fund-based lending rate (MCLR)
  • India’s debt markets on the whole, appear to have come of age, with companies that defaulted on repayment deadlines still able to face potential investors and raise funds. Recently, a real estate company with a D rating (indicating default) raised ₹95 crore from the private placement bond market — sending early signs of the evolution of the junk bond market in India.

# 2 RBI
2.1.RBI vide its circular on Dec 29, 2023, extended deadline from Jan 1, 2024, to June 30, 2024 for implementing the changes it brought vide its earlier circular August 18, 2023 on penal charges. Banks/NBFCs were earlier adding penal charges for non-compliance of terms and compounding it along with interest thus capitalising the penal charges which was sought to be changed. Henceforth penal charges cannot be capitalised and has to be collected separately.

2.2 RBI is planning to introduce bond forwards in government securities to help market participants manage cash flows and interest rate risks and has released draft rules last week.

What does it mean?

Contracts agreeing to buy specific debt instruments – Govt. securities in the future at a predetermined price.

Banks (excluding small ones) and standalone primary dealers would be market makers and users would be Banks, NBFCs, alternative investment funds, foreign portfolio investors, and resident investors with a net worth of ₹500 crore and above.

How does it help?
An excellent move that will enable market participants, particularly long-term investors, to manage cash flows and interest rate risk. EPFOs, long term patient capital players, including Credit AIFs who take long term interest rate risk could consider hedging the risk by freezing the forward price depending on their own assessment of interest rate movement.

2.3 RBI as per draft licensing framework released last week, proposes a new “Forex Correspondents Scheme” to ease doing business:

  • New money changers category will Operate as agents of authorized dealers (without RBI authorization).
  • Activities reflected in principal dealer’s books, allowing general permission for foreign exchange within the scheme.
  • They will be permitted to buy/sell currency notes/traveller checks and distribute forex prepaid cards.

2.4 Key takeaways from RBI Report on Trend and Progress of Banking and Financial Stability Report released last week.

  1. Scheduled commercial banks saw a 12.2% expansion in their balance sheets, driven by credit to the retail and services sectors. Deposit growth lagged behind credit growth.
  2. Gross advances grew significantly to ₹ 149 lakh cr, GNPA decreased to 3.2%, CRAR increased to 16.8%, liquidity coverage ratio improved to ₹ 135 lakh cr, and provision coverage ratio went up to 75.3%.
  3. Agricultural sector had the highest GNPA ratio, while retail loans had the lowest.
  4. Urban co-operative banks (UCBs) expanded by 2.3% in 2022-23, driven by loans and advances.
  5. NBFCs expanded by 14.8% in 2022-23 and improved profitability and asset quality, with a shift towards unsecured loans (share of 30.6%) and shorter tenure loans.
  6. RBI cautioned against reliance on fintech-based risk models and emphasized the importance of accurate and diverse data sets in underwriting algorithms. Consumer lending controls raised concerns about risk profiling, delinquency, multiple loans, and overdue loans. Illustratively,
  • relatively high-vintage delinquency—the percentage of accounts that have ever become delinquent within 12 months of origination—of personal loans stood at 8.2% – indicating declining standards of underwriting.
  • 7% of customers availing consumption loans already had three existing loans at the time of origination.
  • 4% have availed more than three loans in the past six months.
  • Indian banks were strong enough to withstand adverse macroeconomic and credit stress.
  1. SBI and HDFC Bank moved to higher buckets within the Domestic Systematically Important Banks [D-SIB] classification, requiring additional CET-1 capital.
  2. TReDS platform saw growth in invoices and financing (27.24 lakh invoices involving ₹ 83955 cr. growing more than 56% with increased participation by MSME sellers (53% growth) and buyers (growth of 35%)
  3. Fraud cases reported by banks declined to six year low and amount lowest in decade, with private sector banks having a higher share in terms of the number of cases (62.5%).
  4. Co-lending framework facilitated MSME sector credit growth by NBFCs, outpacing banks in terms of growth.Top of Form

# 3 SEBI
3.1 SEBI positioned itself as the most consultative regulator this year by releasing 54 draft consultation paper. For every move there is a consultation paper and several initiatives including debt market reforms, AIFs, REITs, have been brought in this year through such consultation papers this year.

3.2 In a discussion paper released on Thursday, Sebi proposes easing rumour verification rules for top 100 listed companies. Currently, material events or information specified under Regulation 30 of Listing Obligations and Disclosure Requirements (LODR) Regulations have to be verified, after a rumour on the same has been circulated in mainstream media. The rumour has to be verified within 24 hours of reporting in mainstream media.

  • Key changes:
    • Rumour verification triggered by significant stock price movement instead of media reports as proposed earlier.
    • 24-hour verification timeline maintained, but measured from price movement, not media coverage.
    • Deal confirmation date defines cut-off for price calculation in buybacks, mergers, etc.
  • Reason for change: Address concerns raised by listed companies about initial rule implementation date (October 1st, 2023) and specific aspects of the verification process.

Essentially, Sebi is making the rumour verification process more flexible and responsive to actual market impact, while still maintaining a strict timeline for clarification.

3.3. Sebi on Thursday issued a circular aimed at easing regulations for online bond platforms (OBPPs) to simplify business operations:

  • Modified requirements for issuing order receipts, deal sheets, and quote receipts.
  • Standardized risk warning on advertisements for debt securities.
  • Clarified eligible securities OBPPs can offer, including government bonds, municipal bonds, and RBI-regulated instruments.

Overall, the changes aim to boost OBPPs and improve access to the bond market for non-institutional investors.

3.4 SEBI has proposed to introduce a new settlement mechanism for stock trades from January 1. The proposed system is similar to the Application Supported by Blocked Amount (ASBA) facility available to an IPO applicant, which ensures that money will move from the applicant’s bank account only after the allotment in the IPO.

  • Under the proposed settlement mechanism for stock trades, investors’ funds will effectively leave their bank accounts only after trades are completed. This will eliminate the need to transfer funds to the stockbroker. Also, investors will do direct settlement with the clearing corporation of the stock exchanges. This move is aimed at safeguarding investors’ funds from misuse by stockbrokers and preventing default by brokers, thus minimising the consequent risk to their assets.
  • At present, brokers coordinate payments between the clearing corporation and investors in the stock market settlement process. An investor must send the funds for purchasing shares to the broker, who then transfers it to the clearing corporation through a clearing member.
  • Sebi has proposed that the Unified Payments Interface (UPI) mandate service of a single block and multiple debits can be integrated with the secondary market to provide a blocking mechanism, whereby the clients will be able to block funds in their bank account for trading in the secondary market, instead of transferring them upfront to the broker.
  • The funds will remain in the account of a client but will be blocked in favour of the clearing corporation till the expiry date of the block mandate or till the block is released by the clearing corporation, whichever is earlier. Clearing corporations can deduct funds from the client’s bank accounts, limited to the amount specified in the block. Further, while a UPI block will be considered collateral, it will also be available for settlement purposes.

# 4 CEBR
The Centre for Economics and Business Research [CEBR] is an economic consultancy based in London in its latest World Economic League Table report has projected India to be the world’s largest economic superpower by end of century. Key takeaways are:

  • India’s GDP expected to surpass China and US after 2080.
  • Robust growth of 6.5% predicted from 2024 to 2028, making India the world’s 3rd largest economy by 2032.
  • Growth drivers include large young population, rising middle class, entrepreneurship, and global integration.
  • Challenges like poverty, inequality, infrastructure, and environment need to be addressed.
  • Public sector debt exceeding 81% of GDP, posing a long-term growth risk.

# 5 PE/VC – EY report
As per report released last week,

  • while PE/VC investments consistently improved from $26.1 bn in 2017 to $75.9 bn in 2021 it has been going down to $$ 47.1 bn in 2023.
  • More importantly Private investment in Public Equity [Pipe] investments have been growing from 5.9% in 2021 to 17.3% in 2023 though PE Firms are expected to put more money in unlisted space.
  • Nearly half of PE/VC firm exits in 2023 were through open-market block deals, reflecting strong public market appetite for large-ticket transactions. This marks a shift from past years, where other exit paths were more prominent.
  • While lower than record-breaking 2021, total PE/VC firm exits in 2023 are higher than 2022, showcasing a sustained trend of successful divestments.
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