Week Ending Feb 24 2024

# 1 Markets:

The previous week’s rally on Dalal street continued this week as Nifty hit fresh life highs on a regular basis while Sensex inched closer to that mark despite profit booking. Market cap of Indian companies too hit a new high at Rs. 399.7 lakh cr. on Friday, as FIIs turned net buyers against sellers preceding week. During Friday’s trading session however, benchmark stock indices went through a volatile phase and ended lower due selling pressure in IT and select banking stocks.

Nvidia was the Global star topping $ 2 trillion market value as the biggest beneficiary of a rush into AI related stocks, trailing Microsoft, Apple and Aramco. US markets surge to record highs after Nvidia’s blockbuster earnings sparked the global rally. Dow Jones and S&P 500 closed at new highs; Nasdaq finished just shy of its record close. Chip stocks led by Nvidia helped Nikkei 225 surging past the record set 34 years back though the economy continues to be in recession. Broader market optimism was driven by S&P Global Flash February PMI released @ 51.5 indicating that US manufacturing activity expanded at the fastest pace since September 2022, powered by stronger orders growth and suggesting producers are breaking out of an extended slump.

G Secs remained flat but softened on Thursday buoyed by release of HSBC Flash India Composite PMI Output Index, that day showing 61.5 in February indicating higher growth for both manufacturing and service sector firms, with manufacturing activity at a five-month high and services activity recording a seven-month peak. The report attributed to increase in index due to faster expansion in the order books and slower increase in input prices. US 10Y which hardened considerably last week continued its upward trend, as Minutes of FOMC meeting released on Wednesday indicated that policy makers wanted more evidence on path to 2% inflation target before lowering interest rates.

# 2 RBI

• RBI vide its circular dated Feb 23, 2024, modified the regulation governing prepaid payment instruments, permitting Bank and non-bank PPI issuers including NBFCs to issue PPIs for making payments across various public transport systems.
• Significant move as public transport systems cater to a multitude of commuters on a daily basis and this would provide convenience, speed, affordability, and safety of digital modes of payment to commuters.
• RBI’s agenda for the wider adoption of an open-source credit disbursal platform – Public Tech Platform for Financial Credit [PTPFC] got a major boost last Friday with Govt authorising the GST Network to share information about GST-registered businesses with the tech platform. The sharing will be based on the consent of business and will reduce the processing time for businesses when applying for a loan.

What is PTPFC?

• PTPFC is similar to the Unified Payments Interface for digital payments where fintechs build the front facing apps., while the underlying transaction account is with banks, thus making it easier for farmers and owners of small businesses to access credit.
• While disbursal of consumer loans through a digital interface has become common, farmers and people who run small businesses still need to queue up at their local bank branches and the land records department for days to access agriculture loans and take Kisan credit cards. PTPFC addresses this long-standing issue.
• The platform is already powering agri loans, Kisan credit cards, small value MSME loans and other such products.

How this GST linkage announcement will be beneficial:

• Lenders can get the specific details submitted in the GST registration application, along with data from outward tax returns, monthly and annual tax returns, and invoice preparations.
• This will also allow lenders to get access to authenticated monthly sales and purchase data directly from government-sanctioned sources, allowing for a more accurate and timely assessment of credit risk.

It can be deduced that GST filings will become a crucial factor for businesses seeking to obtain credit and leverage government-sponsored credit programmes in the future.

2.3 Key takeaways from State of Economy – RBI Bulletin released last week.

• the institutional credit into the agriculture sector sharply, with banks disbursing Rs. 20.39 lakh crores during the April-January period of this fiscal achieving the budgeted nos. much before March 2024. This is commendable considering that this was just Rs 7.3 lakh cr in FY2014.
• Expectations of a fresh round of capital expenditure by the corporate sector only would fuel the next leg of growth after taking baton from Govt.
• RBI’s survey shows that investment intentions of private corporates remain upbeat, and both services and infrastructure firms are optimistic about overall business conditions.
• Corporate bond issuances during 2023-24 (from April 1 up to November-end 2023) were 15 % higher year-on-year (YoY) at ₹6.1-lakh crore compared with ₹5.3-lakh crore a year ago. As per the report, easing long term yields and relative stability in the bond market amidst a healthy economic outlook has prompted issuers to raise funds for investments through debt issuances.
• uncertainties in food prices which continue to impinge on the headline inflation trajectory.
• the momentum of economic activity witnessed during 2023-24 is expected to continue in the next year (2024-25)
• India’s current account deficit (CAD) dropped to 1 per cent of GDP in the second quarter of FY24, down from 3.8 per cent in the same quarter in the preceding financial year.

 

# 3 SEBI

3.1 SEBI in its consultation paper released last week proposes following changes:

• excluded investment made through ETFs and index funds from the regulations on exposure to a single stock of own group companies.
  • Currently single stock cannot have over 35% weight in the underlying index for a sectoral/thematic index-based fund.
  • Currently investments in sponsors group companies are capped at 25% of net assets.
• nomination has been made optional for joint investments in mutual fund schemes instead of mandatory requirement earlier.
  • The process of nomination is put on hold if all the unit holders are not available at the time of nomination, and this has caused considerable delay in the process which has been addressed now.
• Allow single fund manager to manage commodity and overseas investment.
  • Having separate managers led to high cost of operations which is now addressed, provided AMCs ensure competency.

Overall, this appears to be a good move to promote ease of doing business among MFs.

3.2 As per SEBI data released last week,

• The investment commitments received by Alternative Investment Funds (AIFs) have crossed Rs 10 trillion for the first time, amid a rising demand from rich investors eyeing to generate higher returns than conventional investment vehicles.
• As of December 2023, the investment commitments stood at Rs 10.84 trillion, up 13.6 per cent quarter on quarter (Q-o-Q) and over 40 per cent on a year on year (Y-o-Y) basis from Rs 7.51 lakh cr as at end Dec 2022.
• Out of this Cat II Funds (like TVS Capital Funds) constitutes Rs. 8.83 trillion

It is gratifying to note that this AIF as asset class is receiving the right recognition amongst HNIs.

3.3 SEBI on Tuesday came out guidelines, with aim to simplify compliance and reporting through centralisation of certifications under Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) at KYC Registration Agencies.

• Under this, the regulator has directed intermediaries, reporting to financial institutions (RFI), to upload certifications under FATCA and CRS obtained from the clients in the system of KYC Registration Agencies (KRAs) from 1 July.
• The existing certifications obtained from clients prior to 1 July will be uploaded by the intermediaries onto the systems of KRAs within 90 days of implementation of the new rule, Sebi said in its circular.
• The onus of obtaining and reporting the FATCA and CRS certification and related compliances therefore will now lie with the respective intermediaries.
• RFI needs to obtain a self-certification from the client, as part of the account opening documentation, to determine the client’s residence for tax purposes. Intermediaries will have to confirm the reasonableness of such certification based on the information obtained in respect of account opening, including any documentation obtained in accordance with Prevention of Money Laundering (Maintenance of Records) Rules, 2005 and need to update the self-certification, as and when, there is a change reported by the client.

# 4 CIBIL

As per CIBIL TRANSUNION report released last week,

• Self-monitoring of credit scores by Indian has risen by 73 percent in 2023 as this credit discipline helps to access new borrowing opportunities and also helps them better manage debt.
• The survey findings show that the most common reason Indian consumers initially signed up for credit monitoring services was to improve their CIBIL Score (38%), to protect against fraud (34%), and to learn of credit offers they qualify for (29%).
• Additionally, after using monitoring services for some time, consumers reported added benefits that credit monitoring has allowed them to achieve – learn how to monitor and manage their CIBIL Score (43%), get better credit offers (43%), learn how to make regular payments (40%), gain visibility to changes on their credit report (33%), and pay down debt (28%)

This is a good finding as the benefits are shown to lead to better credit profiles, greater access to credit, or an improved ability to pay down debt, depending on the intent of consumers who monitor credit.

# 5 FDI – Boost to Innovation in Space

Govt. has approved a new FDI policy for the space sector, last week, allowing up to 100% foreign direct investment.

• up to 49% automatic foreign investments in space launch vehicles
• up to 74% in satellite manufacturing and operation ventures
• 100% in space ventures for component manufacturing

India aims to capture 8% of the global space economy by 2033, earning $44 billion in revenue, according to In-Space’s Decadal Vision. This move expected to boost space funding significantly as this will facilitate easier access to global investors and regulatory clarity. Although the immediate effects may not be drastic due to the nature of the space sector, long-term benefits are certain.

# 6 NASSCOM

As per Nasscom Arthur D Little report – Digital Public Infrastructure of India – Accelerating India’s Digital Inclusion- released last week

• Digital Public Infrastructures (DPIs) are poised to propel India towards a $1 trillion digital economy by 2030, helping the country to become a $8 trillion economy.
• By 2030, DPIs will significantly enhance citizens’ efficiency and promote social as well as financial inclusion.
• Mature DPIs such as Aadhaar, Unified Payments Interface (UPI), and FASTag have generated a value of $31.8 billion, equivalent to 0.9% of India’s GDP.
• By 2030, this economic value is projected to increase to approximately 2.9%-4.2% of GDP, considering both direct and indirect impacts.

Existing digital entities will evolve to deliver superior user experience, utilising new age tech of AI, Web 3 and others. Aadhaar is expected to continue to be a major contributor as use cases expand to broader range of services.

# 7 State of Venture Debt market in India

Venture debt financing, favoured by startups lacking a proven revenue track record, offers an alternative to traditional debt financing, with specialized lenders assuming more risk for potentially higher returns.

Key takeaways from report released last week by Stride Ventures

• The venture-debt market in India surpassed $1.2 billion last year, in 175-190 deals representing a 50% increase from the previous year.
• The market has recorded 34% CAGR from 2017 to 2023.
• The trend indicates a shift towards strategic financing, aiding Indian innovation on a global scale.

It is heartening to see that amid a funding decline, venture debt has emerged as a versatile tool for financial management, strategic growth, and risk mitigation, complementing traditional equity financing.

# 8 EY report – Private Credit India – H22023

Key takeaways from the report released last week:

• Total investments rose 47% to $7.8billion in value across 108 transactions in 2023, compared to 2022, which recorded 77 deals to $5.3 billion.
• Global funds dominate with 63% share in investments by deal value, while domestic funds lead in deal count with 61% share due to their focus on the mid-market segment.
• Expected total investment of US$5–10 billion in private credit deals in 2024.

• • Real estate continues to attract significant investments in India, with investments totalling US$1.7 billion in CY 2023
  • Fund managers rank real estate and manufacturing as sectors with the most deal activity over the next 12 to 24 months.
  • Capex-related financing is expected to be the biggest driver of private credit deals in the next 12 to 24 months, followed by stress-related deals.
• At least 11 new AIFs have registered with credit/special situation orientation and five are in process for registration. During the second half of 2023 nine funds have announced new fund raises aggregating to more than US$2 b in H22023

# 9 Big move – PhonePe

PhonePe has launched the Indus Appstore, an Android-focused marketplace in India boasting over 2 Lakh apps across 45 categories, including prominent brands like Zomato and Flipkart.

• Developers will enjoy no app listing fees until March 2025 and can utilize third-party payment gateways for in-app transactions without commissions.
• PhonePe plans to monetize through advertising initially, with nominal future commissions. The platform also intends to offer optional in-app billing and cataloguing services. With India emerging as a significant market for mobile apps, PhonePe’s strategic move aims to leverage this trend and compete against tech giants.

This move challenges Google and Apple’s dominance and aims to capitalize on India’s thriving app economy.