Menu
See all Posts

Weekend Reflection – Week ending 4th Jan 2025

Week ending 4th Jan 2025

# 1 Markets

1.1 Following two days of a strong 650-point rally, in the absence of fresh triggers, the market took a breather on Friday with Nifty and Sensex closing with 1% weekly gain at 24004 and 79223 respectively. Nifty 50’s earnings growth is expected to remain below 10%, but it needs to hit around 14% or higher to justify current valuations. Therefore, volatility is likely to continue till budget announcements. NSE recorded highest no. of IPOs in Asia in 2024 cumulatively raising 1.7 lakh cr. including SME platform, while there was net FPI inflow of Rs. 426.9 cr., as they pumped Rs. 1.22 lakh cr. in IPOs and exited 1.21 lakh cr. in secondary market.  On Fixed Income, Indian firms raised record high Rs 10.67 lakh cr. ($124.81 billion) through the sale of bonds till Dec. 27, a 9% jump over 2023. 

1.2 Inflows into Indian debt in the form of fully accessible route (FAR) G.Secs have been net positive in December at ₹4,862.95 crore after two months of net outflows which kept the yields flat. 10Y yield closed at same level as last week at 6.78% on Friday.

1.3 All the three broad US indices bounced back on Friday post release of economic data on Thursday and ended at same level last week. New unemployment claims in the U.S. fell to 211,000 last week, signalling minimal layoffs, and sustained economic growth.  Bonds continue to harden with fewer expected rate cuts, with 10Y ending higher at 4.60% on Friday.

# 2 RBI 

2.1 Highlights from Trend and Progress of Banking in India 2023-24 report released last week.  

  • Deposits and Advances 13.4% and 16% continuing the momentum from FY23.
  • Deposits declined as a share of liabilities from 78.4% in FY23 to 77.4% in FY24.
  • Loans increased as a share of assets from 58.9% in FY23 to 61.0% in FY24.
  • Net profits increased by 32.8% (Pvt sector 41.2% and PSBs 34.9%) to ₹349,603 crore.
  • Return on Assets (RoA) improved to 1.4% while Return on Equity (RoE) rose to 14.6%, higher for public sector banks
  • Cost of Funds went up by 104 bps to 5.1%, with private banks facing higher costs (5.4%) than public sector banks (5.0%).
  • Gross NPAs dropped to 2.7%, the lowest in 13 years and Net NPAs fell to 0.62%, a decade low.

Key takeaways 

  1. Tighter competition for funds is visible with Credit-Deposit Gap narrowing to 3.4%, complimented by increase in borrowings from 8% to 9% of liabilities.
  2. However, the reliance on high-yield lending and increased borrowings underscores the need for prudent risk management to sustain growth. 
  3. Higher term deposit rates strained margins, with interest expenses rising by 42.9%, outpacing the 29.9% growth in interest income
  4. Drop in investments in G Sec to 26% augurs well as it appears banks prefer high yield credit.
  1. Spread continue to be higher for private sector banks at 4.1% while for PSBs at 2.9%.
  2. Unsecured loans contributed to 51.9% in fresh slippages as at end September. 
    1. Over 60% borrowers took out three loans in FY202.
    2. MFI stress loan exceeding 180 days doubled to 4.33%.
    3. 11% of originating personal loan under Rs. 50000 has overdue personal loans.

2.2 Key takeaways from Financial Stability Report released last week

  • Despite global vulnerabilities the Indian financial system remains resilient – driven by rising profits and efficiency with six consecutive years of profitability growth. 
  • The total bilateral exposure between entities in the financial system reached a high of 71.4% at the end of September 2024, a growth of 16.5% over June 2024. The surge was largely driven by the rise in exposure of asset management companies [AMCs] and non-bank financial companies [NBFCs] to banks. – While this remains a serious concern a simulated contagion analysis by the RBI showed that losses due to the failure of five banks with the maximum capacity to cause contagion would not lead to the failure of any additional bank.
  • Household debt is on a rising trend with super-prime customers borrowing to create assets and subprime borrowers borrowing for consumption purposes. At 42.9% of the country’s GDP at current market prices in June 2024, India’s household debt is relatively low compared with other emerging market economies.
  • The stress test scenario forecast: 
  1. GNPA for banks would be 5.3% and NBFCs at 6%. 
  2. Capital adequacy ratio could fall to 16.5% in March 2026 in baseline and 14.3% in high-risk scenarios – higher than min. requirement of 12% for banks.
  3. CET 1 Capital ratio would be 13.2% as against minimum requirement of 4.5%

The recent round of stress tests conducted by RBI reveals that the capital levels of the banking system and the NBFCs will remain well above the regulatory minimum, even under adverse stress scenarios. Banking sector’s performance is pivotal to India’s economic health, as every deposit and loan contributes to the broader narrative of economic evolution.

2.3 RBI vide its circular dated Dec 30, 2024

  • Introduced beneficiary bank account name look-up facility for RTGS and NEFT system effective April 1, 2025.
  • Currently UPI and IMPS enable a remitter to verify the name of the beneficiary before initiating transfer but not there under RTGS and NEFT. 

Introduction of this facility would enable a remitter to verify the beneficiary bank account name before initiating a transaction. 

2.4 As per sectoral data on bank credit released by RBI,

  • Credit to agriculture and allied activities rose by 15.3% YoY   
  • Credit to industries, posted an 8.1% growth compared to 5.5% last year
  • Overall, non-food credit slowed to 11.8% compared with 16.5% a year ago, 
  • Loans against gold, on the other hand, increased by 66% compared to 15.5% a year ago.
  • Retail loans registered 16.3% growth YoY as compared with 18.7% last year.
  • Credit growth to the services sector was at 14.4% vs 22.2% last year.

Bank lending has slowed down across sectors in November primarily due to lower growth in credit to NBFCs and trade segment post introduction of higher risk weights. Gold loans from NBFCs are now getting replaced with banks due to strict implementation of LTV guidelines in NBFCs.

2.5 National Payments Corporation of India (NPCI) has extended the deadline for Unified Payments Interface (UPI) providers to adhere to its 30% market share limit by two more years to December 31, 2026. In November, NPCI data showed that PhonePe and GooglePay processed 7.4 billion and 5.7 billion, out of a total of 15.4 billion UPI payments. After PhonePe and Google Pay, comes Paytm followed by the likes of Navi, Cred and others.

  • The move therefore comes as a temporary relief for the Walmart-owned PhonePe and Google Pay, which together have more than 85% share of the UPI payments market and gives them additional time to implement the limit. 
  • NPCI also removed the UPI user onboarding limit for WhatsApp Pay with immediate effect

2.6 NPCI has recently rolled out a pilot to make net banking interoperable with mobile payments. 

  • Currently for example, merchant platforms such as Amazon and Flipkart typically tie up with aggregators or gateways such as CC Avenue or PayU which in turn individually partner with multiple banks to enable net banking. This involves individual reconciliation with each bank and then settlement with merchant.  
  • Banks can now join a centralised platform being set up by NBBL and directly enable net banking transactions by leveraging the IMPs tech. 

This would provide a relief, as different PAs need not tie up with different banks as through this single platform merchants could reach all major banks without independent agreement. 

# 3 SEBI

3.1 SEBI last Tuesday has rolled out a new compliance framework for listed entities, introducing integrated filing for governance and financial disclosures, which will be applicable for filings to be done for the quarter ending December 31, 2024. 

  • Under the new system, governance-related filings such as statements on investor grievance redressal and corporate governance compliance must now be submitted within 30 days of the quarter’s end
  • Financial filings, including disclosures of related-party transactions and quarterly financial results, have a 45-day deadline, with an extended 60-day timeline for year-end submissions
  • mandated quarterly disclosure of specific material events, including tax litigation updates, minor penalties, and acquisitions exceeding defined thresholds are to be incorporated into the integrated filing format, streamlining previously fragmented reporting practices.

The latest move aims to reduce compliance burdens by unifying multiple periodic filing requirements into a single system – single filing via BSE and NSE portals – and thus likely to ease procedural complexity. 

3.2 SEBI on Tuesday issued clarifications to its Cybersecurity and Cyber Resilience Framework [CSCRF] for regulated entities

  • Compliance deadline has been extended to April 1, 2025, for KYC agencies and Depository Participants. 
  • Data localisation have been put on hold for further consultations.

CSCRF is a significant step in adapting towards evolving cyber risks and the framework is designed to ensure that entities maintain robust cybersecurity posture, remain equipped with adequate cyber resiliency measures and can withstand, respond to, and recover from cyber threats, effectively.

 

# 4 Economy

4.1 As per ICRA report released last week

  • Credit growth for banks in India is estimated at lower rate of 10.5-11% for FY25, from its earlier forecast of 11.6-12.5%, citing a reduction in the industry’s exposure to unsecured retail and NBFC sectors.
  • Credit growth may further ease to 9.7-10.3% in the fiscal ended March 2026.

Reasons:

    • Persisting high CD ratio 
    • Implementation of the proposed changes with higher requirement in the liquidity coverage ratio (LCR) 
  • Implementation of the expected credit loss (ECL) framework and increased provisioning for project finance 

4.2 As per HSBC India release compiled by S&P Global,

  • Purchasing Managers’ Index [PMI] eased to 56.4 in Dec from 56.5 in November. 
  • PMI’s Future Output Index–a gauge for business confidence fell to 62.5 in December from 65.5 November.

This is the slowest pace of growth in 12 months as increased competition and price pressures weighed on manufacturing activity. The increase in selling prices was among the highest seen in around 20 years. Despite the December dip, the average PMI for 2024 rose to 57.5 from the 56.8 average recorded in 2023, signalling stronger annual performance. 

4.3 As per report released by Deloitte, Indian economy will grow between 6.5% and 6.8% this fiscal year, with a slight increase to 6.7% to 7.3% in FY2026, driven primarily by domestic consumption. 

4.4 As per data released last week by Govt., India’s infrastructure output, which accounts for about two-fifths of industrial production, jumped to a four-month high in November, driven by a rise in six of the eight core constituent sectors during the month. The index of the eight core industries rose an annual 4.3% in November, up from 3.7% in October, vs 2.4% in September 

  • Coal production up by 7.5%, reflective of better economic activity
  • Steel production grew 4.8%, vs 5.2% in October, 
  • fertiliser output grew by 2%, vs. 0.4% in October
  • Cement production rose 13% vs.3.1% in October.
  • Electricity production rose 3.8% vs.2% in the previous month.

4.5 As per data from the project-tracking database of Centre for Monitoring Indian Economy (CMIE), 

  • In the first nine months of 2024-25, new projects worth ₹15.6 trillion have been announced, down 27% from the same period in the previous fiscal year. 
  • New projects worth ₹6 trillion were announced across the country during the December quarter—a decline of nearly 22% year-on-year and 16% sequentially. 
  • In value terms, both government and private companies scaled back new investment proposals, with the government seeing a sharper decline in momentum.
  • Construction and real estate were the hardest hit, with new project announcements plummeting by 65% year-on-year. 

 

# 5 PE VC

5.1 As per Venture Intelligence report released, last week

  • Total PE/VC investments in 2024 was $31.1. bn – lowest since CY 2019
  • Cumulative investments were down by 5.5% when compared with CY2023 at $32.9 BN
  • No of deals exceeded 10000 from 993 a year ago. 

5.2 As per “Indian Tech Startup Funding Report 2024” released last week

  • The total funding raised by startups jumped 20% to $12 Bn in 2024 from $10 Bn last year
  • The number of funding deals also jumped 11% to 993 this year from 897 deals last year.
  • E commerce – most funded sector in 2024.
  • 13 new-age tech companies raised Rs. 29,000+ Cr via IPOs during the year.
  • 6 unicorns were minted last year (3 in China and 47 in USA)
  • 25% of urban online consumers in India shop in Indian languages 
  • India now 3rd largest startup eco system globally measured by no of startups and unicorns-70K tech startups, 118 Unicorns with $400 bn valuations and 118 soonicorns.

Prognosis for 2030

  • Smartphone users to go up from 1bn to 1.3 bn 
  • Internet users to go up from 821 mn. to 1.2 bn
  • Internet penetration (active users) to be 55%
Share this Article
All Articles