Week ending 16th Nov 2024
# 1 Markets
Shortened week witnessed longest losing streak since October 7, with Indian equity indices ending lower for the sixth straight session on Thursday. Nifty 50 having lost 10% of its peak value in September closed at 23532 while Sensex having lost 9.3% closed at 77580. Based on earnings downgrade of about 4-5% and foreign portfolio investors on selling spree having sold already Rs. 19927 cr in Nov, volatility likely to continue till we see earnings upgrade in December quarter.
Hopes of a December rate cut by RBI, died on Tuesday as retail inflation shot to a 14-month high, even as the economy consoled itself with a sequential recovery in industrial production. On net basis FPIs have offloaded nearly Rs. 8750 cr. of Govt securities in Nov. due to rising bonds and strengthened dollar and 10Y yield hardened to 6.82% on close.
All the three broad indices were down between 2-3% with Nasdaq tanking more post key announcements in Trump administration causing some nervousness in the market – higher import costs outweighing the likely tax cuts. Strengthened dollar and higher interest rates faded higher rate cuts and yields hardened with 10Y yield closing at 4.44%.
# 2 RBI
2.1 RBI last Monday laid down the rules of reclassification of FPI into FDI
- The current law says an FPI cannot hold more than 10% of the total paid-up equity capital as portfolio investment in an Indian company.
- The investment is categorised as foreign direct investment (FDI) if the holding exceeds the 10% limit.
- Centre’s approval is required once holding breaches the prescribed 10% regulatory threshold.
- Under the regulations, if a foreign fund already holding about 9% buys more shares, say, another 3% in a company, the entire holding of 12% is considered FDI.
Until now, there was lack of clarity on how the offshore portfolio manager could go about classifying and reporting the stake once the holding crosses 10%. They must adhere to all FDI regulations, including sectoral caps, entry routes, pricing guidelines, among others.
These norms come in the wake of additional scrutiny by New Delhi to monitor ownership of local financial assets by countries with which it shares a frontier.
# 3 SEBI
3.1 SEBI in its draft consultation paper released last week has proposed sweeping changes to Cat I AIF guidelines governing Angel Funds
- Limit investments to accredited investors
- Reduce the minimum threshold per startup from Rs. 25 lakhs to Rs. 10 lakhs
- Halve the lock in period from one year to six months if exit is through third party sale.
- Increase the maximum investment cap to Rs. 25 cr. from Rs. 10 cr.
- each angel fund investment to involve at least three investors, excluding the manager or sponsor, to prevent the funds from becoming single-investor vehicles
SEBI has registered 82 angel funds to date, collectively managing over ₹7,000 crore, illustrating their expanding role in India’s financial landscape. The amendments besides providing more flexibility to fund managers would certainly provide an opportunity to lower compliance costs, expand access, and attract a wider pool of investors into India’s growing angel fund ecosystem.
The removal of Angel Tax in the 2024 Union Budget fuelled debate over whether angel funds still needed regulatory oversight, especially as direct investments by angel investors in startups became more attractive. However, professional management, streamlined operations, and easier access to startup opportunities, warrant their continued inclusion under AIF regulations.
3.2 SEBI in its discussion paper has proposed to expand the definition of Unpublished price sensitive information [UPSI] by listed entities to avoid insider trading. The proposed inclusions of price sensitive information are:
- Fundraising activities and rating changes.
- Insolvency, restructuring, and loan settlements.
- Management agreements (e.g., shareholder or joint venture agreements).
- Fraud, defaults, and forensic audits.
- Regulatory or legal actions against entities or key personnel.
- Mergers, acquisitions, delisting, and major contracts.
- Licensing changes and third-party guarantees.
Companies narrowly classify UPSI, prompting SEBI to enhance clarity and compliance. Expanded list may enhance transparency in market disclosures and thus help avoid insider trading.
3.3 As per SEBI study report, based on 10-year analysis of 233 listed companies, released last week
- alarming trends noticed in royalty payments made by listed companies, with one out of four times, paying more than 20 per cent of their net profits as royalty to related parties [RPs].
- Out of such group, one of two firms did not pay dividend or paid more royalty to RPs than dividend paid to non-RP shareholders.
- Royalties paid by 63 loss making companies amounted to Rs. 1355 cr.
- Current threshold is 5% of turnover above which ratification of minority shareholders is required.
SEB’s study throws a light on poor disclosure levels, unfair payouts and unjustified payments for brand usage and technology know-how by these companies. Its time disclosure norms are strengthened by MCA as rates of royalty payments are not provided by listed companies in their annual reports.
3.4 SEBI has issued a consultation paper last week proposes several changes to enhance regulatory oversight and operational resilience of Custodians
- Increase in net worth requirement from Rs. 50 cr to Rs. 100 cr.
- a framework for Business Continuity Planning (BCP) and disaster recovery (DR) akin to those for qualified stockbrokers is also proposed
- a clearer demarcation of custodial and other financial services activities within custodians to avoid conflicts of interest.
- Outsourcing activities to be in compliance with existing outsourcing guidelines
Custodians ensure the safety and proper management of assets for institutional investors and their role has become critical with reduction in settlement cycle to T+0.
Higher net worth could provide a cushion against potential fraud losses and operational risks. In recognition of the vital role custodians play in the securities market, proposed changes will ensure smooth operations especially for institutional investors.
# 4 Insurance
4.1 Key takeaways from McKinsey Report on Indian Insurance industry, released on Nov 14, 2024
Opportunities:
- The sector experienced strong 11% CAGR growth (fy20 to fy23) with a gross written premium (GWP) exceeding $130 billion
- Further growth expected driven by rising healthcare costs, a growing middle class, increased insurance awareness post-pandemic, and supportive regulations.
- The Insurance Regulatory and Development Authority of India (IRDAI) has through regulatory interventions enhanced operational efficiency and competition amongst private players, which has simplified customer journeys and promoted digital innovations
- Favourable demographics, robust distribution networks, and economic development have enabled high valuation multiples (7 to 10 times price-to-book), to life insurers reflecting investor confidence
Challenges
- Operational inefficiencies, high expense ratios, and evolving risks are constraining profitability, despite strong premium growth.
- Slow innovation in both product offerings and distribution channels hinder growth compounded by limited financial literacy and mis selling
- Despite aspirations for “Insurance for All” by 2047, insurance penetration has slightly declined from 4.2% in 2022 to 4.0% in 2023
The report concludes that while India’s insurance industry stands at a critical juncture with both opportunities and challenges ahead, embracing innovation, improving operational efficiency, and addressing emerging risks will be key to sustaining long-term growth and contributing meaningfully to India’s broader economic development.
Detailed report >> The potential of India’s insurance industry | McKinsey
# 5 Economy
5.1 As per Global Macro Outlook 2025-26 released by Moody’s on Friday
- The Indian economy is in a sweet spot with a combination of robust growth and easing inflation. forecasting a 7.2% GDP growth in calendar 2024 and retaining the fastest growing economy tag. China seen growing 4.7% and G20 economies will expand 2.8% in 2024,
- Outlook remains robust for India due to
- The relocation of supply chains, investment from MNCs and Chinese domestic manufacturers seeking to diversify production
- household consumption increasing due to higher spending during the festive season and a recovery in rural demand.
- Rising capacity utilisation, positive business sentiment, government’s continued infrastructure spending supporting private investment.
- Healthy corporate and bank balance sheets, with abundant foreign exchange reserves
5.2 As per study done by CARE Ratings on 1074 listed non-financial companies and released last week,
- data on new investment projects announced by India Inc were lower by 29.5 % y-o-y in the first half FY25, whereas investment projects completed dropped by 53 % in the same period.
- The aggregate private capex in FY24 slowed down marginally to Rs 9.4 trillion as compared to Rs 9.5 trillion in FY23. Decline witnessed in sectors such as
- iron and steel (-4.4 per cent), non-ferrous metals (-15.4 per cent), healthcare (-50.1 per cent), and retail (-55.3 per cent) in FY24
While the data for both completions and announcements show an improvement in Q2FY25, it remains below the quarterly average seen in the last three years. Lower capex due to election related restrictions and uncertainties.
5.3 As per Commerce Ministry release on Thursday,
- The overall trade deficit, including both services and merchandise, fell to $10.12 billion in October, down from $15.85 billion in October 2023.
- India’s merchandise exports touched $39.2 billion in October, up from $34.58 billion in September but imports surged even more – to $66.34 billion from $55.36 billion in September
- Services exports rose to $34.02 billion in October from $30.61 billion in September and Services imports also increased to $17 billion in October from $16.32 billion in September
The widening deficit underscores persistent challenges in balancing trade despite incremental growth in outbound shipments
5.4 As per ET-Crisil India Progress Report, released on Wednesday.
- India’s GDP growth is expected to moderate to 6.8% in FY25 from the robust 8.2% in FY24 as high interest rates and stricter lending norms begin to temper urban demand
- In the medium-term GDP could grow by 6.7% on average between fiscal 2025 and 2031 and touch the $7 trillion mark.
- India’s current account deficit to rise to 1% of GDP this fiscal from 0.7% in FY24, though it will remain in the safe zone on the back of robust services export and healthy remittance inflows.
5.5 As per data released on Tuesday
- India’s industrial output rebounded in September, growing 3.1%, after contracting 0.1% in August, compared to 6.4% in Sept 2023.
- Manufacturing sector grew 3.9% in September.
- Consumer durables recorded increase of 6.5%, followed by intermediate goods (4.2%), and infrastructure/construction goods (3.3%).
- Consumer non-durables grew at 2%
Manufacturing growth was driven by a favourable base effect and pre-festive season stocking that boosted manufacturing. The improvement in growth of consumer goods output is a positive for consumption demand in the economy while the growth of consumer non-durables indicates that rural demand has shown continued momentum
5.6 As per release done last week,
- Govt’s procurement through the Government e-Marketplace (GeM) portal has crossed Rs 3 lakh crore till date this FY vs. Rs. 4 lakh cr. whole of last year.
GeM portal was launched on August 9, 2016, for online purchases of goods and services by all central government ministries and departments, panchayats and cooperatives.
It is gratifying to note that since inception more than 9.7 lakh MSMEs have registered on GeM, receiving orders of over Rs 4.19 lakh crore or around 40 per cent of the total. South Korea’s KONEPS is the largest such platform in the world. GeM stands at the second position to South Korea’s KONEPS