Week ending 9th Nov 2024
# 1 Market
The initial wave of exuberance in Indian markets following Donald Trump’s win has tapered as the realization sets in that Indian companies may not substantially benefit. The Sensex and Nifty closed below 80,000 and 24,000, respectively, on Friday, reflecting ongoing concerns over high valuations and subdued earnings growth. Among the Nifty100, the topline of 63 companies rose by just 5% in Q2 FY25 compared to 6.5% in Q2 FY24, while profit growth underwhelmed, based on reports from 34 of the Nifty50 companies that have declared results. With the prospect of low valuations in Chinese equities and substantial stimulus measures, many investors are turning their attention to China, perceiving it as a potentially more attractive entry point. As a result, volatility in Indian markets is expected to persist.
Despite this, the Indian IPO market remains strong. This year, funds raised through initial public offerings (IPOs) have surpassed ₹1.19 lakh crore ($14 billion), placing India second only to the U.S., which has raised $26.3 billion. Additionally, India is anticipated to receive approximately $2.5 billion in net inflows from international passive funds when MSCI rebalances its global index on November 25, potentially offsetting recent outflows.
In the U.S., a decisive Trump victory fuelled optimism around a pro-business agenda, resulting in a rally across the three major indices, each logging their best week of the year. The Dow Jones surged by 2,000 points to close at 43,999, the Nasdaq gained 1,000 points, reaching 19,290, and the S&P rose by 250 points, closing at 5,998 on Friday.
On the fixed-income front, the yield on the U.S. 10-year Treasury spiked to 4.41% following Trump’s win, up from 3.6% in mid-September, before settling at 4.30% on Friday. This rise reflects concerns over potential higher deficits, inflation pressures, and a strengthening dollar, even as the Fed recently cut rates by 25 basis points on Thursday. In contrast, Indian bonds traded within a narrow range, suggesting anticipation of a potential rate cut by the Reserve Bank of India next month.
# 2 RBI
2.1 As per the latest report on International Investment Position [IIP] released by RBI last week,
- India’s external assets grew faster than its liabilities between June 2023 and June 2024,
- India’s external assets increased by USD 108.4 billion over the year, while external liabilities rose by USD 97.7 billion.
- Despite this growth in assets, India’s net IIP, remained negative at USD 368.3 billion at the end of June 2024.
Overall, the report highlights a positive trend in India’s external financial position, as assets grow at a faster rate than liabilities, reducing the negative net IIP year-on-year.
2.2 The Centre is likely to lower the turnover threshold soon for mandatory onboarding of buyers on the Trade Receivables Discounting System (TReDS) to ₹250 crore from ₹500 crore.
- This measure will bring an additional 22 central public sector enterprises and 7,000 more companies onto the central bank-backed invoice discounting platform.
TReDS was introduced by the RBI in 2014 to address the issue of delayed payments to MSMEs,
Four digital platforms have been authorised to carry out TReDS which has more than 5,000 buyers and over 53 banks and 13 NBFCs registered as financers. In FY23, aggregate financing of 25.6 lakh invoices involving Rs 76,638 crore which improved to 41.6 lakh invoices involving Rs 1.38 lakh crore during FY24.
Lowering of the threshold may bring more buyers on the platform through which more MSMEs are likely to be benefited. However, since most of the MSMEs are not rated, financing continues to be a challenge on the platform. The real benefit flowing to needy unrated small MSMEs, is yet to be fully accomplished.
2.3 RBI last Wednesday made changes to KYC norms to align them with recent amendments in Prevention of Money Laundering [PML] Rules.
- Regulated entities (REs) will have to apply the customer due diligence (CDD) procedure at the unique customer identification code (UCIC) level – singular exercise for multiple accounts grouped under unique customer code. This will avoid duplication.
- REs have also been mandated to update to CKYC registry regularly as and when additional information on customer is obtained or as may be notified by Central Govt.
While CKYC has been by and large successful in Mutual Funds space, it has eluded banking as banks and NBFCs continue to undertake independent KYC at the time of on boarding and at regular intervals. We hope that improved CDD procedure and updating may improve acceptance across banks.
2.4 NPCI Bharat Connect, formerly NPCI Bharat BillPay Ltd, is introducing a new B2B payments platform.
- This would be an interconnected B2B platform to serve MSMEs.
- The platform’s goal is to enable seamless communication between disparate systems, simplify reconciliation, and foster a digital trail for credit formalization.
- The platform would offer interoperability between different ERP systems, streamlining operations for smaller businesses that typically lack sophisticated solutions.
Early feedback from banks indicates improved visibility and interaction across different business and banking systems, especially in distributor-retailer payment flows.
The platform’s development addresses the B2B payments gap not covered by NPCI’s retail-focused solutions, such as UPI and RuPay. Let’s hope this becomes another successful intervention from NPCI.
# 3 SEBI
3.1 SEBI vide its circular issued last Tuesday
- Directed that Mutual Funds [MF] should make separate disclosure of expenses for direct and regular plans, apart from the disclosure of total recurring expenses of the scheme.
- Prescribed a standardised format for MFs to declare expenses and risk associated with their schemes.
As distribution expenses and commission cannot be charged to investors of a direct plan, the expense ratio of direct plan of any scheme is lower than that of the regular plan of the same scheme and hence the returns of the direct and regular plans also differ. SEBI therefore requires separate disclosure for investor awareness and therefore a welcome move.
3.2 SEBI last Thursday in its consultation paper proposed to reverse its earlier decision meant for higher skin in the game for key employees in Mutual Funds
- As per SEBI guidelines issued two months before, AMC employees such as the CEO, CIO, and fund managers are required to invest 20 per cent of their annual salary and perks in the mutual funds they manage. This amount is locked in for three years.
- It has now proposed reducing the mandatory investment percentage, applying it based on salary brackets, and excluding non-cash components like ESOPs from the minimum investment calculation.
- Employees earning below Rs 25 lakh would have no mandatory investment, while those with a CTC between Rs 25-50 lakh would invest 10 per cent, those between Rs 50 lakh-1 crore would invest 14 per cent and those with a CTC of above Rs 1 crore would invest 18 per cent
- For non-investment staff such as COOs, sales head proposed to lower mandatory investment requirements allowing flexibility based on each employee’s role and activities within the AMC. Under the current rule, same percentage of investment is requirement for all designated employees.
- Under the current rule, units are locked even if employees leave before retirement age; SEBI has proposed allowing early release of units removing the lock in, upon resignation of employees subject to restrictions.
The proposals aimed at easing compliance, particularly for employees with lower CTCs and those in operational roles while retaining the principle of “skin in the game” for better alignment of interest.
3.3 SEBI last week has proposed changes in the securitisation market in its consultation paper.
- a minimum ticket size or investment threshold of Rs 1 crore for the RBI-regulated originators and unregulated entities is proposed.
- Max. no. of investors in private placements restricted to 200 (like in Bonds) and others to be done through public issue – with offer open for min of 3 days and max of 10 days in line with NCDs.
- all securitized debt instruments to be issued and transferred exclusively in demat form.
- Proposing changes for minimum risk retention and holding period requirements
The current framework is based on SEBI’s 2008 regulations and this up dation is in line with changes and required uniformity with NCD issuances.
# 4 Economy
4.1 As per HSBC release last week,
- India’s manufacturing and Services sectors saw an upswing in October, buoyed by festive season demand.
- The Manufacturing Purchasing Managers’ Index (PMI) climbed to 57.5, up from 56.5 in September, while the Services PMI increased to 58.5 from 57.7.
Manufacturing benefited from a surge in new orders and stronger international sales, while the services sector experienced robust customer demand. It is noteworthy that both sectors have remained resilient for nearly three years. This positive trend suggests a strong start for the economy in the final quarter of the fiscal year, supporting predictions of 7% growth.
4.2 What Trump win means to India?
Although it is early to predict the exact impact of the new US government policies on Indian markets, we try to summarise our point of view.
Major positives
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Some concerns:
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| 4.3 As per IMF report released last week, India is now expected to take over Japan’s position to clinch the
title of the world’s fourth largest economy in FY2025
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4.4 Major business friendly Supreme Court ruling last week!
- The ruling suggested that the State could not treat all private property as community resources for redistribution.
- The ruling suggests the state may adopt more targeted welfare strategies, such as progressive taxation and public schemes, rather than relying on broad interpretations of the law
- Although such appropriation normally follows compensation, the present ruling rejected previous judgments, which suggested that privately owned resources could be considered material resources of the community.
The majority opinion, authored by CJI, clarified that the Directive Principles of State Policy (DPSP) under Article 39(b) of the Constitution, which mandates the state distribute resources equitably, cannot be applied to all privately owned properties. The apex court clarified that the notion of “material resources of the community” cannot be broadly interpreted to include all privately owned properties simply because they serve individual needs.
Private property rights are well recognized as a key factor in a country’s prosperity, with a stark contrast offered by communist regimes that abolished individual ownership, and this ruling marks a major shift to a market-driven approach, limiting the state’s ability to classify private property as “community resources” for redistribution. Future welfare policies will likely focus on scarce, critical resources essential for public welfare which will help balance individual property rights with the need for social equity and public good.
# 5 PE/VC
5.1 As per Venture Intelligence report released last week,
- PE/VC Investments fell by $400 million in Oct 2024 at $ 2.3 billion against $ 2.7 billion in Sept 2024 and $ 2.6 billion in Oct 2023.
- No of deals have also fallen to 62 compared to 104 in Sept.
- Total PE/VC investments YTD stood lower at $ 25.6 billion vs $ 32.8 billion last year.
5.2 As per YS Research,
- In October, startups raised $1.106 billion in funding across 103 deals—a fall of 11% compared to the $1.245 billion raised in October last year.
- The total VC funding raised across 10 months in 2024 touched $11.7 billion, overtaking the $10.8 billion recorded in 2023.
5.3 On a lighter note, Its time to recall famous words of Peter lynch “Selling shovels in a gold rush more explosive than selling gold” with an interesting comparison in Swiggy times.
| Revenue | FY 2013 | FY 2024 | Remarks | PAT Q125 |
| Rs. Cr | Rs. Cr. | Rs Cr. | ||
| Zomato (distributor) | 11 | 12,120 | 1100x growth | 253 |
| Dominos (manufacturer) | 1407 | 5,650 | 4 x growth | 53 |