Week Ending 20th April 2024

# 1 Markets

Breaking four straight days of its losing streak due to the escalation of tensions in the Middle East, surprisingly, Indian benchmark indices climbed on Friday, with Sensex closing at 73088 and Nifty closing at 22147. However, we expect volatility to persist until the election results in June. But this geopolitical tension weighed heavily on investors’ sentiment across global markets.

Hawkish Fed speak reinforced speculation that US interest rates will remain higher for longer. The Stoxx Europe 600 index fell 0.7%, set for a third straight week of losses. Nasdaq and the S&P 500 ended the week by closing lower by around 3-5%.

Indian bonds mirrored US sentiments – while 10Y US T has hardened by 30 bps in the last one month, 10Y G.Secs have hardened by 15 bps. Continuing this, benchmark 10Y yields hardened by nearly 7 points last week, ending at 7.22%. Corporate bonds hardened on similar lines. Going forward clarity on Fed rate cut would drive the yields.

# 2 Banking

2.1 RBI last week has issued two draft directions on regulation of Payment Aggregators (PA), pertaining to physical Point-of-Sale (PoS) activities of these players, net worth and licensing requirements.

• An authorised non-bank online PAs (PA-O) or proximity payment PAs (PA-P) which wants to commence physical (or online) PA activity (as the case may be), shall seek approval from RBI prior to commencement of such business.
• PA-P banks to comply with the final norms within three months of issue whereas non-bank entities providing PA-P services will need to inform RBI about their intention to seek authorisation within 60 days of the circular.
• Non-bank PA-Os too will also need to seek RBI’s approval within 60 days if they wish to continue their PA-P operations.
• Non-banks providing PA-P services will need a minimum net worth of ₹15 crore at the time of application and a minimum net worth of ₹25 crore by March 31, 2028.

RBI has also directed banks to close the accounts associated with the PA activities of these non-banks by 31 October 2025, unless evidence of a submitted authorization application is provided.

In September 2022, the RBI brought regulations for Payment Aggregators [PAs]. However, the regulations are only applicable to those processing online or e-commerce transactions and not offline payments. The new draft seeks to harmonise regulations between the two sets of service providers – both online and offline payments. Regulating this growing activity is thus in the larger interest of consumers in India.

2.2 RBI on Tuesday directed all payment aggregators [PAs] to undertake due diligence of merchants on boarded as per RBI’s norms, to regulate the payment ecosystem.

• The KYC and due diligence norms, according to the RBI, shall be applicable 3 months from Tuesday’s circular and the due diligence of all merchants by payment aggregators shall be completed by September 30, 2025.
• PAs also to monitor transaction activity of merchant on an ongoing basis and need to undertake enhanced customer due diligence based on transaction pattern.

Further, non-bank payment aggregators have been asked to register themselves with the Financial Intelligence Unit-India (FIU-IND) and provide the needed information as desired by the said unit.

2.3 RBI on Tuesday directed that from August 1, 2025, no entity involved in card transactions, except for the card issuer and card networks, will be permitted to store data.

• This directive aims to enhance the security and privacy of cardholders’ information during transactions.
• This regulation will have implications for various stakeholders in the payment ecosystem, including banks, payment gateways, and merchants.

This is in continuation of its earlier directive on tokenisation of card details to prevent misuse of data in the card networks.

2. 4 As per data published by RBI, Bank credit in FY24 expanded 16%, the fastest in the past 10 years,

The growth print is higher – at 19.9% – if the merger of Housing Development Finance Corp (HDFC) into HDFC Bank is considered.

• Credit growth is probably the result of systematic and secular improvement in asset quality over the years and enhanced lenders’ appetite to advance funds.
• Economic recovery from the pandemic and sustained retail demand for loans also helped.

Credit drives economic growth, and it augurs well. An expected normal south-west monsoon should support agricultural activity while manufacturing is expected to maintain its momentum on the back of sustained profitability. It is worth noting that the banks’ aggregate deposit grew 13.2% year-on-year while the credit growth recorded at 16%.

# 3 Capital Markets

3.1 SEBI on Friday came out with a proposal to lay down a framework for price discovery of shares of Investment Companies (ICs) and Investment Holding Companies (IHCs).

Why is this required?

• the significant difference between market price and book value of these companies is hurting liquidity, fair price discovery, and investor interest.
  • Out of approximately 70 listed ICs or IHCs, 28 companies have 25 percent or more of their assets invested in shares of other listed companies. Among these 28 companies, 16 have had their six-month average VWAP (from October 1, 2023, to March 31, 2024) trading at a discount to their book value, based on the latest available information as of September 30, 2023.
• circuit filters set by Sebi prevent market prices from reflecting the true investment value, resulting in wide variances from book value and very low liquidity.

What is proposed?

• The entities should be listed for at least a year, at least 50 per cent of their assets in shares of other listed companies, and the 6-month average volume weighted average price (VWAP) should be less than 50 percent of the book value or the pro-rata book value based on their investments.
• Once identified, stock exchanges will initiate a special call-auction process for eligible companies with a 7-day notice. This is subject to certain conditions such as detailed information should be disclosed, including overall book value, book value based on investments, and last traded price.
• The auction will be considered successful if at least five unique buyers and sellers participate. If not successful on day 1, it continues until a price is found. The session’s duration and risk management will follow pre-open call auction rules for IPOs and relisted shares.

3.2 SEBI last week, has approved launch of Nifty Next 50 index derivatives.  The Nifty Next 50 Index represents 50 companies from the Nifty 100, excluding the Nifty 50 companies. The index is also sometimes referred to as Junior Nifty.

• As of March 2024, the Nifty next 50 index had the top sector representation from the financial services sector, with a weight of 23.76 percent, followed by the capital goods sector at 11.91 percent and consumer services at 11.57 percent. The index was introduced on January 1, 1997, with the base date and base value being November 3, 1996, and 1000, respectively.
• The market capitalisation of index constituents stands at Rs 70 trillion, representing about 18 percent of the total market capitalisation of the stocks listed on NSE as of March 29, 2024. The aggregate daily average turnover of index constituents stood at Rs 9,560 crores, accounting for around 12 percent of the cash market turnover in FY24.

The Exchange will offer a cycle of three serial monthly index futures and index options contracts – as cash settled derivatives contracts, expiring on last Friday of expiry month.

3.3 SEBI on Thursday came out with a standard reporting format for alternative investment fund (AIF) pertaining to Private Placement Memorandum (PPM) audit report to have uniform compliance standards and for ease of compliance, markets regulator.

• The reporting format has been prepared in consultation with pilot Standard Setting Forum for AIFs (SFA). The reporting requirement would be applicable for PPM audit reports to be filed for the financial year ending March 31, 2024, onwards.
• Under the rules, AIFs are required to submit their annual PPM audit reports to the trustee, board of directors, or designated partners of the AIF, as well as to the board of directors or designated partners of the manager and Sebi, within six months of financial year.

Sebi said that audit of sections of PPM relating to risk factors, legal regulatory and tax considerations and track record of first-time managers would be optional. In addition, illustration of fees and expenses and glossary and terms will also be optional.

The reporting format is being modified to keep pace with the fast-changing landscape of AIF industry and for policy and supervision purposes and would help create more investor awareness.

# 4 Economy

4.1 As per data released by Govt last week, India’s trade deficit significantly reduced to $ 78 bn in FY 24 vs $ 121.62 bn in FY 23. Exports stood at $ 776 bn while imports stood at $ 854 bn.

• While imports have fallen by $45 bn (from $890 bn in FY23 to $854 bn in FY24) exports have risen by only $0.28 billion in the same period.
• While merchandise imports decreased by $38.73 bn exports decreased by $14 bn
• Services exports are estimated to be $339 bn in FY24, an increase of $14 billion from the previous year, while services imports are estimated to be $177.5 billion, a decrease of $4.5 billion from the previous year, thus providing Services trade showing surplus of $162 billion in FY24.

Reduction in imports is the primary factor behind the improvement in trade deficits, as exports remain stagnant with nominal changes.

4.2 IMF last Tuesday raised India’s economic growth projection for FY25 to 6.8% from 6.5% projected in January. Other major agencies have also made upward revisions, confirming India’s status as the fastest-growing major economy. IMF has also projected 6.7% for FY24 and has now revised the estimate to 7.8%, which is 20 basis points above than the Indian government’s estimate.

• Since 2019-20, IMF’s reports have made numerous revisions to India’s growth projections, both upwards and downwards—almost in equal measure (barring the pandemic year, when the number of downgrades were high). The World Bank, which makes seven projections for each year, also has a mixed record.

Analysis shows that these projections have almost never matched the actual growth. It’s true that the pandemic upended all projections, but the mismatches are common even for the last (ninth) projection in most years.

# 5 PE

5.1 As per Tracxn Geo Quarterly Report released last week,

• FinTech’s raised total investments of $551 million Q1CY24—a drop of 57% compared with $1.3 billion in Q1CY 23.
  • Seed-stage funding saw the most decline, with a drop of 75% to $9.9 million in Q1 2024 from $39.2 million in Q1CY23.
  • Early stage fintech startups funding declined by 42% to $147 million, from $254 million in Q1CY23. Even on Q-o-Q basis, funding declined from $227 million in Q4 2023.
  • Late-stage funding experienced surge – Fintech startups raised $394 million in Q1CY24 nearly 5X increase from $80.1 million in Q4CY23, though decline of 60% funding from Q1CY23 which stood at $ 986 million.

5.2 As per Grant Thorton Bharat’s Q1 Tech Dealtracker

• India Inc witnessed a significant surge with 67 deals valued at $648 million during the first quarter of 2024. – Increase of 18% in volume and 25% in value.
• Despite funding slowdown tech startup system secured 4^th highest funding globally.
• 25% increase in deal values compared to the previous quarter, driven by five high-value deals ($50 million), constituting 59% of total deal activity.