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India: Infrastructure Set to Outpace IT as the Growth Engine
Equities, Markets - January 29, 2025

Asian Stocks advance on tech rebound

Asian Stocks advance on tech rebound

Overview
As investors seized opportunities, Nvidia and other shares of artificial intelligence-related technology recovered from steep losses the day before, and U.S. stocks closed Tuesday’s trading session higher. As attention shifts to the Federal Reserve’s rate decision and US mega-cap earnings, Asian shares also increased Wednesday morning, following Wall Street’s tech-led recovery from a selloff that rocked global markets.

Mild rise after a rocky start for Global Markets
Australian and Japanese stocks increased. For the Lunar New Year holidays, the majority of other significant markets in the area are closed. Nvidia Corp. recovered 8.9% after the biggest one-day value loss in history, while US equities futures fell after the S&P 500 increased 0.9% and the Nasdaq 100 increased 1.6% on Tuesday. Following President Donald Trump’s remarks regarding universal tariffs, the dollar and oil both rose.

The share increases follow a rocky start to the week due to worries that a low-cost artificial intelligence model from DeepSeek, a Chinese startup, may make it difficult to defend valuations of the technology driving the bull market. But after a reassessment, many like Steve Cohen suggested it would be beneficial for the sector. The Fed’s rate decision and the opening of the Big Tech reporting season on Wednesday will now be the region’s investors’ main tests for AI bulls.

In the last three months of 2024, core inflation in Australia decreased more than anticipated. Bets that the Reserve Bank would soon start a monetary easing cycle caused the Australian currency to weaken and the policy-sensitive three-year yield to drop five basis points.

Regarding US earnings, growth is expected to be at its slowest pace in nearly two years, even though profits from the so-called Magnificent Seven behemoths are still increasing and significantly exceeding the rest of the market. After Monday’s long-awaited AI reckoning, the dust is finally settling. While it continues to believe in the productivity story powered by AI, investing in this industry may not be as simple as it has been in the last two years, according to Emily Bowersock Hill of Bowersock Capital Partners. She went on to say that when it comes to investing in AI, it is anticipated that investors will be more discriminating and choosy.

Fed Meeting Predictions
Amidst robust demand and recalcitrant inflation, it is generally anticipated that Fed members would maintain borrowing costs at their current level Wednesday. In the hopes that Fed Chair Jerome Powell will hint a cut in March, bond dealers are increasing their optimistic wagers on US Treasuries. According to a study by 22V Research, 67% of participants anticipate a “mixed/negligible” response to the Fed’s announcement on Wednesday, 21% said they are “risk-off,” and 12% said they are “risk-on.”

At 4.52%, the yield on 10-year Treasuries decreased by 1 basis point. After rising 0.8% on Tuesday, West Texas Intermediate oil continued to rise early on Wednesday. In a note, Win Thin of Brown Brothers Harriman stated that the US fundamental story of robust growth, high inflation, and a more hawkish Fed still favors higher US rates and a stronger dollar. This Fed meeting is predicted to be largely unremarkable for the stock market by several criteria.

According to Bowersock Hill, markets are not anticipating a cut and will instead concentrate on the Fed’s projections for the remainder of 2025. Interest rates and inflation will both continue to rise, so it wouldn’t be shocking to see one rate cut in 2025, or perhaps none at all.

US Market Rebound
In its largest daily percentage rise since July 31, the S&P 500 technology sector surged 3.6%, while an index of semiconductor equities saw a 1.1% gain. Apple’s stock increased 3.7%. When Apple, Microsoft, and other firms released their quarterly results later this week, investors were excited to hear what they had to say.

Following the release of AI models by Chinese startup DeepSeek that it claimed were on par with or superior to top U.S. competitors at a fraction of the price, there was a tech sell-off.
According to Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey, markets are seeing the usual bounceback rally, which is to be expected when there is news that is less precise and more about the possibility of a future change.

India’s IT stocks witness a surge
Information technology companies drove Wednesday’s opening gains for India’s major indexes, while investors awaited the U.S. Federal Reserve’s interest rate remarks later in the day. As of 9:25 a.m. IST, the Nifty 50 opened new tab up 0.27% to 23,019.15 points, while the BSE Sensex opened new tab up 0.28% to 76,102.57. Leading the sectoral advances were eleven of the thirteen key sectors, with IT stocks (NIFTY IT) up 1.6%.

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Shree Renuka Sugars Q2 FY26: Revenue Holds Up Seasonally, But Loss Widened Sharply as Costs Bite
Equities, Markets - January 28, 2025

DeepSeek's Rise Shakes AI Industry, Sends Markets into Decline

DeepSeek’s Rise Shakes AI Industry, Sends Markets into Decline

Overview

After a brutal session on Wall Street, where the collapse caused by a questioning of the artificial intelligence boom continued into a second day, Japanese shares led losses in Asian stocks. Big IT companies led the declines, with SoftBank Group Corp. plunging 6% and Advantest Corp. falling as high as 11% in Tokyo. That came after the Nasdaq 100 and S&P 500 fell Monday due to worries that values might be difficult to support due to a low-cost AI model from a Chinese business called DeepSeek. As the Lunar New Year holidays begin, several Asian markets, including those in China and South Korea, will be closed on Tuesday.

Following US President Donald Trump’s announcement that he would soon impose tariffs on foreign-produced semiconductors, medicines, and some metals to force manufacturers to manufacture in the nation, the dollar appreciated against all of its Group-of-10 rivals. The next Treasury Secretary, Scott Bessent, was confirmed. According to the Financial Times, Bessent supported gradual universal taxation.

The DeepSeek Conundrum

Liang Wenfeng, the head of AI-driven quant hedge firm High-Flyer, created DeepSeek in 2023. The business creates AI models that are open-source, allowing the software to be examined and enhanced by the larger developer community. Following its introduction in early January, its mobile app shot to the top of the US iPhone download charts.

Since its January release in the US, an AI-powered chatbot developed by the Chinese startup DeepSeek has rapidly risen to the top of the free app download list on the Apple store. Financial markets have been rocked by the app’s unexpected rise in popularity and DeepSeek’s purportedly low prices when compared to AI firms with headquarters in the US.

Marc Andreessen, a venture capitalist from Silicon Valley, has praised DeepSeek as one of the most remarkable and astounding advances in artificial intelligence. The company claims that at a tenth of the price, its most recent AI models are comparable to industry-leading models in the US, such as ChatGPT. The app’s developers claim that it only cost $6 million (£4.8 million) to develop, a significant reduction from the billions of dollars that US AI companies have spent.

AI Fall to continue?

Matthew Haupt, a portfolio manager at Wilson Asset Management, stated that while it is too soon to predict the future effects of DeepSeek, it has shown that the industries that could be affected are crowded. He also stated that the prospects for a selloff have changed because the concerns around growth outlooks are no longer entirely predetermined.

The market narrative that has dominated since Donald Trump’s reelection in November —America-first, tech-fueled bullishness that saw a clear upward path for risk assets pushed by deregulation, tax cuts, and even government support of AI investment—was further shattered by Monday’s AI fall.

Following Monday’s selloff, US equity futures saw minimal movement in the early hours of Tuesday. With the 10-year yield up one basis point to 4.55% after dropping nine basis points on Monday, treasuries marginally declined in Asia. The gains from Monday were maintained by a 0.3% increase in the Bloomberg Dollar Spot Index. Taiwan and Vietnam are among the other Asian markets that close for the Lunar New Year vacations. Singaporean and Hong Kong bourses are scheduled to close early.

In New York, Nvidia Corp., the face of the AI revolution, fell 17%, losing $589 billion in market value—the highest ever for a single stock. Despite recent efforts to reduce their power, the group of companies that make up roughly 40% of the Nasdaq 100 include Nvidia, Apple Inc., Microsoft Corp., Amazon.com Inc., Meta Platforms Inc., and Alphabet Inc. In the S&P 500, it is almost 30%.

Chinese Lunar New Year

As Chinese investors begin their Lunar New Year holidays, which will end on Tuesday, they have a lot to think about. The country’s economy unexpectedly slowed down at the beginning of the year, halting the momentum of a rebound spurred by stimulus plans and highlighting Beijing’s need to take more action to avoid another recession. In an effort to boost trust in the so-called Magnificent Seven group of firms, traders around the world will be focusing on this week’s earnings releases from companies like Apple and Microsoft.

With company shares close to all-time highs and their valuations stretched, investors are about to enter another crucial Big Tech earnings cycle. This time, there’s a crucial difference: the group’s earnings growth is anticipated to be the slowest in over two years.

DeepSeek hitting American companies hard

DeepSeek sets itself apart from other chatbots, such as OpenAI’s ChatGPT, by explaining its logic before responding to a prompt. According to the business, its R1 release provides performance comparable to OpenAI’s most recent, and it has issued licenses to anyone who wants to build chatbots with the technology.

According to reports, DeepSeek was created for hundreds of millions of dollars less than its US competitors, which raises concerns about America’s continued dominance in AI. On January 27, financial markets were rocked by the company’s allegedly reduced costs, which caused the tech-heavy Nasdaq to plummet more than 3% in a global sell-off that included data centers and chip manufacturers.

The US-based Nvidia, which produces the potent chips that underpin AI, seems to have been the most severely affected. As its stock price fell 17% over the day, it lost around $600 billion in market value on Monday, the worst one-day decline for any firm in US history. According to Forbes, Nvidia’s market worth dropped from $3.5 trillion to $2.9 trillion on Monday, dropping it to third place behind Apple and Microsoft, the most valuable business in the world by market capitalization. Compared to Nvidia’s semiconductor chips, DeepSeek employs less sophisticated ones.

Their achievement challenges the notion that the only means to advance AI are with larger budgets and top-tier CPUs, a notion that has greatly raised doubts about the necessity and prospects of high-performance computers.

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MRF Q1 FY26: Revenue Up, Profits Down on Margin Pressures
Automobile News, Autos, Equities, Markets - January 28, 2025

India’s export in auto industry reach 19 percent

India’s export in auto industry reach 19 percent

Overview
In the year 2024, the Indian automobile industry recorded a growth of about 19 percent in exports on a year-on-year basis. The main reason for this is strong demand in auto segments such as commercial vehicles, two-wheelers, and passenger vehicles.

The total volume of shipments of India in the auto industry surged to about 50,98,810 units in the year 2024. It is higher by about 19 percent compared to 42,85,809 units of shipments in the year 2023.

In the year 2024, the Indian auto industry saw recovery in demand from developing economies such as Africa and Latin America. It resulted in the growth in the export levels of the auto industry in India.

Export in different auto segments
The export of the passenger vehicle segment surged to about 10 percent in the calendar year 2024. It accounts for about exports of 7,43,976 units higher than the previous year’s export of about 6,77,956 units.

Similarly, an uptrend was recorded in exports of the utility vehicle segment of about 33 percent on a year-on-year basis. In terms of volume of exports, it was about 3,23,621 units. Also, the unit of export in the van segment was about 8,207 units which accounts for 14 percent growth on yearly basis.

In contrast to this, the passenger vehicles segment registered a fall of about 4 percent. In terms of volume of shipments, it was 4,12,148 units in the year 2024 in relation to 4,27,876 units in the year 2023.

The export growth of the two-wheelers segment was driven by expansion of export growth in moped, scooter and motorcycles. Overall, the export levels of two-wheelers in the year 2024 was about 23 percent higher which accounts to 39,77,162 units of exports in relation to 32,43,673 units of export in the calendar year 2023. While, the units of export of motorcycles was about 33,97,586 units in the year 2024 and it raised the export growth by about 24 percent. In the year 2024, the exports of moped vehicles increased by about 6,346 units of exports leading to yearly export growth of around 89 percent. Apart from this, the scooter recorded a growth in export units in the year 2023 was about 4,91,329 which later increased to 5,73,230 units of exports in the calendar year 2024.

The commercial vehicle segment also recorded a hike in export levels in the year 2024 by about 6 percent. It was higher in terms of volume export in the year 2024 by about 72,511 units compared to export levels of about 68,473 in the previous year.

The three-wheeler segment of the Indian auto industry recorded an export growth of about 2 percent in the year 2024. In terms of volume exports, it was 2,91,919 units of export in the year 2023 and raised to 2,98,235 units of export in the year 2024.

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Renault's Bold Move: JSW Alliance Shifts India's EV Landscape
Automobile News, Autos, Equities, Markets - January 28, 2025

Maruti Suzuki India to hike prices from Feb

Maruti Suzuki India to hike prices from Feb

Overview
The market leader in automobiles, Maruti Suzuki India, declared on Thursday that it will begin raising prices for a number of models by up to Rs 32,500 on February 1, 2025. This change is a reaction to the rising operational and input costs the business has been dealing with. This decision comes after the corporation said in December 2024 that it will raise prices by up to 4% in January 2025 in order to offset growing expenses. Each model has a different rise in magnitude.

Price Hikes on Specific Models
The company is unable to pass on part of the higher costs to the market, despite its dedication to cost optimization and minimizing the impact on customers, according to the regulatory filing.

The company’s small car, the Celerio, would experience an ex-showroom price hike of up to Rs 32,500 under the new pricing, while the luxury variant, the Invicto, will see a price increase of up to Rs 30,000. The price of Swift will increase by Rs 5,000, while that of the company’s well-known Wagon-R model will increase by up to Rs 15,000. Price increases of up to Rs 20,000 and Rs 25,000 would be implemented for the SUVs Brezza and Grand Vitara, respectively.

According to the filing, the Alto K10 and S-Presso, two entry-level small cars, will see price increases of up to Rs 19,500 and Rs 5,000, respectively. It further stated that the price of the premium small model Baleno, the compact SUV Fronx, and the compact sedan Dzire would increase by much to Rs 9,000, Rs 5,500, and Rs 10,000, respectively. Currently, the company offers a variety of automobiles, ranging from the entry-level Alto K-10, which starts at Rs 3.99 lakh, to the Invicto, which costs Rs 28.92 lakh.

Maruti Suzuki Past Sales Record
The company revealed that overall passenger vehicle sales increased significantly from 134,158 units sold in November 2023 to 141,312 units sold in November 2024. With 144,238 sold domestically, 8,660 sold to other original equipment manufacturers (OEMs), and 28,633 sold abroad, the total number of vehicles sold was 181,531.

Maruti Suzuki India Ltd. announced that its total wholesale sales in December 2024 increased by 30% to 178,248 units from 137,551 units in the same month the previous year. According to a regulatory statement from Maruti Suzuki India, total domestic sales, including light commercial vehicle sales and deliveries to Toyota Kirloskar Motor, were 132,523 units last month, up 24.44 percent from 106,492 units in December 2023. Further, domestic passenger vehicle (PV) sales increased by 24.18% to 130,117 units in December 2024 from 104,778 units in the same month the previous year.

Sales of small cars, including the Alto and S-Presso, increased to 7,418 last month from 2,557 during the same period last year. In a same vein, sales of small cars including the Baleno, Celerio, Dzire, Ignis, Swift, and WagonR increased to 54,906 units from 45,741 units in December 2023. According to the firm, sales of utility cars, including as the Brezza, Ertiga, Fronx, Grand Vitara, Invicto, Jimny, and XL6, increased to 55,651 units in December 2024 from 45,957 units in the same month the previous year. Ciaz mid-sized sedan sales decreased to 464 units from 489 units in December 2023.

According to MSI, its exports in December increased to 37,419 units from 26,884 units in the same month the previous year.

Q2 Results were largely flat
Maruti Suzuki India’s Q2 FY25 net profit of Rs 3,069 crore fell 17.4% year over year, falling short of the Rs 3,710 crore forecast. Revenue met the Bloomberg estimate of Rs 37,229 crore, up 0.4% year over year to Rs 37,203 crore. EBITDA dropped 7.7% from the same time last year to Rs 4,417 crore, which was also less than the Rs 4,712 crore expectation. At 11.9%, the EBITDA margin decreased 100 basis points year over year. A significant increase in tax outgo, which increased to Rs 1,015 crore in Q2 from Rs 67 crore in Q1 of last year, was the main cause of the decline in profit.

Maruti Suzuki Share Price History
Over the past five sessions on the NSE, Maruti Suzuki India Ltd.’s shares have essentially remained unchanged, down 0.74%. The stock price has increased 9.67% in the last six months, while shares have increased more than 20% on the NSE in the last year. On January 24, Maruti Suzuki India’s stock fell 0.80% during the day to a low of Rs 11,949.35 a share. At 23,092.20, the benchmark Nifty 50 was down 0.49%.

Q3 Result Date announced
The results for the quarter that concluded on December 31, 2024, will be released shortly by Maruti Suzuki India Ltd. The biggest automaker in the nation, Maruti Suzuki India, offers a variety of sedans, hatchbacks, MUVs, and SUVs. The company wants to be the top EV manufacturer in the nation and recently unveiled the eVitara, its first electric vehicle. Maruti Suzuki was founded in 1981 and is currently valued at about Rs 3.75 lakh crore. The stock exchanges have previously been notified by the business of the release of its Q3 results.

In an exchange filing on January 13, Maruti Suzuki India stated that its board of directors will meet on Wednesday, January 29, to approve and announce the financial results for the quarter ending in December 2024. In a stock exchange filing, the firm announced that its board of directors will meet on Wednesday, January 29, 2025, to review and approve, among other things, the unaudited financial statements for the quarter that concluded on December 31, 2024.

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UGRO Capital Acquires Profectus Capital in Ambitious ₹1,400 Crore Deal
Equities, Markets - January 28, 2025

Stance on divestment and its impact on PSU stocks in the upcoming budget

Stance on divestment and its impact on PSU stocks in the upcoming budget

Overview
Following the year 2020, there is a considerable mismatch between the projected divestments and the actual divestment occurred in the budgets so far. Currently, many experts believe that this time’s budget will have a reasonable approach in terms of setting targets for divestment. This year’s budget will have smaller targets than the targets planned in the budget year 2022 and 2023. This time projection will fall in the band of about Rs. 30,000 crore to Rs. 60,000 core.

Gap in divestment target
The divestment reached to about Rs. 9,000 crore until now compared to its target of Rs. 50,000 crore in the financial year 2024-2025. It indicates a huge gap in the actual action and projected plans of divestments. The stake sales of the government of India were done through offer for sale method. It sold its stakes in Hindustan Zinc, General Insurance Corporation of India, and Cochin Shipyard. It also received money from selling its shares in different companies and investments managed by specified undertaking of Unit Trust of India.

Impact of lower target
In the Budget 2025, the projection will fall in the band of about Rs. 30,000 crore to Rs. 60,000 core. Nomura Holdings, a Japanese brokerage firm, stated that India is suffering from getting less money from sale of its stakes in the companies. Also, it is facing the issue of fall in growth of nominal GDP. This will result in cancelling out the effect of savings made by the government due to lower capital spending on its projects. Despite this, the government is anticipated to keep its present divestment goal in the budget.

In case the government of India reduces the target of divestment which could be around Rs. 30,000 crore then it will be for the fifth year in a row that the budget has contracted the goals of divestments.

The underperformance or remarkable performance of divestment will not have a big impact on India’s financial position. It is because the share of divestment in the total revenue collection has become small in the duration of previous years. In the financial year 2025, it was about 1.6 percent.

Effects on Public Sector Undertaking Stocks
Nilesh Shah, managing director of Kotak Mahindra AMC stated that the government of India should carefully plan its budget. The sale of shareholdings of the government of India in non-core public sector units will help the country to reduce the fiscal deficit.

In the upcoming financial year 2026, the major sales of companies such as IDBI bank, BEML, Shipping Corporation, and NMDC steel are expected to be undertaken. These plans of selling shares will help the government to fufil the goals of divestment set in the financial year 2026.

In recent times, many investors are showing their interest in stocks of infrastructure and manufacturing sectors undertaken by the public sector. It has resulted in a hike in market capitalization of these companies which includes Shipping Corporation of India and NMDC Steel.

The stake sales of government in IDBI bank of about 60 percent will possibly be undertaken in the financial year 2026. To conduct a financial bid of IDBI bank, a thorough review is taken of the bank and it is going to be given to potential buyers.

The sale of shares of Shipping Corporation of India is expected to happen in the upcoming financial year as well. This company is the biggest shipping firm having about 70 vessels. It is being moved forward due to administrative hurdles in the process of divestment.

One of the other reasons for lower targets is also possibly due to the belief that public sectors in key areas are expanding their potential capacity.

The announcement of the divestment process of the companies normally leads to a hike in that stock. The reason for this is that investors think that privatization of a company will lead to expansion of profit levels. In present times, small goals of divestment will possibly lead to poor performance of that public sector stocks on the day of the budget announcement. Also, the market changes due to news of divestment will affect that particular stock and not the entire sector.

In conclusion, the government of India is getting its return from strong operational activities, core public sector units, and high attraction of investors towards PSU stocks. It is unlikely for the government to do large stake sales. Thus, investors having a stake in PSU stocks possibly need to find other reasons than news of divestment for hike in prices of these stocks.

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Liquidity is a major concern in the Indian Banking Sector
Equities, Markets - January 28, 2025

Liquidity is a major concern in the Indian Banking Sector

Liquidity is a major concern in the Indian Banking Sector

Overview
Following the sharp decline in a crucial liquidity metric, Indian lenders have requested that the central bank inject long-term cash into the banking sector, according to six treasury officials. The liquidity management framework of the RBI has emerged as a major worry for corporates, NBFC executives, and bankers alike. Interest rate negotiations, which have historically dominated conversations between the central bank and the government, have been overshadowed by tight liquidity, a crucial concern. Given the strain on the system, the RBI should review its strategy for managing liquidity to make sure it still reflects the state of the economy and the financial system.

The RBI must provide liquidity support to maintain smooth credit flow in the face of persistent liquidity constraints in the country’s banking system. Although open market operations (OMOs) are a common method of introducing primary liquidity, structural and legal issues limit their usefulness in the present situation.

Liquidity Tightening: A rising concern
A daily liquidity shortage of more than Rs. 1 lakh crore has been present in the interbank market (LAF system) since December 16, surpassing Rs. 2 lakh crore on a regular basis since January 4, and reaching Rs. 3.3 trillion on January 23, 2025—the biggest amount since 2010. Furthermore, by late December 2024, total liquidity—including government cash balances—had drastically decreased from a surplus of Rs. 3- 4 lakh crore during the previous two years to barely Rs. 64,350 crore.

Causes of Liquidity Crunch
The RBI reduced its foreign exchange reserves from over $700 billion in October to $623 billion by mid-January 2025 as a result of selling large amounts of dollar reserves to counteract the rupee’s decline brought on the aggressive inflows of foreign funds. Equivalent rupee liquidity has been removed from the system as a result of these dollar sales. In January alone, foreign portfolio investors sold $8.2 billion worth of Indian stocks and bonds, reversing the $1.8 billion in inflows in December and significantly depleting liquidity.

Additionally, the change in asset allocation patterns is a major element causing liquidity issues. Bank fixed deposits have been replaced by investments in insurance, PFs, and pension products due to tax benefits. These vehicles make significant investments—more than 60–70%—in government securities (G-Secs) and State Development Loans (SDLs), in contrast to banks, which devote about 75% of their resources to the private sector. Due to institutional investments that disproportionately benefit the government or PSU sectors, this change has increased the cost of funding between SMEs and MSMEs. OMOs by themselves are unable to adequately meet systemic liquidity demands when banks’ contribution to government funding declines.

Steps taken by RBI
In order to inject Rs.1.13 trillion into the system, the RBI lowered the Cash Reserve Ratio from 4.5% to 4% on December 8. By January 20, the daily repo will have increased from Rs. 50,000 crore to Rs. 82 lakh crore. FX swaps and longer-term repos have also been used. The total value of the open market operations (OMO) was Rs.10,000 crore. Systemic and structural issues are the reason why the liquidity shortfall continues in spite of these steps.

Structural Challenges to Liquidity Management and Tools

OMO Challenges
The ability of banks to offer excess government securities to the RBI determines how successful OMOs are. However, banks lack the flexibility to effectively participate in OMOs because they are operating near their minimal Liquidity Coverage Ratio (LCR) criteria. OMOs give institutional investors the ability to tender bonds to the RBI in return for cash, such as insurance firms and provident funds (PFs). However, unless bondholders turn their holdings into bank deposits, this liquidity inflow has little direct effect on the banking system. As a result, OMOs frequently cause government bond yields to drop precipitously without giving banks a corresponding increase in liquidity.

Institutional investors may further disintermediate the banking system if they reallocate the funds to corporate bonds. As a result, banks’ deposit growth would be constrained, and credit and deposit expansion would both decline. Businesses that rely on bank loans, such as retail borrowers, MSMEs, and SMEs, are disproportionately affected by this situation, which keeps their cost of financing constant. The gap between high-quality borrowers and the whole economy is widened as AAA-rated corporations and government bonds profit from declining yields.

Rate Cut Issues
The RBI’s rate cuts are unlikely to have the desired effect until structural liquidity concerns are addressed. High deposit costs prevent banks from efficiently passing rate reductions on to customers. Therefore, rate cuts run the danger of being ineffectual in the absence of specific actions to reduce banks liquidity.

Other Crucial Challenges
The transition to a just-in-time payment system for state funding has resulted in idle government cash sitting outside the banking system, which brings us to the issue of unspent government balances and liquidity management. Interest rates are rising as banks like SBI, which formerly depended on government deposits, compete for customer deposits. Additionally, when the bank replaces maturing loans with new deposits, the HDFC-HDFC Bank merger has boosted competition for deposits. The FD to Mutual Fund Shift is another important aspect as bank FD holders progressively switch to mutual funds, the demand for long-term FDs declines. Furthermore, banks are being forced to hold more idle cash as a result of the unexpected needs for liquidity brought on by the quick adoption of UPI, NEFT, and RTGS.

Conclusion
The RBI must investigate fresh and creative instruments to promote banking system liquidity and encourage wider credit expansion. In addition to CRR changes, strategies like buy-sell FX swaps, long-term repo operations (LTROs), or dynamic modifications to LCR rules could guarantee liquidity flows to the most vulnerable industries. In summary, resolving the lack of liquidity in India’s banking sector necessitates a multipronged strategy that takes into account structural changes, regulatory adjustments, and creative liquidity solutions. The RBI can guarantee fair access to credit and promote sustainable economic growth by reorienting its policy instruments to the changing financial environment.

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The biggest Downfall of Nvidia in the market history
Equities, Markets - January 28, 2025

The biggest Downfall of Nvidia in the market history

The biggest Downfall of Nvidia in the market history

Nvidia recorded a significant fall in price. The reason for the drop in price is due to investors being worried about competition from China’s artificial-intelligence start-up known as DeepSeek. It resulted in loss of a big amount of market value in the market leading to the largest loss for any firm in the world.

Downfall of Nvidia
When the market started on 27th January, 2025, the Nvidia recorded a fall of close to 13 percent. It resulted in the company losing market capitalization of around $465 billion. The fall overshadowed its previous fall in the month of September which accounts to about 9 percent and loss of $279 billion of market capitalization.

Spill-over Effect
Nvidia has a considerable position in important indexes. It led to a spillover effect in these indexes and market as well. In the past, the company’s stock decline has resulted in seven of the ten highest falls in the S&P index. Currently, the drop in Nvidia’s stock led to a fall of about 3.6 percent and 2.3 percent in Nasdaq 100 and S&P 500 indexes, respectively.

Reason for market downturn in technology stocks
The large drop in Nvidia’s stock led to a huge sell of a number of technology stocks in the markets. The main reason for this is rising concerns among investors about DeepSeek and its low cost AI model. Many investors are anxious that the large firms in the US have spent a large amount of funds in the creation of artificial intelligence. In contrast to this, the Chinese company was able to create AI models which are competitive to western AI models at a very low cost.

Concerns about DeepSeek
In the previous week, China launched its AI model known as DeepSeek. It is observed as an AI model which competes with AI models such as Meta Platforms Inc. and Open AI. It was created by Liang Wenfeng, chief of quantfund. The product is in the top list of the Apple’s app store.

According to the analysts of Jefferies, this could be a big matter of concern for the prevailing AI models in the market. The reason for this is that these models are working with huge computing power, high levels of use of energy, and also use of expensive chips.

Expenditure on AI models
For years, huge expenditure has been made on AI models. This has helped Nvidia to gain benefits as it makes semiconductors for AI technology. Such a big amount of expenditure will remain in the future as well. However, the investors will be vigilant about firms which make huge investments in AI models but with no returns.

Meta made a public statement that it will increase its capital financing on AI technology plans to about 50 percent leading to the value of 65 billion dollars. This resulted in prices of Meta stock reaching high. Apart from this, Stargate, a joint venture was launched by companies such as SoftBank Group, Oracle, and OpenAI of about 100 billion dollars. The purpose of the plan is to create AI infrastructure and data centers across the United States.

Deepseek’s progress in midst of US bans
The US has taken certain steps to halt the development of China in AI models such as prohibition of export of advanced semiconductors. It also restricted the amount of sales of advanced AI chips of Nvidia to many countries in the world. Due to export prohibition by the USA, the Dutch company known as ASML was not at any point of time able to export its high-tech extreme ultraviolet lithography machines to China. Even under Biden’s regime, the Dutch was not able to export its immersion deep ultraviolet lithography machines to China.

Despite these challenges, the development of DeepSeek indicates that China has been able to pave its way in AI models by focusing on using its scarce resources in the wellplanned way.

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Easing of risk weights on loans given to MFIs and NBFCs
Equities, Markets - January 27, 2025

Bank Results highlight issues in the banking segment

Bank Results highlight issues in the banking segment

Overview
Earnings season has begun, and as usual, the performance of the banking industry provides insight into the overall health of the economy and underlying patterns in the payback cycle. The December figures thus far suggest that the industry is under underlying pressure.

IDFC First Bank’s profit slides
For example, IDFC First Bank’s quarter has been uneventful, with a notable 52.6 percent year-over-year drop in net profit at Rs 339.4 crore. The decline has mostly been ascribed to a downturn in the microfinance industry and an increase in wholesale banking’s market share, both of which have had an impact on the lender’s net interest margin (NIM).

Even though the bank’s net interest income (NII) increased 14.4% to Rs 4,902 crore, it is evident that certain business model and operational issues are plaguing the bank. Notwithstanding the difficulties, the rise in core operating profit (up 15 percent) and operational income (up 15 percent) suggests a strong base performance.

The shift in IDFC’s microfinance business appears to be the fundamental problem. The bank may eventually take advantage of operational efficiencies as its scale grows as it shifts to universal banking, which includes branching out into areas like wealth management, corporate banking, and credit cards. Despite its short-term difficulties, the microfinance shift brings to light the difficulties in sustaining profitability while striking a balance with adherence to regulatory standards such Priority Sector Lending (PSL) for underprivileged sectors.

ICICI Bank’s margin suffers
At Rs 11,792 crore, ICICI Bank’s net profit increased by 15% year over year. The second-largest private bank by assets in India may also be suffering margin compression, as evidenced by the minor drop in NIM from 4.43 percent to 4.25 percent, despite a 9.1 percent increase in net interest revenue to Rs 20,370 crore. This is especially noteworthy because the Indian banking sector is under pressure from both increased competition for customer deposits and inflationary cost rises.

Despite a slight decline in its gross non-performing assets (NPA) percentage, ICICI Bank’s steady asset quality indicates a robust business strategy. Given the seasonal stress in the Kisan Credit Card portfolio, a vital component of rural credit, the 17% increase in provisions indicates a responsible strategy in light of bad loan risks.

HDFC Bank’s asset quality drops
The earnings of HDFC Bank also indicated deterioration on asset quality a few days ago. The third quarter’s gross non-performing assets (GNPA) climbed 16 percent to Rs 36,019 crore from Rs 31,012 crore in the same period last year. From 1.26 percent the year before to 1.42 percent, the GNPA ratio increased by 18 basis points (bps). The net non-performing assets (NNPA) ratio increased 15 basis points to 0.46 percent from 0.31 percent YoY, while NNPA itself surged 51 percent to Rs 11,588 crore. The quarter’s provisions decreased by 25% from the same period last year, from Rs 4,217 crore to Rs 3,154 crore.

Faults in the Banking Sector
These figures highlight both potential and problems for the banking sector as a whole. The emphasis on high-margin assets is increasing, but as the economic and legal environment changes, niche markets like microfinance encounter difficulties. It is anticipated that the theme of pressure on margins from growing interest rates and heightened competition for retail deposits would persist.

Banks face two challenges: maintaining strong deposits and managing the slowdown in lending growth due to dampened demand. There are concerns regarding the reasons behind the decline in credit growth. In order to reduce their credit-deposit (CD) ratios, banks may be purposefully limiting loan expansion. The Reserve Bank of India has cautioned against this practice because of the hazards involved. Over-leveraging and possible trouble fulfilling commitments may be indicated by a high CD ratio.

On the other hand, the slowdown can be the result of lower credit demand in particular markets. Significant drops in personal and service loan credit growth are shown in data from the prior year, which may indicate a slowdown in economic activity in these sectors. In terms of deposit growth, banks have increased their attempts to attract investors by raising deposit interest rates.

Budget to reduce NPAs to strengthen the banking sector
Without addressing the problem of non-performing assets (NPAs), which has afflicted the Indian banking industry for many years, Finance Minister Nirmala Sitharaman cannot implement any reforms. A favorable trend is seen in recent statistics from the Reserve Bank of India’s (RBI) Financial Stability Report (December 2024), which shows that gross non-performing assets (NPAs) for scheduled commercial banks decreased from 3.9% in March 2023 to a 12-year low of 2.6% in September 2024.

Achieving significant reforms will depend on taking lessons from the past and avoiding repeated inefficiencies. The budget’s suggested actions can lower non-performing assets (NPAs) and pave the way for long-term financial stability and economic growth if they are implemented with a comprehensive strategy. Since the Indian economy shows promise for the future, this budget would be crucial because, in addition to financial institutions like banks, NBFCs, ARCs, and AIFs, private credit players and international distressed funds are also closely monitoring this area in the hopes that the sector’s full potential will be realized.

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Budget needs to focus on local infrastructure

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Expansion of capex to tackle global issues and decline in economic growth
Equities, Markets - January 27, 2025

Expansion of capex to tackle global issues and decline in economic growth

Expansion of capex to tackle global issues and decline in economic growth

In present times, India is facing the issue of moderate economic growth and global tensions. In this scenario, the upcoming budget focuses on keeping the same fiscal strategy which was implemented for the previous four years. The policy also focuses on the strategy of fiscal consolidation and at the same time keeping budget expenditure higher than before pandemic expenditure levels. Further, it resolves to expand capex rapidly than expenditure of revenue levels. It will help in reducing the fiscal deficit in the economy at a moderate rate. However, the reduction in fiscal deficit continues to be higher than the target set by FRBM. This will aid in public investments leading to growth in the medium term.

Factors helping reduction in fiscal deficit
Following the financial year 2021-2022, the capital expenditure has played a crucial role in improving the GDP of the country. The factors such as growth in tax collections on personal incomes, big dividends of RBI, and expansion of GST revenue will aid in contracting the fiscal deficit.

There is a crucial requirement of fiscal consolidation in order to achieve lower debt levels and its costs, and also leading to expenditure in productive areas.

Need for high capex
India has a long term goal of becoming a developed nation in the year 2047. To achieve this, it aims to develop its infrastructures in terms of railways, highways, clean energy aims for creating an energy generation capacity of 500 GWs in the year 2030, and a strong agricultural sector in terms of better climate risk management and storage facilities. With the help of the PLI scheme, it focuses on expansion of local manufacturing activities in key sectors in the country. These are the reasons that the outline of the budget plan continues to be the same for years.

Economic Performance
India recorded a moderate growth in GDP to about 6.4 percent. The reason for this is due to contraction in capital formation and public spending did not fulfil the target of 17 percent. Also, the investment share in the growth of GDP fell to about 2 percent in the current financial year compared to the previous financial year growth of about 4 percent. In the upcoming budget, it will concentrate on keeping the capital spending in the range of about 3 to 3.4 percent of the total GDP. It will be considered as the highest in the period of the previous 20 years.

The expansion of capex levels will aid in promoting private sector investments as well investments at state level. It will also encourage growth in the medium term and also maintain growth levels close to 6.5 percent in the upcoming periods.

Growth drivers
Compared to private consumption, investment plays an important role in expansion of growth in the long term. In present times, there are a lot of worries regarding contraction in private consumption due to low consumption levels in urban areas. However, it is projected to grow in the second half of the financial year 2025. There is also a need for tax reduction in personal income but it’s not possible due to slowdown growth of corporate tax, considering moderate manufacturing activity.

In present times, the tax-to-GDP ratio accounts to 11.6 percent compared to the 1.5 percent ratio during the before pandemic period due rise in GST collections. In order to expand GST collection, there is a need to ease the GST rates and also increase the average GST. Apart from this, it needs to bring products such as petroleum under the GST base.

Focus on import duties
Currently, India’s import duties are higher compared to other manufacturing countries like Vietnam and China in Asia. It has increased to about 17 percent in the year 2023 compared to 13.37 percent in the year 2015. The reason for high tariffs was to protect India from China’s dumping strategy and also to promote domestic manufacturing in key sectors such as electronics. However, the high level of tariffs are becoming harmful for India in terms of acting as a replacement for China in trade and also to adopt global supply chains. It also affects domestic production due to high tariffs on inputs. In present times, Trump is planning to impose duties on China. This could be a chance for India to shine but it will be affected due to high tariff levels. It needs to lower tariff levels to make the Indian manufacturing sector strong.

Government borrowings
It helps in covering fiscal deficit as well as affect the resources of the private sector. In the upcoming financial year, the government is anticipated to have expenditure of about 14.5 percent compared to current projection of 14.8 percent. While the spending on segments such as pension, salaries, subsidies, and interest payment will be about 11.3 percent. The capex is anticipated to be about 3.2 percent.

In terms of revenue collections considering both tax and non-tax revenue and deducting states’ shares, it will be about 10 percent. Further, the fiscal deficit is anticipated to account for 4.5 percent in the upcoming year compared to 4.9 percent in the current financial year.

The government aims to have gross borrowing of about 14 trillion and net borrowing of about 11.4 trillion. It is similar to the borrowing in the previous year indicating almost no change in the borrowing levels. It will only help in slight lowering of debt-to-GDP ratio. There is a need for reduction in debts and rapid economic growth.

In order to achieve rapid fiscal consolidation, the government is required to contract the budget base as per the previous pandemic levels but it will adversely affect capex. This is the reason why it needs to maintain the high capex. It can be supported by stable growth in revenue levels and also remaining unused capex funds can be used to maintain the strength of government investment. It will also help to protect from global uncertainties in the economy.

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India to not worry about Trump’s Immigration Policy
Equities, Markets - January 27, 2025

India to not worry about Trump’s Immigration Policy

India to not worry about Trump’s Immigration Policy

Overview
Birthright citizenship, which is granted automatically to children born in the US to non-citizen parents, has been targeted by US President Donald Trump. The order titled “Protecting the Meaning and Value of American Citizenship,” one of the first few Presidential Actions the White House lists on its website, states that people born in the United States but not under its authority are not eligible for birthright citizenship.

The campaign that US President Donald Trump has launched against immigrants has created a stir. About 17 lakh Indian families with one or more members employed or enrolled in school in the US have experienced some anxiety as a result. However, we might be overestimating the negative effects of Trump’s anti-immigration policies. It is true that his agenda, which involves mass deportations of illegal immigrants, will have an impact on lakhs of Indian families. A total of 7.25 lakh Indians reside in the United States without the required papers and about 18000 of them have been identified as being a part of the initial mass deportation phase.

The effort may potentially reach students enrolled in American colleges as well as those who wish to live and work in the United States through legal channels, such as H1B visas. It is anticipated that the new administration will revise regulations to make it more difficult for current migrants to renew their visas or for new migrants to obtain visas. There are over 3.3 lakh Indian kids enrolled in American schools, and many more are in line to enroll. On H1B visas, an estimated 5.8 lakh Indians are employed in the United States.

Impact of Immigration Policy on Indian IT workers
On Tuesday, US President Donald Trump reaffirmed his support for the H-1B visa program, calling it crucial for luring highly qualified workers to the country. Indian IT workers were reassured by his comments, although H-1B holders, green card applicants, and their families may face difficulties as a result of recent changes to US immigration laws. According to Roma Priya, founder of Burgeon Law, the presidential order of Birthright Citizenship presents important legal issues concerning the citizenship status of those born in the United States to parents who are not citizens or lawful permanent residents of the United States.

The Indian IT industry, which mainly depends on the H-1B visa program, applauded Trump’s comments. The initiative is essential for tackling the skills gap in the United States, according to the National Association of Software and Service Companies (Nasscom), a trade association that represents India’s business process and IT industries. Given that India and Indian talent are crucial to the expansion of the US economy, Nasscom has no reason to be less optimistic about the growth story of the Indian IT sector, according to Shivendra Singh, vice president of Nasscom. Additionally, he denied typical complaints of the H-1B program, such as the assertion that it substitutes American labor or lowers salaries.

Steps India should take to benefit from this opportunity
India would benefit from a reverse brain drain if Trump’s anti-immigration policies were to cause it. However, the only way to capitalize on the scenario is for local companies to get over their penny-wise mindset and provide the incoming personnel the greatest price.

China’s Thousand Talent program, which drew in thousands of Chinese expatriates with foreign education and expertise, was crucial to the nation’s technical advancement. In addition to joining Chinese enterprises, many of the foreign-returned executives went on to form start-ups or lead research organizations. Beijing broadened the plan to entice talented foreigners to come and work in China. As a result, many American and European businesses now struggle to compete with their Chinese counterparts.

In order to find opportunities and put Indian executives who are either expelled or return on their own as a result of Trump’s anti-immigration policies, the government should collaborate with local companies to develop a program. Indian businesses are adapting to what seems to be a new revolution in artificial intelligence (AI), which has the potential to significantly change how many different industries produce and deliver goods. Getting the assistance of people who have worked for large, multinational corporations might be beneficial. Indian IT companies have placed less emphasis on innovation and more on commercial development and services. India produces very few well-known electronics and software items worldwide. In addition to hiring Indians who have experience with global companies, it would be prudent to draw in skilled foreign workers who could create new research and development capabilities.

Limitations of Trump’s Immigration Policy
Despite his grandiose declarations, Trump will have very little chance of deporting the 18 million illegal immigrants in the United States during his four-year administration. 580 individuals were deported on the first day. Deporting them all would take 82 years at the current rate. Even if the rate of deportations increases fourfold, he would still require twenty years—a very difficult task.

Vice-President JD Vance has already lowered the forecasts, stating that the government will concentrate on deporting the first million illegal immigrants and strive to do what is feasible. Trump has already stated that his administration would track down illegals who have a criminal history. However, it has come to light that determining the origins of immigrants is not a simple process.

Three challenges to the deportation policy have already been encountered. The country that has sent the most illegal migrants, Mexico, has blocked the landing of a U.S. military plane carrying deportees. Additionally, a U.S. court has declared the new order to be flagrantly unlawful, blocking the operation of immigration agents. On another front, senior officials in New Jersey and New York, sanctuary states, have declined to work with immigration authorities. As it happens, American companies prefer the low-wage illegal aliens to stay on their payrolls, working in farms and industries.

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