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Sky Gold Strengthens Growth Prospects with Aditya Birla Jewellery Partnership
Business, Equities, Markets - January 15, 2025

Sky Gold Strengthens Growth Prospects with Aditya Birla Jewellery Partnership

Sky Gold Strengthens Growth Prospects with Aditya Birla Jewellery Partnership

Key Announcement
Sky Gold Ltd. has achieved a major milestone by partnering with Aditya Birla Jewellery, operating under the luxury brand Indriya. Known for its fusion of traditional Indian craftsmanship and modern design, Indriya’s collaboration with Sky Gold is a strategic step to enhance market share and strengthen its foothold in the premium jewellery segment.

This partnership aligns with Sky Gold’s ambition to become one of India’s top jewellery retailers within the next five years, supported by the anticipated expansion of over 500 jewellery stores across the country during the same period.

Management Insights
Mangesh Chauhan, Managing Director and CFO of Sky Gold Ltd., expressed confidence in the transformative potential of this partnership. He highlighted that the collaboration with Indriya reinforces the company’s reputation for innovation and quality. Chauhan also pointed out the company’s proactive diversification into high-growth segments such as 18K gold and lab-grown diamonds, demonstrating its adaptability to evolving consumer trends.

Strategic Benefits of the Partnership
Enhanced Brand Positioning: Partnering with a premium brand like Indriya will boost Sky Gold’s brand equity and help penetrate the lucrative luxury jewellery market.
Market Expansion: With the jewellery retail sector poised for significant growth, this partnership positions Sky Gold to capitalize on the growing demand for high-quality, innovative jewellery.
Diversification: The company’s focus on 18K gold and lab-grown diamonds showcases its ability to align with modern consumer preferences for sustainable and fashionable jewellery.

Growth Potential and Strategic Impact
This strategic collaboration is expected to drive both topline growth and margin expansion for Sky Gold Ltd. The company’s focus on innovation, combined with its strong understanding of retail partnerships and customer preferences, will likely solidify its position in the competitive jewellery market.

Outlook
Sky Gold’s partnership with Aditya Birla Jewellery is a promising step that underscores its growth-oriented approach. The luxury jewellery market offers significant opportunities, and the company appears well-positioned to capitalize on them. Investors should keep an eye on the progress of this partnership and the company’s execution of its diversification strategy to gauge long-term value creation.

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Equity Right Research: Sky Gold Ltd: Strong Volume Growth and Export Strategy Drive Upside, Initiate BUY

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Budget 2025-26: A Plan to Address Key Gaps in the Renewable Energy Ecosystem
Business, Equities, Markets - January 15, 2025

Budget 2025-26: A Plan to Address Key Gaps in the Renewable Energy Ecosystem

Budget 2025-26: A Plan to Address Key Gaps in the Renewable Energy Ecosystem

Overview and Current Scenario
The renewable energy sector is at a pivotal point as India prepares for the Union Budget FY25–26. Industry experts have expressed their expectations for additional funding, legislative actions, and support systems to hasten India’s shift to clean energy. The government’s dedication to sustainability was demonstrated by the 2024–25 budget’s significant rise in the renewable energy provision, which went from the previous year’s revised estimate of Rs 7,848 crore to Rs 19,100 crore.

Energy is pulsing through the most recent renewable energy report card. According to the latest report released by the Ministry of New and Renewable Energy, India’s total installed capacity witnessed a surge of about 15.84%, 209.44 GW in December 2024, from about 180 GW in the period last year. Compared to the 13.05 GW installed in 2023, the total capacity added in 2024 was 28.64 GW, a 119.46% increase year over year. Solar power led the rise in 2024 with the addition of 24.54 GW, but hydro used to be a significant contributor to the expansion of RE capacity. Its cumulative installed capacity increased from 73.32 GW in 2023 to 97.86 GW in 2024, a 33.47% increase. With an extra 3.42 GW added in 2024, the overall wind capacity increased to 48.16 GW, a 7.64% increase from 2023. Wind energy also played a role in this expansion.

Now, at about 210 GW, RE capacity has surpassed 42% of its 2030 objective of 500 GW. To meet the RE target set by Prime Minister Narendra Modi at the Glasgow climate summit in 2021, an additional 290 GW will need to be added over the course of the following six years. Even though last year’s yearly capacity gain was remarkable by historical standards, it is insufficient to reach 500 GW of RE capacity by 2030. To reach this goal, the yearly run rate will need to increase to around 50 GW.

Even while everyone involved in the RE sector is optimistic, it suggests that additional actions and policies are required to accelerate the development of RE capacity. The upcoming Union budget might provide the perfect opportunity to address some of the gaps preventing the quick integration of RE power.

Key Issues hindering the progress of the RE Sector

Rooftop Solar suffers from slower growth
For utility-scale projects, rooftop solar units are a convenient approach to rapidly increase RE capacity due to gestation time and other considerations. The PM – Surya Ghar: Mufti Bijli Yojana is a positive start in this area as it intends to employ rooftop solar units to illuminate one crore houses with an investment of Rs 75,000 crore.

However, the plan appears to be moving at a slower pace than estimated. According to estimates from industry specialists, over 6 lakh installations have been completed to date. This must rise quickly, and the target may have to be expanded in order to meet the desired capacity in the near future. According to sources, the national goal is to reach 40 GW of rooftop solar power by 2025, even if targets in the RE sector are always changing. Currently, the capacity of rooftop solar power in India has reached up to 13 GW (as of the latest reports updated in 2024). Nevertheless, the scheme appears to be moving slowly. According to estimates from industry specialists, over 6 lakh installations have been completed to date. This must rise quickly, and the target may have expanded. Further, the national goal is to reach 40 GW of rooftop solar power by 2025, even if targets in the RE sector are always changing. The capacity has reached 13 GW through the end of 2024.

Issues ranging from financial obstacles to legal restrictions and a lack of awareness are blamed for the sluggish growth. For the rooftop solar project to be successful, these issues must be addressed in the February Union budget.

Energy Storage acts as a barrier to RE sector development
Energy storage is another issue that frequently impedes the advancement of RE. India’s energy storage system has not kept up with the country’s increased RE generation. As a result, there is an imbalance between the supply and demand for energy, making the grid more susceptible to blackouts and inefficiencies. India is now obsessed with two forms of energy storage: pumped storage and batteries. These projects may not be able to meet the 60 GW of storage capacity required by 2030, based on their present and planned state.

India needs to take a multifaceted approach in order to get past this storage barrier and realize its full RE potential. This entails making investments in the development of novel battery technologies, broadening its range of energy storage products, and cultivating an environment that facilitates the quick implementation of storage solutions. Thus, by offering incentives to promote the creation of new storage technologies and their implementation, the February budget can start the process.

Smart Meters still in incubation?
Another weak link that prevents RE growth is grid infrastructure. The distribution companies in different states must be connected, and smart meters must be quickly deployed, in order to transition to a clean electricity system. Once more, there is a significant discrepancy between execution and target. Approximately 7.3 million smart prepayment meters have been installed nationwide thus far under the Revamped Distribution Sector Scheme (RDSS), according to statistics presented to Parliament in December of last year.

With an investment of Rs 3.3 lakh crore, the program, which was introduced in July 2021, aims to install over 250 million smart prepaid meters by March 2025. Thus, the lack of progress in smart meter development raises a legitimate question.

Conclusion
There is an opportunity to examine the problem and provide improvements in the Union budget for 2025–2026. While there are many opportunities in RE, there are also many challenges. It is clear that a yearly budget is insufficient to handle every problem. These yearly exercises, however, give the government a chance to address any current issues that could hinder the expansion of RE.

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Railway Sector’s Budget Allocation and Stock Performance: Insights for Investors

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Government’s decision on Privatisation of banks in the upcoming Budget 2025
Banking, Business, Equities, Markets - January 15, 2025

Government’s decision on Privatisation of banks in the upcoming Budget 2025

Government’s decision on Privatisation of banks in the upcoming Budget 2025

Overview
In India, the government has the largest ownership in the banks. This biggest stakeholder position is the result of two phases of nationalisation. The first nationalisation occurred in the year 1969 in which 14 banks were nationalized which includes Bank of Baroda, Bank of India, and some other banks. While the second phase occurred in the year 1980 in which around 6 banks were nationalized which includes Punjab and Sind Bank, Andhra Bank, and some other banks. In present times, there are 12 nationalised banks as many banks merged together over the period of time.

The primary aim of the government was to achieve financial inclusion in banking services by reaching services to the country’s underbanked and unbanked population.

The matter of concern is about whether the major stake of the Indian government in these banks should remain the same. In the financial budget of 2021-22, Finance Minister Nirmala Sitharaman announced plans of two public sector banks and one insurance firm to be privatised. Despite this, the privatisation promise is yet to be fulfilled.

Current Ownership of government in Banks
In present times, the government still holds a major ownership in these 12 nationalised banks, with more than 90 percent of ownership in four banks. The names of these four banks are Punjab and Sind Bank (98.25%), Central Bank of India (93.08%), UCO Bank (95.39%), and Indian Overseas Bank (96.38%).

Push to Bank Privatisation plan
If the government is serious about the bank privatisation plan, then it should start the process in the Budget 2025. The privatisation process of IDBI is already going on and is expected to be completed by the financial year 2026. This privatisation alone is not enough if the government really wants to achieve reforms in the banking sector. Also, if the actions are not taken then it will miss significant reforms in the upcoming five years leading to hindering the progress of the banking sector in India.

Government Actions
In the past, both United Progressive Alliance (UPA) and National Democratic Alliance (NDA) have promised privatisation of banks as their top priority in their agenda of reforms. Despite this, no actions were taken. In the financial year 2019-20, a mega-merger of 10 public sector banks took place resulting in formation of 4 banks. The IDBI bank was suffering from poor financial health. In the year 2019, the government took the initiative to purchase shares in the IDBI bank, along with the Life Insurance Corporation of India (LIC). This was done to improve the financial health of the bank. These are only actions so far taken by the government of India.

Challenges in privatisation of banks
The public sector banks suffered from legacy issues for a long period of time. The employee trade unions in these banks are strongly influenced by politics. Also, the working environment here is just like a government office working environment. It is totally different from the modern and dynamic working environment of the private sector banks. These challenges could act as an issue for a serious buyer. The reason is that the buyer should be willing to deal with these issues and able to make necessary changes.

Privatisation of banks is quite a difficult and risky political situation for the government as well. The public sector banks involved the issue of regional interests as each bank has a strong presence in certain regions. The topic of privatisation of these banks may not be liked by people living in those regions. This can become a sensitive topic because no government can take a risk of political backlash.

Due to these regional and political issues, it is difficult to implement this plan in action. Despite this, it is upto the government and its budget 2025 to decide if they can work on a bank privatisation plan.

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NBFC & HFC Loan Growth to Slow in FY25 Amid Softer Demand and RBI Norms

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India plans to divestment of 5 public sector banks
Banking, Business, Equities, Markets - January 14, 2025

The Unfolding Battle: Banks Intensify FD Rate Hikes Amid Rising Deposit Demand

The Unfolding Battle: Banks Intensify FD Rate Hikes Amid Rising Deposit Demand

In recent times, banks have been engaged in a competitive battle to attract depositors, particularly as Fixed Deposit (FD) rates continue to rise. The higher rates reflect not only increased demand for capital but also tighter liquidity conditions. Banks, seeking to bolster their balance sheets, have ramped up deposit offerings in response to both internal funding needs and external pressures, such as rising interest rates set by the Reserve Bank of India (RBI).

For depositors, this environment presents an attractive proposition: higher returns on FDs compared to traditional savings accounts. However, these rate hikes signal more than just a win for savers. They reflect a broader economic picture where inflationary concerns, a tight monetary policy, and rising borrowing costs are impacting the financial ecosystem.

Impact of Rising Rates on Banks and the Economy
While the FD rate hikes may provide short-term benefits to depositors, they pose challenges for banks, particularly in terms of margin compression. Higher deposit rates mean increased costs for banks, which could result in tighter profit margins. As banks strive to keep up with one another’s offerings, the increased pressure to offer attractive rates may lead to a shift in lending strategies or a reduction in loan volume. The implications for businesses and consumers could be far-reaching, with costlier loans potentially affecting economic growth.

Furthermore, the competition for deposits might intensify as non-banking financial companies (NBFCs) and small finance banks also enter the fray, vying for a piece of the deposit pie. This heightened competition, combined with the potential for interest rate hikes by the RBI, underscores the volatile nature of the financial market.

Strategic Implications for Investors and Businesses
For investors, rising FD rates can be seen as a safer avenue to park funds, especially amid market volatility. Fixed deposits, once considered low-yielding, have become more competitive, offering attractive interest rates that provide a buffer against inflation. However, the upward trend in FD rates also presents an opportunity for investors to reassess other asset classes like equities, real estate, and bonds, all of which might yield higher returns, depending on market conditions.

In the longer term, businesses looking to raise capital may face a more challenging environment, as higher FD rates could lead to an increased cost of funding. Companies heavily reliant on debt might experience higher borrowing costs, impacting profitability and expansion strategies. At the same time, the upward movement in deposit rates indicates a potential tightening in credit conditions, which could further strain liquidity in the economy.

Conclusion: A Balancing Act for Banks and Investors
The rising FD rates represent a crucial development in the Indian banking sector, where competition and shifting monetary policies are driving up deposit costs. For banks, the increased cost of funds might pose challenges to profitability, while savers benefit from the elevated rates. Investors and businesses, meanwhile, should stay vigilant, carefully evaluating their financial strategies in the face of tightening credit conditions and potentially higher borrowing costs.

The “war” for deposits is far from over, and as the financial landscape continues to evolve, both banks and investors must navigate this changing terrain, balancing risk and reward to ensure sustainable growth.

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NBFC & HFC Loan Growth to Slow in FY25 Amid Softer Demand and RBI Norms

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D-Mart's Q3 Results Miss Estimates, Faces Margin Pressure and Leadership Change
Business, Equities, Markets, Research, Result Updates - January 14, 2025

D-Mart's Q3 Results Miss Estimates, Faces Margin Pressure and Leadership Change

D-Mart’s Q3 Results Miss Estimates, Faces Margin Pressure and Leadership Change

Overview
D-Mart’s top-line growth has been robust, according to the pre-quarter business update released on January 2. The top line was strong, but because of higher discounting and ongoing operating deleverage, margins fell short of projections.

Even though D-Mart is following a sound network expansion plan, it is facing more and more difficulties as quick commerce rivals gain market share quickly. Additionally, D-Mart has announced plans to replace its leadership. In light of the growing consumer preference for speedy transactions in the grocery industry, we are awaiting the new management’s strategy and plans for execution. When it comes to the stock, investors should have reasonable expectations.

Details of Q3 Results
Q3FY25 revenues increased 18% year-over-year. Revenue/square feet growth returned to the mid-single digits (4% YoY), but store count and retail business area expanded 14% year-over-year. A pick-up in demand was indicated by the 8.3 percent YoY improvement in like-for-like revenue growth for mature stores (those that have been in business for more than 24 months).

The FMCG segment’s higher level of discounting caused a little year-over-year fall in gross margins. Additionally, operating de-leverage brought about by muted revenue/square foot growth had an impact on the EBITDA margins. D-Mart’s operating margins were below street estimates and fell 70 basis points year over year. Profitability was further impacted by reduced revenue and higher depreciation costs brought on by the establishment of more outlets. Compared to the growth in revenue, the consolidated net profit growth was in the mid-single digits.

Store Addition significantly increased
As store openings accelerated in Q3FY25, D-Mart maintained its sound store expansion strategy. In Q3FY25, D-Mart opened 10 new locations, increasing the total number of new stores established in 9MFY25 to 22 (D-Mart opened 17 in 9MFY24). D-Mart has been expanding its footprint in the 12 states where it currently operates within the last 12 months. It still uses the cluster-based expansion strategy, which entails opening new stores close to existing ones. In addition to NCR and Chhattisgarh, D-Mart has opened new locations in every state where it operates.

Online business acceleration
D-Mart Ready which is the online-business arm of D-Mart, is progressively expanding into major cities. D-Mart expanded into three new cities in the last year, bringing its total number of cities to 25 as of December 2024. D-Mart is adhering to its policy of moderate and measured expansion because the internet business is losing money. D-Mart Ready is continuing to align its business with the growing demand for home delivery as opposed to pick-up. Actually, ‘Home Delivery’ is the only delivery option offered by D-Mart Ready in a few of the towns.

Margin Pressure on the rise
In Q3FY25, D-Mart reported a slight drop in gross margins due to heightened discounting intensity in the FMCG sector. Additionally, D-Mart’s store operating metrics remain muted, with mid-single-digit growth in revenue per square foot. The building of large stores in FY22 and FY23 has maintained revenue/square feet under pressure, even if the SSSG (same-store sales growth) for older, more established stores returned to a high single digit in Q3. This, together with higher operating expenses, has caused D-Mart’s operating leverage to continue to impact margins.

Quick commerce companies Blinkit, Big Basket, and Zepto have quickly expanded their product lines, especially in the grocery sector, and are posing a greater threat to D-Mart. We anticipate that D-Mart’s margin pressures will continue in the near future.

Change in Leadership
Neville Noronha, the managing director and CEO of D-Mart, will leave the company in January 2026. Neville began working at D-Mart in 2004 and was instrumental in developing managing teams, carrying out procedures, and carrying out strategies.

On March 15, 2025, Anshul Asawa will become the Chief Executive Officer designee of D-Mart, succeeding Noronha. After 30 years at Unilever, Anshul, an industry veteran and graduate of IIT Roorkee and IIM Lucknow, will join D-Mart. Anshul has held executive positions in India, Asia, and Europe, where he oversaw the expansion of product categories and created significant responsibilities. In light of the shifting dynamics of the sector, especially the move towards the rapid commerce segment, the Street will closely monitor any adjustments made by the new CEO to the strategy or execution process.

Stock Performance and Valuation
Avenue Supermarts, which operates the retail brand DMart, had its shares fall 5.7% in early trade on Monday, January 13, to a low of Rs 3,474 on the BSE, as investors were unhappy with the company’s Q3 results.

As of right now, the stock’s P/E ratio at the CMP is 68 times FY26 earnings projections.
Proposed leadership changes and increased competition would limit the stock’s upward potential in the medium run. At this point, investors should have reasonable expectations for the stock.

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HCL close to hit all time high in deal pipeline

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Expectation of allocations for Railway Sector to about Rs 3 Lakh Crore
Business, Equities, Markets - January 14, 2025

Railway Sector's Budget Allocation and Stock Performance: Insights for Investors

Railway Sector’s Budget Allocation and Stock Performance: Insights for Investors

Until the year 2016, the Indian Railway ministry published the budget separately every year. During this period, there exist only fewer companies in the railway sector leading to limited investment opportunities for investors. After this, the government of India decided to merge the railway budget with the Union Budget. It led to significant transformation of investment opportunities available in the sector for investors due to increase in transparency, accountability and also number of investment opportunities.

Significance of Railway Budget
Since the listing of Public sector undertakings (PSUs) from the railway sector in the year 2018, it has persistently surpassed benchmark indices. Also, the Indian Railway has a strong influence on the daily life and economic activities of the nation.

In the current budget presentation, the ministry of finance has given the railway sector only a short mention. Despite this, it has a great significance. The investors and analysts are keen to know the capital allocation for the railway sector by the Indian finance ministry.

The capital allocation for each fiscal year from 2018 to 2025 has recorded a significant upward trend. It has risen to over six times which accounts for a surge from Rs. 43,230 crore to a significant amount of Rs. 265,000 crore. It’s not just the allocation which attracts investors but also the extensive use of these funds.

According to the outlay report of Indian Railways published on 5th January, 2025, the sector has effectively used 76 percent of the allocated funds by the month of December, 2024. This effective utlisiation of funds accounts to Rs.1,92,446 crore out of the total allocation of funds of Rs. 2,65,200 crore. While the utilization of funds for the safety initiatives accounts to around 82 percent of the total funds allocated for safety-related works.

This considerable amount of allocation and also effective use of the funds hint at an active as well as successful year. It has a significant record of giving good returns to investors considering the remarkable performance of railway stocks to surpass benchmark indices since post-2018 listing.

Railways stocks’ historical outperformance
The track record of PSUs of the railway sector to perform well compared to the market indices is significant, particularly in the pre-budget announcement period. This trend is usually recorded when the market is in a bullish or stable condition, prior to the budget presentation. In almost every case till now, the public sector companies in the railway sector have followed this trend with the exception of IRCTC stocks.

Recent Performance of Railway Stocks
In recent times, the stock market is facing a selloff situation, where many investors are trying to sell their stocks leading to a considerable fall in the stock prices. The budget date is coming closer, investors’ expectations are increasing towards the government’s plan to strengthen economic growth. The crucial need of the government is to give a boost to economic growth. The Indian government also has to focus on increasing infrastructure expenditure in sectors such as railways.

In case of stabilisation of market conditions in the next couple of weeks, it can possibly lead to repetition of the historical trend of outperformance of railway stocks.

Currently, railway stocks recorded a sharp decline compared to their high record in 2024. The reason for this is prevailing low market sentiments. The railway stocks such as RVNL, RailTel, IRFC, IRCTC, and other railway stocks observed a decline of around 48 percent from their previous highs in the year 2024.

The head of Research at Motilal Oswal Financial Services, Siddhartha Khemka stated that the reason for the performance of rail stocks is declining due to comparatively weak government spending in the current fiscal year. It has led to railway contracts to be delayed or on hold. He further stated the market is anticipating that government spending will rise in the second half of the fiscal year 2025. This will help the railway contracts to revive.

He also states that the present price levels can act as an opportunity for investors to invest in rail stocks but he warns that the market expectation should be in line with actual government activity. As alignment of both market expectation and government actions with each other will make sure that the future growth will remain strong.

The head of research of Sharekhan, Sanjeev Hota also stated that the railway sector has strengthening growth potential as well as visibility of the business is good, considering the government’s focus on infrastructural development.

The analysts stated that there is a requirement of decline in rail stocks to mitigate the adverse effect of the rise of the past two years’ inflated price level. Hota further suggests that a very careful approach needs to be followed in terms of investment in rail stocks. He states that the condition of trade-off in risk and reward is not good even when the price of rail stocks is in correction. He also advocates that the investment in rail stocks should not be increased and also proposes to wait for more decline in price levels.

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Indian Gem & Jewelry Market Set to Grow from $85 Billion to $130 Billion by 2030

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India Eyes Stronger Growth in FY25, Stays on Fiscal Target Path
Business, Equities, Markets - January 14, 2025

India Eyes Stronger Growth in FY25, Stays on Fiscal Target Path

India Eyes Stronger Growth in FY25, Stays on Fiscal Target Path

India’s government is poised to project higher economic growth for the upcoming fiscal year, signaling optimism amid recent slowdown concerns. According to government officials, the anticipated nominal GDP growth is expected to be between 10.3% and 10.5%, surpassing the current fiscal year’s forecast of 9.7%.

This positive outlook aims to alleviate market apprehensions about an economic deceleration that have emerged since November. Despite this optimism, the economy is projected to experience its slowest growth in four years during 2024/25.

N.R. Bhanumurthy, director at the Madras School of Economics, considers the nominal GDP estimate for the next fiscal year to be realistic. He attributes potential growth to increased government capital spending, advancements in agriculture, and a resurgence in exports.

Finance Minister Nirmala Sitharaman is expected to announce personal income tax reductions in the forthcoming budget on February 1. This move aims to stimulate demand among salaried individuals who have curtailed discretionary spending due to sluggish wage growth and elevated food inflation.

Importantly, these tax cuts are not anticipated to derail India’s fiscal consolidation efforts. The government projects the current fiscal year’s budget deficit to be 10 to 20 basis points below the initially estimated 4.9%, partly due to spending delays caused by last year’s national elections and monsoons. Additionally, the target to reduce the fiscal deficit to below 4.5% in the forthcoming financial year remains intact.

Nominal economic growth, which combines real GDP and inflation, serves as a foundation for forecasting government revenue, expenditure, and deficits. Prime Minister Narendra Modi’s administration has previously implemented measures such as corporate tax reductions, production-linked incentives for manufacturers, and increased infrastructure spending to bolster growth.

Despite these initiatives, challenges persist. Job creation has not kept pace with the needs of the world’s most populous nation, and wage growth for urban salaried workers remains subdued. Consequently, discretionary spending has declined, exacerbated by significant increases in food prices, particularly vegetables.

Business groups are advocating for additional measures, including reductions in fuel taxes, sustained infrastructure investment, and lower import duties, to further stimulate economic activity.

In summary, while the Indian government is set to forecast stronger economic growth for the next fiscal year and remains committed to fiscal discipline, addressing underlying challenges such as job creation, wage stagnation, and inflation will be crucial to achieving these projections.

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Indian Gem & Jewelry Market Set to Grow from $85 Billion to $130 Billion by 2030

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Priortize capital preservation in view of likely market downturn
Business, Equities, Markets - January 14, 2025

Priortize capital preservation in view of likely market downturn

Priortize capital preservation in view of likely market downturn

Following the past six months, the equity market is showing an unstable and risky pattern. From the month of June 2024, every month is recording a significant price dip in the headline indices. After these dips, the prices of the indices do recover but not much. It only gives relief for a short time indicating a weak and unconvincing recovery.

Effects of stop loss levels
Traders usually keep stop loss while trading on their investments. In this scenario, the stop loss levels put by traders has led to booking of losses by traders. The reason for this is once the stop loss is triggered, the sell orders are automatically executed leading to traders recording losses in transactions.

Further, the loss booked is not recovered because traders are reluctant to purchase the same stock again at a considerable higher price level. This is the reason why price levels of stocks which were supposed to recover observed a weak recovery. Also even if the price levels increase, the traders are not able to recover the losses due to being sceptical about buying again at a higher rate.

Broad picture of the stock market
The intensity of the fall in the headline indices is not the only reason for the stock market to be at risk. The other reason is due to high selling pressure from some Institutional traders and High Net Worth Individuals (HNIs) even at low price levels. This offloading of stocks at low price levels indicates that HNIs and institutional traders expect that stock prices will fall more in the future than the current price levels.

Also, if this situation remains a cause of fall for the stock prices then dip in price levels will continue in future as well. Despite this pressure on price levels of stocks, it is important to note that price trend can never be a straight line. It keeps on having short corrective actions in between the trend pattern. This acts as a short-term relief to traders, who are in a difficult position due to losses.
In this situation, the potential rally occurring before the announcement of the budget could possibly give opportunity to retail traders to gain profits. This type of market situation indicates that traders are more possibly going to sell their stocks when an increase in price level is observed. They are not going to hold the stocks for long-term gains. The reason for this is because retail traders anticipate that price levels of stocks will fall again.

Technical Analysis
The daily chart of the Nifty 50 represents a head and shoulder pattern. It is a bearish head and shoulder pattern. The price movement is also below the 20-day moving average. The 20-day moving average (MA) represents the average price movement over the period of the last 20 trading days. Overall, the technical analysis indicates the recent trend as downtrend. Also, the recent buy orders of traders are facing losses due to the current price being lower than the purchase price. Further, the traders are facing the burden of mark-to-market margin calls.

The head and shoulder is a popular pattern and also considered as the most reliable reversal patterns. The pattern is identified by a head, two shoulders peaks (left and right shoulders) and also a neckline (acting as a trendline). It helps to project price targets and it has a success rate of 65 percent. In the daily chart of Nifty 50, the trendline is acting as a strong resistance level. The projected price target for Nifty is around 21,657 for the upcoming few weeks. This projection remains the same unless any trigger occurs in the price movement leading to affecting price levels.

Effects on individual stocks under Nifty 50
Though the decline in Nifty may not be large enough, it is important to note that the indices represents an average price of its constituent stocks. The headline index Nifty 50 consists of 50 stocks. Due to this, decline in the Nifty 50 index trend will be moderate. However, the individual stocks will be inclined to drop adversely. No moderation effect will be observed in these stocks which would fail to mitigate the pressure shareholders will face in times of falling prices.

Intra-day ranges
The intra-day ranges for headline indices such as Nifty and Bank Nifty is between 1.25 to 1.75 percent daily. On the other hand, intra-day ranges for individual stocks is between 2.50 to 2.25 percent daily. These ranges indicate that the impact of decline in individual stocks is more than decline in indices.

While concluding, the baseline is that the investors should prioritise capital preservation than running towards capital appreciation.

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Indian Gem & Jewelry Market Set to Grow from $85 Billion to $130 Billion by 2030

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HCL close to hit all time high in deal pipeline
Business, Equities, Markets - January 14, 2025

HCL close to hit all time high in deal pipeline

HCL close to hit all time high in deal pipeline

CEO of HCLTech, C. Vijayakumar stated that the deal pipeline of the company is close to recording an all-high high. HCL Tech is considered as India’s third largest IT services company. On 13th January, 2025, HCL Tech announced its third quarter report of the financial year 2025. It recorded a 5 percent year-on-year growth in operational revenue. Its third quarter earnings report is in line with market expectations.

Reasons for deal pipeline reaching an all time high
HCL Tech’s previous high peak was mainly due to its mega-deal of $2.1 million with Verizon Business. The deal was to provide managed network services. Unlike this previous peak, the current peak is strongly driven by the company’s growth in various sectors. It indicates that the success of reaching a peak is not fueled by one single big deal, but by multiple deals with various sectors. This all time high peak is driven by diverse growth.

The order books of HCL tech for the regions in America and Europe is recorded as all-time high. The company is observing strong growth in vertical sectors such as retail, technology, and consumer packaged goods services.

The reason for growth in diverse sectors is driven by strengthening of discretionary demand. Also rather than big deals, the multiple smaller deals in various sectors are secured in HCL tech. The reason for this is shortening of deal cycles leading to an increase in demand for small deals. This is also the reason for change in Annual Contract Value (ACV), but no change in Total Contract Value (TCV).

HCL Tech’s peer Tata Consultancy Services (TCS) also recorded a change in client trends due to a shortening timeline of deals.

Deals in the third quarter
HCL Tech acquired a deal worth $2.1 billion in the third quarter of the financial year 2025. It was mainly driven by its main services and software business. It secured twelve deals in the third quarter. The twelve deals consist of seven deals from services business and five deals secured from HCL software. The considerable number of deals includes features related to Artificial Intelligence (AI) and Generative AI (Gen AI). It indicates that many deals are driven by AI-led transformation. The deal is spread across various areas such as engineering, R&D services, digital application business, and digital process operations. The AI and Gen AI play a critical part in the company’s operational activities. HCL tech’s some of the largest deals are driven by AI-led transformation only. One of the reasons for this is that Gen AI has a strong practical advantage due to the significant fall in cost incurred from the beginning of the year 2023.

In terms of its broad-based growth in diverse sectors, the company also registered a growth in client spending in the financial services sector.

The HCL tech expects the impact of wildfires in Los Angeles is not much significant on their contracts with the US insurance companies. Further, the company is recording an increase in small as well as large deals in the Europe region. This indicates that healthy growth in the deal pipeline with both America and Europe is recorded across various sectors. This also hints at favorable future growth of HCL tech’s small and large deals with both these regions.

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Hike in costs of funding possibly affect margins of NBFCs
Business, Equities, Markets - January 14, 2025

NBFC & HFC Loan Growth to Slow in FY25 Amid Softer Demand and RBI Norms

NBFC & HFC Loan Growth to Slow in FY25 Amid Softer Demand and RBI Norms

Overview
A Jefferies study projected that the loan growth of Indian Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs) (apart from Infrastructure Finance Companies (IFCs)) would slow to 17% in FY25 from 21% in FY24. According to the research, this moderation is the result of softer macroeconomic conditions, which have led to a decline in loan demand. It predicted that growth would level off and settle at healthy levels in FY26e. It predicted that growth would level off and settle at healthy levels in FY26e. With the exception of IFC, we anticipate that sector loan growth will slow to 17% in FY25e (compared to 21% in FY24) and level off around these levels in FY26e. Additionally, according to an article published in the Economic Times, most lenders recorded reduced credit growth in the three months due to a combination of factors, including slower consumer demand, risk aversion toward unsecured loans, and lackluster deposit growth until late into the December quarter.

RBI’s guidelines on lending to NBFCs led to a slowdown in credit growth
According to the research, this moderation has been aided by a cyclical downturn in industries like automobiles as well as decreased lending to unsecured and microfinance loans (MFI), in accordance with RBI advice.

In November of last year, the RBI released guidelines on the NBFC’s lending criteria which increased risk weights on bank funding to NBFCs. This acted as the preliminary reason behind the slowing down in credit growth. The shadow banks diversified their funding sources as a result of this action. These days, NBFCs are more often using the domestic capital market to raise money through bonds and the international market to access dollar bonds and syndicated loans. Put this in figures, compared to a 19% increase in the same time in 2023, lending growth to the NBFC sector fell to 7.8% year-over-year in the two weeks ended November 29, 2024. As a result of this slowdown, sectoral deployment data issued by the RBI showed that credit growth to the services sector decreased from 22.2% year over year to 14.4%.

In absolute terms, credit to the NBFC sector was Rs 15.75 trillion at the end of the two weeks ending November 29, 2024, as opposed to Rs 15.48 trillion at the end of the two weeks ending March 22, 2024, according to RBI data. In its most recent “trend and progress report,” the RBI emphasized that NBFCs must further diversify their funding sources as a risk mitigation tactic because, notwithstanding recent moderation, their reliance on banks is still significant.

Jefferies report further stated that during 1HFY25e, growth moderation was comparatively milder in other areas, although it has been significant in unsecured PL, consumer lending, and MFI.

According to the RBI’s Financial Stability Report, shadow bank loan growth slowed to 6.5% on a half-year-on-half-year (H-O-H) basis in September 2024 after the RBI increased risk weights on NBFC lending to specific consumer credit categories and bank lending to NBFCs. The RBI claims that the upper-layer NBFCs segment, which is mainly made up of NBFC-Investment credit companies and has a large percentage of retail lending (63.8%) in its loan book, was where the effects of the credit moderation were most noticeable. Nonetheless, middle-layer NBFCs—apart from government-owned NBFCs—maintained strong credit growth, particularly in portfolios of retail loans.

Additionally, private placement is the preferred method for bonds listed on reputable exchanges, and NBFCs continue to be the biggest issuers in the corporate bond market. NBFCs tried to diversify their funding sources by issuing more listed non-convertible debentures (NCDs) in the face of a slowdown in bank direct lending. In order to diversify their funding sources and keep total expenses under control, NBFCs are now taking out more foreign currency loans. Nevertheless, the RBI has issued a warning that, to the extent that these NBFCs remain unhedged, the increase in foreign currency borrowings may present currency concerns.

Asset Under Management of NBFCs on a decline
According to the research, NBFCs’ Asset Under Management (AUM) growth is anticipated to decrease to 20% in FY25 from 24% in FY24. HFCs might, however, experience better AUM growth, increasing from 11% in FY24 to 12–13% in FY26. Further, economic activity is expected to rise in FY26, which would help stabilize growth in the sector.For the FY25–27 period, the coverage AUM (excluding IIFL) is expected to grow at a CAGR of 19%, which is slightly higher than the 18% predicted for FY25. As of September 2024, the growth in loans for Housing Finance Companies (HFCs) and NBFCs has decreased from 22% in March 2024 to 20%.

Further, the slowdown has been most noticeable in consumer financing, MFI loans, and unsecured personal loans, while growth in other areas has slowed down somewhat in the first half of FY25. About 30% of NBFC and HFC lending is provided by infrastructure finance companies (IFCs), whose share of the sector’s asset under management (AUM) growth slowed to 15% in September 2024 from 18% in March 2024.

Sectoral credit growth trends to follow in 2025
By segment, incremental growth trends in 2025 are probably going to differ. Auto loans and other segments are forecast to stabilize and possibly pick up if macroeconomic conditions improve as planned, the research noted, even if growth in unsecured loans and MFI loans is predicted to remain muted throughout the first half of the year.

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