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Business, Equities, Markets - January 20, 2025

RBI talks about Geopolitical ripple effects on Indian economy

RBI talks about Geopolitical ripple effects on Indian economy

Overview
In recent years, geopolitics and its tensions has become a critical issue in many countries in the world. Geopolitics plays a crucial role in influencing the economy of any country in the world. It affects the countries’ trade policies, currency fluctuations, supply chains, investment flows, accessibility to resources, and advancement in technology. The world is going through big changes with several countries taking steps towards protectionism, restrictions on transferring of technology, creation of geopolitical blocs, de-globalisation, and re-emergence of mercantilism (accumulation of wealth through trade surplus) in their economy.

The Indian economy is affected by geopolitics and its rising tensions. It is particularly affected when the dollar gets appreciated leading to outflow of capital and also when spike in tariff rates lead to adversely affecting export levels. It is important to measure the impact of risk on the economy to get a clear picture.

Events of High GPRI in India
The recent RBI Bulletin published with the name as “Geopolitical Risk and Trade and Capital Flows to India,” takes into consideration the problem of geopolitical tensions and its impact on India. To measure India’s response to the geopolitical challenges on both domestic and global level, it implements Geopolitical Risk Index (GPRI). This bulletin is written by former Deputy Governor of RBI, Michael Patra with researchers Harshita Keshan, Sheshadri Banerjee, and Harendra Kumar Behara.

To evaluate the GPRI, it takes into consideration various news which has geopolitical implications. In case of India, high GPRI was hit in situations such as Kargil War in the year 1999, Kashmir insurgency of 1990, Gujarat riots in 2002 and also Mumbai attacks in 2008. A strong correlation is observed between GPRI of India and the world in the years after 2014. It indicates that India is getting more connected with the changes in global geopolitics.

Impact of High GPRI
The High GRPI of India leads to several adverse effects on the economy of the country such as depreciation of rupee, fall in capital inflows to the country, and decline in trade flows. It also leads to contraction in trade terms of the country. The increase in geopolitical tension in the country leads to an increase in the cost of trading and a spike in export prices. Increase in export prices adversely affects the export level in any country. Also, the change or rearrangement of trade routes of the country is observed due to the rising tensions. It leads to a spike in cost incurred by exporters and also insufficiency in resource allocation. In case of country-specific risks, the major issue of depreciation of rupee currency is observed resulting in foreign investors rapidly converting rupee into dollar to prevent the adverse impacts of the risks. Despite this, the effect on capital flows of the nation is quite brief in nature.

While analysing the response of both capital flows and trade, the recovery of trade is recorded at a slower rate. The recovery measures taken for capital flows levels are instant and significant. It recovers back at a faster speed. In contrast to this, it takes longer for trade flows to recover. It usually needs about 6 to 7 quarters to bounce back to health completely. In case of GPRI of India, a one standard deviation of risk to domestic GPRI can cause fall in capital flows by 0.2 percentage point and decline in trade volumes by around 0.9 percentage point. Also, the capital flows are one which will recover at a faster speed.

Impact of Global GPRI on India
The high Global GPRI indirectly impacts the Indian economy adversely. It affects India’s trade flows, fall in trade terms and also increase in capital outflows. In case of impact of Global GPRI on India, a single standard deviation to Global GPRI can adversely impact capital flows by fall of 0.3 percentage point and contraction in trade volumes by around 1.0 percentage point. The trade volume takes around 6 to 8 quarters for recovery indicates gradual recovery.

Nature of Geopolitical Risks
The geopolitical shocks are quite different from the usual economic risks. It is quite tenacious and long-lasting in nature. It is also difficult to bounce back to normal. In case of India, the domestic risk impacts the competitive nature of export and also disruption in supply chains. On the other hand, international risks lead to challenges in capital flows and trade levels. It is the result of change in capital allocations, stricter trade policies, and also make foreign investors cautious about investment.

Response to GPRI
India can address the issue of domestic and international GPRI by expansion of trade agreements and improvement in infrastructure of the country leading to secure and efficient trade relations. It should also focus on diversification of trade sources instead of relying on one or two. It is also important to create financial buffers. The expansion of trade agreements by initiating bilateral swap agreements and partnership can help to reduce shocks of GPRI. Also, connecting with multilateral institutions such as the World Bank and IMF will help the country. The creation of strong safeguard and precautionary approach will certainly help India to tackle the rising geopolitical challenges.

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Sugar Industry Outlook: Prices, Production, and Market Trends

Sugar Industry Outlook: Prices, Production, and Market Trends

Domestic and Global Overview of sugar prices
The current sugar season is difficult for sugar mills. International raw sugar prices have decreased by 21% since the end of September. One factor adding to some pricing pressure is the Brazilian Real’s dramatic fall against the dollar, while another is healthier than anticipated output in important producing countries like Brazil and Thailand. Brazil is a major exporter of sugar, thus exporters will profit from a depreciating real.

Since exports have not yet been permitted, weak worldwide prices may put pressure on domestic producers’ realizations. However, depending on trade limitations, domestic prices are somewhat impacted by global price movements. Whether or not Indian sugar mills will be permitted to export during the current sugar season is still a major concern. The production of sugar for domestic use and ethanol diversion have been the government’s top priorities.

Impact of Ethanol Diversion on production
Cane crushing statistics as of December 31 were recently issued by the sugar industry group ISMA, and it showed a dramatic 16 percent decline as a result of rains impacting crushing in Uttar Pradesh. The season, which begins in October and concludes in September, is still in its early stages. A more precise estimate will be ready in March or April. The post-diversion amount for ethanol is currently 9.5 million tons. In a later statement, ISMA noted that ex-mill prices are less than the cost of production and that the government plans to evaluate the minimum selling price for sugar. Additionally, it stated that arrears for cane purchased during the current sugar season had accumulated to a total of Rs 6500 crore.

This situation is not new as noted by India Ratings about the state of the industry. Due to decreased recovery rates brought on by weather-related events and the red rod infestation in Uttar Pradesh, it is anticipated that this season’s sugar output will drop to 30-31 million tonnes from 34 million tonnes the year before. It will be the lowest sugar production since the 2020 sugar season if that occurs.

Sugar production predicted to fall
After the diversion of sugar for ethanol, production may fall slightly short of demand but there are ample opening stocks of sugar to take care of demand. The one thing that remains to be monitored on the cost front is the UP State Advised Price that is not out yet, which UP-based mills will need to pay to farmers. Lower output should ordinarily translate to higher domestic sugar prices and support profitability. If we look at government data on wholesale sugar prices, then they are up by only 0.2 percent over a year ago and up by 0.4 percent over three months ago. That looks hardly conducive for mills to raise prices. The government, of course, will be happy with that market situation as it wants to keep inflation under check. Since the government wants to control inflation, it will naturally be pleased with that market condition.

Sugar Mills’ Earnings from Ethanol
The next question is how much money sugar mills make from ethanol. The government halted ethanol diversion during the previous sugar season because it was concerned that it would limit the supply of sugar and cause prices to rise. The political sensitivity of such an event was increased by general elections. Although the regulations governing sugar diversion have been loosened, the India Ratings report indicates that during the current ethanol season, oil marketing corporations will mostly purchase maize as a feedstock for ethanol.

Indian Sugar stocks shoot up
In Thursday’s (January 16, 2025) trading, the majority of sugar stocks surged up to 8.1% as reports indicated the Indian government would likely decide soon to raise the minimum support price (MSP) of sugar. The price at which the government promises to purchase specific crops from farmers in order to guarantee that they receive a minimum price for their produce is known as the MSP. Its goal is to shield farmers from market price swings.

In terms of the BSE, Dhampur Sugar Mills, Dwarikesh Sugar, Dalmia Bharat Sugar and Industries, Shree Renuka Sugars, Bajaj Hindusthan Sugar, and Mawana Sugars all had increases of 5.9, 4.68, 4.14, and 3.46 percent, respectively.

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Expectation of allocations for Railway Sector to about Rs 3 Lakh Crore

Expectation of allocations for Railway Sector to about Rs 3 Lakh Crore

In the Union Budget 2025, there are currently high expectations in the market about a positive announcement for the railway sector. Despite this, many railway stocks are performing low compared to their high record trend in the year 2024. The reason for this is muted market sentiments. There are high expectations about the railway sector securing allocation of around Rs. 3 lakh in upcoming Union Budget 2025-2026.

Expectations about Allocation of Funds
In the Union Budget 2024, the funds allocated for the railway sector was slightly more than Rs. 2.62 lakh crore. Till the date of 5th January, the funds utilised accounts to Rs. 2 lakh crore. Many analysts estimate that the coming budget will record a rise in 15 to 20 percent of allocation of funds.

Partner and Vice President of Complete Circle Capital, Aditya Kondawar points out some likely projects such as improvements in KAVACH safety system, adoption of artificial intelligence (AI) for functions such as ticketing and also to raise funds in the Bullet Train project. He further points out allocation for projects such as Gati Shakti Multi-Modal Cargo Terminals (GCT) in order to encourage private investments in cargo infrastructure and also for the progress of the Amrit Bharat Station Redevelopment Scheme.

Increase in only allocation of funds in the railway sector is not enough. The utilisation of these funds is a very important step to achieve planned goals and development.

The equity research analyst at Choice Broking firm, Mandar Bhojane stated that the amount of capital expenditure in the railway sector has constantly increased in the duration of the previous five years. However, it has failed to achieve project timelines on time. He also believes that companies working in the railway sector will receive stimulus from the Indian government on the basis of schemes such as Public-Private Partnership (PPP) and Make in India.

Government Plans
The Indian government seemingly has plans to acquire 90 more Vande Bharat trains. At present, 136 Vande Bharat trains are functioning in India. It also has plans to use funds to build infrastructure for high-speed rail testing. The test track infrastructure is being constructed in Rajasthan which accounts to funds of Rs. 820 crore.

To increase Indian railway’s market share in cargo, it is expected to announce purchase orders of big wagons in the range of Rs 20,000 to Rs 25,000 crore. The current market share of the railway sector in cargo is about 27 percent. Also, the funds are projected to be used for the purpose of complete electrification of main railway lines as well as for enhancement of safety with improvement in level crossings, bridges and signalling.

Performance of Railway Stock
Many railway stocks are representing a weak trend. The railway stocks such as Jupiter Wagon and RailTel Corporation fell to 44 percent and 42 percent, respectively. Stock of Texmaco Rail and Container Corporation of India declined to 42 percent and 38 percent, respectively. While railway stocks such as IRCTC, IRCON International, RVNL declined to 35 percent, 48 percent, and 45 percent, respectively. Also, IRFC which was at its 52-week high fell to 48 percent.

Smallcase Manager and Co-Founder of KamayaKya, Nitya Shah stated that the Indian railway stocks were placed at very high valuation in recent times. Many railway stocks were considered multi-baggers in the period of the previous three years.

The railway stocks such as IRFC, IRCON International, Titagarh Wagons, and RVNL have given strong annualised returns in between 25 to 50 percent. The high valuations show positive expectations about the future growth. Despite this, there are rising concerns about whether these high valuations can be maintained or not in case of no corresponding increase in earnings of the firms. In present times, investors have to wait for better fair prices in this situation of high valuations of the stocks.

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RIL performance in third quarter supported by performance of consumer businesses

RIL performance in third quarter supported by performance of consumer businesses

Reliance Industries Limited (RIL) in terms of both EBITDA and revenue observed consecutive growth in the third quarter of the FY25. The main growth drivers were the Retail businesses and digital services of the firm.

Digital Services
The reason for increase in growth in the digital services segment of the business was mainly due to remarkable improvement in the Jio’s Average Revenue Per User (ARPU). This hike in ARPU indicates the potential of Jio to make more money from its customers. It is supported by factors such as increase in tariff, providing more expensive data plans and value-added services to customers.

Both EBITDA and revenue recorded a strong growth of 19 percent year-on-year. The growth in subscription additions was slow. However, the growth in ARPU was around 12 percent year–on-year. It was supported by a rise in contributions from 5G users and a spike in tariff.

Retail business
The revenue growth year-on-year of RRVL is high in single-digit for the third quarter of the financial year 2025. The positive growth was observed in consumption sections due to rise in positive customer sentiments. It was supported by the festive and wedding season. Also, the company’s strategy of network expansion along with strong growth in store throughput helped in achieving revenue growth.

In this quarter, RRVL recorded a year-on-year growth of 6 percent. It aims to draw more new customers, which is supported by growth of 15 percent in registered consumer base and 5 percent growth in shopping traffic.

The Business to customer (B2C) grocery recorded robust growth of 37 percent, supported by big stores. It observed growth in segments such as value apparel, premium personal care and general products. While, the retail electronic operations observed an increase in paying customers and a spike in average expenditures. While the fashion and lifestyle division of the company registered positive improvements due to launching of new fashion and enhancement of shopping experiences.

The contribution of digital and new commerce operations in total sales growth was 18 percent in the third quarter compared to 17 percent in the second quarter. The consumer brands’ revenue of the company is increasing at fast speed which accounts to Rs.8000 crore in the duration of nine months of the financial year 2025.

The total margins of RRVL raised by 8.6 percent due to increase in store throughput as well as efficiency in its operations.

One of the reasons for its increasing revenue growth is the company’s partnerships with global brands to expand its product base and to draw new consumers. In the third quarter, the company did a franchise partnership with Saks Fifth Avenue. It also did a joint venture with Mother care in order to get the Mothercare brand.

Oil and Gas Segment
In contrast to retail and digital services business, the oil and gas E&P segment recorded a fall in year-on-year revenue growth by 5 percent. The reason for decline in revenue was fall in volumes of gas and condensate in KGD6 and fall in prices of condensate and CBM gas. Though, it was partially balanced out by a rise in volumes of CBM gas and a slight rise in the price of KGD6 gas.

Oil to Chemical segment
Despite a fall in export by 9 percent, the revenues of the Oil to Chemical segment recorded an increase of 6 percent year-on-year growth. Overall revenue performance of the segment fell due to decline in export contribution.

The EBITDA of the segment increased by 16 percent on a quarter-on-quarter basis leading to improvement in margins by 165 bps. The transportation fuel prices were supported by robust demand in Asia except China. It was partially balanced out by the weak demand in China. Gasoline 92 RON prices in Singapore dropped slightly by $6.5 per barrel in the third quarter of financial year 2025 compared to $6.8 per barrel in the second quarter of the same financial year. The reason for this is sufficient supply in the market due to high US refinery production and slow demand in China.

The polymer margins of PVC and polypropylene were better which was partially supported by domestic demand levels and prices of Singaporean Naphtha. In contrast to this, polyester and polyethylene margins did not perform well.

Outlook
The diversified business structure of RIL is seen to be useful in the present domestic and international business challenges. Its proof is seen in the company’s growth in consumption-based businesses.

The company’s investment in 5G services is giving good results as 170 million 5G subscribers in the third quarter are recorded compared to 148 million subscribers in the second quarter. It made RIL as the biggest global 5G operator beyond China.

The broadband connectivity of Jio AirFiber is across India, particularly between the top 1,000 cities. It is important to note that more than 70 percent of the new connections are from these less served areas only. The home connection of Jio is increasing at a faster rate and the total installation has reached nearly 17 million. At global level, Jio is the fastest-growing fixed wireless operation. It has more than 2.8 million Jio AirFiber connections. The expansion of these services will certainly lead to a boost in financial performance of the company.

RRVL is also focusing on the creation of express deliveries of various products to fulfill consumer choice for quick delivery. It is implementing this plan through Jio Mart. The expansion of product base and improvement in customer sentiment will lead to a return of double-digit growth.

The E&P segment is going through temporary challenges. The 40 multi-lateral wells campaign (34 wells completed already) will help in production of CBM.

RIL will face risk and opportunity in the US-China trade war. RIL’s focus on premiumization in consumption productions and digitization will help its consumer-based operations. Directing cash flows in the clean energy sector will make RIL a key player in the transformation of the energy sector in India.

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Market Volatility Surges Amid Global Yield Spikes and Policy Shifts

Market Volatility Surges Amid Global Yield Spikes and Policy Shifts

Overview
The easy-money period following the epidemic gave stock markets a boost that persisted for years. The complacency brought on by the upward trend remained unaffected. The much-anticipated “soft landing” kept investor spirits high despite the world’s extreme inflation and central banks’ aggressive monetary tightening policies.

However, the market decline has jolted investors after years of complacency, and since the end of September last year, sentiment has shifted sharply to the negative. This is especially valid for developing markets like India. Since its high, the broad Nifty 50 index has experienced a correction of over 10%.

Factors affecting the volatility of Indian markets
China, the world’s greatest producer and consumer of commodities, raised expectations for an economic revival in September 2024 when it unveiled stimulus measures. The emergence of rising commodity prices was the backdrop for inflation to reappear. Trump won the US presidential election within a month of this, and inflation expectations skyrocketed in anticipation of more tariffs, tax breaks, and immigration restrictions. More recently, Brent crude prices have risen above $80/barrel due to the extensive restrictions placed on Russian crude. Despite high interest rates, inflation has increased globally due to several causes. The G7 countries’ average inflation rate has increased from 2.2% in September to 2.6% in November and has continued to rise ever since.

Central banks’ response globally
Paradoxically, at this time, central banks all over the world have been relaxing their monetary policy restrictions. However, markets have continued to brace for monetary tightening due to growing inflation and, more significantly, the uncertainty around future inflation. Furthermore, US rates have increased further due to expectations of a fiscal explosion under the next US president. Thus, yields have increased in the majority of large economies in spite of rate reduction. Despite the policy rate being between 4.25 and 4.5%, 10-year US Treasury yields are approaching 5%, German yields have increased to 2.6% despite their faltering economy, and British yields are at their highest levels since 2008.

Rising yields in the U.S.
At the time this piece was written, US yields were 4.3%, up from 3.6% in September. Strangely, this increase is similar to the “higher for longer” era, when US rates increased from 3.5% to 4.3% in a single month in September 2022 before reaching a peak of about 5% in October 2023. Emerging market assets typically lose appeal to foreign investors as a result of tighter gaps against emerging market yields caused by rising US yields. FIIs promptly sold off around Rs 40,000 crore worth of Indian stocks between August 2022 and October 2023. However, Indian stock markets managed to hold their ground with the help of domestic institutions and individual investors; during this time, the Nifty 50 index increased by 13%.

This time, the increase in yields has caused FIIs to lose interest in Indian stocks. However, the quantum has never been seen before. The broad market index has corrected by about 11% in less than 4 months, and FIIs have sold off Indian stocks valued at an astounding Rs 2.2 lakh crore.

Yield Spikes witnessed in 2022-23
The wave of yield spikes this time around appears to be unique eyeing the state of the Indian economy. Due to strong government capital expenditures, the Indian economy was the major economy with the quickest rate of growth in 2022–2023. However, this time around, India’s halo is somewhat vanishing due to decreasing government capital expenditures and declining consumer demand. In light of this, the RBI must lower interest rates quickly in order to boost the economy and further reduce yield spreads.

Furthermore, the USD has been strengthening in the wake of US policy uncertainties. The dollar returns received by US investors in India have been further squeezed by the ensuing more than 3% depreciation of the Indian rupee, which has reached all-time lows of 86+. In actuality, the INR is expected to weaken even further as India’s imports of crude oil increase in response to Russian sanctions and the RBI progressively reduces its involvement in the currency markets. The real effective exchange rate of INR shows an 8% overvaluation, suggesting that the returns received by US investors in Indian stocks will continue to decline. Therefore, in contrast to 2022–2023, the bubbly Indian stock markets have fallen victim to the most recent round of yield rises.

What lies in the future?
Trump is scheduled to take office early next week, which is expected to open the door for erratic and possibly extreme immigration, business, and trade policies. In light of Trump’s potentially inflationary intentions, the US Fed’s policy decision at the end of this month will be widely scrutinized for indications of incremental hawkishness.

At home, we have three major events in the first few days of February: the Union Budget, which faces the challenge of boosting India’s slowing economy; the RBI’s monetary policy review, which is anticipated to result in the first rate cut after a year of holding rates higher for longer; and the results of the Delhi assembly election.

With so many important events planned for the next weeks, investors shouldn’t expect any respite from the stock market’s volatility.

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Indian economy estimated to grow at 6.7 percent in the upcoming two financial years

Indian economy estimated to grow at 6.7 percent in the upcoming two financial years

The recent Global Economic Prospects (GEP) report of the World Bank states that India is estimated to record 6.7 percent of growth in the next financial year 2026 and financial year 2027. It will continue to remain as the fastest growing economies in the world. Following the previous prediction in the month of June, the estimation of growth rate in the financial year 2026 has remained unchanged. While the estimation of growth rate in the financial year 2027 has slightly dip by 0.1 percent.

Growth Projection of World Economy
The World Bank report estimates that the overall world economy will grow by 2.7 percent in both financial year 2025 and financial year 2026. The speed of the growth for both the financial years will be the same as the speed for growth was for the financial year 2024. It is the result of the slow decline in interest rates and inflation levels.

Growth Projection of South Asia
According to the report, the Gross Domestic Product (GDP) is estimated to surge by 6.2 percent in both the years 2025 and 2026.This growth rate is estimated by comparing with the growth rate of 6 percent in 2024. The reason for the growth in South Asia is due to strengthening growth in India.

India and China are the two biggest emerging and developing economies in the world. Both the countries’ GDP per capita is trying to come closer to the levels of advanced economies. Although, this movement is taking place at a slower speed. According to the projections of the National Statistical Office (NSO) on 7th January, 2025, the GDP growth in India is expected to grow at the rate of 6.4 percent in the financial year 2025, which is the weakest growth rate in the last four years.

In the year 2024, the growth is estimated to reach 3.9 percent in the South Asian region without considering growth in India. This growth highlights the bounce back of economies such as Sri Lanka and Pakistan. It is aided by enhancement in policies at macroeconomic level.
The political issues in Bangladesh during the period of mid-2024 affected the economic activity and confidence of investors adversely. Bangladesh observes supply chain issues such as restrictions on imports and energy constraints. It also leads to slumping in industrial activities that lead to burden on pricing levels.

The growth in South Asia (without India) is expected to increase at 4 percent and 4.3 percent in the financial years 2025 and financial year 2026, respectively. The estimations are a bit lower than the estimations in the month of June due to political and economic uncertainty in Bangladesh. The growth prospects of Bangladesh to fall to 4.1 percent in the financial year 2024-2025 and then gain to 5.4 percent in the financial year 2025-26.

Sector-wise growth in India
The service sector in India is estimated to sustain its economic growth. On the other hand, the manufacturing sector in India is projected to have strong growth. The growth in the manufacturing sector is supported by the strategies implemented by the Indian government to enhance the business situation and logistics framework. One of the strategies taken by India for these improvements is tax reforms.

Consumption and Investment levels
In the fiscal year 2024-2025, India’s growth is estimated to slow down by 6.5 percent. The reason for the slow down is slumping investment levels and poor manufacturing growth. Despite this, the growth of private consumption is strong in India. The reason for this is enhancement in rural income levels, supported by improvement in agricultural output.

The private consumption levels in the country are anticipated to expand due to increase in credit availability, robust labour market and also falling inflation levels. The urban consumption growth is suffering from slumping loan growth and also higher levels of inflation.

In case of investment growth, it is estimated to have stable growth. It is supported by factors such as expanding private investments, better financial conditions and also strengthening corporate balance sheets.

Growth Projections of Developing Countries
The developing countries in the world contribute to 60 percent of the global economic growth. Following the 2000, the developing economies are estimated to end the first 25 years of the 2000s with the slowest growth in the long term. Further the report of the World Bank also states that when the global economy is stabilising in the upcoming two years, the developing countries are projected to reach up to the income levels of advanced countries.

The GEP report of the World Bank is the first systematic analysis of the progress of the developing countries in the first quarter or the 25 years of the 2000s. The report findings state that in the first decade of the 2000s, the developing countries in the world went through robust growth following the 1970s. However, this performance was weakened due to the Global financial crisis (GFC).

Global Economic Integration
The Economic Integration at global level is weakening. While, the foreign direct investment (FDI) inflows in developing countries is half of the level of FDI flows in the initial years of 2000s. Also, the implementation of new global trade restrictions in the year 2024 are fivefold higher than the average trade restrictions in the years 2010 to 2019. Due to all this, the total economic growth in the 2000s, 2010s and 2020s fell to 5.9 percent, 5.1 percent and 3.5 percent, respectively.

Following the year 2024, the average per capita growth in the income levels of developing countries are halved compared to the growth in rich countries. It has led to an increase in the gap between rich and poor.

Future Outlook
The chief economist of World Bank and senior vice president for development economics, Indermit Gill states that the upcoming 25 years will be more difficult than the previous 25 years of the 2000s.

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Organised Jewellery Industry to See 17% Revenue Growth in FY26
Business, Equities, Markets - January 16, 2025

Organised Jewellery Industry to See 17% Revenue Growth in FY26

Organised Jewellery Industry to See 17% Revenue Growth in FY26

Industry Overview
The Indian organised jewellery sector is poised for substantial growth, with India Ratings projecting a 17% revenue increase for FY26. This growth is driven by various factors, including rising consumer demand, increasing discretionary spending, and the expanding middle-class population. With a growing preference for branded jewellery, the market is witnessing a shift towards organised players, offering premium and innovative designs.

Factors Driving Growth
Several key factors are contributing to the positive outlook for the jewellery industry:

Growing Consumer Demand
The rising middle-class population and increasing disposable incomes are pushing jewellery sales higher. Consumers are becoming more inclined towards quality, design, and branded jewellery, creating a robust demand for organised jewellery offerings.

Discretionary Spending
Higher discretionary spending is driving consumer investment in jewellery, particularly among younger generations who seek personalised and value-added products. This trend is further supported by increased weddings, festivals, and special occasions, boosting sales during peak periods.

Consolidation of the Market
A shift towards organised jewellery players is evident as small retailers face challenges in meeting evolving consumer preferences and regulatory norms. Larger companies are gaining market share due to their ability to offer trust, consistency, and quality products.

Technological Advancements
The use of technology, such as augmented reality for virtual try-ons and artificial intelligence for design innovations, is enhancing the customer experience. This shift is attracting a younger, tech-savvy audience to organised jewellery brands.

Challenges and Risks
While the industry exhibits strong growth potential, it is not without challenges:

Volatility in Gold Prices
Fluctuations in gold prices can impact profit margins, especially for jewellery retailers reliant on gold-based inventory. Managing these fluctuations effectively is crucial for sustaining profitability.

Regulatory Environment
Changes in government policies, taxes, and certification requirements may pose compliance challenges for organised jewellery players. Adapting to these regulations swiftly will be vital for continued success.

Competition from Unorganised Players
The unorganised sector remains competitive, offering lower-cost alternatives to consumers. Striking a balance between affordability and premium offerings will be essential for maintaining market share.

Future Outlook
With positive macroeconomic indicators and increasing urbanisation, the organised jewellery sector is set to flourish. Companies that focus on expanding their reach, enhancing customer experience, and adopting innovative solutions are likely to lead the growth trajectory. Investors are advised to watch for strategic developments, market consolidation, and technological advancements as key drivers of long-term value creation in this sector.

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Affordable housing to take a hit in the upcoming Budget
Business, Equities, Markets, Real Estate - January 16, 2025

Affordable housing to take a hit in the upcoming Budget

Affordable housing to take a hit in the upcoming Budget

By 2030, the Indian real estate market is expected to reach the $1 trillion mark. The government established a strong foundation for the nation’s real estate industry by allocating Rs 11.11 lakh crore for infrastructure development in the Union Budget 2024. India’s real estate industry anticipates a more growth-oriented and inclusive approach from the government in the 2025 budget. On February 1, Finance Minister Nirmala Sitharaman will deliver the Union Budget 2025–2026.

However, there are differing opinions in the housing industry. Due to increased demand over the past two to three years, the upmarket segment, which includes premium and luxury residences, has seen a strong upturn in sentiment. Nonetheless, the Modi government’s goal of providing inexpensive homes is turning out to be problematic.

Affordable home sales have been declining sharply and consistently over the years, according to recent statistics from real estate research firm ANAROCK Property Consultants. The percentage of this group in total housing sales has decreased from 40% in the calendar year 2018 to 20% in 2024 among the seven largest cities from which data was gathered. Now, all eyes will be on the annual Union Budget 2025, which will include tax reductions and incentives related to the housing sector, such as interest subvention schemes or subsidies.

Some suggestions from the housing segment
The industry’s recommendations include a much-needed reinterpretation of what “affordable housing” is. There is an urgent need to update the current definitions of affordable housing, which are based on factors like size, cost, and buyer income. Most people agree that the 60 square meter carpet area needed to be eligible for incentives is reasonable, however, the INR 45 lakh price restriction is unachievable. Land prices have skyrocketed due to the increased demand for housing.

Additionally, experts believe that there is a transition from low to mid-income housing, especially among the paid class. According to the ANAROCK document, in order to reflect market realities, the cap should be increased to at least INR 85 lakh in Mumbai and INR 60–65 lakh in other major cities. The range of projects and purchasers who can take advantage of reduced goods and services taxes and other incentives will increase as a result.

Boosting Housing in Rural Regions
Implementing initiatives like first-time buyer incentives or even loans that allow people to transform “kaccha” homes into “pucca” ones is essential to increasing housing in rural areas.

In 2022, the PMAY’s CLSS for Low-Income Groups (LIG) and Economically Weaker Sections (EWS) came to an end. In order to encourage first-time homebuyers, experts are advocating for its restoration. Adding basic amenities like kitchens and bathrooms to existing homes or expanding incentives to loans for new development are other ideas. Subsidies could assist in transforming temporary dwellings into permanent constructions under PMAY (Rural), which would benefit a larger segment of the population.

Market Commentary on Budget Expectation
Elan Group’s Executive Director of Finance and Group CFO, Sandeep Agarwal, is hopeful that the next budget will offer a chance to address some of the industry’s most urgent issues. He asserts that in order to restore confidence among homeowners, the long-standing problem of stalled projects needs to be addressed first. reducing the impact of ineligible GST inputs on residential developments, redefining the criteria for affordable housing, and fixing discrepancies in the GST input credit for commercial buildings. Operational efficiency would be greatly increased by implementing a single window-clearing system for regulatory approvals within a specified timeframe.

According to Aman Sharma, Managing Director of Aarize Group, incentives and streamlined rules are anticipated to boost India’s economic trajectory and draw in foreign investors in the commercial real estate (CRE) sector. Measures like lower stamp duties and more tax breaks would be extremely beneficial to the luxury housing market, which is driven by changing lifestyles and expectations. With their expanding potential, Tier-2 cities need to strategically prioritize industrial and infrastructure development in order to open up new doors for investors and developers.

As stated by Saurabh Runwal, Director of Runwal Realty, it is imperative to implement legislative measures that improve liquidity, such as lowering long-term capital gains taxes, simplifying REIT rules, and raising interest rebates for home loans. With the luxury market experiencing a 51% increase in demand, these reforms will encourage both local and foreign investments, giving developers more competitive access to money and allowing homebuyers to fulfill their aspirations of becoming property owners.

Lower loan interest rates are necessary to make homes affordable for low- and middle-income households, according to BRIC-X INFRA founder Vijay Kamboj.

To maintain the sector’s pace, Mohit Goel, Managing Director of Omaxe Limited, argued for more funding under PMAY as well as financial incentives for both developers and customers.

Conclusion
Critics believe that with the real estate cycle in its upswing, rising land prices, and high interest rates, it may be difficult to meet the affordable criterion on the value of the dwelling units and the income profile of buyers. However, some industry experts believe that a tax holiday for developers of affordable housing may be beneficial.

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Solid reason for GST reduction on two-wheelers
Autos, Business, Equities, Markets - January 16, 2025

Solid reason for GST reduction on two-wheelers

Solid reason for GST reduction on two-wheelers

CEO of Hero MotoCorp company, Niranjan Gupta stated that there is a solid reason for reduction of Goods and Services Tax (GST) on two-wheelers with engines of about 125 cc or less. These vehicles are not identified as luxury or harmful commodities. In contrast to this, these vehicles are considered as a means of transport for many people in the country. He further states that the government of India should focus in the direction of economic stability, investments and also long-term economic growth.

Although, GST is not the topic of the Union Budget discussion, he believes that lowering of GST to 18 percent in the two-wheeler’s vehicles with an engine of 125 cc or less compared to its current GST of 28 percent (for all two-wheelers) should be considered. The reason for this is these two-wheelers are most affordable and popular among the Indian population. Hero MotoCorp is considered as the largest manufacturer of two-wheelers in India. The company is not worried about the weakening demand in the urban auto market. It believes that this market’s consumption level has been unbalanced since Covid-19 pandemic.

Reasons
Reduction in GST will help two wheelers with engines of up to 125 cc to increase its demand in the market. This will be aided by the recovery of sales observed in the entry-level vehicles segment after a long period of slow demand.

The two-wheelers with engine less than or equal to 125 cc are not only non-sin and affordable goods but also creates employment. It plays a great role in creating indirect as well direct employment levels.

Gupta further states that policies of incentives or subsidies undertaken by the government should take into consideration the long-term perspective of growth. This will give business adequate time to adjust with the changes taking place in the economy due to implementation of government policies. He also states that the government’s focus on expanding employment generation projects should remain ongoing. This will help to create more employment opportunities for the population in the nation.

Shares of urban and rural consumption
After the pandemic, urban consumption played a significant role in taking the responsibility of growth in various segments. While rural demand was low back then. In recent times, rural demand has picked up the pace and is now in the returning phase. It has resulted in growth in consumption level between rural and urban areas more towards rural consumption. Due to this, there is a belief that urban consumption is weakening. It is important to understand that the urban area has played a major role in the proportion of consumption level till now.

The sales of Hero vehicles in urban areas had declined to 47 percent in the initial nine months of the current financial year compared to the 60 percent in the previous financial year.

The rural market consumption is able to exceed urban market consumption in recent months. This situation was particularly observed from the time of the festive season. Gupta stated that the growth in the rural market will act as an addition to the total growth in the two-wheeler industry of India. He further stated that the growth in rural consumption will be supported for the upcoming 6 to 8 quarters by factors such as good monsoons, high minimum support prices and also better kharif harvest season.

Gupta further states that rural consumption has taken some time to recover and it will lead to a positive impact on both the rural and urban market. Also, the economic growth will be observed at a range of 6 to 7 percent and supported by increasing capital expenditure. He thinks that overall growth will hike up in the near future.

Launch Plans of Hero MotoCorp
The company has decided to have a number of launches in the entry-level as well as premium two-wheeler segment to strengthen its position in the market. Along with this, the company is planning to launch its third EV scooter in the quarter of June.

To have success in sales and market share in the electric vehicle segment, one has to lead in terms of efficient cost structure. The company is working on its cost structure regarding electric vehicles and functioning without subsidies. As the company has considered the potential action of termination of subsidies for EV in the next few years.

The Hero Motocorp is focused on export as well as local sales. It is taking steps towards creating products which are customised according to the different needs of various markets. The company will also invest its funds in the top 10 global markets in the world. Gupta states that international business is one of the growth factors. Today, the company has its presence in around 48 countries in the world.

The company announced its entry in Brazil and is making efforts to establish their presence. It has also started its work in the Philippines and it is considered as the company’s entry in the Southeast Asian market. The company is also making progress in countries such Bangladesh, Mexico, and Colombia. Overall, this expansion has led to an increase in growth close to 40 percent in the international business. This growth is recorded in the initial nine months of the current financial year, along with a rise in the market share.

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 Road to Progress: Union Budget 2025 to Accelerate India's Infrastructure Growth
Business, Equities, Markets - January 16, 2025

Road to Progress: Union Budget 2025 to Accelerate India's Infrastructure Growth

Road to Progress: Union Budget 2025 to Accelerate India’s Infrastructure Growth

India’s road infrastructure continues to be a cornerstone of its economic development, with the network expanding 59% over the past five years to over 6.7 million kilometers, making it the second-largest globally after the United States. As the Union Budget 2025 approaches, expectations are high for a substantial increase in road sector allocations, a move consistent with the National Democratic Alliance (NDA) government’s emphasis on infrastructure development.

Increased Budgetary Focus Expected
Over the past two years, road sector allocations saw tepid growth due to heightened social spending in the lead-up to the general elections. However, analysts anticipate a year-on-year budgetary increase of 8-10% for FY2026, as the government seeks to revitalize road execution. This allocation is expected to focus on expanding the national highway network while encouraging private sector participation, particularly through the Build-Operate-Transfer (BOT) model.

Addressing NHAI’s Debt Constraints
The National Highways Authority of India (NHAI), tasked with spearheading highway development, faces significant debt constraints. Its outstanding debt has surged to ₹3.2 lakh crore as of August 2024 from ₹1.8 lakh crore in FY2019, limiting its ability to borrow further. Consequently, the Budget is likely to maintain a zero-borrowing strategy for NHAI, shifting the focus to private investment and innovative funding mechanisms.

Reviving Private Sector Participation
The government has introduced several measures to stimulate private sector interest in road projects. These include:

Revised Model Concession Agreement: Enhanced terms for toll projects to attract developers.
Mandatory BOT Mode: Projects above ₹500 crore to be awarded under the BOT framework.
Streamlined Dispute Resolution: Faster resolution mechanisms to reduce project delays.
These amendments are expected to boost the share of BOT toll projects in the road infrastructure mix, offering a lower-capex alternative to the Hybrid Annuity Model (HAM) and fostering confidence among private players.

Challenges to Execution
Despite favorable policies, sluggish execution and low tendering activity remain concerns. By November FY2024-25, only 55% of the allocated funds had been utilized, signaling inefficiencies that must be addressed to ensure timely project delivery. Additionally, delays and cost overruns in the ambitious Bharatmala Pariyojana continue to draw criticism.

Rural Connectivity: A Key Priority
Rural road development is likely to gain prominence in this year’s Budget, as improved connectivity can significantly impact rural economies. However, successful implementation will depend on effective project structuring, attractive returns for developers, and streamlined clearances for long-gestation projects.

Accelerating Asset Monetization
Innovative financing models such as Toll-Operate-Transfer (TOT) and Infrastructure Investment Trusts (InvITs) need to be accelerated to unlock capital for new projects. These measures can help mitigate funding constraints and support the timely completion of critical infrastructure targets.

Economic Multiplier Effect
The road sector continues to command the largest allocation among infrastructure segments, given its significant multiplier effect on economic growth. Projections indicate a 9.5% compounded annual growth rate (CAGR) in road infrastructure from FY2025 to FY2032, driven by urbanization and rising demand for efficient transportation.

Conclusion
The Union Budget 2025 is poised to reinforce India’s road infrastructure growth trajectory, with a balanced approach that combines government funding and private sector participation. While challenges such as fiscal constraints, project delays, and execution inefficiencies persist, a strategic focus on policy enhancements and asset monetization can ensure sustainable development. For investors, the sector offers attractive opportunities, underpinned by robust growth prospects and government commitment to long-term infrastructure expansion.

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