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India: Infrastructure Set to Outpace IT as the Growth Engine
Business, Equities, Market News, Markets - January 7, 2025

India’s Economy: Resilient Amid Global Uncertainties and Poised to Lead Emerging Markets in 2025

India’s Economy: Resilient Amid Global Uncertainties and Poised to Lead Emerging Markets in 2025

In recent years, despite economic and global insecurities and turbulence, India’s economy has consistently been standing its ground on resilience and development. In recent times, two reliable reports have been staged to bolster this connotation, one published by Goldman Sachs and the other by Morgan Stanley.

Goldman Sachs Report
A new Goldman Sachs report published on 10th December 2024, forecasts the reaffirmation of India’s economy to remain firm. This report comes despite of numerous uncertainties owing to India’s solid macroeconomic fundamentals and strategic reforms. This positive posture has been reflected by various financial institutions thus positioning India as a strong leader among the emerging markets in 2025. At the core of this stability, India has been able to achieve sound macroeconomic management. The Reserve Bank of India has managed fairly well in terms of controlling inflation while ensuring overall financial stability. Governor Shaktikanta Das, in this way, noted that India is, in his opinion, “well positioned” to cope with external shocks due to the country’s policies, decent levels of foreign exchange reserves, and external debt.
Economists at Goldman Sachs predicted that India’s GDP would increase by an average of 6.5% between 2025 and 2030. Their 6.3% projection for 2025 is 40 basis points lower than the consensus of analysts polled by Bloomberg. The slowing growth rate is due, in part, to diminishing public capital expenditure growth. According to budget predictions, the Indian federal government’s capex growth fell from a CAGR of 30% per year between 2021 and 2024 to mid-single digits in nominal terms in 2025.
Credit is slowing

Credit is also shrinking. Total private sector loan growth in India peaked in the first quarter of the 2024 calendar year and has slowed in the past two quarters. The slowdown was primarily caused by a decline in bank credit growth to roughly 12.8% as of October, down from more than 16% in the first quarter of this year. In particular, household credit growth in unsecured personal loans slowed after the Reserve Bank of India tightened retail loan standards in November 2023.
Inflation Factor

Headline inflation in India is predicted to average 4.2% year on year in 2025, with food inflation at 4.6%, significantly lower than our analysts’ prediction of 7%-plus for 2024, thanks to ample rainfall and robust summer crop sowing. Food supply shocks caused by weather-related interruptions remain the most significant risk to this prediction. So far, excessive and erratic food inflation, primarily driven by vegetable prices due to weather shocks, has prevented the RBI from relaxing monetary policy. Core inflation should be around the RBI’s objective of 4% year on year in 2025, with the likelihood of inflation falling if US tariffs force Chinese firms to reallocate products to regional markets. The RBI has managed fairly well in terms of controlling inflation while ensuring overall financial stability. Governor Shaktikanta Das, in this way, noted that India is, in his opinion, “well positioned” to cope with external shocks due country’s policies, decent levels of foreign exchange reserves, and external debt.

Market Outlook
A separate analysis from Goldman Sachs Research predicts that India’s equities would perform substantially in the medium future. In the short term, however, sluggish economic growth, high beginning values, and negative earnings-per-share revisions may keep markets rangebound. Goldman Sachs equity experts believe the benchmark NIFTY index will reach 27,000 by the end of 2025. They also predict MSCI India earnings to expand by 12% and 13% in 2024 and 2025, respectively, falling short of consensus expectations of 13% and 16%. The MSCI India index of companies is trading at a 23x forward P/E multiple, which is much higher than the 10-year average and higher than our strategists’ top-down fair value estimate of 21x, implying more de-rating risk.

Further, the report remains neutral on Indian stocks in the short term, but sees potential in local sectors such as automobiles, telcos, insurance, real estate, and e-commerce, which may have a better path to higher profitability.

Morgan Stanley Report
According to Morgan Stanley’s India Equity Strategy Playbook, India will be among the top emerging markets by 2025. As a result, the BSE Sensex is expected to reach 93,000 by December 2025, a growth of around 18%. The researchers deem India’s value multiple high because over the next four to five years India is expected to record profits growth at an average rate of 18-20% on a yearly basis coupled with macroeconomic stability and a large pool of domestic risk capital. A gradual increase in the level of protection against global market volatility is verified by the fall in the correlation between the returns on India’s equities and the world’s stock markets.

Market Sentiment
Factors that determine the sentiment such as Morgan Stanley’s in-house sentiment index portray a neutral to buy market, which coincides with the bullish perspective of the team. Domestic mutual fund sources remain robust, especially SIPs, although other sources not belonging in that category are slowing down. On the other hand, foreign equity portfolio inflow is favorable, while outflow in debt portfolio is unfavorable. Sensex earnings are predicted to expand at an annualized rate of 17% through FY27, with corporate profits as a percentage of GDP on the rise. Profitability measurements like return on equity (ROE) show a positive cycle. Corporate debt is expected to reach 58% of GDP by 2025, with a positive nominal growth outlook notwithstanding market expectations for low growth.

US- India Relations
The gap between real GDP growth and the 10-year bond yield points to a positive prognosis for stocks. Indicators such as the policy certainty index, which has declined from pre-election levels, and the favorable real policy rate gap with the United States also help equities performance. Short-term interest rate and yield curve trends suggest that equities returns may moderate in the next 24 months, while earnings growth in the high teens is predicted during the next year. Global investors are likely to find relative safety in India’s financial markets as a result of Donald Trump’s economic plans, especially any protectionist trade policies that may cause emerging market turbulence. However, investors and analysts believe that India’s strong economic growth, minimal exposure to the Chinese and US consumer markets, healthy local appetite for equities, and a central bank committed to currency stability will boost the country’s appeal in the face of global uncertainty.

Conclusion
Thus according to these reports, India’s share of the EM and global indices is increasing, and its performance relative to China is improving. Household savings are shifting towards shares and away from gold, indicating increased confidence in financial assets.

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Auto Sector Eyes 5% Growth in 2025

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Business, Equities, Market News, Markets - January 6, 2025

Auto Components Industry Maintains Capex Plans Amidst Growth Moderation

Auto Components Industry Maintains Capex Plans Amidst Growth Moderation

The Indian Auto component industry is projected to have high single digits growth in the financial year 2025 by the Rating Agency ICRA. To estimate this growth rate of the Indian Auto component industry, ICRA used a sample of 46 auto ancillaries with total annual revenue of over Rs 3,00,000 crore in the financial year 2024. It is supported by the 14 percent growth recorded in the industry in the financial year 2024. It is important to point out that more than half of the Indian auto component industry sales is done by the domestic original equipment manufacturers (OEM) in India. In the current quarters, the automotive sales are observed to be slowing down. This could adversely impact the demand for auto components from the domestic OEMs.

Not only does the demand for automotive components for the manufacturing of vehicles slow down but also the demand for components in the after-sales markets. After having a strong growth for like two to three years, it is forecasted to slow down by five percent to seven percent in the financial year 2025.

The Indian automotive component industry close to one-third of the revenues comes from the export of automotive components. The export segment is also expected to face slowdown in growth due to fall in growth in consumer markets. Despite this, supplies to new platforms will rise due to vendor diversification steps taken by the global OEM companies and rise in outsourcing. The new platform refers to companies which incorporate the latest technologies and promote innovations. The OEM supplying the latest technologies models will be able to align better with the changing dynamics in the automobile industry and will also be able to generate growth. While vendor diversification will help companies to not remain dependent on a single entity and can diverse risk and make a more resilient supply chain. Both outsourcing and vendor diversification is a good opportunity for Indian auto component companies to increase their growth and become competitive with the global world.

In the European Union region, automotive companies announced shutdown of plants and big layoffs. This could be an opportunity for Indian auto components manufacturers in metal casting and forgings. The Indian companies will have opportunities in the international replacement or after-sales market segment due to ageing of vehicles and sale of used vehicles in the global markets.

The ICRA reports that the Indian auto components players will have opportunities in electric vehicles (EV), vehicle premiumisation and localisation of auto components. The growth for the auto components players will be supported by the changes in the regulatory norms. Currently, supply chanin of Electric Vehicles is 30 percent to 40 percent localised. Chassis components are produced locally which need minimum technological progress. Also considerable localisation is observed in control units, battery management systems and traction motors over the period. The battery cells are still imported and it accounts for 35 percent to 40 percent of the vehicle cost. Although it seems like localisation is a key advantage for growth of domestic OEMs, low level of localization can also act as an advantage for them. For instance, technological advancement can occur for the parts used in internal combusion engine (ICE) vehicles as well as production of components for vehicles which use alternate fuels.

While considering the growth of the auto component industry, it is important to take its profitability into consideration. As per the reports of ICRA, the sector’s operating margins are anticipated to remain in the range of 11 percent to 11.5 percent in the financial year 2025. One of the reasons for this is double and for some routes triple container rates due to disruption in the Red Sea route in the year 2024 as compared to the previous year. India’s auto components are exported around two-third to North America and Europe and around one-third of auto components are imported from these regions only. The considerable increase in freight rates would adversely impact profit margins for upcoming few quarters. The margins in the medium term will get advantage from good operating leverage, increased in value or components in the vehicle. However, it will also remain vulnerable to any kind of sharp volatility in foreign exchange rates and prices of commodities.

Despite moderate growth, ICRA forecasts the auto component industry to continue with its capital expenditure plans (Capex). The plan for the financial year 2025 will be around 15,000-20,000 crore and for the financial year 2026, it will be around 20,000-25,000 crore. It is expected that mostly internal accruals will be used for operating income of around 7 to 8 percent in the medium term. While funding for larger projects like battery cells localisation is through debt initially. Aside from capex used for capacity building and coming regulatory changes, the incremental investment will be used for development of advanced technology, products and EV components. Also according to ICRA, the industry’s liquidity position will remain in a good position especially for Tier-1 Suppliers due to stable cash flows and earnings. Also the coverage metrics will remain good due to stable internal accruals and low incremental debt financing despite rise in the cost of borrowings.

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Auto Sector Eyes 5% Growth in 2025

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Business, Equities, Market News, Markets - January 6, 2025

Liquidity Deficit in the Banking System

Liquidity Deficit in the Banking System

India’s banking system liquidity slipped into a deficit in December of 2024, making it the first shortfall since June of the same year even after easement of the CRR by RBI which infused Rs. 1.16 lakh crore. The banking system liquidity deficit reached Rs. 2.43 trillion as of 23rd December, 2024. This meant that banks did not have sufficient funds to lend and sustain day to day operations.

There are numerous reasons as to why despite RBI efforts, banking system liquidity has reduced significantly. One of the pressing reasons for this reaction would be the issue of advance tax payments, that is, businesses have made sizable amounts of tax payments which reduced the cash in circulation within the banking system. Another major factor is the RBI’s regular interventions in the foreign exchange market. Recently, the RBI sold U.S. dollars to stabilize the rupee which then led to the erosion of rupee liquidity in the near term with crossing new lows multiple times reaching Rs. 86.51 to a dollar this tuesday (31st, December, 2024). Furthermore, the factor that influenced banking system liquidity is the festive spending season which led to increased cash withdrawals by individuals, decreasing the deposits held with banks. This type of seasonal demand is typical but can put stress on liquidity during peak times. Another factor linked to liquidity crunch is the decline of currency in circulation in the economy, which increased to more than Rs. 500 billion in 2024 which further limited the available funds with banks.

The liquidity shortfall comes after many fluctuations in liquidity in the past one year. The RBI addressed this deficit by way of policy actions which included a 50 basis point cut in the CRR to 4% from 4.5% in December which injected around Rs. 1.16 lakh crore but this is not enough to offset the cash withdrawals and interventions. This CRR requirement came into implementation in two tranches of equal basis points, one from 14th December and 28th December.

Despites the liquidity shortfalls, RBI utilized variable repo rate (VRR) auctions to stabilize borrowing costs close to policy repo rate. During the month of December, average call rate has been around 6.55% which happens to be just 5 basis points above the repo rate. On the other hand, experts have stated managing call rates through VRR auctions is only a temporary solution in handling liquidity in the economy.

While commenting on the liquidity issue, Siddhartha Sanyal, chief economist at Bandhan Bank, stated that for the situation to improve, government spending should increase significantly in Q4. Further, the CRR requirement rate cut would also impact liquidity in a positive manner. In the near term it would be important to meticulously eye the trends in USD-INR and the near possibility of RBI intervention in the foreign exchange market which is possible in upcoming weeks/months.

Coming to the journey of rupee so far this year, rupee’s trajectory has been weakening from the past few months, with rupee slipping below record lows at numerous occasions. Furthermore, India’s foreign exchange reserves have depleted by almost USD 60 million by 20th December, 2024 which shows RBI continuous intervention in the foreign exchange market.

Additionally, to counter persistent liquidity crunch in the banking system, RBI has already hinted on further rate cuts in the first half of 2025. Market experts have stated that liquidity deficit can affect the credit flow which limits the impact of any further rate reductions. Another tool the RBI could employ to ease the liquidity is the Open Market Operations (OMO). RBI could do this by announcing the open market bond purchases which would further induce liquidity directly into the economy by way of government bond issuance. Looking ahead, market participants expect spending to expand by about ₹1 billion from January to March 2025. This increase in demand will be driven by other sources, inflation and other monetary factors are involved and thus the demand for funds may increase, whereby the liquidity of the system becomes tight again.

In conclusion, the deficit in the Indian banking system by December 2024 is a significant development, which means that sustainable measures are needed to ensure liquidity in the coming months, though RBI has already taken steps to address the issue, including reducing CRR and variable rate repo auctions. The idea is to stabilize the monetary environment by implementing innovative measures such as market bond purchases and further reductions in CRR necessary as the monetary system faces ongoing pressures from financial flows, currency circulation and foreign currency intervention, therefore to ensure access to funds appropriate, it will be critical to the successful delivery of monetary policy and overall financial health.

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UPI transactions rise 8% to 16.73 billion in December

UPI transactions rise 8% to 16.73 billion in December

Digital transactions in India observed an upward trend in the month of December. The data provided by National Payments Corporation of India (NPCI) states that the financial transactions carried through the Unified Payments Interface (UPI) registered 16.73 billion transactions in the month of December, 2024. It increased by 8 percent month-on-month as compared to the 15.48 billion transaction in the month of November, 2024. It recorded the highest volume for the digital transaction since it came to function in April, 2016. NPCI is a public sector company responsible for operating the retail payments and settlement systems in India. As per the data of NPCI, the growth for December, 2024 was 39 percent in terms of volume of transactions compared to the previous year of the same period. While in terms of value in transaction, it increased 28 percent against the value of transaction in the month of December, 2023.

The data of NPCI released on 1st January states that the value of the UPI transaction was Rs. 23.25 lakh crore in December as compared to Rs. 21.55 lakh crore value of the previous month’s UPI transaction. While the count of the average daily transaction in December surged to 540 million from 516 million in November. Also the overall volume of digital transactions increased by 46 percent which accounts for 172 billion transactions compared to 118 billion transactions in the year 2023. In terms of value of transactions, it rose by Rs. 247 trillion during the year 2024 as compared to Rs. 183 trillion in the year 2023, indicating an increase in volume by 46 percent. The increase in transactions is mainly due to the rise in person-to-merchant transactions or the buying of goods and services.

Even though the App-wise data for the month of December is yet to be available, PhonePe, owned by Walmart, is observed to be leading the market. This is based on the data available for the month of November where PhonePe contributes to 47.8% of the shares in UPI transactions. It is followed by Google Pay and Paytm. NPCI has extended the deadline by two years for UPI providers to fulfill the obligation of 30 percent market share. This extension of the deadline indicates that it is not probable for the shift in market concentration in the near future. The predetermined date for the new deadline is now 31st December, 2026. This is for the second time NPCI has extended the deadline regarding this subject. This provision by NPCI is based on the regulation in 2020. Its purpose is to prevent more than 30 percent share of any third-party app provider in the total UPI transaction volumes. The main reason for this is to prevent excessive control of a single entity as well as to mitigate concentration of risk. It also aims at giving relief to market leaders in UPI providers such as PhonePe and Google Pay. As both of them contribute for UPI volume transactions around 47.8 percent and 37.02 percent respectively in the month of November based on the report of NPCI. This action of NPCI to limit the large market share of a single entity led to growing concerns among UPI providers about limitations in their growth as well as growth of the digital transactions in India.

The Immediate Payment Service (IMPS) provides users with the facility to transfer funds in real-time between banks. As per the report of NPCI, IMPS registered 441 million transactions in the month of December and the value of transactions is Rs. 6.02 lakh crore. While the transaction through Aadhar-Enabled Payment System (AEPS) is around 93 million in December. As compared to previous month, the transaction activities remain flat for AEPS. On the other hand, Fastag recorded a transaction volume of 382 million in December which accounts for a surge of 6 percent as compared to the volume of 359 million and 345 million in November and October respectively. In terms of value of transaction, it increased by 9 percent which was around Rs. 6,642 crore in December against the value of Rs 6,070 crore and Rs 6,115 crore in November and October respectively.

NPCI made a formal statement in its press release on 31st December, 2024 about the removal of the user limit on Whatsapp Pay which was earlier limited to 100 million users. Now Whatsapp Pay can be facilitated to its entire users in India. Its aim is to bring Whatsapp payment in the mainstream of UPI provider ecosystem and make UPI ecosystem more inclusive and competitive in nature. At present, the total users of Whatsapp messaging service in India is over 500 million users. According to the report of NPCI, the fiscal year of 2024 observed a 37 percent surge in net profit which accounts for Rs. 1,134 crore.

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Credit Growth Expected to Slow as Provision Costs Rise

Credit Growth Expected to Slow as Provision Costs Rise

Recently, the credit rating agency ICRA, an affiliate of Moody’s Investor Services slashed credit growth rate outlook for the Indian banking sector. The newer revised outlook for credit growth predicts that the loan growth would witness a slight slowdown to 10.5% to 11% for the fiscal year ending March, 2025. The revision is a reduction from the previous forecast of 11.6% to 12.5%. Primarily, the cause behind this alteration includes a sharp decrease in the lending segment in particular sections such as unsecured retail borrowers and NBFCs. When it comes to NBFCs, the credit growth decelerated to 7.8% year-on-year when compared to 19% for the previous year. RBI in November, 2023, increased risk weights on bank credit to NBFCs, prompting these institutions to diversify the source of their funding. Therefore, as these specific segments carry higher yielding returns but at the same time carry even higher risks, banks have become increasingly cautious when it comes to their lending practices.

Lending or credit growth by Indian banks slowed for the fifth consecutive month in November, up 11.8% year-on-year from 16.5% in November 2023. Including the impact of the HDFC Bank merger, credit growth stood at 10.6% compared to around 21% for the previous year. This moderation in credit growth follows the actions of the Reserve Bank of India to curb excessive lending on unsecured loans. Credit growth had also slowed in the previous months (October, July, August and September). Despite this slowdown, banks continue to report double-digit growth, supported by high retail demand and urban infrastructure. Furthermore, banks are now focused on improving their already high credit-to-deposit (CD) ratio. ICRA has stated that the loan growth will further decrease to 9.7% to 10.3% in the fiscal year ending March, 2026. This reduction would be a result of trimming CD ratios by the banks and the alteration in the implementation of changes in the liquidity coverage ratio framework which would kick in next fiscal fiscal year.

Bank margins would take a hit with consistently higher interest rates and a gradual slowdown in credit growth, said Sachin Sachdev from ICRA. As the primary source of bank margins are through disbursing of personal loan and other unsecured loan products, a significant reduction in the volume of such loans would definitely impact overall profitability of the bank. Further if the interest rates continue to decline in the future, banks could suffer with stagnant profit figures as the range between the lending and borrowing rate would grow narrower.

ICRA further stated that bank margins would be impacted by rate cuts which accelerate yield transmission. On the other hand, banks’ return on asset (RoA) is expected to stay in good health lying in the range of 1.1% to 1.2% for FY2026 and 1.2% to 1.3% for FY2025 when compared with 1.3% for FY2024. Additionally, with slower credit growth, banks would witness enhancement in loss absorption capacity with bolstering growth needs. Thus, banks would lend less aggressively and improve their reverses and manage high risks associated with high risk lending segments.

Banks’ balance sheets would be further stretched by the impact of the implementation of expected credit loss (ECL) framework and increased provision for medium term project financing. The ECL framework would require banks to set aside provisions for bad loans way earlier than they currently do. This would significantly improve transparency and risk management but at the same time increases financial burden on banks for short-term. Additionally, banks would be required to set aside higher provisions for project finance, particularly in infrastructure and large-scale projects. As a result, these provisions put pressure on banks’ financial resources, affecting the overall profitability including bank margins.

To handle and offset these challenges in the banking space, Indian banks are turning to the bond market to raise funds. Sachdev further elaborated that due to difficulties in attracting deposits, banks are now shifting strategies for fundraising and are expected to issue bonds at an increasing rate in the near future. Sighting this, banks are expected to surpass their previous high and could touch Rs. 1.3 trillion for FY2025 when compared to Rs. 1.02 trillion for FY2024.

Coming to the retail space, with the increasing stress, the fresh slippages by banks are on the rise while recovering are expected to slow down. The gross fresh NPA generation by banks is expected to increase slightly to 1.6% in FY2025 from 1.5% in FY2024 which still remains way lower than previous years. Eyeing this situation, gross NPAs would rise and correlatively GNPA ratio would also rise in FY2026.

Lastly, ICRA emphasized that although NPA generation rate is set to pick up, credit costs would likely only rise slightly due to lower legacy net NPAs. To improve banks’ bottomline, with higher current provision coverage ratio (PCR), banks would have more room to lower incremental provisions. Coming to numbers, credit expenses account for upto 21% to 23% of the operating profit of the banking sector in FY2025 and 27% to 30% in FY2026

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Fiscal Discipline in Focus: Government Plans Deficit Reduction by FY26
Business, Equities, Market News, Markets - January 6, 2025

Fiscal Discipline in Focus: Government Plans Deficit Reduction by FY26

Fiscal Discipline in Focus: Government Plans Deficit Reduction by FY26

The Indian Government recently announced to focus on improving the quality of spending which would bolster the social security net and aim at bringing down the fiscal deficit to below 4.5% of GDP by the fiscal year 2025-26 (FY26). Government’s dedication to reduce the monetary deficit aligns with its willpower to financial prudence while ensuring financial increase and social welfare.

The Union Government has shown commitment towards its roadmap to fiscal consolidation as announced in the FY21-22 Budget which aimed at reducing the fiscal deficit to below 4.5% of GDP by FY 25-26. This dedication is showcased in the Finance Ministry’s half yearly review of fiscal trends which comply with the Fiscal Responsibility and Budget Management Act, 2003. These announcements were tabled at Lok Sabha last week in the light of the upcoming Budget for FY 25-26 in Parliament on 1st February.

Going in depth of the Finance Ministry’s document, this push will be improving the quality of government spending while enhancing social security for the needy and poor. This measure would strengthen the nation’s macro-economic parameters and support financial stability. In the Budget of FY25, capital investment was hiked by 33% to Rs. 11.1 trillion (3.3% of GDP). Investment such as infrastructure, manufacturing, etc. leading to long-term while creating employment.

This fiscal consolidation thrust comes at the time of global uncertainties which are caused by wars in Europe and the Middle-East which have created inflationary pressures and caused domestic and global challenges on the face of development. India’s fiscal deficit peaked during the pandemic period at 9.2% in FY21 throwing light on the emergency spending at the time of crisis. Since the pandemic the government is aiming at consolidating fiscal deficit while ensuring the much needed funding to crucial sectors of the economy. The government’s macroeconomic measures have insulated the nation from getting affected by global pressures.

Going into the specifics, the budget estimates (BE) for FY 24-25 projected government expenditure of around Rs. 48.21 lakh crore. Out of the total expenditure, around Rs. 37.09 lakh crore gets allocated to revenue expenditure (including operational and recurring costs) and the remaining amounting to Rs. 11.11 lakh crore for capital expenditure (included long-term investment in infrastructure and developmental projects). Of the total expenditure, Rs. 21.11 lakh crore was in the first half of FY25 of about 43.80% of the budget estimates. Further, the projected figures for capital expenditure by the government (Capex) was about Rs. 15.02 lakh crore. Additionally, the Gross tax Revenue (GTR) was estimated at Rs. 38.40 lakh crore with a tax to GDP ratio of 11.8%. While, total non-debt receipt stood at Rs. 32.02 lakh crore, which comprised tax revenue of about Rs. 25.83 lakh crore, non-tax revenue was about Rs. 5.46 lakh crore and capital receipt of about Rs. 0.78 lakh crore.

With the above estimates of the cost of procurement, the fiscal deficit in BE 2024-25 was pegged at Rs 16.13 lakh crore or 4.9 per cent of GDP. Deficit in FY25 H1 is estimated at Rs 4.75 lakh crore or about 29.4 percent of BE. Funding the financial crisis by raising Rs 11.13 lakh crore from the market (G-sec + T-Bills), draw the remaining Rs 5 lakh crore from other sources, such as NSSF, State Provident Fund, external debt, which is lower than residual income and immediacy.

Discussing the impact of fiscal deficit on markets, there is a positive nudge witnessed in market sentiment. India’s benchmark 10-year bond yield fell sharply over four years in 2024 as government fiscal discipline and the addition of debt to global indices boosted demand, as investors waited for the domestic rate easing in 2025. The yield ended at 6.7597% on Tuesday, down 42 basis points on the year after falling 15 bps in 2023. This was the biggest fall since it fell 66 bps in 2020. Bond yields started the year on a downtrend, continuing to prompt the government to cut its borrowing, while strong demand from domestic and foreign investors meant that supply was taken early. The government adhered to its fiscal plan and reduced its fiscal deficit target as well as market lending, at a time when corpus with long-term investors such as insurance and pension funds had grown.

In summary, the Indian government’s commitment to decreasing the fiscal deficit to 4.5% of GDP by FY26 at the same time as improving expenditure and getting closer to financial consolidation. However, reaching these goals will require navigating complicated demanding situations, inclusive of populist pressures, international uncertainties, and revenue mobilization constraints. By keeping a strategic cognizance on best spending and lengthy-term sustainability, India can make sure that its economic rules help strong and inclusive economic increase.

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India's Power Usage Rises 6% to 130.40 Billion Units in December

India’s Power Usage Rises 6% to 130.40 Billion Units in December

The December month of 2024, India’s power consumption increased closed to 6 percent which is 130.40 billion units (BU) as compared to 123.17 BU in December, 2023. The peak power demand (highest supply in a day) also surged to 224.16 GW in December 2024 from 213.62 GW in previous year. In the year 2024 itself, the peak power demand touched an all time high which was 250 GW in May 2024. It crossed the previous all-time high peak power demand of 243.27 GW in September 2023.

At the start of the year 2024, the Power Ministry of India estimated a peak power demand of 235 GW during the day. It also projected GW for daytime and evening hours for May 2024 as 240 GW and 225 GW respectively. For the month of June 2024, it was expected to be 240 GW during daytime and 235 GW during the evening hours. The power ministry of India also estimated peak power demand may hit 260 GW in the summer season of 2024. As compared to this, the peak power demand in 2025 is forecasted to hit 270 GW in the summer season.

As per the experts, the rising power demand and its consumption in the last month is due to an increase in the use of heating appliances like heater and geysers in the midst of Cold wave conditions. It is also estimated that the growth of power demand and its consumption will remain steady in January due to significant drop in temperature especially in Northern India. One of the other reasons for the increase in demand for power and consumption is improvement in commercial and industrial activities in the last quarter of 2024-2025.

The severe cold waves hit the Northern region of India. Several states such as Himachal Pradesh, Jammu and Kashmir, Rajasthan, Punjab, Telangana, Odisha and Delhi are facing the harsh cold waves with temperatures dropping to freezing lows. In this extreme cold weather condition, the peak power demand in the city crossed 5,000 MW during December. As per the information provided by the State Load Dispatch Centre (SLDC), the apex body responsible to manage the power system in Delhi and its related task, it recorded a power demand of 5,213 MW on Tuesday morning of 31st December. The previous day demand for power was recorded around 5,046 MW. The current highest supply in December month is higher than the demand in the last two years in the same period. Also SLDC indicated that Delhi’s peak power demand this winter is likely to surpass 6,300 MW leading to setting up of a new seasonal high. It is expected that Delhi in this winter season will probably follow the record-breaking summer trend in power demand observed in the year 2024. Despite the temperatures in Delhi expected to rise on 2nd of January, it is highly unlikely to see any significant relief from the cold. As per the weather forecasts, the freezing winds and the fog with a range of moderate to dense will maintain a chilly weather. It indicates that the demand for power will remain strong. The situation of Delhi in the northern region of India shows the glimpse of the winter condition especially in the North India and its impact on the power demand and consumption.

The prevailing climatic condition has induced an increase in demand for heat appliances. Also the overall improvements in the commercial and industrial activities has ensured increase in demand for power consumption. Both of these indicate not only an increase in demand for power due to seasonal demand but also due to economic growth. As power plays a crucial role in the industrial activities of the country.

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Resilient Banks Face Cost Challenges Beyond Technology

Resilient Banks Face Cost Challenges Beyond Technology

Banks are the cornerstone of the financial sector at the national as well as global level. To maintain stability, banks need to maintain liquidity and stable profit margins. Currently Indian banks are facing the issue of profitability margins and operational costs. In 2025, Indian banks are expecting the Reserve Bank of India to issue final guidelines on the number of subjects related to compliance. For this, the draft has already been circulated by the RBI. The subjects taken into consideration range from higher provisioning on project finance, higher run-off rates for liquidity coverage ratio (LCR), climate-related financial risks, and focus on credit management models. The critical issue banks face is credit risk due to Non-Performing Assets (NPAs). The RBI is also going to address this issue and also other risks that banks often faced affecting their books. The Central Bank also focuses on issuing guidelines related to restricting banks and their subsidiaries from performing overlapping businesses.

RBI focusing on these different subjects related to Banking function indicates that the year 2025 would be a challenging year for Indian Banks. It will lead to a rise in compliances and its cost. Also compression in margins due to stagnant deposit growth, competition for fee business and issue of operational cost. Despite progress in technology in the banking sector, it is difficult to lower operating costs. Resulting overall pressure on profit margins. Aso if the economic growth remains stagnant, it will affect other incomes of banks such as guarantees and commissions.

According to banking analysts, the banks have good capital structure and the NPAs’ share is at decadal low. Also they hope that the banking and financial institutions will not face any kind of severe shocks in this year. Despite this postive situation, the increasing number of Cyber frauds will keep the banks in constant tension.

The Indian banks are already facing the issue of less net interest margins (NIM). The NIM is the difference between the interest payment on deposits (cost of funds) and interest charged to borrowers. NIM also acts as a key indicator of a bank’s earnings. Last year, the NIM was narrowed down by 50 bps. According to RBI’s latest Trend and Progress of Banking Report, banks’ earnings based on NIM as key indicator was at 3.5 percent at the end of September 2024 as compared to 4.1 percent in the previous year for all the commercial banks. The guidelines of RBI that will be implemented in 2025 will likely lead to an increase in regulated banking structure as it will aim at making banks financially strong and more accountable and transparent. Despite this, it will certainly affect the performance of the banks. As the pressure on profitability margins is increasing due to rising credit cost and capital requirements in high-yield sectors such as unsecured loans. It could lead to banks to shift to more secured retail and corporate lending. The capital requirements are high in unsecured loans due to lack of collateral, higher risk of defaults, and has to follow regulatory requirements stated by RBI.

Increased use of technology in banking functions such as implementation of KYC norms, block chains for smooth transactions and use of technology for giving other customer services is observed in the banking sector. The aim of using technology was not only to make the banking process hassle-free for customers but also to lower the operational costs banks faced while performing banking activities. Despite the increased use of technology, the banks are expected to face high operational costs due to technology failing to replace humans as resources. Reason for this is that advanced technologies are complex and expensive in nature. It requires not only to invest in infrastructure but also to employ skilled professionals to manage these technologies. Also implementation of technologies need extensive training of the employees which comes with a cost. The functions like deciding the creditworthiness of the borrowers and amount of loan and interest rate to be given cannot be solely decided on the basis of data analyzed. It needs human perspective and strategies. Also many customers still prefer human interactions in terms of grievances and help while going through banking services and its products.

According to the report of RBI, the banks’ operating expenses have increased by Rs. 5.9 lakh crore in the fiscal year 2024 which is 20 percent more compared to the previous year. Also strengthening of regulatory compliance will lead to increase in cost of non-compliance. This will lead to an increase in reputational and business loss more than the past.

Apart from this, banks have to focus on their lending channels. In sectors, it faces a slow down. While in some industries such as chemical and chemical products, infrastructure, petroleum, coal products and nuclear fuels faced increased growth. Overall increase in loans to industry rose by 8.1 percent Y-o-Y in November 2024 compared to the previous year of growth of only 5.5 percent. Also, the retail sector recorded growth of 16.3 percent compared to 18.7 percent in the previous year due to a decline in growth in unsecured loans, vehicle loans and credit card outstanding. According to the RBI, housing loans, which has the largest share in retail lending, observed accelerated growth. Indicating that technology alone cannot resolve all the concerns of the banks.

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Auto industry closes 2024 in top gear with record-breaking car sales

Auto industry closes 2024 in top gear with record-breaking car sales

The year 2024 for the Auto Industry closed with a record of domestic wholesales of 4.3 million vehicles, surpassing the previous record of 4.11 million units in 2023. The companies such as Maruti Suzuki, Hyundai, Tata Motors, Mahindra & Mahindra, Toyota Kirloskar Motor and Kia observed their best-ever annual domestic sales. The Indian Auto Industry mostly registered wholesale dispatches and not retail sales to customers. Despite this, Indian Vehicles retail sales grew by 9% in 2024 as it reached a record of nearly 26.1 million units. The retail sales record surpassed the pre-covid peak demand of 254 million units set in 2018. It marked the full recovery of the auto industry which faced slowdown due to the pandemic and higher than the 24 millions units sales in 2023. Making India one of the few economies to surpass the pre-Covid levels.

Maruti Suzuki India Ltd, India’s largest passenger vehicle manufacturer registered its highest-ever wholesale and retail sales in 2024. The key reasons behind the growth in sales was due to continued growth of SUVs and strong demand in the rural market. Maruti Suzuki India Ltd (MSIL) Senior Executive Officer (Marketing and Sales) Partho Banerjee gave the reason for the strong demand in the rural market is due to good monsoon and good MSP prices.

The strengthening sales growth is backed by strong growth since October, 2024. Previously, the first half of the fiscal year faced slow growth due to general and state elections and extreme weather conditions such as heatwaves. The people preferred to stay indoors during summer and the urban market was hit by the effects of the elections as well. The car sales picked up pace in the month of October as it grew by 1% and in November by 4 %. The Passenger Vehicles (PVs) makers faced a change from the start of the festive season. In the Indian automobile industry, the domestic passenger vehicle wholesales rose by 11% year-on-year (Y-o-Y). It was supported by the year-end discounts, strong demand for SUVs (sports utility vehicles), strengthening recovery in the urban market and robust sales of CNG-based cars. It is important to point out the share of SUV’s sale in the annual PV volume sales of the industry is about 55 percent in 2024 surpassing the previous years growth of less than 50 percent. The Y-o-Y growth of Maruti Suzuki India Ltd. was around 24.2 percent which indicated the record of its domestic PV wholesales in December 2024 around 130,117 units. Again here, Mr. Banerjee of the Maruti Suzuki India Ltd. (MSIL) stated that this remarkable performance was achieved due to the company’s ability to achieve its goal to reduce its network stock (stock with dealers) from 38 days’ worth of stock to 10 days. Currently, it has a network stock of 9 days. While the CNG-based cars sales for the MSIL is about 576,000 units which is a 33 percent Y-o-Y growth rate.

Major Companies with robust domestic PV sales
The Maruti Suzuki India Limited definitely hit the top in the Domestic PV sales by achieving both strong growth rate in wholesale and retail sales. It was attributed to its plan of reducing network stocks and strong CNG-based growth. Also despite having flat growth in the urban market, it registered a 10.1 percent Y-o-Y growth rate increase in the rural market. The key models contributing to the growth of the company were Invicto, Grand Vitara and Ertigo.While Tata Motors observed a moderate growth in domestic PV wholesales increased by 1.4 percent in 2024 which is around 44,289 units compared to 42,750 units in the year 2023. Tata Motors’ new launches in the SUV portfolio such as Curvv and Nexon.ev 45 were the key drivers in its sales growth. India’s second largest carmaker by volume, Hyundai faced a slowdown in domestic sales volumes by 42,208 units in December 2024. It led to a fall in sales growth rate by around 1.3 percent Y-oY. Despite this, its flagship SUV Creta achieved record-breaking domestic sales of 186,919 units yearly which contributes to 67.6 percent of total PV sales of Hyundai in the year 2024. Creta is a SUV leader for Hyundai. While Toyata observed the sales growth of 16.4 percent Y-o-Y in the month of December 2024 and accounts for a rise in overall volume sales in 2024 by 40 percent. The major companies’ sales patterns show an increase in preference of SUVs resulting in robust growth in sales.

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The Resilient Growth Story of India’s NBFC Sector

The Resilient Growth Story of India’s NBFC Sector

India’s Non-Banking Financial Companies (NBFCs) are poised for continued growth, supported by a robust economy, sound balance sheets, and a well-diversified portfolio. Operating in one of the world’s fastest-growing economies, NBFCs play a pivotal role in addressing the credit needs of unbanked and underbanked segments through their specialized business models and innovative credit appraisal techniques.

Economic Backdrop and Strategic Positioning
India’s status as the fifth-largest and fastest-growing large economy creates a favorable environment for credit expansion. NBFCs, with their last-mile credit delivery capabilities and strong reliance on technology, have become indispensable in the Indian financial system. They hold a significant 22% market share in the credit sector and cater to various niche segments, ranging from vehicle finance to microfinance.

Strengthened by reduced leverage ratios—from 4.5x in FY20 to 3.1x in FY24—and improved asset quality, NBFCs have demonstrated resilience even through challenges like the COVID-19 pandemic. The reduction in Net NPAs from 3.4% in FY20 to 1.1% in FY24 reflects their strengthened risk management frameworks and shift toward retail lending.

Sectoral Insights and Growth Expectations
Commercial Vehicle (CV) Financing
The CV financing segment is projected to grow at 15% in FY25, up from 11% in FY24, driven by higher ticket sizes and strong demand for used vehicles post-BS-6 norms. Asset quality is expected to improve, with GNPA levels forecasted to decline to 4.6% by FY25, while credit costs stabilize at around 2.0%.

Home Loans
Housing finance continues to perform well, with AUM growth projected at 13.5% in FY25. The segment boasts low credit costs (0.5%) and improving asset quality, with GNPA levels expected to decrease from 4.1% in FY22 to 2.6% in FY25. Challenges in this space are primarily linked to high-yield wholesale loans rather than mainstream retail loans.

Affordable Housing Finance
The affordable housing segment shows robust growth potential, with AUM expected to grow at 23% in FY25. However, GNPA and credit costs are anticipated to edge up slightly to 1.3% and 0.5%, respectively, due to the relatively higher risk profile of self-employed borrowers. Policy interventions like interest subsidies could provide additional tailwinds.

Gold Loans
The gold financing sector is expected to sustain over 15% AUM growth in FY25 despite rising competition from banks. While tonnage growth remains subdued, NBFCs are mitigating asset quality concerns through flexible auction processes. GNPA levels are projected at 2.8%, with minimal credit costs.

Microfinance Institutions (MFIs)
The microfinance sector faces significant challenges, with AUM growth projected at a modest 4% in FY25. Asset quality issues, rising credit costs (6.5%), and borrower over-leverage remain key concerns, potentially dragging RoA to 0.4%. Further deterioration in economic conditions could push credit costs as high as 8.5%, highlighting the sector’s vulnerability.

Evolving Funding Dynamics
The growing interconnectedness between banks and NBFCs is evident, with bank finance to NBFCs nearly doubling to 9.4% over the past seven years. However, the RBI’s push for funding diversification has prompted NBFCs to explore alternatives like domestic capital markets and external commercial borrowings (ECBs).

Future Outlook
NBFCs’ ability to innovate, leverage technology, and cater to underserved markets positions them as critical players in India’s financial ecosystem. Their resilience and adaptability ensure they remain key contributors to economic growth, enabling inclusive financial development and addressing credit demand in niche micro-markets.

With strengthened fundamentals and a customer-centric approach, NBFCs are well-positioned to navigate emerging challenges and capitalize on growth opportunities in India’s evolving financial landscape.

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