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Navratri Demand + GST 2.0: How India’s Auto Sector Hit New Heights
Equities, Markets - January 29, 2025

PLI scheme 2.0 can boost Indian automobile sector at full capacity

PLI scheme 2.0 can boost Indian automobile sector at full capacity

To boost Make in India movement in different sectors of the country, the Production Linked Incentive (PLI) scheme has acted as one of the solid foundations. The PLI scheme for Indian auto and its component industries has played a major role in their development. The PLI 1.0 scheme recorded a good response. Despite this, it also faced some challenges such as auto and its component companies must maintain a minimum 50 percent of domestic value addition. It also needs to increase its investment and sales levels on a yearly basis.

Concerns in terms of sales and investments
The PLI scheme for the auto industry creates different levels of investment goals for the firms to attain in a period of time. As the companies achieve these goals, the amount of investment increases for the companies. Its aim is to encourage huge capital investment in the sector. This scheme aspires for growth and development in automobile and its component industries. Except three-wheelers and two-wheeler auto makers, the segments under Champion manufacturers should expand investment levels from about INR 300 crore in the financial year 2023 to reach about INR 2,000 crore in the financial year 2028. Further, the three-wheeler and two-wheeler manufacturers who currently have to fulfill a requirement of INR 150 crore need to increase investment of about INR 1,000 crore. Similarly, the new entry firms and auto component manufacturers also have to maintain these investment targets.

Apart from investment targets, OEM have to maintain sales targets. The champion auto manufacturer has to reach the goal of INR 125 crore of sales in its first year. It has to fulfil the goal of expansion of annual sales by about 10 percent. On other hand, auto component makers have to maintain the target of INR 25 crore sales in the first year. It also has to achieve the goal of 10 percent growth annually. It becomes difficult for new entry firms to fulfil targets of savings and investments as they also have to work on their entry in the market and building production levels.

Requirements of domestic value addition
The scheme focuses on maintaining 50 percent of domestic value addition. It requires the companies to make the product from using atleast half of the domestic resources only. This target helps the government of India to fulfil the objective of contraction in import levels of raw material and also promote self-sufficiency. However, it adversely affects the development of high-tech auto technologies like advanced sensors, electric powertrains, and semiconductors.

It becomes challenging for new entry companies and small suppliers to keep up with the exhaustive documentation requirements. These documentation requirements track down the sources of supplier networks (consist of tier 2 and 3). Further, some suppliers are worried about possible disclosures of pricing information on purchases.

These meticulous documentation needs are due to challenges faced in schemes such FAME II. The postponement of SOP for DVA in the month of April 2023 caused issues in the efficiency of the scheme, even after an additional one year was given to resolve the issue.

Recommendation for PLI 2.0
The auto and its component companies make investments at different levels of progress of the project. It leads to creation of capital work in progress which is not completely used in the single financial year. To make precise calculation of total investments, it must be added too.

Following DVA target of 50 percent is crucial for global auto companies as they mainly acquire raw material through importing from other countries. It is also important to do thorough analysis of the prevailing supply network in India. In addition to this, digitization of documentation and verification processes will make it more transparent and easier. It is also important to give required training and help to small suppliers in the supply network in order to help them follow the rules with no worries of disclosure of pricing information.

The scheme can work on giving incentives for Research and development in areas of new technology and also for achieving the goal of technology transfer in manufacturing of the product. This will motivate international auto manufacturers to establish centers of Research and Development as well as do joint ventures across India. The scheme can also adopt providing stimulus based on achieving certain milestones. It will lead to injecting a small amount of financing when certain goals are achieved. Overall, it will help in promotion of production in the country.

The PLI 2.0 scheme with necessary changes in certain segments like compliance, stimulus structure, and timelines can help to promote investment in automobiles and its component industry in India. It can aid the development of the industry of production of electric vehicles to high-tech battery technologies.

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India’s export in auto industry reach 19 percent

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Interest Payment Burden to reduce in FY26
Equities, Markets - January 29, 2025

Understanding Revenue Deficit: Implications for Government Finance and Economic Stability

Understanding Revenue Deficit: Implications for Government Finance and Economic Stability

Overview
The revenue deficit indicates if the nation is borrowing money to make ends meet or if its regular income is sufficient to pay for daily expenses such as salaries, pensions, and subsidies. Consider a family that makes Rs 50,000 a month but spends Rs 60,000 on necessities. At first, that Rs 10,000 deficit might not seem like much, but in the long run, it could ruin their plans to save for a home or send their children to college. Similar to this, a revenue shortfall indicates that the government’s revenue is insufficient to cover its operating expenses, forcing it to borrow money for daily survival rather than for expansion.

Fiscal Deficit Vs Revenue Deficit
The fiscal deficit, which is a more comprehensive metric that accounts for all government borrowing and spending (including capital and revenue), is distinct from the revenue deficit. The revenue deficit particularly draws attention to the difference between daily operating costs and earnings, whereas the fiscal deficit represents the overall shortfall in the government’s budget. While the fiscal deficit provides a comprehensive picture of borrowing requirements and long-term financial health, the revenue deficit helps evaluate how well the government handles its monthly income and spending.

By leveraging capital receipts or other non-revenue sources to make up the whole difference, the government can also manage a sizable revenue deficit while maintaining fiscal control. For example, even if revenue receipts are insufficient, the fiscal deficit can be partially compensated by the proceeds from disinvestment or borrowing for infrastructure projects. A large revenue loss however still denotes inefficiencies since it shows that money is being borrowed for operating costs rather than profitable ventures.

Importance of Revenue Deficit
For the economy, revenue deficit is comparable to a doctor’s report. The government is borrowing to keep the lights on while the revenue deficit is consistently substantial, which is bad for long-term financial stability. India’s revenue deficit for the fiscal year 2024–2025 is estimated to be Rs 5.80 lakh crore, or 1.8% of GDP, which is a significant improvement from the 4% deficit in 2022–2023. This indicates that the government is cutting back on spending.

A revenue deficit indicates that the government is having to borrow money or draw from reserves in order to pay its debts because it is not making enough money to cover its operating costs. A government’s capacity to invest in long-term economic initiatives like infrastructure or education is diminished when it borrows money to cover a revenue shortfall. In terms of indicating inefficiency, a continuous income shortfall could be a symptom of ineffective revenue production or excessive expenditure on wasteful spending.

Revenue Deficit so far
The Balance of Payments crisis in 1991 brought attention to the revenue deficit. With declining reserves and growing debt, India was on the verge of an economic collapse. This turning point resulted in extensive reforms and made budget discussions more focused on budgetary restraint. The revenue shortfall has since emerged as a crucial indicator of a government’s sound financial management. Prior to the pandemic, when the revenue shortfall of the GDP was 7.3%, the revenue deficit had been declining. Since then, the recovery has been rigorously monitored, with a revenue deficit of about 1.8% of GDP.

Revenue Deficit in Budget 2025
Observe the government’s goal for the fiscal year’s revenue deficit and the actions it intends to take to lower it. Seek ways to increase non-tax revenue streams, rationalize subsidies, or improve tax compliance. Additionally, to comprehend the government’s overall financial aims, compare it with the fiscal deficit target.

The government’s ability to finance development initiatives is directly impacted by the revenue shortfall, which is a crucial sign of its financial health. You can better grasp the difficulties of balancing the nation’s accounts and how it may impact your pocketbook if you know how it operates and how it differs from fiscal deficit.

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India’s export in auto industry reach 19 percent

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Govt Raises Agri Credit Target to ₹28 Lakh Cr, But Efficiency Concerns Remain
Equities, Markets - January 29, 2025

Govt Raises Agri Credit Target to ₹28 Lakh Cr, But Efficiency Concerns Remain

Govt Raises Agri Credit Target to ₹28 Lakh Cr, But Efficiency Concerns Remain

Overview
The government raises the agriculture credit goal for banks each year, usually when the Union Budget is unveiled. The government set the agriculture credit target for FY 25 at 27.5 lakh crores, which was 11% higher than the previous year, in the Union Budget 2024 as well. About 75% of the total loan allocated for farmers is given by commercial banks, with cooperative and regional rural banks providing the remaining portion. The government is expected to raise the banks’ agriculture lending objective in the next Union Budget as well, raising the total aim above Rs 28 lakhs.

Agri Credit Target set in 2024-25
Due to a greater formalization of the rural credit system, commercial banks’ and regional rural banks’ lending to the agriculture sector is expected to surpass Rs 28 lakh crore in the current fiscal year, setting a new record, Shaji KV, chairman of Nabard, stated on Sunday. The flow of agricultural finance has grown by 13% annually on average during the past ten years. In the current fiscal year, we will surpass Rs 28 lakh crore in loan flow, Shaji informed FE.

A record Rs 27.5 lakh crore was set as the agri-credit disbursement target for 2024–2025, 31% more than the FY24 objective of Rs 21 lakh crore. In 2023–24, banks disbursed Rs 25.49 lakh billion in term and crop loans, a 15% increase over FY23. This year’s growth is predicted to reach about 10%.

Government Initiatives gear up for Agri Credit
The informal sector’s percentage of credit disbursements is decreasing as agri-credit flows increase. On the sidelines of Grameen Bharat Mahotsav, which Nabard is organizing in partnership with the Department of Financial Services, he stated that this signifies the formalization of rural credit, which will guarantee many margins with the rural populace.

The finance ministry has set aside Rs 11.5 lakh crore for term loans and Rs 16 lakh crore for short-term crop loans, which will be paid out in 2024–2025. Seventy-five percent of the total credit, or Rs 20.62 lakh crore, will come from commercial banks. Rs 4.2 lakh billion of the entire agri-credit flow has been set aside for short-term loans to the dairy, fishery, and poultry industries.

The agriculture ministry’s Agri Stack effort, which would generate a farmer registry, village land maps, and crop sown data, would be used by the National Bank for Agriculture and Rural Development (Nabard) to digitize farmers’ credit records in order to rectify this imbalance in loan flow, Shaji stated.

At Rs 4.39 lakh crore, or 17.6% of the total credit disbursal in the country, Tamil Nadu received the largest credit disbursal in the previous fiscal year. Andhra Pradesh came in second with Rs 2.96 lakh crore, or 12% of the total. According to Shaji, Nabard wants to introduce the second phase of the Rs 1,000-crore Nabventures fund, which is intended for entrepreneurs in the agricultural and related industries. A Rs 750-crore agri fund for start-ups and rural businesses was introduced last year by Nabard in partnership with the agricultural ministry.

To satisfy their working capital needs, farmers with Kisan Credit Cards can receive loans up to Rs 3 lakh at 7% annual interest under the modified interest subvention scheme. The program lowers the effective interest rate to 4% by offering an extra 3% interest subvention for timely repayment.

Trend in Bank Credit to Agriculture
Banks are already heavily involved in agriculture and related fields. From an outstanding balance of Rs 13.3 lakh crores in FY21 to Rs 22.2 lakh crores in FY24, bank credit to agriculture has soared in recent years. That amounts to around 13% of the entire bank credit. According to the most recent data, bank lending to agriculture increased 15.3% year over year through November of last year, compared to 18.1% during the prior similar period. Nonetheless, the growth is significantly higher than the average loan growth, even at 15.3%. There are currently 22.2 lakh crores in outstanding agri-loans.

Because it is required by law, banks are increasing their financial flows to the farm sector. Banks are required to lend 18 percent of their adjusted net bank credit to agriculture under the priority sector lending (PSL) standards. This includes lending for agricultural infrastructure and auxiliary operations as well as farm finance, which covers agriculture and related industries.

Agriculture Sector’s efficiency unlikely to improve
According to the report, unpredictable weather patterns and an unequal monsoon spatial distribution in 2023 caused Gross Value Added (GVA) in the agriculture sector to grow more slowly even with this rise in credit. To put it another way, greater funding isn’t always translating into greater efficiency. The monsoons are one of several factors that affect the sector’s success. The issue cannot be resolved by money alone.

Banks, primarily state-run lenders, will have a lot to worry about in the coming days about their farm loan books if these loans go bad. Investors may therefore find it beneficial to closely monitor the agribook performance of banks, particularly state-run banks.

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India’s export in auto industry reach 19 percent

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RBI's Revised Co-Lending Norms Set to Transform NBFC Growth
Equities, Markets - January 29, 2025

MPC must maintain stable policy rates in the current scenario

MPC must maintain stable policy rates in the current scenario

Overview
In the month of February, the Reserve Bank of India’s Monetary Policy committee will take a decision on policy rates based on the effectiveness of the current policy rates on the economy. Under the guidance of new RBI governor, Sanjay Malhotra, the committee will take into consideration recent data of growth in GDP and consumer price index-based inflation.

In the third quarter of the financial year 2025, the CPI was around 5.6 percent which was higher than the target set but in order of the projections of RBI. While the expected actual growth in GDP is about 6.4 percent in the financial year 2025 in check with the GDP projection of the RBI which is 6.6 percent. Based on these aligned results, MPC will prepare future projections on inflation risks and growth aspects.

Recent Condition of India
After the MPC meeting in the month of December, there has been an increase in threats about short-terms risk in price stability. In present times, the Indian rupee faced depreciation of about three percent. The reasons for this are rising uncertainty about the USA position on tariffs, increased strength of dollar in the market, high fluctuations in the financial markets have resulted in affecting inflation level and rates.

In the year 2025, the Federal Reserve of USA has decided to maintain a hawkish stance and hints at not many reductions in rates. It led to development of cautious sentiments in the investors.

Baseline Projections of RBI
It states that the overall inflation in India is projected to be more than the target of 4 percent for the upcoming six months. There will be high food inflation but with a gradual decline in it. In contrast to this, core inflation will remain consistent. Both food and core inflation will be in between 4.5 percent to 5 percent in the upcoming 6 months. The depreciation of the rupee acts as an upside risk to these forecasts.
Comparatively inflation in India is high leading to overvaluation of the Indian Rupee and which in turn makes export of the country expensive. To resolve this issue, India needs to lower the value of the rupee in nominal terms. It also has to be cautious about price stability as steps taken for disinflation can lead to a burden on the cost of imported goods.

Projections of GDP
RBI’s projection on GDP is strong growth. According to it, India will speed up its growth in GDP from the second half of the financial year. In the financial year 2024-2025, its expected actual GDP is below the previous financial year’s GDP growth. While the nominal GDP is projected to remain the same for the current financial year as well. It was 9.6 percent in the previous financial year and is expected to be 9.7 percent in the current financial year. The reason lower actual growth is probably due to rising inflation levels. It has adversely affected demand levels in urban areas. It hints at the requirement of vigilant monetary policy steps towards the situation.

The expectation of the IMF is about 6.5 percent growth in the upcoming two years in India. The anticipation seems reasonable in nature. It will be aided by fixed financing by the upcoming budget. The government of India is also focusing on aspects like consistent growth in tax collection and fiscal consolidation.

Factors affecting growth
In the current financial year, lower capital expenditure led to moderate growth in investments which in turn led to cutting of development in nearly half. However, this scenario will possibly change as capex increases. On the other hand, private consumption is going to be supported by continuing return to health in rural demand. The growth in the service sector will help to boost urban demand.

Overall, the growth perspective of the financial year is going back to its potential growth level. It was earlier higher than 7 percent for three years in a row. In this scenario, it is better for India to maintain a cautious approach.

Liquidity issues
RBI must focus on keeping the weighted average call rate in the range of policy rates. From the second half of December, the country is facing an issue of liquidity deficit. The RBI took the decision of reducing CRR to about 50 basis. It also has taken actions such as daily variable rate repo auctions. Even in the condition of prevailing liquidity deficit, it has helped in keeping the call rate in the range of 6.50 percent of repo rate and 6.75 percent of marginal standing facility. Overall, it is able to keep the short-term rates at a secure level. Also, rates of deposits and credits of banks are at steady levels. Despite contraction in loan growth of the bank which was 12.5 percent, it is higher than nominal growth in GDP. The trend of government and corporate bond yields is also stable.

In the month of October, RBI had a liquidity surplus of about Rs. 4.885 trillion. In present times it is contracted to Rs. 64,350 crore. It can lead to higher rates in the economy. Also, policy cuts without sufficient liquidity can lead to weak impact on the economy.

Focus on Price Stability
In case the sale of dollars leads to contraction in liquidity, RBI can do open market buying of government bonds as it has already reduced CRR rates. In the current scenario of the US uncertainty, RBI must concentrate on price stability to maintain stability in the economy.

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India’s export in auto industry reach 19 percent

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Barriers for India to make Deepseek
Equities, Markets - January 29, 2025

Barriers for India to make Deepseek

Barriers for India to make Deepseek

In recent times, there is a rising question about why India is not able to catch up with the USA like China in terms of advancement in science and technology. There is always a concern about why India is not able to become an international manufacturing hub like China. Though several efforts were taken by various Prime Ministers over a period of time.

In contrast to this, China has not only reached the same level as the USA in terms of science and innovation but has possibly overshadowed the USA. While, India is still struggling to reach the same level.

Development of China
China is aggressively engaging in a competition with the USA in various fields of science and technologies such as Nuclear Fusion, Editing Gene of plants and humans, Quantum Computing, designing and manufacturing chips, Artificial Intelligence (AI), and many more. In the previous several years, China was able to successfully stand at the same level with the USA in areas such as Artificial intelligence and quantum computing. When China was prohibited from importing advanced computing chips from the USA, it started to develop its own advanced GPU design for the purpose of the AI model. Though in terms of comparison, chips made by Huawei are not as great as the advanced chips of Nvidia.

In the past, one of the Chinese scientists was imprisoned for working on creating babies through gene editing embryos. However, he is now free and back to his work. It possibly means China did not want to make this research and its progress known in the world.

Apart from this gene editing research, China was quite open about its other areas of research and technology. It created a nuclear fusion reactor known by the name ‘Artificial Sun.’ It resulted in China making a world record in building a high confinement plasma.

China has made many innovations in the fields of Drones, Quantum Computing, AI, Robotics, and designing of chips. It has also built its capacity in terms of military advancement by creating the sixth generation of fighter jet. It also developed the biggest solar farm which is floating on water in the world.

Development of India
India is struggling in terms of innovation in the field of science and technology. In recent times, India is more focused on creating applications for AI models instead of creating high tech AI models. The research work in Quantum Chemistry is ongoing but no significant achievements so far. It was able to send a rover to the moon in the past. Due to dependence on other nations, its development in military technology is hampered. Few years back, India built Tejas Mk 2 but it is not helpful for the Indian Air Force as it is heavily dependent on the USA for engines. In the year 1987, India began to work in the field of nuclear fusion with a stable state of progress. Despite this, it is not able to create significant advancement.

India has a big base of graduates in STEM fields but it mainly focuses on developing applications and not pure research. In terms of building applications, it is not so much of an innovator.

Reason for India’s struggle in Science and Technology
India does have talent for science and technology. Many research papers in the USA are mostly co-written by Chinese and Indian scientists only. Also, many innovations in the USA are due to the work of Indian scientists and researchers. One of the major reasons for the struggle of India is due to its lack of financing in the area of Research and Development.

The contribution of financing in R&D is about 0.64 percent from India’s GDP in contrast to R&D investment in the USA and China is about 3.47 percent and 2.41 percent, respectively. Further, the private sector investment in R&D in India is about 36.4 percent only. While the USA and China have contributions of about 75 percent and 77 percent, respectively.

Another reason is various governments in India over the period of time did not have much of a goal to become international leader in the field of science and technology. In contrast to this, China has taken a strong stand in terms of developing science and technology in the country many years ago. Since the 1990s, it has made necessary changes in its education as well as other systems. It has worked on building facilities and opportunities for development in science and technology from the ground level of primary schools to the top level of high-tech universities. Even though it is a communist country, it has taken necessary efforts to promote business in science and technology by providing state incentives and creating high goals. It has also worked on trying to get Chinese scientists back in China who were employed in the USA.

Pre and Post 1970s for India
Until initial 1970s, India had a strong position in terms of innovation in science even in the pre-independence period. This is the efforts of TATA groups to build research institutions and also establishment of institutions like DRDO, ISRO, and many more. It was not only the efforts of the Nehru government but also Indian scientists like Homi Bhabha and Vikram Sarabhai who chose to work in India rather than going abroad.

Since the 1970s many Indian researchers have gone to Europe and USA due to better facilities and the education system also lacks focus in STEM fields.

In the present times, this same situation is still prevailing in India. Many IITians go abroad or start a startup or go for conventional jobs. These startups are not based on creation of new products. Even big companies like Infosys and TATA are not ready to fund pure research even though TATA has a history of doing it in the pre-independence period. The reason might be because these companies are expecting government actions. It is time for the Government to take actions for the development of science and technology.

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Maruti Suzuki India to hike prices from Feb

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

Asian Stocks advance on tech rebound

Asian Stocks advance on tech rebound

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

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

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

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

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

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

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

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

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

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

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

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Budget needs to focus on local infrastructure

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Equities, Markets - January 28, 2025

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

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

Overview

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

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

The DeepSeek Conundrum

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

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

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

AI Fall to continue?

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

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

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

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

Chinese Lunar New Year

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

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

DeepSeek hitting American companies hard

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

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

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

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

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Automobile News, Autos, Equities, Markets - January 28, 2025

India’s export in auto industry reach 19 percent

India’s export in auto industry reach 19 percent

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

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

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

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

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

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

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

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

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

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Maruti Suzuki India to hike prices from Feb

Maruti Suzuki India to hike prices from Feb

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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