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

Liquidity is a major concern in the Indian Banking Sector

Liquidity is a major concern in the Indian Banking Sector

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

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

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

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

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 Bank fixed deposits have been replaced by investments in insurance, PFs, and pension products due to tax benefits.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

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

Structural Challenges to Liquidity Management and Tools

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

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

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

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

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

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

The biggest Downfall of Nvidia in the market history

The biggest Downfall of Nvidia in the market history

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

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

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

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

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

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

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

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

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

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

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

Bank Results highlight issues in the banking segment

Bank Results highlight issues in the banking segment

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Shriram Finance Q3FY25: Strong Loan Book Growth, PAT Boosted by Exceptional Gain, NIMs Contract
Equities, Markets, Research, Result Updates - January 27, 2025

Shriram Finance Q3FY25: Strong Loan Book Growth, PAT Boosted by Exceptional Gain, NIMs Contract

Shriram Finance Q3FY25: Strong Loan Book Growth, PAT Boosted by Exceptional Gain, NIMs Contract

Company Name: Shriram Finance Ltd | NSE Code: SHRIRAMFIN | BSE Code: 511218 | 52 Week high/low: 730 / 439 | CMP: INR 512 | Mcap: INR 96,205 Cr | P/BV – 1.88

About the stock
➡️Shriram Finance Ltd., a significant entity within the Shriram Group, operates extensively in consumer finance, stock broking, distribution, life insurance, and general insurance. Founded in 1979, the company stands as India’s largest non-bank financial company (NBFC) in retail asset finance. It is a leader in structured financing of used commercial vehicles and two-wheelers, specializing in serving small business owners and road transport operators.

Robust loan book growth backed by healthy growth in CV, PV and MSME
➡️Shriram’s loan book has grew by double digit at 19% YoY (+5% QoQ) to 2,54,470 Cr supported by growth in CV, PV and MSME segment.

➡️Commercial vehicle constitute 45% of the overall loan book, growing by 13% YoY (+3% QoQ) to 1,15,767 Cr. Passenger vehicle segment constitute 20% of overall segment, growing by 25% YoY (+6% QoQ) to 51,884 Cr. While MSME segment constitute 14% of overall segment, growing by healthy growth of 50% YoY (+7% QoQ) to 34,632 Cr. This three segment led the solid growth in overall loan book in Q3FY25.

➡️Rest other segment report good growth but command a low weight in overall loan book. Construction equipment grew at 10% YoY followed by Farm equipment at 42% YoY, 2W at 27% YoY, gold at -7% while personal loan degrow by 9% YoY.

➡️Borrowing overtake the loan growth, increased by 26% YoY (+8% QoQ) to 2,235 bn driven by deposit growth of 24% YoY (+6% QoQ).

Book Growth (As on)  Q3FY25 Q3FY24 YoY (%) Q2FY25 QoQ (%)
Loan 2,54,470 2,14,233 19% 2,43,043 5%
Borrowings (bn) 2,235 1,775 26% 2,078 8%
Deposit (bn) 534 431 24% 502 6%

Double digit growth in NII backed by loan book expansion; while NIMS down 50 bps
➡️NII report a double digit healthy growth of 14% YoY (+2% QoQ) to 5,590 Cr driven by loan book expansion only while NIMs contract for the quarter. NIMs down by 50 bps YoY (-26 bps QoQ) to 8.48% due to the expansion in CoF.

➡️PPOP jump 11% YoY (+2% QoQ) to 4,085 Cr, Operating efficiency benefit lagged as total OpEx increased 22% due to rise in employee cost and other expense.

➡️PAT boost by 96% YoY (+72% QoQ) to 3,570 Cr on one time exceptional gain of 1,657 Cr. PAT excluding exceptional item report 5% YoY and on QoQ degrow 8%.

Years  Q3FY25 Q3FY24 YoY (%) Q2FY25 QoQ (%)
Interest income  10,341 8,618 20% 9,815 5%
Interest expenses 4,751 3,707 28% 4,350 9%
NII 5,590 4,911 14% 5,464 2%
Other income  365 309 18% 282 29%
Total Net income 5,954 5,220 14% 5,746 4%
Employee expenses 970 810 20% 907 7%
Other OpEx 899 721 25% 853 5%
Total Opex  1,869 1,531 22% 1,760 6%
PPOP 4,085 3,689 11% 3,987 2%
Provision 1,326 1,250 6% 1,235 7%
Exceptional items 0 0
PBT 2,759 2,440 13% 2,752 0%
Tax expenses  846 621 36% 680 24%
Tax rate  31% 25% 20% 25% 24%
PAT  1,913 1,818 5% 2,071 -8%
PAT% 18% 20% -12% 21% -13%
EPS 10.17 9.68 5% 11.02 -8%
No. of equity shares  188 188 0% 188 0%

Asset quality improved YoY; QoQ remain stable
➡️Shriram’s asset quality has been improved during the quarter as GNPA and NNPA are in downward trajactory. GNPA/NNPA decline 28 bps/ 4 bps YoY while QoQ basis remain stable to stood at 5.38%/2.68% as of Q3FY25.

Asset Quality Q3FY25 Q3FY24 YoY (bps) Q2FY25 QoQ (bps)
GNPA 5.38 5.66 -28 5.32 6
NNPA 2.68 2.72 -4 2.64 4

Valuation and Key metrics
➡️Currently the stock is trading at 1.88x price to book value. NIMs contract by 50 bps YoY and 26 bps QoQ to 8.48% led by the expansion in CoF. ROA dissapoint down by 23 bps YoY and QoQ both to 2.88% while ROE down 13 bps YoY and 59 bps QoQ 16%. Company capital position CAR remain stable YoY to stood at 21% but still above the RBI guidelines.

Key metrics  Q3FY25 Q3FY24 YoY (bps) Q2FY25 QoQ (bps)
NIMs 8.48 8.99 -51 8.74 -26
ROA 2.88 3.11 -23 3.06 -18
ROE 15.41 15.54 -13 16 -59
PCR 0 51.7 -5170
CAR 21 21.01 -1 20.16 84

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

India to not worry about Trump’s Immigration Policy

India to not worry about Trump’s Immigration Policy

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

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

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

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

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

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

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

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

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

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

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

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UGRO Capital Acquires Profectus Capital in Ambitious ₹1,400 Crore Deal
Business, Equities, Markets - January 27, 2025

The stable growth of Shriram Finance driven by policy aid and balance credit mix

The stable growth of Shriram Finance driven by policy aid and balance credit mix

Shriram Finance remains the biggest Non-Banking Financial Company in the retail segment. Its current market price is about Rs. 527 and market capitalisation is around Rs. 99,157 crore. The ratings given to the stock is over-weight.

The performance of the company was affected by a hike in operating spendings and provisions. Despite the prevailing contraction in the industry, the quality of assets of the company continued to be strong due to a healthy balance of different credits.

Performance of the stock
During the period of the previous three months, the shares of the company recorded a decline of about 19 percent. Since 10th January, 2025, the stock has traded in accordance with a new split basis as it was split into a ratio of 1:5.

Healthy credit mix
The commercial auto industry is facing a declining trend in the present times. Despite this, the growth in AUM was higher than predicted due to a rise in loans taken for passenger vehicles, MSME, and two-wheelers.

The progress in medium and heavy commercial vehicles was not much due to bad weather conditions, prolonged elections, and also due to contraction in spending on infrastructure. In contrast to this, the two-wheelers and Passenger vehicles recorded a strong growth potential. Further, rise in rural consumption levels lead to boost to growth in demand for farm equipment and tractors.

There is a potential for Commercial vehicles to grow in case of increase in market activity. Apart from this, the growth in loans for the non-auto segment will lead to expansion of credit growth. The company recorded a consecutive fall in the gold loans segment. Despite this, it is anticipated to record a slight hike in the growth following the fourth quarter of the financial year 2025. The company expects its AUM to grow in the range of 15 to 20 percent.

Sale of its subsidiary
In the month of December 2024, the company sold shares of about 84.44 percent of its housing finance subsidiary to Warburg Pincus. The sale was worth about Rs. 3,929 crore. The money acquired from the sale of the subsidiary will help to finance its further growth in its key business areas having high returns. It will give an opportunity to the company to focus on growth of operations which give high returns to the company.

This sales agreement helped the company to raise its capital adequacy ratio to about 84 basis points on a quarter-on-quarter basis in the third quarter of the current financial year. The sale of the housing finance subsidiary of the company led to a special profit of about Rs. 1,489.39 crore to the company after deduction of its taxes.

Performance of asset class
In midst of tension across the industry, the company was able to maintain low cost of loans. The reason for this is efforts taken regarding collection of loan amounts and loan approvals. This has resulted in a good quality of assets of the company. The company has maintained a target of keeping the cost of loans below the range of 2 percent. The company was able to keep its loan cost in the range of 1.85 percent.

Performance of NIMs
Even though the loan cost is low and stable returns observed by the company, the contraction in net interest margins was recorded. The reason for this is surplus liquidity in the company. In the fourth quarter of the current financial year, the company is projected to record a hike of 20 basis points in the net interest margins, when the issues of cash flow are resolved. The expansion in assets with higher returns will help to improve net interest margins. Further, the possibility of RBI reducing interest rates will help in the progress of the company.

In the third quarter of the financial year 2025, the cost of employees and other overhead was spiked. This resulted in the expansion of the cost-to-income ratio of the Shriram Finance company compared to being in range of about 28 percent in the current financial year. Further, the ratio is anticipated to fall in the financial year 2026. The reason for this is progress in digitization and productivity of the company.

In addition to this, expansion of NIMs, stable loan cost and a healthy growth in AUM will lead to boost to Return on Equity (ROE) of the company.

Projection
Shriram Finance was able to tackle the prevailing economic challenges in the economy. It was able to outshadow its competitors. One of the reasons for this is power to set prices as it has a strong position in the rural areas and financing of used vehicles segments. It also has the advantage of selling extra products to their existing consumers.

Following its merger, the company is able to diversify its services resulting in better risk management and not depending on one type of financing only.

Further, the recovery would be observed in the commercial vehicles segment due to rise in rural demand and better macroeconomic situation. It is also due to growth in logistics operations due to good monsoon and expansion in infrastructure expenditure in the first half year of the financial year 2026.

In present times, the company’s stock price is about 1.8 times compared to its projected book value for the financial year 2026. Further, the current fall in the stock price can act as a chance for long-term investors to purchase and hold the stock.

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Sensex Jumps 450 Points Amid Renewed US-China Trade Hopes and Strong Sectoral Buying
Equities, Markets - January 27, 2025

In midst of US tariffs, Asian markets observed rise in the early trading

In midst of US tariffs, Asian markets observed rise in the early trading

Overview
Following the decision of the US President on enforcing sanctions and tariffs on Colombia, stocks in Asian markets surged in the initial trading hours. The reason for implementing sanctions and tariffs on Colombia was due to the country hindering the US immigration goals. Despite the surge in Asian stocks, investors are still vigilant due to global uncertainties prevailing in the market.

Global Market
When the markets open, futures in the Hong Kong market are anticipated to see small gains. Also, the stocks in the Japanese market surged. In contrast to this, the futures in the US market decline. It led to a decline in the improvement made in the previous week. The performance observed in the previous week was considered as the best performance for the presidential tenure after 1985. Due to the Australia Day holiday, the Australian market remains closed.

In the previous week, the international markets recorded an improvement. In the initial period, there was concern prevailing in the markets about the rise of international trade war in the initial days of Trump’s administration. However, these worries were eased due to Trump not immediately imposing tariffs on regions such as China, Mexico, and Canada.

In present times, the worries have appeared again due to Trump implementing sanctions and tariffs on Colombia. The reason for this was Colombia ‘s denial to allow deportation planes of the US.

Asian markets
A strategist working in BNY in Hong Kong, Wee Khoon Chong stated that it is too soon to say that Asian markets will be off the radar from the tariff threats. The markets in Asia continue to be at risk due to unpredictability about tariffs. He further stated that lower or less aggressive tariffs would be a good thing in the short-term period.

Impact of the sanctions on the world
In the initial trading hours of the Asian markets, the dollar was raised slightly due to these sanctions. In contrast to this, the Mexican peso recorded a fall in the value. It helped the US dollar to lower the big loss recorded in the previous week, which it acquired over a period of year. While, currencies such as Australian dollar which are usually affected by Chinese tariffs, registered a surge in the market. In the emerging markets, currencies of Latin America and Eastern Europeans also face rise in the markets.

Impact of China’s activity data
There is a possibility that it will show weak growth in the manufacturing sector of the country for the year 2024 and it will perform the same in the current year as well. Apart from this, the trading in Asian markets are likely to be impacted because important markets will be closed in the mid week due to Lunar New Year.

Impact of the US tech earnings reports
The beginning of the season of the tech companies of the US publishing their earnings reports will be crucial for the international stock markets in the world. Many investors are curious to observe if the demand for artificial intelligence (AI) has surged according to the high projections. In the initial part of the week, the tech industry was strengthened by the joint venture of Open AI, Oracle, and SoftBank Group which accounts for 100 billion dollars. The purpose of this venture is to finance Artificial intelligence infrastructure. These steps were taken with the help of the US President Trump.

Performance of the US economy
In the meeting of the Federal Open Market committee on Wednesday, it is anticipated that the US will not reduce its interest rates. Following the month of September when they started the cycle of reducing interest rates, this will be the first time that the US will not reduce its rates.

The performance in the US is in good state driven by slowdown in reduction in inflation and strong growth in employment levels. This is the reason why there is no need to reduce interest rates at this point of time. Also, the federal open market committee is quite vigilant about cutting rates due to unpredictability prevailing in the market about deregulation, stance on energy policies, US trade related policies, and initiatives taken by the government to improve their functioning.

Impact on commodities market
The oil recorded a fall in its first week of the year. The reason for this is the US’s warning to Russia regarding ending the war with Ukraine or else sanctions will be imposed on Moscow. It also ordered OPEC countries to reduce crude prices. The third biggest producer of Coffee is Colombia. As the sanctions are imposed on Colombia, it is yet to be seen what will happen to prices of coffee in the market.

While the gold in the market recorded a rise for the fourth consecutive week. In the previous week, the US President directed an order to establish a group of key agencies. This group will give recommendations and create policies and regulations related to cryptocurrency. It resulted in Bitcoin recording high in the previous week. Currently, bitcoin is registering a slight decline in the trend.

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Interest Payment Burden to reduce in FY26
Equities, Markets - January 27, 2025

Budget needs to focus on local infrastructure

Budget needs to focus on local infrastructure

Overview
With some workers returning to agriculture, the post-pandemic job market structure exhibits retrogression. The increase of labor earnings has been hampered by this trend. According to research, the multiplier from public investments in local infrastructure passes through MSMEs and contributes to a favorable work environment. The budget should prioritize that.

The release of this year’s Union Budget coincides with a number of concerning structural change and employment data. Following the Covid-19 pandemic, overall economic growth recovered rapidly; however, current growth figures suggest that this impetus is waning. It is too soon to tell if the slowdown in GDP growth predicted for FY25 would be a one-time event or a long-term decline in growth. In any event, it is evident that concerted policy action is required on the employment front.

Increase in labour force in agriculture post pandemic
According to recent data from KLEMS and periodic labour force survey (PLFS), the pandemic caused a structural regression in the Indian economy, which has not yet been reversed as of 2023–2024.

An increase in the percentage of jobs in agriculture and self-employment is what is meant by structural retrogression in the Indian economy. Such a shift in employment from other sectors of the economy to more stable industries like agriculture was anticipated during the pandemic. As of 2023–2024, there were more workers in agriculture than at any other point since the early 2000s, indicating that employment in this industry has continued to rise after the epidemic. After the pandemic, labor productivity in the agricultural sector stalled as a result of the value created there not increasing proportionately.

In addition to agriculture, we anticipate that if more conventional wage or salaried employment opportunities are established, the percentage of self-employed workers—especially own-account and unpaid family workers—will decline with economic growth. However, from roughly 52% of the workforce prior to the epidemic to 58% in 2023–2024, the percentage of self-employed workers has grown. The growth has persisted after the pandemic, which is concerning.

Stagnation in earnings of major corporates and businesses
The fact that other industries where household businesses are commonly found, like food, beverages, and tobacco, textiles, leather and footwear, trade, and domestic services, were also less productive in real terms as of 2022–2023 than they were in 2017–18 suggests that the phenomenon of crowding into the self-employment sector appears to be more widespread than just agriculture. In other words, employment has increased more quickly than output in each of these sectors, most likely as a result of workers moving in from other parts of the economy where there is less need for labor.

This has the effect of completely stagnating or even decreasing real earnings overall. The PLFS provides quarterly data on earnings from regular salaried labor, self-employment, and casual wage work; the most recent data covers the April–June 2024 quarter. Earnings from regular salaried work have increased by an average of 5.3% annually in nominal terms or 0% annually in real terms since 2017–18 (the first year for which PLFS data are available). Earnings from regular wage jobs actually decreased by 0.14 percent annually over the April-June 2022 and April-June 2024 quarters.

Positive outlook
The fact that conventional pay employment increased by 11% in 2023–2024—its largest one-year growth in recent memory—surpassed the 8.6% increase in predicted self-employment. To ensure that the proportion of regular wage workers in the economy grows consistently, every effort must be made to ensure that this process continues.

MSMEs are a way of creating newer jobs
The bigger puzzle is why, in spite of a robust recovery in overall GDP growth, regular wage employment has not grown more quickly. Additionally, we should remember that the majority of job creation, even for paying positions, occurs in unlisted businesses and informal enterprises (more generally, MSMEs) rather than huge corporate firms. To allow businesses to grow, save, and invest, a new push for policy is required.

Barriers that hinder the growth at the bottom end for corporates
The absence of physical infrastructure is still a major barrier, aside from aggregate demand, which is a macro limitation that affects all businesses. Roads, energy, and water—the so-called bijli, sadak, and pani—are cited by businesses as the biggest barriers to growth, according to a 2019 IDFC Institute poll of 2500 small businesses nationwide. The government is well renowned for emphasizing the improvement of physical infrastructure. This agenda needs to be pushed further by shifting its focus to local infrastructure and small communities. India has made good progress in building highways, airports, and other major infrastructure, but we still lag far behind in terms of the quantity and quality of local roads, water, power, and other essential services.

Conclusion
In a big and diverse economy like India, the impact of a single budget—and that of only the Union government—is minimal, but the budget’s goals do give an idea of how the Union government is currently considering the economy. If the budget strongly favors removing barriers to small business growth in small towns, that would be encouraging. In order to guarantee inclusive development and long-term economic growth, India must produce the requisite number of jobs.

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Dalmia Bharat Reports Disappointing Q3 Results, Sees Limited Short-Term Growth
Equities, Markets - January 24, 2025

Dalmia Bharat Reports Disappointing Q3 Results, Sees Limited Short-Term Growth

Dalmia Bharat Reports Disappointing Q3 Results, Sees Limited Short-Term Growth

Overview
The fourth-largest cement manufacturer in India, Dalmia Bharat, released a poor set of results for the October–December 2024 period. This is because the cement industry’s overall demand is still weak because of weak consumer mood and a slowdown in housing and infrastructure development.

Q3 Result Highlights
The most recent third-quarter results from Dalmia Bharat Limited disappointed overly enthusiastic predictions by missing earnings. Overall, the outcome wasn’t great with statutory earnings missed predictions by an astounding 62%, coming in at just ₹3.25 per share, while sales was only slightly below analyst estimates at ₹32b. Investors may monitor a business’s performance, examine what analysts predict for the upcoming year, and determine whether sentiment toward the company has changed, making earnings a crucial moment for them.

The quarter’s total volume was 6.7 MT, a 2% decrease from the previous year. Volumes in the previous quarter were negatively impacted by the termination of tolling agreements with Jaiprakash Associates, labor shortages during the holiday season, a slow market environment, and insufficient government spending. Due to excess industry capacity and intense competition, realisations fell 10% year over year, even though the price situation improved sequentially. Revenues for the third quarter were Rs 3,181 crore, a 12% year-over-year (YoY) decrease.

The softening of fly ash, slag, and limestone prices resulted in favorable input costs. The decrease in power and fuel costs was driven by a shift in the fuel mix, a sharp decline in the price of coal and pet coke, and a greater contribution from green energy. As the corporation used its eastern factories to service the central markets, freight costs increased slightly. Poor realisations caused operational earnings to drop 34% year over year to Rs 511 crore from Rs 779 crore, despite a 4% YoY fall in the entire cost base.

Industry expectation
Cement prices across the board have been declining since Q3 of FY25, and they showed same patterns in October and November. However, because dealers had started raising prices in December, realizations were stronger, therefore the quarter concluded on a good note. During the busy construction season (January to June), the sector anticipates a rise in realizations driven by a pickup in demand.

On a sequential basis, the average power and fuel price for Q3 was $96/tonne, a decrease from $101/tonne. The cost curve should flatten here as the current spot costs for fuel and electricity are between $95 and $100 per tonne.

Capacity to boost
The business’s total capacity at the end of the quarter was 46.6 MT, following the start of commercial production in Ariyalur (1MT) and Kadapa (1MT). By the end of FY25, the company wants to reach a capacity of more than 49.5 MT. Of the approximately Rs 3,000 crore in investment guidance for the entire fiscal year FY25, Rs 2,000 crore has already been spent in the first nine months of FY25.

Through the utilization of captive coal blocks, route optimization, and a higher percentage of renewable energy (RE), Dalmia hopes to reduce costs by Rs 150–200/tonne over the course of the next three years. Dalmia inked 21 MW of RE power agreements in Q3FY25, bringing its total captive RE power contracts to almost 300 MW.

Share Price Movement
The stock price movement is expected to be significantly impacted by the near-term difficulties, which include increased competition in its core markets and restricted growth prospects as a result of the postponed capacity expansion plan. Supported by a better blending ratio, green power share, and lower freight cost, the company is one of the least expensive producers in the sector. The company is selling at 11x/10x FY26E/FY27E EV/EBITDA and USD82/USD80 EV/t at CMP, which is an appealing price. In order to arrive at our revised TP of INR2,100 (as opposed to the previous TP of INR2,250), analysts value DALBHARA at 12x Dec’26E EV/EBITDA.

Future Outlook
Dalmia continues to be our top choice among major cement firms, despite the company’s limited short-term development potential. Over the medium to long term, the company is anticipated to outperform the industry. This stock is worth keeping an eye on for long-term investors looking to buy on dips.

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