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Government Urges Mutual Funds to Embrace PSU Stocks: A Shift Towards Balanced Investing
Equities, Expert Views, Investor Forum, Market News, Markets - April 10, 2025

Government Urges Mutual Funds to Embrace PSU Stocks: A Shift Towards Balanced Investing

Government Urges Mutual Funds to Embrace PSU Stocks: A Shift Towards Balanced Investing

 

India’s mutual fund sector has witnessed rapid expansion in the last ten years, establishing itself as a significant player in steering market dynamics. However, one segment that continues to be underrepresented in mutual fund portfolios is public sector undertakings (PSUs). In light of this, the Secretary of the Department of Investment and Public Asset Management (DIPAM) has appealed to mutual fund managers to take a serious look at including more PSU stocks in their investment strategies. This call isn’t merely a suggestion—it’s a strategic push. The government is signaling that PSUs are not just legacy institutions, but evolving businesses with strong balance sheets, reliable performance, and untapped value.

 

Why Mutual Funds Have Avoided PSUs

Historically, mutual funds have been cautious about PSUs. The perception has been that government ownership leads to bureaucratic decision-making, limited innovation, and political interference. As a result, fund managers often preferred private sector companies that were seen as more agile and profit-oriented. But that narrative is changing. Many PSUs have improved operational efficiency, restructured their business models, and shown impressive financial results. Yet, the stigma lingers, and mutual fund exposure to PSUs remains lower than historical averages.

 

Financial Strength and Dividend Reliability

One of the strongest arguments for including PSUs in mutual fund portfolios is their dividend performance. In the current financial year, public sector companies distributed a record ₹1.5 trillion in dividends, with the government receiving over ₹74,000 crore. This reflects the robust financial position of many of these firms, especially in sectors like energy, banking, and infrastructure.

For mutual funds that prioritize stable income generation and long-term capital preservation, this level of dividend consistency is a valuable asset. It can also help reduce the overall volatility of a portfolio, particularly during uncertain market conditions

 

Undervalued and Overlooked

Despite their strengths, PSU stocks are often undervalued compared to their private-sector peers. This presents a potential opportunity for mutual funds to enter at attractive valuations. Many PSUs operate in capital-intensive sectors such as oil & gas, mining, power, and defence all of which are critical to the Indian economy and have strong long-term prospects. These companies often have predictable revenue streams, government-backed contracts, and a dominant market share. In an investment environment increasingly focused on long-term value and fundamentals, these are features worth considering.

 

Aligning With Government Reforms

DIPAM’s push comes at a time when the government is actively pursuing strategic disinvestment. The aim is not just to raise capital, but to increase efficiency, improve corporate governance, and bring in more accountability. By expanding the investor base and enhancing market liquidity, mutual fund involvement can add credibility to this process. Greater institutional involvement also supports transparent price discovery during public offerings or stake sales. This is vital for ensuring that the disinvestment process is not only successful financially, but also seen as credible and fair.

 

Encouraging Private Sector Accountability

Interestingly, the DIPAM Secretary didn’t stop at PSUs. He also highlighted the need for private corporations to be more accountable to minority shareholders—especially regarding dividend payouts. This indicates a broader push toward corporate governance reform across both public and private sectors, reinforcing the idea that all investors deserve fair treatment.

 

Mutual Funds as Market Leaders

Mutual funds don’t just allocate capital—they set trends. When they invest in a sector or company, it often sends a message to retail investors and market analysts. A renewed interest in PSUs from large fund houses could lead to a broader re-evaluation of the sector, improving sentiment and boosting investor confidence. Moreover, PSUs can add balance to portfolios that may otherwise be overweight on high-growth or tech-focused companies. Their stability, combined with consistent income, can help mutual funds manage risk more effectively.

 

Time to Rethink the Bias

The request from DIPAM isn’t just about supporting government-run companies. It’s about recognizing their evolving role in a modern economy. Public Sector Undertakings are evolving to be more financially robust, increasingly competitive, and better responsive to market demands. By ignoring them, mutual funds might be missing out on sustainable long-term gains. With the economy shifting gears, and infrastructure, energy, and defense spending on the rise, many PSUs are poised to benefit directly. It may be the right time for fund managers to reassess their assumptions and give this segment the attention it deserves.

 

 

 

 

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24% Tariffs: Japan Faces Economic Shockwaves

 

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Optimism in the Air: How RBI's Actions are Driving Market Momentum
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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HAL Gains Momentum as Analysts Predict Strong Growth Potential
Business, Equities, Markets - January 20, 2025

Private Investments and Employment Set for Growth in India, CII Survey Shows

Private Investments and Employment Set for Growth in India, CII Survey Shows

Overview
According to a Confederation of Indian Industry (CII) survey, private investments—which are vital for economic expansion and job creation—are expected to pick up steam in the upcoming quarters after stalling out in recent years. The current state of the Indian economy is favorable for private investments, and the nation is emerging as a “bright spot” in the difficult global environment. By the first week of February, 500 firms would have participated in the ongoing pan-India survey. A sample of 300 businesses from all industry sizes (Large, Medium, and Small) served as the basis for the intermediate results. In order to evaluate the increase in private sector investments, employment, and pay growth, an industry survey was carried out.

Major companies have boosted their workforce
Remarkably, preliminary findings indicate that around 97% of the sample companies are anticipated to grow their workforces in 2024–2025 and 2025–2026. Indeed, according to 79% of the respondents’ companies, they have increased their workforce during the previous three years. According to the CII study, which was completed within the last 30 days, 75% of participants think that the state of the economy is favorable for private investment at the moment.

Further, India has emerged as a bright spot in this difficult global background, CII added, despite the fact that geopolitical fault lines have seriously hampered the global economy and disrupted global supply chains. The government’s prudent economic policies, which prioritized growth driven by public capital expenditures, contributed to the economy’s recovery.

Muted investment in the first half of the current fiscal quarter
An increase in private investments may be anticipated over the coming quarters, since 70% of the enterprises questioned stated that they will make investments in FY’26, according to Chandrajit Banerjee, Director General, CII.

One of the main causes of the drop in economic growth during the first half of the current fiscal year was muted investment. During the July–September 2024 period, India’s GDP growth fell to a seven-quarter low of 5.4%. Official projections predict that GDP growth will be 6.4% for the year. Because of restrictions relating to the Lok Sabha election, government capital expenditures were low in the first half of the fiscal year. According to Deloitte’s recent India Economic Outlook study, investors’ views were affected by global concerns regarding future trade, investment outlook, and changing technology and its impact, even if muted urban demand has been one of the factors driving low private sector investment.

Employment in the Manufacturing and Services Sector
It is anticipated that the manufacturing and services sectors will see an average growth in direct employment of 15 to 22 percent over the course of the upcoming year as a result of planned investments. The initial results on indirect employment showed similar forecasts, with manufacturing and service firms anticipating increases in indirect employment of roughly 14% and 14%, respectively, over current employment levels.

CII Forecasts Steady Economic Expansion and Rising Wages
Regular and contractual workers take less time to fill a vacant position, indicating the need to fill the availability of skilled staff at the higher level in sample firms. The majority of the firms surveyed suggested that it takes anywhere from one to six months to fill vacancies at the Senior Management, Management/Supervisory level.

Given the favorable outlook for the two key growth drivers, employment and private investments, the CII is optimistic that overall growth will likely stay steady at 6.4% to 6.7% this year and reach 7% in FY26. Banerjee stated. The average compensation rise for Senior Management, Managerial/Supervisory jobs, and regular workers increased by 10 to 20 percent in FY25, according to 40 to 45 percent of sample firms polled. This wage growth has an effect on personal consumption. Further, in FY 24, the pattern was comparable.

Conclusion
These are encouraging findings that demonstrate assurance on some of the key facets of the economy. The Director General of CII emphasized that the survey’s findings, when viewed in conjunction with other new economic indicators, will contribute to a thorough picture of the economy.

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Business, Equities, Markets - January 20, 2025

RBI talks about Geopolitical ripple effects on Indian economy

RBI talks about Geopolitical ripple effects on Indian economy

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

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

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

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

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

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

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

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

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

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2025: A Year of Consolidation and Policy-Driven Growth
Business, Equities, Market News, Markets - December 30, 2024

2025: A Year of Consolidation and Policy-Driven Growth

2025: A Year of Consolidation and Policy-Driven Growth

As we step into 2025, the Indian equity market is poised for a phase of consolidation, with policy-driven actions expected to be the key factor shaping investor sentiment. This follows a volatile yet rewarding 2024, where the Nifty delivered robust 12.5% returns (January–November 2024) amidst a broad-based rally across multiple sectors.

2024 Highlights: Broad-Based Rally with Sectoral Leadership
The year saw remarkable sectoral performances:

Defence (+62%), Healthcare (+34%), and Realty (+31%) led the pack.
Capital Goods (+28%), Auto (+27%), and IT (+24%) also posted stellar returns.
In contrast, FMCG started strong but tapered off in the latter half, delivering a modest 3.6% return, reflecting weak rural consumption. Banks underperformed with 8.9% returns, trailing the broader market despite strong fundamentals.

Mid and small caps continued to shine, outperforming large caps for the fourth time in five years, as investors gravitated towards high-growth companies and niche opportunities.

Global and Domestic Influences
Indian equities outpaced broader emerging markets, although US markets (S&P 500) delivered an impressive 28% return during the same period. Global events, from geopolitical tensions to elections in over 65 countries, had limited impact on market volatility.

In India, the initial market reaction to election results was subdued, but a united coalition restored confidence. Globally, the interest rate easing cycle commenced mid-year, with major economies like the US, UK, and Europe cutting rates on lower inflation expectations.

However, India refrained from rate cuts due to high food inflation and external uncertainties, including the US elections. Despite this, the Indian rupee remained resilient, depreciating just 2% YTD, outperforming other emerging market currencies.

Economic Moderation Amidst Fiscal Consolidation
Economic growth moderated in 2024, impacted by election-related slowdowns in Q2 and excess rains in Q3. Corporate earnings followed suit, with analysts trimming growth forecasts for FY25.

Domestic liquidity, however, remained a strong pillar. Record SIP inflows in November 2024 and a robust mutual fund industry, now managing an impressive INR 68.1 trillion AUM, underscore the growing financialization of savings.

2025 Outlook: Policy Actions in Focus
The foundation for 2025 appears strong, but much depends on key policy interventions:

Interest Rate Easing Cycle: Expected to begin in Q1 2025, potentially boosting growth across sectors.
Global Trade Policies: US tariff decisions will be critical, particularly for emerging markets.
Sectoral Opportunities in 2025
Capital Expenditure: Early signs of recovery are evident, with new defence and road sector orders announced in late 2024. Rising power demand and peak deficits should also drive investments in the power sector.
Private Capex: Healthy corporate balance sheets, strong cash flows, and improved capacity utilization are setting the stage for sustained private sector investment.
Real Estate: Lower inventories, better affordability, and expected interest rate cuts could further fuel growth.
Manufacturing: Regulatory support, global supply chain diversification, and India’s cost advantage position manufacturing as a key growth driver.

Flows and Valuations
FII flows, which turned negative towards the end of 2024, are expected to return as valuations correct and India’s weight in the EM Index normalizes. Meanwhile, domestic flows are likely to remain robust, driven by record SIP contributions and increasing retail participation.

Consolidation Year with a Growth Bias
While the first half of FY25 may witness subdued earnings, a recovery in the latter half is likely as macro conditions stabilize. With the Nifty trading near its long-term average valuations, 2025 offers a mix of consolidation and selective growth opportunities. Investors should remain vigilant, focusing on sectors poised to benefit from policy actions and structural tailwinds.

In summary, 2025 is set to be a pivotal year, laying the groundwork for long-term sustainable growth in Indian equity markets.

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GDP likely grew by a median 6.3% in Q3, slightly higher than RBI’s 6.2% estimate
Business, Equities, Market News, Markets - December 27, 2024

Q3 FY25: A Crucial Turning Point for India’s Growth Story

Q3 FY25: A Crucial Turning Point for India’s Growth Story

India, the torchbearer of post-pandemic economic recovery among major economies, has hit a rough patch. The nation, which averaged 8.3% GDP growth over the last three years, delivered an underwhelming performance in Q2 FY25. The 5.4% GDP growth for the quarter, a 7-quarter low, marked the third consecutive decline, falling significantly short of expectations.

While the government and the Reserve Bank of India (RBI) remain optimistic, the slump has raised concerns about the sustainability of India’s growth trajectory. The Finance Minister recently called the Q2 GDP figures a “temporary blip,” and the RBI’s December bulletin pointed to promising high-frequency indicators for Q3. But can the upcoming quarter provide the promised respite?

Unpacking the Q2 Disappointment
A closer look at Q2 reveals several headwinds that dampened growth. Export weakness due to global challenges and subdued government spending weighed heavily. Election-related disruptions limited fiscal spending, with revenue expenditure growing by just 8.7% year-on-year and capital expenditure—critical for long-term growth—seeing a contraction.

Gross fixed capital formation grew by a modest 5.4%, with heavy monsoons curbing mining and quarrying activity. The manufacturing sector stumbled, recording just 2.2% growth, its slowest in five quarters, though services offered a silver lining with a robust 7.1% growth. Private consumption, a critical growth driver, held firm, growing by 6% on strong rural demand.

Glimmers of Hope: What Q3 Might Deliver
Encouragingly, rural consumption has remained resilient in Q3, buoyed by favorable monsoons. Indicators such as a spike in scooter sales and fuel consumption reflect robust rural activity. Urban demand, though tepid in October, improved in November, with passenger vehicle sales growing by 4.4%.

Government capital expenditure is expected to pick up pace as the fiscal year progresses. Private capital expenditure, however, remains uneven, with growth concentrated in renewable energy and similar sectors. Steel consumption rebounded in November, offering a glimmer of hope, but overall capex momentum is yet to take off decisively.

On the external front, trade dynamics remain a concern. November saw merchandise exports contract by 4.8%, while imports surged by 27%, resulting in a record trade deficit of $37.8 billion. Services exports, while growing at 22.3%, lagged behind the 27.9% rise in service imports, further widening the trade gap.

Despite these challenges, Q3 GDP is projected to recover to 6.8%, with a slight moderation to 6.5% in Q4, as per the Economic Activity Index.

Implications for Indian Equities
Indian stock markets find themselves at a crossroads. Globally, the economic slowdown in Europe, China’s competitive stimulus measures, and geopolitical tensions create an unfavorable backdrop. A stronger dollar has pushed the rupee to an all-time low, making imports costlier and dampening foreign investor sentiment.

Domestically, the Nifty 50 index faces technical challenges, hovering precariously above its 200-day moving average and forming a bearish head-and-shoulders pattern. Valuations, while more reasonable after recent corrections, still hinge on strong earnings growth.

The road ahead depends on a mix of factors. Monetary easing, anticipated early next year, could provide much-needed support to corporate earnings. If Q3 earnings reflect the improvements indicated by high-frequency data, it might offer a much-needed catalyst for market sentiment.

Conclusion
India’s economic story is at a critical juncture. While Q2 FY25 highlighted vulnerabilities, the resilience in rural demand and government capex offers a silver lining. The coming quarters will test the economy’s ability to navigate external pressures and domestic challenges. For equity markets, the wait for a fundamental revival continues, with hopes pinned on Q3 earnings and a potential shift in monetary policy.

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India Inc: Navigating a Challenging Q2 with Resilience in ROCE
Business, Equities, Market News, Markets - November 29, 2024

India Inc: Navigating a Challenging Q2 with Resilience in ROCE

India Inc: Navigating a Challenging Q2 with Resilience in ROCE

The Indian economy is currently grappling with discussions of a slowdown, with many attributing the lackluster performance in corporate profits to untimely and severe rains as well as the impact of an astrologically inauspicious period during Q2 FY24. These factors have reportedly led to deferred large purchases and a general postponement of new ventures. While some consider this slowdown temporary, the data reveals that Q2 was indeed challenging for corporate India.

The Centre for Monitoring Indian Economy (CMIE) data, encompassing 3,291 listed non-financial companies, reveals a 9% year-on-year (YoY) decline in net profits after adjusting for exceptional items. This sharp drop highlights the hurdles faced by corporate India in maintaining profitability during this quarter.

Manufacturing: A Sector Under Pressure
Manufacturing companies, which form the backbone of the economy, witnessed significant stress. Their net profits plunged by approximately 20% YoY in aggregate terms, indicating the challenges brought about by higher costs and demand constraints. Even when excluding petroleum products, the sector’s net profits grew by a modest 5.3% YoY, which is a stark contrast to the robust 20.8% growth witnessed in Q1 FY24.

The subdued performance can largely be attributed to elevated input costs, erratic rainfall disrupting operations, and weaker-than-expected consumer demand during the festive season. These factors combined to weigh heavily on the manufacturing sector’s profitability.

Non-Financial Services: A Silver Lining
In contrast, the non-financial services sector emerged as a relative outperformer. The sector’s net profits after exceptional items grew by an impressive 22.55% YoY. While this growth represents a deceleration from the 28.2% YoY growth recorded in Q1, it still indicates the sector’s resilience in navigating economic headwinds. Sectors such as IT services, hospitality, and transportation appear to have contributed significantly to this growth, buoyed by sustained demand and improving business conditions.

The Bigger Picture: ROCE Shows Resilience
Despite these challenges, a broader view of India Inc’s financial health reveals a noteworthy silver lining. Data from 3,094 listed non-financial firms shows that the aggregate Return on Capital Employed (ROCE)—a key measure of profitability and efficiency—improved from 8.04% in March 2024 to 8.38% in September 2024.

Interestingly, this improvement in ROCE is primarily driven by the non-financial services sector, which continued to leverage its growth momentum. Manufacturing firms, however, saw a decline in ROCE, reflecting the profit pressures mentioned earlier.

What’s remarkable is that the ROCE of 8.38% is significantly higher than the levels recorded in the pre-COVID era, suggesting that Indian firms have made strides in optimizing capital efficiency in recent years. The financial services sector also showed progress, with its ROCE at 4.74%, a marked improvement from the challenges of the pre-COVID years when bad loans were a major concern for banks and non-banking financial companies (NBFCs).

Earnings Estimates Revised Down
The subdued Q2 performance has prompted analysts to revise down earnings estimates for several companies. Weak consumer sentiment, unpredictable weather patterns, and global uncertainties continue to pose risks to profitability in the near term. However, the resilience shown in ROCE indicates that many firms have been able to adapt to these challenges, leveraging cost efficiencies and maintaining a healthy balance sheet position.

Lessons from the Data
The data paints a mixed picture. On the one hand, the fall in manufacturing profits underscores the challenges of rising costs and fluctuating demand. On the other hand, the strength of non-financial services and the improvement in ROCE reflect the adaptability of Indian companies.

For investors, this dichotomy offers valuable insights. While sectors such as manufacturing might face near-term headwinds, areas like IT, hospitality, and financial services could present growth opportunities. The ROCE metric serves as a reminder that capital efficiency remains a critical factor for evaluating corporate performance, especially in times of economic uncertainty.

Outlook for Corporate India
Looking ahead, the trajectory of the Indian economy and corporate earnings will largely depend on a few key factors:

Macroeconomic Stability: Inflationary pressures and global interest rate movements will play a crucial role in shaping corporate margins.

Policy Support: Government measures to boost infrastructure spending and manufacturing, coupled with sector-specific incentives, could help revitalize growth.

Consumer Demand Recovery: A rebound in consumer sentiment, driven by stable incomes and lower inflation, will be essential for driving volume growth across sectors.

Global Trade Dynamics: Export-oriented sectors will need to navigate the complexities of slowing global demand and supply chain disruptions effectively.

Conclusion
Q2 FY24 may have been challenging for India Inc, but the resilience in ROCE indicates that Indian companies are better equipped to handle economic headwinds than they were in the pre-COVID era. While challenges persist, particularly in the manufacturing sector, the strong performance of non-financial services and the improving efficiency in capital utilization provide hope for a better second half of the financial year.

For investors, the focus should remain on sectors and companies demonstrating robust ROCE and the ability to adapt to evolving economic conditions. With policy support and a potential recovery in demand, corporate India could be poised for a stronger performance in the quarters to come.

As the economy navigates this slowdown, it’s clear that the foundations for sustainable growth remain intact, offering a promising outlook for long-term stakeholders in India’s growth story.

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Business, Equities, Market News, Markets - October 11, 2024

RBI Shifts to Neutral Stance: What This Means for Indian Equities

RBI Shifts to Neutral Stance: What This Means for Indian Equities

This week, the Reserve Bank of India (RBI) took a significant step in adjusting its monetary policy. After holding interest rates steady at elevated levels for 20 months and maintaining its stance of “withdrawal of accommodation,” the latest Monetary Policy Committee (MPC) meeting has shifted the stance to “neutral.” This signals a potential change in the central bank’s future approach, hinting at possible rate cuts on the horizon.

Factors Behind the Shift
The RBI retained its FY25 forecasts for GDP and CPI inflation at 7.2% and 4.5%, respectively. However, the GDP estimate for the September quarter was slightly reduced from 7.2% to 7%, while subsequent quarters are projected to see better performance. CPI inflation for Q2 is also expected to come in at 4.1%, lower than the previously estimated 4.4%.

This slight reduction in growth and inflation estimates reflects the economy’s softer-than-expected performance. High-frequency indicators such as passenger vehicle sales and the manufacturing Purchasing Managers’ Index (PMI) also hint at a slowdown. As a result, the RBI deemed it appropriate to shift its stance to “neutral,” preparing for future rate cuts that could support growth in line with revised projections.

Despite this shift, the RBI has kept its policy rate unchanged, emphasizing its commitment to bringing inflation down to 4%. The central bank cited risks from weather disruptions, geopolitical tensions, and global inflationary pressures, keeping them cautious.

This change follows the U.S. Federal Reserve’s recent rate cut, underscoring the importance of maintaining attractive yield spreads between Indian and U.S. treasuries, which influences foreign investor behavior.

Implications for Indian Equities
A shift to a neutral stance lays the groundwork for the RBI to initiate rate cuts, likely before the end of the year. Lower rates should theoretically boost borrowing and spending, fueling economic growth and potentially lifting the stock market. However, in practice, rate cuts are often accompanied by stock market corrections, due to delayed transmission effects and liquidity constraints.

Globally, rapid rate hikes by central banks, including the U.S. Fed and RBI, have led to a narrowing of yield spreads between U.S. and Indian bonds. This resulted in foreign institutional investor (FII) outflows from Indian equities, totaling over Rs. 4 lakh crore. Although the U.S. Fed’s rate cut temporarily widened yield spreads, an RBI rate cut might halt this trend and encourage further FII outflows, especially as China’s economic stimulus continues to divert investment away from India.

What Should Investors Do?
Despite significant FII outflows, Indian equities have shown resilience, largely due to strong domestic institutional investor (DII) support. DIIs have injected nearly Rs. 8 lakh crore into the market, pushing indices to record highs. Behind this are retail investors, whose enthusiasm for stock markets has risen recently, often at market highs. The key question is whether these investors will stay invested through market corrections.

India’s long-term growth prospects remain solid, and any short-term market dips could present opportunities for investors to buy into fundamentally strong companies at more favorable valuations. While near-term volatility might persist, the broader outlook for Indian equities remains positive.

The image added is for representation purposes only

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Business, Markets - July 16, 2022

The Indian economy is expected to grow by 7.1-7.6%.

The Indian economy is expected to grow by 7.1-7.6%.

In FY23, a growth of 7.1-7.6 percent will be witnessed in Indian economy. India will rule as the world’s fastest-growing economy over the next few years. Regardless of geopolitical issues, inflation, interest rate hikes, or Omicron infections.

In 2021, India had many opportunities to grow, but the Russian invasion in Ukraine and the new COVID-19 wave cleaned up all the optimistic events. These events intensified the pre-existing challenges such as surging inflation and geopolitical realities with no definite end in sight. The succeeding convergence of events like surging commodity prices, supply shortages and currency depreciation quickly worsened the Indian economy’s fundamentals that were trending up a few months back.

The Central Bank of India forecasts 7.2% GDP growth for FY23, which ends in March. The Indian rupee will recover against the US dollar, but not before the beginning of next year. The rupee depreciated by 3 paise to close at a record low of 79.62 (temporary) against the US currency on Wednesday. The desire of global businesses to look for more robust and cost-effective investments during difficult times, among other factors, could work to India’s benefit.

Inflation in India is expected to come close to 5% by March. There is a 20–30% possibility that there could be a global recession in the economy. The aggressive monetary tightening policy followed by inflation may lead to recession, particularly in the US economy. The slowdown in inflation in the past two months is possible because of steps taken by the government. This includes cuts in taxes on oil and gas, restrictions on food exports and global breakdown in commodity prices. The government increased GST rates to offset any inefficiencies in the value chain. Globally, surging inflation has been the main factor as it concerns both demand and supply side concerns.
The report also mentioned that uncertainties in the global business environment will have significant risks.

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