In this edition, we talk about the upcoming union budget and what people at large expect from the finance minister. We also talk about a global tech outage, why asset management companies are having their moment under the sun, SEBI’s move to introduce a new asset class, and RBI’s comments on latest inflation trend.
Welcome to Kuvera’s weekly digest on the most critical developments related to business, finance, and the markets.
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“If she’s amazing, she won’t be easy. If she’s easy, she won’t be amazing. If she’s worth it, you won’t give up. If you give up, you’re not worthy. … Truth is, everybody is going to hurt you; you just gotta find the ones worth suffering for.”
When the legendary Rastafarian icon Bob Marley wrote these lines, he could scarcely have imagined that decades later, a bunch of cheeky newsletter writers with rather dubious credentials to boot, sitting on the other side of the world would use these to refer to an Indian finance minister.
Nay, the Jamaican reggae singer, guitarist and songwriter was as far removed from the seemingly highfalutin world of finance and economics as any rum-loving Caribbean can be from an ilkal-saree wearing lady who studied economics at one of India’s most left-liberal universities.
But as she gets ready to deliver yet another budget speech on July 23, her countrywomen (and men) are expecting that Finance Minister Nirmala Sitharaman will be both amazing, and go easy on them, at least as far as taxes are concerned.
It is not just the salaried classes who are hoping for some manna dew from the heavens above. Executives in sectors such as IT, fintech, travel and tourism, infrastructure, capital markets, pharmaceuticals and healthcare, all have hopes that it will be worth their while to wait for Sitharaman’s budget speech.
While the IT guys want more export incentives, folks in the fintech industry want policy inconsistencies ironed out. For the tourism industry, raising capital is becoming a challenge and folks in the manufacturing sector say they want the heavy reliance on Chinese imports to be a thing of the past.
This litany of expectations and demands does not end here. People want to see their kids get jobs, and envision their grandkids growing up in a developed India.
And then there are farmers, soldiers and dozens of other entrenched groups whose interests need to be taken care of.
These expectations will weigh heavily on Sitharaman’s shoulders and she will have to walk the proverbial tightrope.
So, will she manage to keep everyone happy or will she end up hurting most? We will get to know next week, and we promise you, we will tell you everything!
Riding the Tide
The stock markets already seem to have factored a lot of these budget expectations in and have, therefore, been scaling to record highs. This week, too, both the Sensex and the Nifty scaled to new peaks, with the former closing above the 81,000 mark for the first time.
This unprecedented surge has also propelled the value of assets under management of mutual fund companies to above Rs 61 trillion in June, according to the Association of Mutual Funds in India (AMFI). This is a more than six-fold growth from Rs 9.75 trillion as of June 2014.
Systematic investment plans (SIPs) have emerged as key to the industry’s growth. For example, in June 2023, SIP inflows were Rs 14,800 crore. This increased to Rs 21,300 crore in June 2024. Similarly, the number of folios in the industry rose from 14.82 crore in June 2023 to 19 crore in June 2024.
This has boosted the earnings of AMCs and their share prices. Shares of Shriram Asset Management Co. Ltd have soared 280% in the past year. Nippon Life India Asset Management’s stock price has gone up 115% while HDFC AMC has jumped 72% and Aditya Birla Sunlife AMC has climbed 85%. UTI AMC, meanwhile, has risen 35%, lagging its peers but still above the Sensex’s 22% rise.
The New Window
Investors in mutual funds and stock markets may soon have another investment avenue.
The Securities and Exchange Board of India (SEBI) this week proposed to introduce a new asset class that falls between mutual funds and portfolio management services (PMSes). This, the market regulator says, is aimed to cater investors with a higher risk appetite, offering them opportunities with potentially higher returns.
SEBI said that it recognised a gap in the current investment spectrum, where mutual funds cater to retail investors with varying risk appetites, while PMS and alternative investment funds (AIFs) aim at more sophisticated, high-net-worth investors. This proposed asset class, according to SEBI, is intended to bridge this gap.
According to SEBI’s proposals, the minimum investment requirement for the new asset class would be Rs 10 lakh per investor. This threshold aims to discourage retail investors from participating in this product while attracting those with investible surplus ranging from Rs 10 lakh to Rs 50 lakh, the minimum amount that one needs to invest in an PMS scheme. Investors will have the option to choose options such as Systematic Investment Plan (SIP), Systematic Withdrawal Plan (SWP), and Systematic Transfer Plan (STP) for investing in strategies under the new asset class.
According to SEBI, mutual funds with average assets under management (AUM) exceeding Rs 10,000 crore over three years or those managed by experienced Chief Investment Officers (CIOs) and fund managers will be eligible to launch this new asset class.
The regulator hasn’t named the new asset class but said such products could include long-short equity funds and inverse exchange-traded funds (ETFs). These products are currently not allowed in India, but they do exist in other jurisdictions. For instance, there are various long-short equity funds in the US, regulated by the Securities Exchange Commission (SEC), offering hedge fund-like strategies with the liquidity of mutual funds.
Similarly, Australia offers many inverse ETF products that use derivative products to let investors hedge against market downturns or to speculate on market declines.
So, what do you think about this new asset class? Will you invest in it? Do you think Indian investors will take to it enthusiastically?
Cyber Chaos
A global tech outage on Friday disrupted operations in multiple industries including aviation, banking and financial services, telecom and healthcare. Airlines halted flights, some broadcasters went off air and brokerages struggled to complete trading orders.
The outages seemed to be related to an issue at global cybersecurity firm Crowdstrike. Media reports cited an alert sent by Crowdstrike to its clients as saying that the company’s “Falcon Sensor” software caused Microsoft Windows to crash and display a blue screen, known informally as the “Blue Screen of Death”.
The airline industry was among the hardest hit with airports from Australia and Japan to India and Britain reported problems with their systems and delays.
In India, SpiceJet, IndiGo, Akasa Air, Vistara, Air India and Air India Express faced issues. Among brokerages, Nuvama Wealth Management, Edelweiss, Motilal Oswal, IIFL Securities, 5Paisa and Angel Broking also faced technical difficulties.
In another shock development related to the tech industry, one of India’s top crypto exchanges was hacked this week. The exchange, WazirX, admitted it faced a major security breach and that it temporarily stopped rupee and crypto withdrawals after a suspicious transfer of assets worth $230 million.
Stay the Course
The Reserve Bank of India (RBI) is worried about the prospects of inflation singeing India’s economic growth story.
In its latest monthly bulletin, which comes as the second quarter of FY25 has begun with signs of quickening momentum in the economy, the RBI said that it is prudent to stay the course on the straight and narrow path of aligning inflation with its 4% target.
The comments come after headline inflation, as measured by year-on-year changes in the all-India consumer price index (CPI), edged up to 5.1% in June 2024 from 4.8% in May.
In an article on the state of the economy, RBI officials said the June data showed consumer price inflation ticked up after three months of moderation as a flare-up in vegetable prices halted the overall disinflationary trend.
“When monetary policy authorities committing to price stability renege on that commitment in the pursuit of short-run gains of increasing growth, they can end up losing credibility, unhinging inflation expectations and triggering a surge in inflation. This can also undermine growth sustainability,” the RBI officials said in the article.
In fact, RBI Governor Shaktikanta Das also said recently that monetary policy remained focused on price stability “to effectively anchor inflation expectations” and provide a foundation for sustained growth over a period of time.
So, does this indicate that we will have to wait longer to see a reduction in interest rates? Well, we will know on August 8, when the next policy is announced.
Market Wrap
The two benchmark indices scaled to record highs this week, but there was a bit of a pullback by Friday. As a result, both the BSE Sensex and the NSE Nifty ended almost flat for the week.
Nifty stocks that gained the most during the week were led by the IT pack including the likes of TCS, Infosys, Wipro, Tech Mahindra, LTIMindtree and HCL Technologies. These stocks jumped after quarterly earnings of TCS, Infosys and HCL Tech ignited expectations of a revival in demand for software services.
Other stocks that ended up in the green included ONGC, SBI Life, Hindustan Unilever, State Bank of India, Bajaj Finance, ITC, Mahindra & Mahindra, Shriram Finance and Britannia.
Among the top Nifty losers for the week were Tata Steel, Hindalco, JSW Steel, Hero MotoCorp, Indian Oil and Adani Enterprises.
Q1 Earnings Snapshot
- Infosys tops estimates as net profit rises 7.1% to Rs 6,368 crore; lifts FY25 revenue forecast.
- Asian Paints consolidated net profit falls 24.5% to Rs 1,170 crore, lags forecasts.
- LTIMindtree revenue tops forecasts but profit misses estimates, falls 1.5% to Rs 1,135 crore.
- Bajaj Auto standalone profit rises nearly 20% to Rs 1,988 crore, meets estimates.
- UltraTech Cement lags forecasts as consolidated net profit falls 0.5% to Rs 1,697 crore.
- DMart posts 17.5% rise in consolidated net profit to Rs 774 crore.
- Havells India profit soars 43.1% to Rs 411 crore but misses forecasts on higher expenses.
- SpiceJet standalone profit rises to Rs 119 crore from Rs 16.86 crore a year earlier.
- HDFC Life Insurance profit rises 15% to Rs 478 crore on higher demand for market-linked policies.
- Dalmia Bharat reports 1% rise in net profit to Rs 145 crore.
Other Headlines
- Govt plans to ease rice export restrictions as stocks jump to record highs.
- Govt may speed up visa processing for Chinese technicians for manufacturing projects.
- India’s exports climb 5.4% year-on-year in June; government expects $800 billion in FY25.
- India wholesale prices rise 3.36% in June, the fastest pace in 16 months.
- IMF lifts India’s GDP forecast to 7% for 2024-25 from 6.8%.
- Citigroup to boost India investment banking team on surge in equity market, M&A deals.
- Sanofi plans to invest $437 million in Hyderabad global capacity centre, double workforce.
- Ola Electric may target $4.5 billion valuation for IPO.
- SEBI warns Paytm over old transactions with unit Paytm Payments Bank.
- NCLT accepts BCCI’s insolvency petition against Byju’s.
That’s it for this week! Until next week, happy investing!
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