In this edition, we talk about why equity mutual fund inflows into India are rising even as markets correct. We also talk about the country’s slowing GDP growth and why microfinance institutions are facing the blues.
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At first glance, the last three months have not been particularly great for the Indian stock markets, with the benchmark Sensex and the Nifty both down by more than 9% from their lifetime highs of late September.
But that does not seem to have deterred domestic investors who have been pouring monies into the markets via the mutual fund route, in ever increasing numbers.
If any more evidence about the domestic investor’s confidence in the Indian stock market was needed, it came this week. The latest figures released by the Association of Mutual Funds in India (AMFI) showed that inflows into equity funds in December 2024 recorded a 14.5% month-on-month jump, with the overall figure at Rs 41,155 crore. This was significantly higher than the Rs 35,943 crore worth of inflows that had been recorded in November.
The uptick was largely thanks to higher inflows into midcap and smallcap mutual funds as well as new fund offers (NFOs).
This uptick is significant, also because at more than Rs 41,100 crore, December saw the second highest monthly inflows ever, extending the streak of inflows to the 46th month, the longest on record.
While midcap MFs saw monthly inflows rise 4% to Rs 5,093 crore, smallcap funds saw a 13.5% jump, clocking inflows of Rs 4,667 crore in December.
On top of these, the mutual fund industry collected Rs 11,402 crore through 13 equity NFOs, while the overall NFO inflow was Rs 13,852 crore. In fact, even among these, thematic NFOs ruled the roost, with as many as 12 such offers collecting Rs 11,337 crore, with the total collection by thematic funds at Rs 15,332 crore, double of the previous month.
Even inflows via systematic investment plans in December jumped to Rs 26,459 crore as against Rs 25,320 crore in November.
Having said that, even amid this euphoria, some numbers were sobering. Despite this significant uptick in inflows, the overall equity assets under management remained flat at Rs 30.57 trillion, thanks to marked-to-market losses over the month.
Moreover, inflows into largecap funds declined by as much as 21% to Rs 2,010 crore while multicap and flexicap funds also saw inflows decline 15% and 7%, respectively.
But will this investor interest sustain? Market watchers say that will depend on the quarterly results. If the December quarter returns are in line with the Street’s expectations, investors will keep flocking to smallcap and midcap funds, but if that does not happen, their interest may wane.
It’s The Economy, Stupid
While retail investors seem to continue to believe in the India story, the country’s economists seem to be a worried lot, thanks to an impending economic slowdown.
India’s real economic growth is expected to slow sharply to 6.4% in FY25, according to the first advance estimates released by the government, although on a nominal basis the economy will see a 9.7% growth, a tad better than last year’s figure of 9.6%.
This projection on the real gross domestic product (GDP) growth number is especially worrying since it marks a sharp decline from the 8.2% real GDP growth clocked in FY24. In fact, at 6.4% India’s economy would be growing at its slowest pace in four years.
The latest estimate is even lower than that revised number put out by the Reserve Bank of India, which had estimated that the Indian economy will grow at 6.6% during the current financial year.
To be sure, a slowdown in the current financial year had been expected, but the sharp downward revision has taken many by surprise.
Interestingly, agriculture, which often pulls India’s growth down, is expected to perform better, with a growth projection of 3.8% in FY25, as against 1.4% that it achieved last year. The number this year is, however, being pulled down by manufacturing, whose pace of growth this year is set to fall to just 5.3% as against 9.9% clocked last year. Even mining, which grew at 7.1% last year, will likely expand only by 2.9% this year. Other sectors such as construction and electricity, too, are set to grow slower this year.
What perhaps exacerbates India’s economic woes is that in tandem with lower growth, inflation has hit the urban consumer hard, eroding their purchasing power. Little wonder that this year, they are buying less than last year.
The latest tepid growth numbers have led brokerages like HSBC to cut ratings on Indian equities to “neutral.” The brokerage also slashed its end-2025 target for the BSE Sensex by 5% to 85,990, which is still up about 10% from its current levels.
HSBC joins a list of others like Goldman Sachs and Bernstein Quants, which downgraded Indian stocks last year, citing economic slowdown.
To be sure though, on the flip side, the likes of Citi and Morgan Stanley have forecast double-digit returns from Indian stocks while Motilal Oswal has forecast a healthy earnings growth in FY26.
MFI Blues
Meanwhile, as the economy slows, people are finding it difficult to pay back loans. And this has the government very worried. The finance ministry this week held a meeting with microfinance institutions (MFIs) amid rising bad loans and delinquencies across all types of lenders in the sector.
These delinquencies have caused stress in the MFI sector, which in turn has made banks and shadow banks vary of lending to them. After rapidly lending to the MFI sector over the last three years, credit to such institutions decelerated this year.
The numbers are indeed not flattering.
“The microfinance sector is showing signs of stress, with rising delinquencies across all types of lenders and ticket sizes,” said the RBI’s Financial Stability Report, December 2024.
The central bank further said that alongside rising delinquencies, borrower indebtedness has risen notably: the share of borrowers availing loans from four or more lenders has increased from 3.6% to 5.8% during the last three years (September 2024 over September 2021).
In the Slow Lane
Talking about speed, India’s four biggest automakers reported mixed vehicle sales numbers this week.
Industry leader Maruti Suzuki said its local sales to dealers jumped 24.4% from a year earlier in December to 1,32,523 vehicles. Encouragingly, sales of Maruti’s small cars, which include the Alto, Swift and WagonR models, surged 29% to 62,324 units. For the April-December period, Maruti’s local sales were almost flat.
Hyundai Motor India, which listed on stock exchanges recently, reported a 1.3% drop in local sales in December to 42,208 units. For the entire 2024, Hyundai’s local sales inched up only 0.6% to 6,05,433 units.
Mahindra & Mahindra’s local vehicle sales jumped 18% to 41,424 units, as the maker of Thar, Roxx and XUV700 sport-utility vehicles maintained its momentum. For the April-December period, its sales jumped 21%.
Tata Motors, meanwhile, reported only a 2% rise in domestic passenger vehicle sales to 44,230 units in December.
So, what do the numbers tell us about the state of the auto industry? Well, sales in December jumped, no doubt, but that was mostly because of year-end discounts. For the full calendar year 2024 or for the nine months of the fiscal year 2024-25, sales have been mostly flat. The only exception has been M&M, whose SUVs continue to dominate the roads.
The exception aside, the auto industry came under pressure in 2024 after two years of rapid growth as demand slowed and costs continued to increase. And costs will rise further. Most automakers have already announced plans to increase car prices from this month. But they are also offering some bargains and discounts. So, if you are in the market to buy a new car, shop around and grab the keys soon!
Market Wrap
Ever since the Sensex and the Nifty hit their all-time highs in September last year, the two benchmark indices seem to have hit the skids. The markets, that had clearly been in an overbought territory, have sought to shed some of the flab, with both the indices losing ground.
This week was no different as both the Sensex and Nifty lost significant ground over the past five trading sessions. Both the 30-share Sensex and the broader 50-stock Nifty lost about 2.6% over the week.
According to market estimates, foreign institutional investors sold Indian equities worth $2 billion over the past week.
Among the Nifty stocks that bucked the trend to end the week in the green were two Tata Group companies- Tata Consumer Products and Tata Consultancy Services, FMCG majors Britannia, Hindustan Unilever and Nestle India, IT major Wipro and SBI Life Insurance. Other counters that also ended in the green were ONGC, Dr. Reddy’s Labs, HCL Technologies and Bharti Airtel.
The most bearish among the Nifty stocks were also two Tata companies- Trent and Tata Steel. Others that also ended the week in the red were NTPC, ITC, Adani Ports and Adani Enterprises, Coal India, Ultratech Cement and Bharat Petroleum.
Q3 Results Wrap
- TCS net profit rises 12% to ₹12,380 crore, beats estimates; declares special dividend of ₹66/share.
- Tata Elxsi net profit drops 3.5% YoY to ₹199 crore.
- IREDA net profit rises 27%, NII jumps 39 YoY; asset quality improves.
- CESC’s Q3 profit falls 5.7% YoY amid higher tax expenses.
Other Headlines
- Dunzo Co-founder Kabeer Biswas to head Flipkart’s quick commerce unit ‘Minutes.’
- Rupee hits record low as broad dollar strength hurts Asian currencies.
- Infra lender NaBFID plans record ₹40,000 crore fundraising for Jan-Mar quarter.
- Adani Commodities to sell up to 20% stake in Wilmar joint venture.
- Swiggy Instamart expands to 76 cities, set to launch as a standalone app.
- First HMPV case in elderly reported in India amid China’s recent surge.
- Government to give ₹35,000 crore LPG subsidy to IOCL, HPCL, BPCL.
- Avendus to raise ₹4,000 crore for third private credit fund.
- JSW Steel’s $74 million Mozambique coal deal frozen amid legal row.
- Everstone, Goldman Sachs sell controlling stakes in Omega Healthcare valued at $1.8 billion.
That’s all for this week. Until next week, happy investing!
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