In this edition, we talk about RBI’s new e-rupee, central banks raising interest rates around the world, SEBI’s introduction of rules aimed at making actively managed debt funds safer and the Mercedes vs. SIP debate.
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Over the past few months, central banks around the world including in India have been raising interest rates to cool inflation. One of the side effects of this policy tightening is a slowdown in economic growth. But while some of the world’s most advanced economies, including in North America and Europe, are staring at a recession, the Indian economy seems to be holding its ground.
The central government this week released one of the most awaited economic data—GDP growth for the second quarter of the current fiscal year. India’s economic growth slowed to 6.3% in July-September from 13.5% in the first quarter and 8.4% in Q2 of the last fiscal year.
While growth has slowed, this is not as bad as it sounds as the stellar print of the first quarter was due to the base effect. That usually means the Indian economy would have grown slower or contracted in April-June 2021. But that wasn’t the case as the GDP had actually grown 20.1% in that period. The base effect was kicking in from the first quarter of 2020 when the COVID-ravaged Indian economy had contracted 23.8%. This is making what should be a normal figure in the second quarter appear sanguine.
Also, if one were to scratch the surface, you may see many green shoots taking roots. Services remained the backbone with a growth of 9.3% and farm output grew 4.6%. The 4.3% contraction in the manufacturing sector should also be taken with a pinch of salt. A lot of this has to do with the twin effects of high commodity prices and tightening of monetary policies in India, and abroad.
The slowing growth figure may even prompt the Reserve Bank of India take a less hawkish stance and decelerate the pace of rate hikes. Now, that would be very good news for the consumers who have been staring at rising EMIs for most of this year. Moreover, this will also help the government to control the current account and fiscal deficits.
Clearly, with recession possibly hitting developed economies next year, India can surely do with a slower yet steadier growth path with inflation as well as the twin deficits under control.
The e-rupee is here
The RBI has started a pilot project of the central bank digital currency (CBDC), or the e-rupee, for consumers and retailers. The e-rupee is essentially a digital token that represents legal tender. Unlike cryptocurrencies, the e-rupee is issued in the same denominations as paper currency and coins. The RBI has partnered with four banks for now—State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank—in Mumbai, New Delhi, Bengaluru, and Bhubaneswar.
How will the e-rupee work? The e-rupee will be distributed through banks to customers and merchants. Users can transact with the e-rupee through a digital wallet offered by banks and stored on their mobile phones.
Basically, users will be able to make payments through e-rupee using QR codes displayed at shops and stores. That sounds like how we use Paytm, PhonePe or GooglePay, doesn’t it? It kind of does, though using the e-rupee will make the transactions more anonymous, and perhaps, more secure.
For now, it’s too soon to say how successful the pilot will be and how it will impact UPI-based payment apps and fintech companies. So, we will keep an eye on the experiment and let you know.
Of debt funds…
The RBI wasn’t the only financial regulator in action this week. The Securities and Exchange Board of India introduced rules aimed at making actively managed debt funds safer.
The capital markets regulator said debt funds other than credit risk funds can no longer invest more than 10% of their net asset value in securities rated AAA by a single issuer. The limit is 8% for those rated AA and 6% for instruments rated A and below.
Until now, a debt fund was not allowed to invest more than 10% of its NAV in debt instruments issued by a single issuer. The new rule defines the investment limits according to the issuer’s credit rating, thereby minimising risks.
The new rule come at a time when many investors are again looking to invest in debt funds as yields begin to rise after staying muted for the past year. So, if you are one of those investors, you can breathe a little easier.
…and of SIPs
While debt funds were in focus for the right reasons this week, systematic investment plans gained attention, too.
Santosh Iyer, head of sales and marketing at Mercedes-Benz India, was at the receiving end after saying many people are not buying Mercedes cars as they’d rather invest in mutual funds through SIPs.
Predictably, some MF executives countered Iyer and a few advocates of SIPs even ran numbers to show how one can start SIPs today—of about Rs 1 lakh a month—to save enough for buying a Mercedes car after five-six years!
So, should you invest via SIPs or buy a luxury car? The answer will, of course, be different for each person. If you have enough money to run your household, to take care of your family, for your retirement and other expenses, you can go ahead and splurge on things you really want. And if you ask a banker instead of an MF executive, you don’t even have to wait five years to buy a Mercedes—you can just take a car loan and pay EMIs instead of SIPs!
Market wrap
Both the benchmark Sensex and Nifty touched new record highs this week. While the 30-stock Sensex crossed 63,500, the 50-stock Nifty came close to touching 18,800. For the week, the two indices rose about 0.8% each.
The markets climbed after the US Federal Reserve hinted at slowing its pace of interest rate hikes and as the rupee recovered while the dollar weakened.
The Nifty stocks that gained the most this week were BPCL, Tata Steel, UltraTech, Hindalco, Hero MotoCorp, Britannia, Reliance and Grasim. The laggards included Maruti, Bajaj Finance, Eicher and ITC.
In the broader market, Network 18 surged 26% while state-run BHEL jumped almost 20%. Paytm, too, climbed nearly 20% after losing 15% last week on worries about Reliance Jio’s entry into the financial services sector.
Other headlines:
- Vikram Kirloskar, Vice Chairperson of Toyota Kirloskar Motor, dies of a heart attack aged 64
- Germany crash out of the FIFA World Cup in the first round despite defeating Costa Rica
- AIIMS, India’s premier hospital, reports ransomware attack
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Adani Group wins Rs 5,069 crore project to redevelop Dharavi slum in Mumbai
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SEBI approves Bandhan Bank-led consortium’s acquisition of IDFC Mutual Fund
- India’s manufacturing PMI rises to 55.7 in November, touches three-month high
- Inox Green Energy Services ends 9% lower on market debut
- Mankind Pharma acquires majority stake in Upakarma Ayurveda
- Kotak Special Situations Fund invests Rs 550 crore in Sanghi Industries
- Uniparts India IPO subscribed about three times on final day
The week ahead
- The RBI’s Monetary Policy Committee will meet during December 5-7 to decide on the interest rate hike.
- The FIFA World Cup moves into the Round of 16. So, keep watching.
Until next week, happy investing!
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