In this edition, we talk about the US Fed’s steep rate cut and its possible impact on India. We also talk about India overtaking China in a global equities index for the first time ever as well as India’s ambitious plans for the renewable energy and space sectors.
Welcome to Kuvera’s weekly digest on the most critical developments related to business, finance, and the markets.
tl;dr Hear the article in brief instead?
On March 3, 2020, soon after the COVID-19 pandemic began to spread and governments across the globe started imposing lockdowns, the US Federal Reserve cut interest rates by 50 basis points in an attempt to support the world’s biggest economy. A fortnight later, it slashed the rates by another 100 basis points to nearly 0%.
It took the US central bank nearly two years to reverse its rate cycle. In March 2022, it began to lift interest rates to control inflation that touched a 40-year high a few months later. Over the next year and a half, the Fed increased the rates 10 more times, lifting the Federal Funds Rate to a range of 5.25-5.50%.
And now, the Fed is pivoting again as inflation comes under control and economic growth becomes a matter of concern.
This week, the Federal Open Market Committee (FOMC) slashed interest rates by 50 basis points. And there are more cuts in the offing. The FOMC’s next meetings are scheduled for November and December where it is expected to cut rates by another 50 bps. It also sees scope to cut rates by a full percentage point next year and by half a point in 2026.
Okay, that’s great for US borrowers as their loan repayments will become easier but why does it matter to those sitting in India?
Well, because what happens in the world’s biggest economy, impacts what will happen in many other economies worldwide. And that’s true for India, too.
In fact, soon after the Fed’s rate cut, central banks in the Middle East—the UAE, Saudi Arabia, Qatar, Oman and Bahrain—slashed interest rates by a similar margin. And while the Reserve Bank of India is unlikely to follow suit in the next few days, the Fed’s decision does make it more likely for Governor Shaktikanta Das to take action sooner than later.
Then, there are more side effects—some positive, others not so. The cut in US rates is likely to boost money flows into Indian equities and bonds, which pay a higher interest.
It will also benefit Indian companies that borrowed in foreign currency and Indian importers as the rupee will likely strengthen against the dollar. But exporters, such as IT companies, could stand to lose.
For consumers, as and when the RBI starts easing monetary policy, it would mean easier loan repayments but also a drop in interest rates on fixed deposits and other debt investments.
And then, after some time, the wheels will turn again.
Elephant overtakes Dragon
While the Fed’s steeper-than-expected rate cut boosted the bullish sentiment in India, stock market investors had another reason to cheer.
This week, India overtook China in a key global MSCI equities index for the first time ever, thanks to steady economic growth and strong capital inflows that have propelled the stock markets to record highs.
India’s weight in the MSCI investible large-, mid- and small-cap index increased to 2.35%, above China’s 2.24%, Morgan Stanley said. And India will gain more share due to market outperformance and new public offerings, it said.
The development comes days after Morgan Stanley said earlier this month that it expects India to surpass China in the MSCI Emerging Markets index as the South Asian nation’s ongoing market rally was “only past the halfway mark”.
Analysts say India’s rising weightage in the MSCI indices will bring additional inflows into equity markets.
India’s benchmark indices, the NSE Nifty 50 and the BSE Sensex, have gained over 15% so far this year while China’s Shanghai Composite index has fallen about 9% due to concerns over economic growth and the real estate sector. And looks like India will continue to outperform its larger neighbour, at least in the near future.
Going Green
Moving on to corporate news, a bunch of companies this week announced plans at renewable energy conference RE-Invest, held in Gujarat, to boost their green power capacity while several lenders promised to give out billions of dollars in loans to help those companies meet their targets.
Billionaire Mukesh Ambani-led Reliance Industries committed to install 100 GW of additional renewable capacity by 2030 while Gautam Adani-led Adani Green Energy committed to have 38.8 GW of capacity.
Hero Future Energies said it plans to invest $20 billion to increase its capacity to 30 GW by 2030 from 1.9 GW currently. It expects to commission 3.4 GW of capacity, currently under construction, in the next two years.
Tata Power plans to invest up to $9 billion to increase its renewable energy capacity to more than 20 GW over the next five to six years from 5 GW currently, CEO Praveer Sinha said.
As for lenders, state-run infrastructure financier REC Ltd said it has signed pacts worth about Rs 1.12 trillion ($13.37 billion) with renewable energy developers at the conference covering solar, wind, hydroelectric, battery energy and green ammonia projects. REC said it intends to take its renewables loan book to over Rs 3 trillion by 2030 and expand the share of this segment from 8% currently to 30%.
German state lender KfW’s unit DEG said it plans to more than double its investments in India to $1 billion over the next few years, with focus on the energy and infrastructure projects. DEG has so far invested about $400 million in debt and equity in India.
These announcements are in line with the government’s aim to add at least 500 GW of clean energy by 2030 to reduce emissions. India’s current capacity is around 153 GW. While this is below the 2022 target of 175 GW, the government expects the pace of capacity addition to increase in coming years. Renewable energy minister Prahlad Joshi said financial institutions have committed to provide $386 billion in funding for green power projects by 2030.
Circling the Moon and Venus
Clean energy isn’t the only sector where India is setting ambitious goals; space is another. The government has outlined an expanded vision for India’s space programme that envisages creating a space station by 2035 and landing on the moon by 2040.
This week, the Union Cabinet approved a new mission to the moon, named Chandrayaan-4, to develop and demonstrate the technologies to come back to Earth after successfully landing on our planet’s sole satellite.
The Indian Space Research Organisation, or ISRO, will be responsible for the development of spacecraft and launch. The total funds needed for the Chandrayaan-4 is Rs 2,104 crore, the government said.
In another decision, the Union Cabinet approved the development of the Venus Orbiter Mission to explore and study the planet that’s closest to Earth. This mission would involve putting a spacecraft in the orbit of Venus for better understanding of the planet’s surface and atmospheric processes.
The mission is expected to be accomplished by March 2028. The total amount approved for this Mission is Rs 1,236 crore, of which Rs 824 crore will be spent on the spacecraft, the government said.
Market Wrap
Indian stock markets hit yet another record high this week, as the higher-than-expected rate cut by the US Fed boosted investor sentiment.
The 30-stock Sensex hit a new all-time high of 84,639.23 on Friday while the 50-stock Nifty touched 25,831.35. For the week, the Sensex gained almost 2% and the Nifty climbed 1.9%.
Mahindra & Mahindra topped the list of Nifty stocks that gained during the week. It was followed by Nestle India and NTPC. Lenders including ICICI Bank, Shriram Finance, Kotak Mahindra Bank, HDFC Bank and Axis Bank gained, too. Car and bike makers including Hero MotoCorp, Maruti Suzuki, Eicher and Bajaj Auto also ended in the green.
Tech companies were the biggest losers this week. All IT companies in the Nifty 50—TCS, Wipro, HCL Tech, Infosys, LTIMindtree and Tech Mahindra ended in the red.
The list of Nifty losers also included PSUs like Bharat Petroleum and ONGC, drugmakers Cipla, Dr Reddy’s and Sun Pharma, as well as Grasim and Tata Motors.
Other headlines
- SEBI bars Axis Capital from acting as merchant banker for new debt issues
- NTPC Green Energy Ltd files DRHP to raise Rs 10,000 crore via IPO
- Bajaj Housing Finance’s shares more than double on listing
- Analog Devices, Tata Group in talks to make semiconductors in India
- Samsung files lawsuit against labour union over strike at Tamil Nadu plant
- Govt probing EY’s ‘work environment’ after death of young employee
- Supreme Court rejects telecom companies’ plea to recalculate government licence fees dues
- India’s rice production to be higher this year despite heavy rains, says farm minister
- India’s direct tax collection increases 16% year on year in April-September to Rs 9.96 trillion
- Govt plans to sell 7% stake in renewable energy lender IREDA
- Amazon names company veteran Samir Kumar as new India head
- Star India seeks $940 million in damages from Zee for failed cricket broadcasting deal
- Lenovo to make AI servers in India, opens new AI-focused lab in Bengaluru
- India’s trade deficit widens to a 10-month high of $29.65 billion in August as gold imports jump
- Wholesale inflation eases to 1.31% in August as global oil prices fall
That’s all for this week. Until next week, happy investing!
Interested in how we think about the markets?
Read more: Zen And The Art Of Investing
Watch here: Investing in International Markets
Start investing through a platform that brings goal planning and investing to your fingertips. Visit kuvera.in to discover Direct Plans and Fixed Deposits and start investing today. #MutualFundSahiHai #KuveraSabseSahiHai
