MARKET UPDATE: Indian Cos Can Directly List Overseas Soon: FM

MARKET UPDATE

Indian Cos Can Directly List Overseas Soon: FM Finance Minister Nirmala Sitharaman (July 29th) said domestic companies would soon be allowed to directly list their securities on overseas exchanges in specified jurisdictions. Currently, Indian companies are not allowed to directly list their equity shares on foreign stock exchanges without listing in Mumbai. This will expand capital-access opportunities for businesses in India and will have great potential to boost the Indian startup industry and valuations for domestic companies. India is poised to become the world’s third largest economy in a few years and this also allows more overseas investors to tap into India’s growth story

IMF raises India’s FY24 forecast to 6.1%
“Growth in India is projected at 6.1% in 2023, a 0.2 percentage point upward revision compared with the April projection, reflecting momentum from stronger-than-expected growth in the fourth quarter of 2022 as a result of stronger domestic investment,” the IMF stated in its July update of the World Economic Outlook (WEO).

Has India overcome its twin deficit problem?
The soaring current account deficit and fiscal deficit in 2022 posed a formidable challenge before India. However, from the latest moderation in CAD and under-control fiscal deficit figures, it seems that India has reined in the problem, at least for now. The declining non-performing assets (NPAs) of banks and the rising profit margin of corporates show that along with the twin deficit problem, the twin balance sheet problem too seems to have been dealt with for now

ISRO’s Chandrayaan-3 mission and it’s potential boost to the Indian economy
The success of Chandrayaan-3 mission has the potential to propel the space sector and drive economic growth and could take India to the top league along with the US, Russia, and China. India’s space economy was valued at over $9.6 billion in 2020, by 2025, this could go up to $13 billion according to analysts.

Investment boost
Venture capitalists are increasingly seeing India’s space-tech sector as a lucrative opportunity. Greater private participation in India’s space industry with the approval of the Indian Space Policy 2023 is likely to provide a bigger boost to the Indian space-tech ecosystem in 2023. The success of this mission will boost more investments to take advantage of the cost efficiency and abundance of high-tech skill to build products and services in India for the world.

Impact on space start-ups and jobs
India has over 140 registered space-tech startups that are focused on creating technologies that have real-world utilities – from satellite-based phone signals, broadband, OTT, and 5G to the operation of solar farms etc. The success of this mission will attract joint ventures into India and can help Indian companies and startups design and manufacture space systems and subsystems for the world. This sector has the potential to create lakhs of jobs, both blue-collar and white-collar

Global positioning
Chandrayaan-3 mission will position India as a potential counterweight to China in the global space race. Along with Russia, China offered low-cost options for launches in the past. But with the current geopolitical climate, India has a perfect opportunity to compete and strengthen its position as a great alternative.

SECTOR ANALYSIS

MICROFINANCE

What is mircofinance?

Microfinance refers to the provision of basic financial services such as small loans, savings accounts, and insurance for low-income people who are economically active. The microfinance sector includes, Microfinance Institutions (MFI’s), Small Finance Banks (SFB’s), Non-Financial Banking Companies (NBFC’s), as well as some NGO’s, sectors of government banks, cooperatives, credit unions etc. Microfinance offers the borrowers security, opportunity and economic growth.

Why is microfinance important?

Microfinance is the only financial solution that can reach the deepest corner of the country and serve the poorest and often disadvantaged communities. Microfinance sector has the potential to serve 10 to 15 per cent of the population living in India’s rural areas and likely to achieve infrastructures to serve up to 30 per cent of the populations in the future. Microfinance will play a major role in India’s rural economic growth. MFIs don’t just offer loans and access to capital to micro-entrepreneurs, but also bring the most vulnerable people into the mainstream of Indian economic growth goals and possibly becoming the third largest economy in the near future.

MICROFINANCE…

Sector Outlook

The microfinance sector is primed to ride the new growth wave going ahead, with focus on portfolio resilience amid a structural transformation according to analysts. An improvement in economic activity, rising credit demand, diversification of loan mix and attractive valuations are likely to drive the performance of microfinance institutions. The sector is also receiving strong support from digitisation as it offers advantages in the form of better credit assessment, seamless integration with credit bureaus, streamlining of KYC, and sanction process and improvement in collection and disbursement efficiency. In addition, the new regulatory norms have created a level-playing field and it’s reflected in the growth of portfolios of NBFC and NBFC-MFI’s.

Global PE investors have made a beeline to invest in India’s microfinance sector, which is bouncing back after the COVID pandemic. The sector, particularly NBFC-MFIs, is expected to see a significant growth in 2023-24 and 2024-25, driven by an increase in assets under management and net interest margins, and a reduction in credit costs. Some analysts estimate that the overall MFI sector will grow at over 20% in 2023-24.

Spotlight on some MFI’s:
Fusion Microfinance CreditAccess Grameen Bhandhan Bank Spandhana Sphoorty Financial Equitas Small Finance Bank


Please contact Kanika at +91 9810078505 to find out more on how best you can invest in the microfinance sector.

Dividend vs Growth option – Which is the right one for you?

Investing in mutual funds is a popular choice for many individuals, as it offers the potential to create long-term wealth. With various types of mutual funds available, investors have the option to choose from different plans according to their financial needs and goals. Two of the most common types of plans are growth and dividend plans. It is important to understand the key differences between them before making an investment decision.

Growth and dividend plans both offer different advantages to investors, depending on their individual goals. A growth plan aims to maximize the returns through capital appreciation by investing in equity and debt instruments. On the other hand, a dividend plan focuses on providing regular income to investors by distributing dividends from the profits generated by the fund. The underlying portfolio of both dividend and growth options are exactly the same. When a fund manager books profit the impact is same in both dividend and growth option.

What is dividend option?
In dividend option, profits made by the mutual fund scheme are paid out to investors at certain intervals. The most common dividend payout interval is annual. However, some schemes also offer other pay-out intervals e.g. daily, monthly, quarterly etc.

Important points:

  • As per SEBI regulations, dividends are to be paid out from the accumulated profits of the scheme
  • There is no assurance about dividend pay-out rate or timing of dividend payments.
  • The dividend paid to investors is adjusted from the scheme NAV. Therefore, you will see a drop in NAV (ex-dividend NAV) of your scheme after you receive dividend.
  • Dividends paid by both equity and debt mutual fund is taxed in the hands of the investors at the applicable income tax slab rates of the investors.

Dividend option – Important points continued:

Important points:

  • Income Tax Act provides for mandatory deduction of TDS @10% from dividend income in case of Resident Individual. However, no TDS is deducted if aggregate dividend distributed or likely to be distributed during the financial year to an individual unit holder does not exceed Rs 5,000. In the absence of Permanent Account Number, the TDS rate would be 20%.

What is growth option?
In growth option, profits made by the scheme are re-invested in the scheme instead of being paid out to investors. Since profits are re-invested in the scheme, you may earn profits on profit and thereby benefit from compounding. So, if you don’t need regular cash flows, you should invest in growth option.

Important points:

  • Profits are re-invested in growth option
  • The NAV of growth option will always be higher than the dividend option because the profits re-invested in the growth option may grow in value over time
  • The total returns of growth option are usually higher than dividend option over sufficiently long investment horizon due to compounding effect.
  • There is no incidence of taxation in growth option unless you redeem. In equity funds, short term capital gains (held for less than 12 months) are taxed at 15% and long term capital gains (held for more than 12 months) of up to Rs 1 lakh are tax exempt and thereafter, taxed at 10%. In debt funds, short term capital gains (held for less than 36 months) are taxed as per the income tax slab of the investor and the long term capital gains (held for more than 36 months) are taxed at 20% after allowing indexation benefits.

Bank lending up 16.3% in June: Indians in the mood to buy, drive credit growth

In aggregate terms, bank loans advanced 16.3% in June. Retail loans climbed more than a fifth in a year, supported mainly by home and vehicle loans, the latest central bank data showed. Bank loans to nonbank lenders climbed, and so did the disbursements to large companies. Improvement in credit off-take by banks and the government’s capex push remain as tailwinds that could usher in a wider private sector capex recovery, premised on domestic consumption continuing to offer support.

REGULATORY/POLICY UPDATE

RBI keeps repo rate unchanged at 6.5%; inflation for FY24 pegged at 5.4%

The policy repo rate is left unchanged at 6.50 per cent. CPI-based retail inflation is now projected at 5.4 per cent for FY24 from 5.1 per cent. While it raised the inflation forecast through Q3FY24, Governor Das warned against lowering it’s guard, while keeping a close watch on soaring farm prices, and the need to bring inflation to the 4 percent target and not take the 6 percent upper limit as acceptable. Real GDP growth for FY24 is projected at 6.5 per cent, unchanged from previous projections. The RBI also asked banks to set aside 10 percent of their incremental deposits as cash reserve ratio as a temporary measure which would be reviewed September 8 ahead of advance tax and goods and services tax payments. RBI believes that India could still be an outlier with high growth and financial stability and that it can become the new growth engine for the world.

KANIKA’S KORNER

Financial wisdom on serve…

Wimbledon witnessed a historic event on July 16th, as the 20-yearold Spanish sensation Carlos Alcaraz dethroned the reigning Serbian champion, Novak Djokovic, in an awe-inspiring battle that will be etched in tennis history. Their stories can offer profound parallels to the world of wealth management.

Djokovic’s journey of honing his tennis skills over his long illustrious career reflects the need for individuals seeking wealth creation to develop expertise in financial matters. Just as he exemplified consistency and perseverance, as investors, you must stay focused on your financial goals, adapt to market changes, and continually enhance your financial knowledge to embark on an optimized wealth creation journey.

Alcaraz’s voyage is equally inspirational. His ability to bounce back from setbacks teaches investors to navigate the highs and lows of financial markets. After loosing to Djokovic a month ago at the French Open, he lost the first set to him 6-1. In wealth management, volatility, uncertainty, and setbacks are inevitable, but by remaining resilient, adaptable, and agile, you can overcome challenges and seize potent opportunities. His refusal to succumb to adversity emphasizes the importance of resilience in wealth management, demonstrating that setbacks are not roadblocks but stepping stones toward success.

Another lesson from the Wimbledon showdown is the power of setting clear goals and maintaining unwavering focus throughout the journey — setting clear financial goals, is the compass that guides you. Like them, you must stay focused, resist the distractions that threaten to derail your financial journeys, staying true to your vision and embracing strategies that provide the best risk-adjusted returns.

And just as they did, on the grass courts of Wimbledon with consistency, perseverance, adaptability, and goal setting as their arsenal, you can conquer the financial arena. I am always in your players box for guidance and support.