Trade data for January 2024 came in better than expected as the Red Sea crisis had limited impact. Exports were lower on a MOM basis, but imports also fell resulting in merchandise trade deficit of $17.4 billion. More importantly, the surplus on the services trade account ensured that the overall trade deficit was as low as $0.74 billion, which promises to keep the current account deficit (CAD) for FY24 in check. Banks have been liberal on credit to exporters to help overcome the Red Sea crisis, which has delayed shipments.
The government of India raised windfall tax on petroleum crude by Rs100 to Rs3,300/MT, from February 16, 2024. Windfall tax on diesel has also been raised from Rs0 to Rs1.50 per litre, but windfall tax on ATF and petrol will remain at zero levels. It was on February 03, 2024 that the government had sharply raised the windfall tax on petroleum crude from Rs1,700/MT to Rs3,200/MT; while other products had remained constant. This levy also applies to export of fuel to curb the supernormal profits made by the oil producers.
Indian credit growth in FY25 is expected to moderate to 14% from 16% in FY24. Clearly, deposit growth is struggling to keep pace with loans. According to S&P Global Ratings, deposit tightness will remain a system overhang as Indian banks will now have to buy loan growth by paying more on deposits. If cost of deposits rise, then margins are likely to get impacted. However, the good news is that asset quality is improving, buoyed by macro level confidence. Deposit competition and price wars can get fiercer in coming months.
The Tata Group is considering hiving off its battery business into a separate entity. This is, as India forays into the renewable energy and EV sectors in a big way. Agratas Energy Storage Solutions will be hived off, allowing the battery business to raise funds and go public at a large stage, with appropriate valuations. It is estimated that Agratas Energy Solutions could be valued at $5 billion to $10 billion depending on how it is structured. Agratas designs and manufactures batteries for the global automobile and energy sectors.
The story of block divestments in India by global players continues with latest being Carlyle Group selling an equity stake worth Rs1,056 crore in Yes Bank. As per exchange filings, Carlyle Group sold 1.35% in Yes Bank through open market transactions. The sale was done by CA Basque Investments, a unit of Carlyle. A total of 390 million shares were sold at an average price of Rs27.10 per share. Bulk of the selling was taken in by Morgan Stanley Asia, which absorbed 306.31 million shares of Yes Bank Ltd worth Rs830 crore.
As the mutual fund AUM gathers heft, even LIC Mutual Fund now wants to play it big. The fund will be focusing on expanding physical presence and leveraging the strong retail franchise of LIC to sell SIPs. The SIP growth is testimony to the maturing of the Indian retail investor. By 2026, LIC Mutual Fund plans to cross the Rs1 trillion AUM mark. LIC MF has been around for 34 years but its AUM lags at Rs30,000 crore. Big bancassurance players like SBI, ICICI and HDFC dominate the Indian mutual fund space in AUM terms.
Despite the concerns over rural slowdown, brokerages remain upbeat over M&M after its strong Q3FY24 performance. For the third quarter, M&M saw net profits rise 61% to Rs2,454 crore, which was helped by the automotive segment growth and strong operating performance. Top line revenues were also up 16.8% at Rs25,289 crore. Among the FII brokerages, Morgan Stanley is overweight on M&M with price target of Rs1,952 (18% upside). Among others; HSBC has a target of Rs1,900, CLSA Rs2,074 and Nomura Rs2,143. Mutual funds have been aggressive buyers in HDFC Bank in January, mopping up nearly Rs13,850 crore of stock, after the bank reported lower than expected NIMs and tepid credit growth. After selling 1.53 crore shares of HDFC Bank in the December quarter, mutual funds bought a whopping 8.83 crore shares of HDFC Bank in January 2024. Out of 40 mutual funds with exposure to HDFC Bank, 27 funds stepped up their stake in HDFC Bank. The largest funds by AUM have been net buyers in HDFC Bank in January 2024.