India's fastest growing financial services group; Pantomath Financial Services Group recently unveiled a 2023 performance and 2024 outlook report. Curated in collaboration with Investmentz.com by Asit C Mehta Investment Intermediates Limited, the report highlights the Global Economy Updates and Outlook, Indian Economy Outlook, Key Economic Indicators, Key Sectors that will grow in 2024, Key Policy Reforms and the IPO market Update from the lens of an Investment Bankers, Fund Managers, Venture Capitalists and Investment Interrmediates. The report states that Indian Equity Market has emerged as one of the best-performing market in the last two years. Moreover, the Domestic SIP inflows emerged as a key source of Retail inflows in equities, reaching INR 130 billion in FY2023 and is projected to reach INR 153 billion in FY 24.
In 2023, the Indian equity market witnessed a phenomenal performance, as benchmark indices soared to unprecedented highs, with the Nifty and Sensex scaled milestones of 21,000 and 70,000 mark, respectively. Indian equity emerged as one of the best-performing markets in last two years. Indian market fell relatively much lesser in CY 2022 compared to other global Markets. On the other hand, broader indices outperformed, the NSE Midcap 100 and NSE Small-cap 250 advanced 40.9% and 42%, respectively in CY 2023. India's market cap is up 26% in the current calendar year to $4.2 Tn. India added $900 Bn in market cap in 2023, equivalent to the entire market cap of countries such as Brazil, Sweden & Netherlands.
Expressing his views on Indian Equity Market, Mr. Mahavir Lunawat, Managing Director, Pantomath Capital Advisors said, "The Indian corporate earnings began showing improvement, with companies benefiting from a softening in commodity prices, leading to enhanced profitability and margins. Companies are expected to continue strong performance in the upcoming quarters, driven by a robust domestic demand environment, positive macroeconomic factors and private capex revival. Visible revival in private capex along with sustained pick up in govt capex bodes well. A record capex of Rs 26 lakh crore vis-à- vis INR 10-12 lakh CR four years back will continue to foster momentum".
Adding to it Mr. Mr. Devang Shah, Head of Retail Research, Asit C Mehta Investment Interrmediates Limited (ACMIIL) said "The year witnessed robust Industrial Production (IIP) growth and favourable PMI data, indicating an expansion in output at an above-trend pace. The manufacturing sector sustained its growth momentum, driven by a consistent inflow of new orders. Many companies experienced a notable uptick in sales during the festival season. While the Consumer Price Index (CPI) started to moderate from its peak levels, it remained above the Reserve Bank of India's comfort range of 2% to 4%. Concerns about inflation persist, particularly in relation to the risk of an increase in food inflation, according to the RBI. The government aims to address supply issues proactively to prevent any sharp spikes in food and vegetable prices."
Similarly, with an eye toward overall growth and development, the Indian central government pushed policies and initiatives in 2023 to strengthen a number of important economic sectors. Special emphasis on manufacturing, fintech, green growth, and new technologies, the government is actively building both digital and physical infrastructure for businesses across sectors. As a result, sectors such as Agriculture, Railway, Automobile, Defence, Telecom, Infrastructure, Capital Goods, Renewable Energy, Electronics Manufacturing Services (EMS) and Real Estate have become priority sectors. Government investment and policy reforms will be used to support these priority sectors in the coming years.
Key Policy Reforms that Changed the Game in 2023:
- Production Linked Incentive for 14 key sectors to enhance India's manufacturing capabilities and Exports.
- Over 1,14,000 startups spread across all 36 States and UTs of the country create more than 12 lakh jobs.
- Alternative Investment Funds (AIFs) invest Rs. 17,272 crores in 915 startups.
- More than 2,55,000 approvals facilitated through National Single Window System.
- Make in India 2.0 focusing on 27 sectors to make India a Manufacturing Hub
- PM Gati Shakti becomes mainstream across Government.
- Unified Logistics Interface Platform successfully integrates with 35 systems of 8 Ministries covering 1800+ fields.
Growth in Priority Sectors in 2023:
Agriculture: The Indian agriculture sector underwent notable changes in 2023 via strategic policy reforms and technological advancements. These reforms focused on liberalizing trade and expanding marketing options for farmers. The sector embraced technology, utilizing mobile apps for direct sales and adopting precision farming practices. Climate-resilient agricultural methods, promoting drought-tolerant crops and sustainable water management, gained traction. The Ministry of Agriculture has been allocated Rs 1,25,036 crore in 2023-24, 5% greater than the revised estimates for 2022-23. The Ministry of Agriculture accounts for 2.8% of the total Union Budget. Government initiatives, like the Agri-Infra Fund, aimed to fortify rural infrastructure and strengthen the agricultural supply chain. Despite challenges such as weather uncertainties and market fluctuations, the sector remains committed to sustainability, innovation, and improving farmers' welfare.
Railways: Indian railway sector made significant strides in high-speed rail projects, focusing on improving connectivity and reducing travel times. Digitalization, through technologies like sensors and data analytics, enhanced safety and efficiency. Under the Union Budget 2023-24, capital outlay of US$ 29 Bn had been allocated to the Ministry of Railways, which is the highest ever outlay and about nine times the outlay made in 2013-14. This have bought Electrification initiatives advanced in line with India's sustainability goals for cleaner rail transportation. Infrastructure upgrades prioritized modernization for improved operational efficiency. The introduction of smart technologies, including digital ticketing and passenger services, aimed at enhancing the overall travel experience. These efforts underscore the Indian railway sector's commitment to innovation, safety, and sustainability to meet the country's growing transportation needs.
Automobile: The Indian automobile sector has emphasized electric mobility, with automakers intensifying their focus on electric vehicles (EVs) and expanding charging infrastructure. Government incentives promoting EV adoption have played a pivotal role in encouraging sustainability. In March 2023, the Central government sanctioned US$ 72.41 Mn under FAME India Scheme Phase II that have attracted Foreign Direct Investment equity inflow (FDI) (The FAME Scheme is extended for a further period up to 31st March, 2024). The industry has also integrated advanced connectivity features and digital technologies into vehicles to meet the growing demand for smart and connected driving experiences. Despite challenges like the global semiconductor shortage, the sector has shown resilience, adaptability, and a commitment to innovation and environmental sustainability.
Defence: the Indian defence sector has focused on modernization and bolstering indigenous capabilities. Increased allocations for defence spending underscore the government's commitment to enhancing defence forces. The Central government aims to take India's defence exports up to US$ 5 Bn by 2024-25. Union Budget for Financial Year 2023-24, Ministry of Defence has been allocated a total Budget of US$ 72.2 Bn which is 13.18% of the total budget. The sector achieved notable advancements with successful testing and induction of indigenous defence systems, showcasing self-reliance in manufacturing. Collaborations with global partners for technology transfer and joint ventures contribute to enhancing overall defence capabilities. These developments underscore India's commitment to staying technologically advanced and maintaining a robust defence posture amid evolving geopolitical challenges.
Telecom: Indian telecom sector has undergone transformative developments driven by widespread 5G adoption and increased digital connectivity. In Union Budget 2023-24, the Department of Telecommunications was allocated US$ 11.92 Bn. Of this, US$ 48.88 Mn is for Research and Development, US$ 611.1 Mn is for Bharatnet. Those continuous government initiatives and efforts helped digital infrastructure, particularly in remote areas, have expanded network coverage. Telecom operators' investments in 5G networks signal a shift towards high-speed, low-latency communication. Strategic collaborations aim to strengthen network capabilities and drive innovation. To meet growing demand for data services, telecom companies have introduced competitive pricing and innovative data packages. These developments highlight the sector's pivotal role in shaping India's digital landscape and supporting broader digitalization initiatives.
Infrastructure: The government said in the recent budget 2023-24 that it will spend heavily on infrastructure to build railways, roads, airports, highways, expressways, shipping, aviation, waterways, mass transport, ports, and logistics. Indian infrastructure and construction sector has seen significant progress through ambitious projects and strategic initiatives. The government's focus on infrastructure development, as seen in programs like the National Infrastructure Pipeline (NIP), has spurred increased investments in roads, railways, airports, and urban infrastructure. Key achievements include the inauguration and advancement of major transportation projects, such as new expressways and metro rail networks across cities. The sector is also embracing sustainable and smart infrastructure solutions, integrating technologies for efficient urban planning and construction practices.
Capital Goods: The Indian capital goods sector, involved in machinery and equipment production, has exhibited resilience and adaptability in a dynamic economic environment. Recovering from disruptions caused by the COVID-19 pandemic, the sector has thrived under the 'Make in India' initiative, emphasizing indigenization and self-reliance. Technological advancements, including digitalization and automation, have enhanced production efficiency. Strategic collaborations between domestic and international players have bolstered the sector's capabilities. Despite challenges, the Indian capital goods industry remains integral to the country's economic growth, playing a pivotal role in supporting key sectors such as infrastructure, defense, and manufacturing.
Renewable Energies: The renewable energy sector in India has made significant progress towards cleaner and sustainable energy sources. Around US$ 2.8 trillion has be invested in energy in 2023. More than US$ 1.7 trillion is gone for clean energy, including renewable power, nuclear, grids, storage, low-emission fuels, efficiency improvements and end-use renewables and electrification. Government commitment to goals outlined in initiatives like the National Solar Mission has spurred growth. Solar and wind power project installations have surged, emphasizing capacity enhancement and grid integration. Competitive auctions for renewable projects have resulted in lower taris and increased investor interest. Advancements in energy storage technologies are addressing the intermittency of renewable sources. Policy measures and incentives support the transition to a greener energy landscape, attracting both domestic and international investments. These developments highlight India's determination to meet renewable energy targets and contribute to global efforts in combating climate change.
Electronic Manufacturing Services (EMS): Indian electronics and manufacturing sector has experienced significant strides and transformative developments. The government's "Make in India" initiative has continued to drive growth and self-reliance in manufacturing, with a particular focus on electronics and technology. The Union Budget 2023-24 has allocated US$ 2 Bn for the Ministry of Electronics and Information Technology, representing a nearly 40% increase from the previous year's budget of US$ 1.73 Bn. The Production-Linked Incentive (PLI) schemes, particularly for Large-Scale Electronics Manufacturing (LSEM), have successfully attracted investments of US$ 726.77 Mn, resulting in a total production of US$ 33.55 Bn, including exports valued at US$ 15.61 Bn. Government initiatives like 'Digital India' coupled with supportive policies and a favourable Foreign Direct Investment (FDI) Policy for electronics manufacturing, have streamlined the process of establishing manufacturing units in India. Despite global supply chain disruptions, the sector has shown resilience, reinforcing India's commitment to becoming global electronics manufacturing hub and fostering innovation in the dynamic technology landscape.
Real-Estate: Revival in property cycle to sustain, driven by a time correction in prices, better afford ability, reasonable interest rates and need to have bigger houses. This has a positive impact on many industries (such as steel, cement, building materials & other related sectors) and generates employment across income strata.
Global Market and Economy Outlook:
After sharp correction in global equity markets in CY2022, CY2023 proved positive for global equity markets, with the US market leading the charge. We witnessed sharp recovery in USA equity markets in second half before final finish of CY2023. Despite ongoing geopolitical tensions and economic uncertainties, investors remained optimistic, driving stock prices upward. One notable development in 2023 was the significant rise in US 10-year G-Sec Bond yields. These yields climbed to their highest levels in over 15 years, reaching approximately 5%. This increase reflected the market's anticipation of higher interest rates in the future, driven by the Federal Reserve's efforts to combat inflation. 2023 was a year marked by the highest inflation and sharpest monetary policy tightening in four decades, led by global Central Bankers especially the FED, ECB, and BOE. The CPI is constantly moderating from peak of 6.4% in January 2023. It came around 3.10% for the month of November 2023, very close to FED target range of 2%. Softening of Commodity prices were also key to moderate manufacturing inflation & raw material costs in general for this year. The FED Policy rate remained unchanged since June 2023. It's reached around 5.25 to 5.50 range. The situation has now reached pivotal levels, suggesting a potential pause in the policy rate hike cycle.
The US economy demonstrated resilience as wealth effects and full employment drove consumer spending. The non-farm payroll data is suggesting Monthly Average of addition of around 263000 jobs since January 2023 in last 11 months. US personnel spending is showing pick up in second half & positive trend indicating resilience of economy. Unemployment levels is at 5 years low of around 3.7%. Market is optimistic because FED has done their job to control Inflation by hiking interest rates without so far hurting the overall economy. The cut in interest in CY2024 will further lead to overall growth of the economy, such optimism is reflecting in recent recovery of the equity market.
Expressing her views on the Global market and Economy Outlook, Ms. Deena Mehta, Group Managing Director, Asit C. Mehta Investment Interrmediates Limited (ACMIIL) said, "The slowdown in demand, aggravated by a still high but gradually declining inflation rate in Western countries, contributed to a reversal of the balance between supply and demand. The global container freight rates sharply decline in CY2023. Although the collapse in demand played a determining role in the fall of container freight rates, the situation was aggravated by overcapacity, as the shipping companies gradually took delivery of the ships, they had ordered during the period of prosperity from which they benefited in 2021-2022."
Adding to it, Ms. Madhu Lunawat, CIO and Executive Director, India Inflection Opportunity Fund said, "Moving into 2024, Global Economic slowdown worry due to high Interest rates for prolonged period of time will continue to be headwind for the world economy. Expectations are for interest rates to fall in 2024, with the Fed potentially providing hints during upcoming policy meetings based on their evaluation of inflation and economic data. A combination of solid activity and falling inflation has seen the market narrative increasingly shift towards the prospects of a soft landing".
Indian Economy Outlook for 2024:
The momentum achieved during the CY 2023 with strategic measures by the government is indicating medium- to long-term GDP growth of India. As per S&P global Ratings, India is set to become the third-largest economy by 2030, and the paramount test for the country would be to become the next global manufacturing hub. The country's robust economic trajectory is underpinned by resilient growth and favourable demographics. India is the most populous country in the world and where the median age is 28.2 years. Recovery in domestic demand, particularly in private consumption and household spending, after a prolonged pandemic, should facilitate business expansion plans. Feeding into this is India's large consumer base, rising urban incomes, and the aspirations of the world's largest young population.
"The public capex push by the government is ultimately now achieving its aim of beginning the private capex revival of Indian companies. The balance sheet of Indian companies also shows less or moderate leverage. The proactive policies of the RBI are beneficial for banks for any kind of un-expected domestic and global financial risk. Banks are also at comfortable levels, with constantly falling NPA levels and a pick-up in credit growth. The companies are also in a sound position to boost investments". Added, Mr. Mahavir Lunawat, Managing Director, Pantomath Capital Advisors.
India's digital economy will continue to attract investors as technology-based solutions are sought to transform people's lives, governance, and enterprise operations. The rapid growth in demand for online products and services is also a reflection of the increasing spending power of India's non-metropolitan (tier-2 and tier-3) cities. The digital economy accounted for 4-4.5 percent of the total GDP in 2014 and is currently at 11 percent. The government projects the digital economy to make up more than 20 percent of Indian GDP by 2026.
"Key industries beckoning foreign investors in India in 2024 include healthcare and insurance, fintech, renewable energy and climate tech, electric vehicles and automobiles, IT and services, real estate and infrastructure, fast-moving consumer goods (FMCG), and R&D, tech innovation, and artificial intelligence (AI). These have all been on a hot streak in 2023, as foreign direct investment (FDI) policies have relaxed in recent years, and production-linked incentive (PLI) schemes have promoted. Listing down a select industry" stated Mr. Devang Shah, Head of Retail Research, Asit C Mehta Investment Interrmediates Limited (ACMIIL).
Increasing India's participation in global value chains is a top target for both government and domestic market stakeholders. It's what has contributed to various policymaking efforts to improve the business environment and streamline compliance on one hand, as well as cultivate local competencies in niche sectors on the other.
Ms. Deena Mehta, Group Managing Director, Asit C. Mehta Investment Interrmediates Limited (ACMIIL) highlighted that, "Emerging industries poised for investment-led growth in 2024 are battery energy storage solutions, green hydrogen, biotechnology, AVGC (animation, visual effects, gaming, comics), and semiconductor chip manufacturing, assembly, and design. Foreign companies looking at the Indian market are at an advantage as state governments are flexible and offer competitive sops to attract cutting-edge technology and generate large scale employment".
So far, export performance of the mobile industry is a first step in the direction of deeper supply chain engagement. Furthermore, India has intensified its decarbonization initiatives amid shifts towards renewable energy, and aims to achieve 500GW renewables capacity by 2030.
In the corporate sector, sustainability and ESG is on the radar of top organizations and manufacturing enterprises as green tech skills will influence hiring decisions to key roles in 2024. According to an industry report by TeamLease Digital, India's green industry is expected to add 3.7 million jobs by FY 2024-25 to the current 18.5 million. The top sought skills are in renewable energy, environmental health safety, solar energy, corporate social responsibility, and sustainability.
"Sustainability entails a commitment to diminish the carbon footprint across enterprise operations, including buildings, production and service processes, transportation, waste treatment, etc. India will be seeking greater global collaboration in the realm of technology, resource management, and green skilling to grow its domestic expertise in these critical areas. Bridging knowledge gaps, however, will not be limited to manufacturing and corporate sectors as farming and agriculture which serve as India's economic backbone also require long-term investment in sustainability skills, green tech, and data application", emphasizes Ms. Madhu Lunawat, CIO of impact investing Fund, India Inflection Opportunity Fund.
Global IPO Market Update:
The global IPO market landscape shifted in 2023, with subdued western market sentiment and China's cool-down, as well as a contrast between hot emerging market small-cap deals and lackluster large offerings. The global IPO market ended 2023 with 1,298 IPOs raising US$123.2 Bn. When comparing to 2022, IPO proceeds lagged last year's tepid pace by roughly a third, although deal volumes have picked up in both the Americas and EMEIA.
Despite a strong equity market rally and low volatility, public offerings have remained muted in many developed markets, with the exception of a brief September window in the US. Extraordinarily aggressive monetary policies have become a major factor affecting IPO activity, superseding the influence of stock market performance. The US and Europe have both seen 10 or more rate hikes since 2022, sending IPO volume down in larger mature markets. As global inflation has eased substantially this year, the expectation of interest rate reductions could encourage investors by offering a more reliable return on investment in IPOs, which should boost activity.
The year has seen new IPO hotspot markets emerge, outpacing traditional IPO powerhouses. Benchmarking against 5-year average IPO activity, highlights include Indonesia, Malaysia and Turkey notching increases in deal volume and proceeds. Meanwhile India, Saudi Arabia and Thailand have recorded an increase in the number of IPOs. In contrast, Hong Kong's IPO market experienced a 20-year low in proceeds this year and the pace of IPO issuance in Mainland China slowed in the latter half of 2023.
Indian Primary Market Update and Outlook for 2024
India concludes the year 2023 with optimism despite worldwide uncertainties. Festival Cheers' high demand environment is expected to last, offering optimism for a prosperous 2024 as well. Leading credit rating agency Fitch stated that robust growth in domestic demand is anticipated to place India among the fastest-growing nations in the world, with robust GDP growth of 6.5% in the fiscal year 2024-2025.
Rising demand and easing input cost pressure should boost margins of the corporates in the FY24- FY25. India's total market cap reached at $4.3 Tn. with main indices trading at their life time high levels. India's forex reserve stood at $615 Bn. as on December 15, 2023.
The market environment has been extremely robust, Although the start of the year was tepid amid global headwinds. Since the start of January 2023, 53 companies have completed IPOs, raising more than Rs 44,469 crore.
Expressing his views on the 2024 outlook for India's primary market, Mr. Mahavir Lunawat, Managing Director, Pantomath Capital Advisors said, "India's current IPO market trend showcases its immense potential and has witnessed a remarkable surge in recent years. India must continue to focus on enhancing regulatory frameworks, improving corporate governance practices, and fostering investor education. In the forthcoming months, there is anticipated to be significant momentum in the Indian IPO market, encompassing both the main and SME market segments. The market environment has been extremely buoyant and is likely to witness a robust capital raise FY24-25 as well".
The number of demat accounts increased to 129.7 Mn in September, a surge of 26 percent on a yearly basis, primarily on the back of attractive returns from local equities. Over 3.06 million demat accounts were opened during the month, slightly down from 3.1 million in August, according to data from NSDL and CDSL. This marks the second consecutive month with incremental additions surpassing 30 lakhs. According to data released by depositories, National Securities Depository Limited (NSDL) and Central Securities Depository Limited (CSDL), from just 40.9 Mn in March 2020 before the Covid-19 outbreak, the number of demat accounts in India doubled to 100.5 Mn crossing the 100 Mn mark for the first time in August 2022.
"On regulatory front, SEBI has taken a significant step to enhance the efficiency of Initial Public Offerings (IPOs) by halving the timeline for listing shares on stock exchanges after the IPO closure. This move aims to provide substantial benefits to both investors and issuers in the capital markets", Remarked Mr. Mahavir Lunawat, Managing Director, Pantomath Capital Advisors who is also Chairman of Association of Investment Bankers of India (AIBI)
Under the revised guidelines, IPOs will now be mandated to list within three working days (T+3 days) after the closure of the IPO, in contrast to the previous requirement of six working days (T+6 days). The 'T' symbolizes the issue closing date, which serves as the starting point for the new timeline. There are more than 65 IPO documents filed with SEBI. Of these, 25 have already received approval.
Mr. Lunawat further stated that "SEBI has introduced various amendments to enhance the capital markets' transparency and practices. These amendments include disclosure of Key Performance Indicators (KPIs), introduction of pre-filing of draft offer documents (confidential filing), the establishment of the Social Stock Exchange, changes in monitoring agency functions and the definition of SMP to make it more inclusive".
A reduced timeline means that investor money would be blocked for a shorter duration of time while for a company. Investors will have the opportunity for having early credit and liquidity for their investment, which would enable investors to analyse and participate in a greater number of IPOs opening parallel, as India gears for bigger capital formation. |
