How Key Financial Events in 2023 Shaped Markets!

The stock markets are affected not only by the financial performance of companies listed on the stock exchanges but also by various economic and financial events. Let’s understand this in relation to the events that panned out in 2023.

Inflation

The Ministry of Statistics and Programme Implementation (MOSPI) releases the Consumer Price Index (CPI Data) every month, indicating how inflation is faring up in the economy.?

When inflation is on a continuous rise, its effect can be seen on the stock markets as people tighten their purse strings when goods and services get costlier, leading to lacklustre demand and slowing sales growth for companies. Thus, inflationary pressures put a pause on economic growth.

Effect:?Inflation is a silent demon that eats into one’s purchasing power. For most of 2023, inflation delayed the recovery in rural demand, evident from the modest volume growth for FMCG companies. For context, rural India accounts for 1/3rd of the total expenditure. Also, the year saw slower sales of consumer discretionary products due to the same reason. These sectors were most affected by inflation in 2023.

Budget

On 1st February 2023, the finance minister Nirmala Sithraman presented the Union Budget in the parliament, which had various policy changes. Some of them are mentioned below:

• In the new income tax regime, taxpayers were exempt from paying taxes if their income was below Rs 7 lakhs.
• The finance minister hiked the capital expenditure by 33% over the previous year to Rs 10 lakh crore
• Further, the budget allocated Rs 79,000 crores for the Pradhan Mantri Awas Yojana, giving a boost to the government’s housing program. This was an increase of 66% over the previous year.
• Rs 35,000 crores were also allocated towards green energy transition initiatives, and to achieve energy security and net-zero carbon emission objective.
• To enhance connectivity, the finance minister also announced that 50 new airports, helipads, and aerodromes will be made operational.
• Apart from this, Rs 2.4 lakh crore was allocated for the Indian Railways, and Rs 1.12 lakh crore were allocated for the education sector.

Effect:?On 1st February 2023, the markets ended on a mixed note. However, some sectors were in the limelight for the rest of the year, partly attributed to the push that Budget 2023 had provided them. Companies in sectors such as railways and green energy delivered high returns to investors on the thrust of government CAPEX and achieving the transition to clean energy sources of power!

RBI’s circular on increased risk-weighting of assets

On 16th November 2023, the RBI announced a 25% increase in the risk weights for unsecured personal loans for commercial banks and NBFCs, bringing the risk weight to 125%. Banks have to set aside certain capital according to RBI guidelines for each loan they dole out.

By increasing the amount of capital to be set aside by banks while giving unsecured personal loans to borrowers, the RBI wanted to slow down the growth of these categories of loans as they were growing at a rapid pace. The chances of the loans turning into a non-performing asset (NPA) are higher here as they are unsecured.

Effect:?The jolts of this move were felt among the banking and financial services Industry. This was because the capital requirements of the banks would have to go up. Banks, in turn, would increase the cost of these loans for the borrower to meet increased capital requirements. Also, these unsecured personal loans were high yielding assets for the banks, whose growth would slow down as they would become costly now.

Monetary Policy

In December 2023, the RBI decided to keep the Repo Rate unchanged at 6.5% for the fifth consecutive time. RBI Governor Shaktikanta Das said that India has the potential to become the new growth engine of the world. On a comforting note, the retail inflation for November 2023 stood at 5.55%, which is within the RBI’s tolerance range of 2-6%.

Effect:?The effect of this event was that the interest costs on the company’s borrowings increased. As interest costs come as an expense on a company’s ‘Profit & Loss’ statement, profits got affected, and hence the share prices. On a macroeconomic level, foreign investors sold Indian assets as they were getting higher yields in their home countries (majorly in 2022) as a result of their Central Banks’ increasing interest rates. However, the current interest rates have peaked out and expectations of rate cuts in 2024 have cheered up investors.

That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!

*The article is for information purposes only. This is not an investment advice.

*Disclaimer:?Teji Mandi Disclaimer