Rate cuts next month?

Rate cuts next month?

Edition #11

Welcome to the 11th edition of Beyond Markets! This week, we touch up on Powell’s comments at the Jackson Hole Symposium. The Unified Pension Scheme will benefit a lot of employees but may be bad news for one sector. We also take a look at some innovative and exciting developments by defense start-ups. Finally, a list of Small-Cap companies that posted great results in Q1FY25.


Topics

  1. All eyes on Powell
  2. Big news for India’s retirees
  3. DRDO and startups innovate
  4. Infotrend


Events this week

  1. Friday August 30, 2024: Real GDP Growth (India)
  2. Saturday August 31, 2024: Central Government Expenditure, Gross Tax Revenue, Non-Cash Payments, Unemployment Rate (India)
  3. Sunday September 01, 2024: GST collections (India)
  4. Tuesday September 03, 2024 : Power Generation (India)
  5. Thursday September 05, 2024: Cargo Traffic at Major Ports, Tractor, Passenger Vehicle, 2W Sales, Bank Credit, Bank Deposit (India)


All eyes on Powell


The Jackson Hole Symposium might sound like a quaint little gathering in a scenic town, but it's anything but small. It is a place where the who's who of global finance come together to discuss policies that could shape economies, including ours back home. It's like the annual cricket selection committee meeting where the big names decide the fate of the game, only here, it's about the world economy. 

Started in 1978, this symposium has become the go-to event for central bankers, economists, and finance ministers. While the discussions might seem distant, the decisions made here ripple through to your wallet—just like how a decision made in the BCCI impacts every cricket fan across the country.

After Powell’s declaration that rate cuts were on the horizon, the American markets immediately reacted. The Dow Jones surged by nearly 400 points, while the Nasdaq was led by a rally in tech stocks. The buzz wasn’t just about the cuts themselves but the broader implications for the U.S. economy and, by extension, global markets. Powell emphasized that the timing and extent of these cuts would be data-dependent, reflecting the Fed's cautious approach despite growing optimism. Notably, this stance comes amid a slowly rising unemployment rate, which Powell attributes to a growing workforce rather than economic decline.

Adding another layer to the conversation, Powell humorously reflected on the Fed's earlier misjudgments about inflation being "transitory." He acknowledged that while they’ve made significant progress in stabilizing prices, there’s still work to be done. The speech also touched on how global factors had contributed to the inflation spike, reinforcing the interconnectedness of economies today. The overall tone was one of cautious optimism, with Powell signaling that the worst might be behind us but that the road ahead requires careful navigation.


Big News for India’s Retirees


The recent approval of the Unified Pension Scheme (UPS) by the Union Cabinet, led by Prime Minister Narendra Modi, marks a significant shift in India's pension landscape. The new scheme offers a more structured and assured retirement benefit to government employees, which could have wide-reaching implications for both employees and also the life insurance industry.

Key features of the Unified Pension Scheme (UPS)

  1. Assured pension: Upon retirement, employees will receive a pension equivalent to 50% of their average basic pay from the last 12 months, provided they have served for a minimum of 25 years. For those with shorter service periods (minimum 10 years), the pension will be proportionately adjusted.
  2. Family pension: In the unfortunate event of an employee's demise, their family will receive a pension amounting to 60% of what the employee was drawing before passing away.
  3. Minimum pension: The scheme guarantees a minimum pension of ₹10,000 per month for those who have completed at least 10 years of service.
  4. Inflation protection: The pensions will be indexed to inflation, ensuring that they keep pace with the cost of living. The adjustment will be based on the All India Consumer Price Index for Industrial Workers (AICPI-IW).
  5. Lumpsum payment: At the time of retirement, employees will also receive a lump sum payment calculated as 1/10th of their monthly emoluments for every six months of completed service, in addition to their gratuity.

Impact on the Life Insurance industry

The introduction of the UPS has raised concerns within the life insurance industry, particularly regarding the future of the annuity business. Under the current National Pension Scheme (NPS), government employees are required to annuitize 40% of their retirement corpus, a mandate that has been a significant revenue stream for life insurers. This annuitization means that a portion of the employees' retirement savings is managed by insurance companies, which provide a steady income stream (annuity) to retirees.

With the UPS in place, analysts predict that the central and state government employees will eventually transition away from the NPS. This shift would effectively eliminate the compulsory annuitization of 40% of the NPS corpus for these employees, significantly reducing the annuity business available to life insurers. As it stands, 77% of the total NPS corpus belongs to government employees, which amounts to approximately ₹9.5 trillion. The annuitized portion of this corpus, currently valued at ₹3.8 trillion, represents a substantial portion of the life insurance industry's annuity business.

The transition to UPS could mean that life insurers will now have to rely heavily on the private sector and individual citizens who opt for the NPS, which currently accounts for just 23% of the NPS corpus. This shift could limit growth opportunities for insurers, particularly in terms of Value of New Business (VNB) margins and Annualized Premium Equivalent (APE) growth, as annuities generally offer higher margins than other insurance products.

To conclude, the UPS brings about a significant change in how government employees will plan for their retirement. While it provides more predictability and security for employees, the move could have adverse effects on the life insurance industry, particularly in the annuity space. As the market adjusts to these new norms, life insurers may need to explore alternative avenues to sustain growth and maintain profitability.


DRDO and Startups Innovate

India's journey towards self-reliance in defense, known as ‘Aatmanirbhar Bharat,’ is gaining momentum, and startups are playing a pivotal role in this transformation. The Technology Development Fund (TDF) scheme, a flagship initiative by the Ministry of Defence and executed by DRDO, is at the heart of this movement. The scheme is empowering startups and MSMEs to innovate and develop cutting-edge technologies that are crucial for national security. With 77 projects funded and 27 technologies successfully realized, the TDF scheme is proving to be a game-changer in creating a robust defense ecosystem in India.

Here are a few innovations highlighted in DRDO’s latest newsletter

1. Combat Robotics, Pune Combat Robotics, a Pune-based startup, is a prime example of innovation in action. They have developed an advanced simulator for unmanned vehicles, which can cater to a range of domains, including:

  • Unmanned Ground Vehicles (UGVs), 
  • Unmanned Underwater Vehicles (UUVs), 
  • Unmanned Surface Vehicles (USVs), and 
  • Unmanned Aerial Vehicles (UAVs). 

This multi-domain simulator is a powerful tool for agencies working on autonomous systems, providing comprehensive environmental modeling, scenario and vehicle modeling, and intuitive control systems. It’s designed to rigorously test and validate the autonomous behavior of unmanned vehicles, making it a significant asset for defense agencies focusing on autonomous technologies.

2. ChiStats Labs Private Limited, Pune ChiStats Labs, another innovative startup from Pune, is making strides in the field of Aero Gas Turbine Engine (AGTE) health monitoring. Their project focuses on developing a sophisticated diagnostic system that enhances the operational reliability and longevity of these engines. Leveraging the latest in AI and machine learning, the system efficiently processes large-scale data and performs rapid operational assessments with a high degree of accuracy. With guidance from the Gas Turbine Research Establishment (GTRE) in Bengaluru, ChiStats Labs is developing this technology indigenously, further bolstering India’s capabilities in aerospace.

3. Tools for Data Assessment, Active Learning, and Believability for Visual Data This groundbreaking project is aimed at enhancing AI model validation and optimization for defense applications. The project is developing a comprehensive framework to tackle the unique challenges posed by the vast amounts of data generated in defense scenarios. It consists of four key modules: data and feature assessment, active learning, AI beliefability, and a user-friendly web application. This toolset will empower defense organizations to build more accurate, reliable, and efficient AI models, significantly improving decision-making processes in critical applications. The project is supported by the Centre for Artificial Intelligence and Robotics (CAIR) in Bengaluru, which provided technical guidance and mentorship.

4. NewSpace Research and Technologies Pvt. Ltd., BengaluruBengaluru-based NewSpace Research and Technologies Pvt. Ltd. is at the forefront of developing autonomous drones designed for search and report operations in enclosed or indoor environments. Their state-of-the-art UAV is equipped to navigate indoor spaces, even in challenging conditions like low light. The project integrates advanced technologies, including 3D mapping, exploration algorithms, AI/ML engines, and an autonomous navigation stack, making it a versatile tool for various applications. These include search and rescue operations, surveillance, industrial inspections, environmental monitoring, and exploration of hazardous environments. The success of this project opens up new avenues in unmanned aerial systems and contributes to technological advancements in the sector.


Infotrend

This table highlights a selection of small-cap companies that delivered strong performance in 1QFY25. It includes key financial metrics such as Market Capitalization, Price-to-Earnings (P/E) ratio, EV/EBITDA, Price-to-Book (P/B) ratio, Return on Equity (RoE), and year-over-year (YoY) growth in sales and profits. The companies listed have shown significant growth in sales and profits, indicating their strong performance in the recent quarter. These metrics provide a snapshot of their financial health, valuation, and profitability, making it a useful reference for investors looking at promising small-cap stocks.



That's all for this edition of Beyond Markets by blinkX! Let us know in the comments what you think and what would you like us to cover in the next edition? Have a great week!

Aditya Thorat

Financial Content & Communication at BlinkX by JM | CMT L1 Candidate | NISM - VIII | Equity Research | Investor | Machine Learning | Prompt Engineering

2mo

Good to see so much innovation in unmanned military vehicles 👏

Preksha Shah

Social Media Specialist | Content Strategist | NMIMS 2022 | Level 2 CFA candidate

2mo

Jerome Powell shakes the market as soon as he steps up to the podium 😎

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