UPI Goes Global: Empowering Transactions Worldwide
Unified Payments Interface (UPI) has emerged as a pivotal force in India’s digital transformation journey, revolutionizing the landscape of financial transactions.
UPI’s impact transcends borders as it gains traction beyond India, becoming a preferred choice for digital transactions globally.
Recently, UPI has achieved significant milestones with its official launch in Sri Lanka and Mauritius. Furthermore, Indians can now utilize UPI for transactions in Singapore, Bhutan, Nepal, France, UAE, and Oman. This expansion underscores the widespread recognition of UPI’s potential to reshape the future of global payments, garnering appreciation from both government entities and businesses alike.
Another significant use case arises for the 30 million-strong Indian diaspora in the Middle East, Southeast Asia, and North America, facilitating seamless remittance to India through UPI networks. This underscores UPI’s role in providing cost-effective and efficient cross-border payment solutions.
With a staggering Compound Annual Growth Rate (CAGR) of 168%, the value of UPI transactions has surged from ₹1 lakh crore in FY 2017–18 to ₹139 lakh crore in FY 2022–23. UPI’s dominance in India’s digital payment ecosystem is evident, representing 62% of digital payment transactions during FY 2022–2023 and driving overall digital payment adoption in the country.
Furthermore, according to Global Data research, the dominance of cash transactions has significantly declined, dropping from 90% of the total volume in 2017 to less than 60% in 2021, signaling a paradigm shift towards digital payments.
In conclusion, UPI’s global expansion signifies a new era in digital payments, empowering individuals and businesses worldwide. As we witness these transformative developments, we remain committed to providing you with valuable insights and analysis through our Monthly Market Outlook.
Quote of the month
The greatest investment a young person can make is their own education, in their own mind. Because money comes and goes. Relationship comes and go. But what you learn once stays with you forever.
– Warren Buffet, CEO Berkshire Hathaway
Economic Indicators Overview:
Manufacturing PMI: In January 2024, the Purchasing Managers’ Index (PMI) for the manufacturing sector rebounded to 56.5, marking a four-month high and extending its expansionary streak for the 31st consecutive month. This uptick was driven by moderate input cost inflation and a significant increase in new orders.
Services PMI: India’s services sector exhibited robust growth in January, reaching a six-month high with a PMI reading of 61.8, up from 59 in December. This surge was propelled by heightened demand and sales activity.
GST Collection: January 2024 saw GST collections amounting to INR 1.72 trillion, marking a 10% year-on-year increase. This marks the twenty-third consecutive month of collections surpassing the INR 1.4 trillion mark, following record collections of INR 1.87 trillion in April 2023. Notably, eight out of ten months in the fiscal year recorded collections exceeding INR 1.6 trillion. The sustained high levels of tax collection can be attributed to rising compliance, increased formalization of the economy, festive demand, and enhanced administrative efficiency.
Credit Growth: As of January 12, 2024, scheduled commercial bank credit growth stood at 20.3% year-on-year, showing a significant increase from the 16.47% observed on January 13, 2023.
Equity Market Overview:
In January 2024, India’s NIFTY index concluded the month with no significant change. Conversely, major global indices experienced positive growth, with the S&P500 (+1.6%), the Euro 50 (+2.8%), the Morgan Stanley Capital International World (MSCI) (+1.1%), and the Japanese NIKKEI (+8.4%) all posting gains.
The S&P BSE Mid-cap and Small-cap indices outperformed the large-cap index, rising by +5.3% and +7.1%, respectively.
In terms of sectors, Oil & Gas, PSU, and Realty emerged as the top three performers, registering growth rates of +12.6%, +11.2%, and +9.4%, respectively. Ten out of S&P BSE’s 13 sectoral indices ended the month on a positive note.
Foreign Institutional Investors (FIIs) recorded negative flows into equities for January 2024, amounting to -$3.35 billion, following a positive inflow of +$5.85 billion in December. On the other hand, Domestic Institutional Investors (DIIs) continued to be net buyers of Indian equities, with inflows totaling +$3.3 billion, up from +$1.5 billion in the previous month.
An impressive milestone was achieved as Mutual Funds’ Systematic Investment Plans (SIPs) reached a record high, surpassing Rs. 18,839 crore for the first time.
Fixed Income:
The budget revealed a significant surprise with better-than-anticipated gross borrowing numbers for the next year, totaling Rs. 14.1 trillion, compared to market expectations of Rs. 15.3 trillion.
In its February 2024 policy, the RBI opted to maintain the policy rate unchanged. Looking ahead, the size and timing of RBI’s rate cut cycle may be influenced by the evolving domestic inflation outlook and global policymakers’ actions. We anticipate potential rate cuts by RBI in the second half of the calendar year 2024, possibly in August or October.
Both corporate and government securities (G-secs) yield curves exhibit considerable flatness. As we look forward, we expect a bias towards curve steepening in anticipation of RBI rate cuts. This could be advantageous for short to intermediate duration funds, with potential capital gains from an absolute decline in yields benefiting long duration funds.
Core inflation dipped below 4% in December 2023 and is expected to remain subdued in the fourth quarter (January-March) of FY24, supported by favorable base effects and muted sequential momentum.
Looking Ahead:
India continues to maintain its position as one of the fastest-growing major economies, bolstered by factors such as its demographic advantage, deregulation, policy reforms, digitization, and robust demand fueled by aspirational spending.
The overall outlook for domestic capital markets remains positive, supported by resilient domestic demand and indications of stabilization in both global and domestic monetary tightening.
A prudent interim budget, coupled with a focus on fiscal consolidation and policy continuity, has the potential to mitigate external risks and attract global investors.
Looking forward, sentiment appears buoyant, underpinned by India’s comparatively favorable macroeconomic conditions, the potential for increased foreign investment inflows, and expectations of policy continuity ahead of the general elections.
From an equity market standpoint, some positives have already been factored into valuations, suggesting that return expectations in the near term should be moderate.
We believe that strategies focusing on Large Cap stocks offer a favorable risk-reward profile, while asset allocation products can help mitigate downside risks.
Proper asset allocation aligned with investment objectives and risk tolerance is crucial for optimizing risk-return dynamics. Asset allocation funds can play a pivotal role in reducing volatility and achieving a more balanced portfolio mix.
