Indigenous Investors Weekly Insights!

Top 3 well curated stories from the stable of Indigenous Investors incase you missed them. These can range from finance to sports, depends on what made the headlines. Stay tuned.

At Indigenous Investors, we pride ourselves on a simple but powerful habit: reading for 5 hours every single day. It’s something we’ve shamelessly borrowed from the Oracle of Omaha, Mr. Warren Buffet. To share the wealth of knowledge we uncover, we’re bringing you 3 top stories that you may have missed this week. If there’s a topic you want us to cover, drop us a line! We’re always excited to read more and refine our process.

Story #1: Sanjay Malhotra is the new RBI governor (click here)

Sanjay Malhotra, who was Revenue Secretary with the Finance Ministry, today began his three year term as the new RBI Governor. Malhotra is an IAS officer from the 1990 batch; he graduated in computer science from the Indian Institute of Technology (IIT), Kanpur, and completed his Master's in Public Policy from Princeton University, United States.

In his 33-year career, Malhotra has worked in finance, IT, power, mines, and taxation, among other sectors. He last served the Indian government as Secretary of Revenue with the Ministry of Finance and has in-depth experience in finance and taxation at both State and central government levels.

Story #2: Salary, wage expenses growing faster than revenues for India inc (click here)

A study revealed that salary and wage costs are now growing faster than company revenue. Revenue growth has varied, from 5.3% in FY16 to 27.2% in FY23, while salary costs grew between 6.6% and 19.1% each year. Over the last five years, revenue grew at 7.9% per year, while salary expenses grew at 9.5%. This problem is even bigger in sectors like non-metals and oil, where revenue grew by 8.8% annually, but salary expenses grew by 10.8%. In these sectors, employee costs make up 56.1% of sales. Overall, the increasing employee expenses compared to sales are becoming a concern, as it impacts company profits, especially when revenue growth slows down.

It’s irritating to come across such data when there’s so much dissatisfaction on both ends - employer and employee. The enployers keep complaining about the quality of workforce while the employees complain about the lack of compensation.

Story #3: RBI cuts CRR by 50 basis points (click here)

In the 6th December meeting, the RBI kept the repo rate unchanged at 6.5% and reduced the Cash Reserve Ratio (CRR) by 50 basis points (0.5%), from 4.5% to 4%. The CRR is the amount of money banks must keep with the RBI instead of lending it out. By lowering the CRR, the RBI releases 1.16 trillion rupees, boosting spending and allowing banks to lend more, which could lower interest rates.

However, the RBI decided not to cut the repo rate or CRR further, aiming to support growth without overstimulating demand and keeping inflation in check. They also expect food inflation to ease due to good harvests and seasonal changes.

Story #4: India's Strategy to Reduce Debt: Discontinuation of Sovereign Gold Bonds (click here)

In FY 2025-26, India's Finance Minister Nirmala Sitharaman plans to reduce government debt by discounting Sovereign Gold Bonds (SGBs), which are government-issued securities linked to the price of gold. These bonds were initially used to raise funds for development projects, but have become a burden due to the government’s obligation to repay the equivalent amount of gold upon maturity and the challenge of making regular interest payments, adding to fiscal pressure.

As part of its strategy to reduce the debt-to-GDP ratio from 58.2% to 56.8% by FY 2025, the government has decided not to issue new SGBs in FY 2025, aiming for a more sustainable fiscal approach. The fiscal deficit target for FY 2025-26 is set at under 4.5%. The budget for FY 2025 is ₹18,500 crore, and although the RBI issued SGBs worth ₹8,008 crore in February 2024, this may be one of the last major issuances as the government shifts focus to lower its long-term debt burden and ensure fiscal sustainability.

In such turbulent times, it has become extremely important to make sure your money is invested at the right places. You can read our article on Portfolio Reshuffling (click here) to get professional insights into managing your wealth.