📰Explosion

Hello. Happy Friday. A decade ago, India lagged behind its peers in digital payments. Today, it is the global leader. We explain how it undertook this digital payment explosion, and then close with Gupshup, a round-up of the most important headlines.

Also, our Future of India event will be moved from November 7 to February to accommodate events relating to the U.S. presidential election that week. All ticket holders will be contacted directly in the coming days with the option to get a full refund or transfer their ticket. More details will be announced as they come.

BTW: One of the most popular uses for digital payments is to pay for auto-rikshaw rides. How many auto-rikshaws are in India? (Answer at bottom)

Markets

Read here for an appendix on the above.

Analysis

India’s Digital Payment Explosion

India’s digital payments explosion stands as a testament to its rapid transformation. Just eight years ago, most Indians lacked bank accounts; today, even rickshaw drivers accept payments through the Unified Payments Interface (UPI), a revolutionary system launched by the National Payments Corporation of India (NPCI) in 2016. 

The UPI has been a landmark accomplishment of India, and underscores its booming internet and digital payment economy, spawning companies worth hundreds of billions of dollars. UPI connects bank accounts directly to mobile devices with a simple virtual payment address, eliminating the need for sharing sensitive information or juggling multiple apps. First introduced as Bharat Interface for Money (BHIM), UPI’s spread was catalyzed by key events, making it one of India’s biggest advances of the decade.

Demonetization  In 2016, the Indian government demonetized ₹500 and ₹1000 notes in an effort to crack down on black markets that relied heavily on cash. Economists now forecast that nearly 87 percent of paper currency was demonetized to curb black market transactions. The Reserve Bank of India took advantage of the policy to promote The RBI and the Indian government was able to promote UPI: the platform grew to process $25 billion (₹2.1 trillion) transactions from $8 billion (₹672.6 billion) in just two years. This also coincided with the increased use of mobile digital payments, popular among low-income people who have access to a mobile phone but not laptops or in-person bank branches.

COVID  Going into March 2021 only 15 percent of all transactions were done digitally compared to 40 percent in 2024. The shift is difficult to attribute to a single factor but the main reasons are simple to outline. Nearly all businesses had to rely on digital transactions to continue running, people found the exchange of cash to be more dangerous, and more consumers were buying from online. The inclusion of a variety of apps like PhonePe, Paytm, Google Pay, and many more also made digital transactions necessary. 

Today  A sign of continued digital payments surge has been the dropping transaction value. A study found that UPI transactions, when first introduced, averaged ₹3872 compared to ₹1525 today. Falling values means digital payments are more integrated into everyday life, with people using them for taxis or groceries.

Fintech Opportunity   The ongoing growth of fintech is beneficial for India’s financial landscape. As highlighted by Samosa Capital, domestic investors are consistently driving the stock market to new heights, yet participation remains limited, with only 5 percent of the population currently investing. In contrast, approximately 20 percent of Indians use the Unified Payments Interface (UPI). With UPI receiving investment approvals earlier this year, an additional 220 million Indians could potentially enter the investment arena through their UPI accounts, marking a significant shift in the investment landscape. Medium to small enterprises (MSMEs) account for 30 percent of India’s GDP value addition, contributing 11.5 percent annually—significantly exceeding the overall GDP growth rate of 7 percent—and represent 46 percent of Indian exports. However, they face a substantial credit gap, with an estimated $200 billion in unmet formal credit needs after excluding less formally registered entities and businesses deemed non-viable within the next five years by the World Bank. The ongoing digital growth in rural India disproportionately benefits these enterprises, highlighting a significant untapped market segment.

Within a decade, India went from a digital payments laggard to a global leader.

Macro

• Manufacturing purchasing manager’s index improved to 57.4 in October from 56.5 in the previous month, as per an HSBC Holdings flash survey. The index reveals strong underlying momentum for India’s economy, supported by increases in factory production. Employment rose at its quickest pace in more than 18 years. (BBG)

• Indian growth concerns and resumed bullishness on China is weighing on equities. Midcaps have fallen 9 percent since foreign investors started rotating capital back into China earlier this month. While domestic funds have picked up some of the slack, Indian institutions are also becoming wary of the lack of a “margin of safety” in the market currently. Faltering earnings growth has also led to expectations that equity growth (midcaps were up 30 percent until late September YTD) is starting to slow down. (BBG)

Equities

• Nifty Midcap 100 index down 9.2 percent from September high after investors became concerned about slowing earnings growth. Global funds have sold nearly $9 billion (₹756.7 billion) in stocks this October, bringing annual inflows down to $2 billion (₹168.2 billion). Meanwhile, Indian funds and insurers have invested a record $50 billion (₹4.2 trillion), keeping mid-cap stocks up over 19 percent for the year. (BBG)

• Indian airline IndiGo expects 40 percent of its grounded jets to be operational by April. The company reported its first quarterly loss in two years due to costs related to unused aircraft. IndiGo, with 410 aircraft, anticipates low double-digit capacity growth in the third quarter year-over-year. Next month, it will launch business class on select domestic routes, moving away from its all-economy model. Engine issues with Pratt & Whitney grounded over 70 jets last November, impacting profits as IndiGo extended leases and acquired additional aircraft. (Reuters)

• India’s DLF, a commercial real estate development company, reported $69 million (₹5.8 billion) in consolidated pre-tax profit, up 24 percent y-o-y. The company focuses on developing suburban areas of New Delhi: India’s housing sector has shown steady demand, especially for premium properties. Property launches in Delhi surged 53 percent y-o-y last quarter, the highest among major real estate markets, per Anarock data. (Reuters)

• India’s third largest state-run lender, Bank of Baroda, will reduce credit and depository growth guidance for FY2025. Indian banks have seen strong loan growth driven by economic expansion and urban demand, but deposit growth has lagged, leading to eased lending. Bank of Baroda now targets 11 percent-13 percent loan growth and 9 percent-11 percent deposit growth, with domestic advances up 12.5 percent and deposits up 7.1 percent in the July-September quarter. (Reuters)

• National Stock Exchange of India’s IPO hinges on approval from SEBI, CEO confirms. The bourse has been seeking approval since 2016 and is still waiting on a no-objection certification from the securities regulator. (BBG)

Alts

• Foreign investors are pulling out of India’s index-eligible bonds for the first time since April, driven by rising U.S. Treasury yields and unwinding of total return swap trades, a popular way for investors to gain exposure to India’s $1.3 billion (₹109.2 billion) sovereign debt market. Emerging market debt has seen outflows as Fed rate cut speculation has pushed US yields higher, narrowing the spread on EM currency debt. (Reuters)

• Kenya’s Court suspends $736 million (₹61.9 billion) Adani Power Line deal. While President Ruto wants to have more public-private relationships, courts have been calling the power line and airport deals “constitutional shams” that are defrauding the state. In particular, there have been numerous protests because there is severe opacity regarding profit-share and partnerships. Ruto supports them citing that the state does not have the headroom to borrow and create its own infrastructure currently. (Economic Times) 

• Venezuelan VP Delcy Rodriguez is meeting with Indian officials to explore oil and gas partnerships. Rodriguez met with oil minister Hardeep Puri and executives from companies such as Reliance, the nation's largest private oil refiner. Earlier last week, Rodriguez was seen talking to Russian officials during the BRICs conference. Reliance secured US approval to import oil from Venezuela back in July with 90 percent of all Venezuelan crude in India coming through the conglomerate. (​​BBG)

Policy

• India and China begin implementing a new border agreement to end a five-year military stand-off on the Himalayan border. The two neighbors came to an agreement during the sidelines of the BRICS summit in Russia. Both sides have begun pulling troops from the border’s high-friction areas. A deadly border dispute in 2020 froze diplomatic and economic relations between the countries. (Reuters)

• India has appointed Sanjiv Khanna as chief justice, succeeding D.Y. Chandrachud upon his retirement next month. Currently the second-most senior Supreme Court judge, Khanna will take office on November 11 and serve until May next year, following judicial protocol for succession. (BBG)

• German Chancellor Olaf Scholz met with PM Modi and vowed to increase Indian trade. Scholz in particular wants to avoid one-sided dependencies with critical raw materials and certain technologies that are often sourced from China. Scholz has publicly admitted to pressuring the EU to sign a free trade agreement with India quickly, something that he is hopeful will be finalized in the next few months. India is also looking to diversify sourcing its military hardware which is primarily from Russia. (Luxembourg Times)

Oh, and India has about 8 million auto-rikshaws, the higher per-capita use of the unique three-wheeled vehicle.

See you Monday.

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

1 USD = 84.11 Indian Rupee