Nifty Hits 2025 High As Markets Gather Strength
India is not expected to take any major punches, but markets here are clearly gathering steam and momentum
On Episode 602 of The Core Report, financial journalist Govindraj Ethiraj talks to Ajay Trehan, Founder and CEO at AuthBridge.
SHOW NOTES
(00:00) Stories of the Day
(01:00) Nifty hits 2025 high as markets gather strength
(03:41) How the froth in railway stocks highlights the valuations dilemma
(08:00) Big payouts by companies as dividends
(09:34) Nvidia founder Jensen Huang gushes about the UK, says he will invest there
(11:07) How lenders are scanning way more data points about you thank you think before clearing your loan applications
NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on [email protected].
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Good morning, it's Tuesday, the 10th of June, and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.
Our top stories and themes.
The Nifty hits a 2025 high as markets gather strength.
How the froth in railway stocks highlights the valuations dilemma.
And how lenders are scanning way more data points about you than you think before clearing your loan applications.
NVIDIA founder, Jensen Huang, gushes about the United Kingdom, says he will invest there.
And companies step up payouts as dividends.
The Markets Gather Strength
It is, of course, counterintuitive. At one level, several economies looked like they could take sucker punches in the gut. At another level, their stock markets are doing well.
India is not expected to take any major punches, but markets here are clearly gathering steam and momentum. And people are, of course, wondering about valuations and more on that with an illustration shortly. The broader themes that are propelling markets are, of course, continued strong signals on the macroeconomic front, following on from that bumper rate cut by the Reserve Bank of India and the expectation that US tariff negotiations with China will beat somewhere soon.
The US-China tariff talks are actually pretty much driving sentiment across markets, including stocks, gold, oil, and currencies right now, and more on all of them shortly. It is possible that those who are not in the markets, like the actual trade negotiators, are not feeling as confident of early solutions, including for countries like India, where an outcome does not seem imminent, though it was promised in weeks, some maybe more than a month ago. And, of course, that promise was not made by India.
Anyway, the market is the market, and it runs on expectations on what could be and what might happen. So the Nifty rose to an eight-month high to hit 25,103. And that was the fourth consecutive session that the markets rose on Monday, riding, like we said, on both local and global cues.
In terms of numbers, the Sensex was up 256 points to close at 82,445. The Nifty was up 100 points to close at 25,103, as we said. The mid and small-cap segments did better.
The BSE mid-cap and small-cap indices rose about one, or rather, more than a percent each on the 9th of June, Monday. So now in the last four sessions, the Sensex and Nifty 50 have jumped more than 2% each. The rupee was also a little higher on Monday as the dollar weakened ahead of those trade talks between the U.S. and China, which are scheduled to take place in London. The rupee closed at Rs. 85.62 against the U.S. dollar. And gold is on the rise again.
Once again, thanks to that weak dollar, spot gold was up slightly to $3,317 an ounce midday on Monday after falling earlier to $3,293, which is its lowest level since June the 2nd, according to Reuters. Oil prices, meanwhile, were stable on Monday as investors once again waited for the outcome of the U.S.-China trade talks in London and the hope, of course, that a deal would smoothen out things for the global economy and also fuel demand. Reuters said that Brent crude futures were up about 11 cents to $66.58, while U.S. West Texas intermediate crude was up slightly to about $64.64.
The Valuation Conundrum
To return to valuations, Kotak Institutional Equities, usually a useful and welcome blend of cynicism and sanity, has picked up railway stocks to illustrate the froth in the market. In a report released last week, it says the steep increase in prices of railway stocks over the last few weeks and their eye-popping valuations are in sharp contrast to the flat capital expenditure of Indian railways in the 25-26, which is the current running year, and its budgeted expenditure, and also, or rather equally importantly, its modest medium-term growth prospects. It also quotes specific numbers to say that while railway stocks have rallied sharply, the budget, that's the railway budget, for 25-26 is flat.
Moreover, the bulk of the capex of the railway sector is captured in the central government budget with only a portion of it pertaining to metro projects captured under a different head of government spending. Even spending on metro projects has not seen a meaningful pickup, says that report. Now, there have been, of course, other reports, and I'm deviating from the Kotak report, on how many metro projects across India are not seeing the ridership levels projected earlier, and actually, in some cities, much lower than expected.
So that is not connected to stock prices of companies supplying equipment to them, at least right now. Kotak does add that they do not see scope for a meaningful pickup in railway capex in the medium term for a couple of reasons. One is that Indian railways may have largely maximised the capacity of its railway network with large investments in rolling stock and track over the past 10 years, and also there is low visibility on new projects, such as the high-speed railway network on the lines of the dedicated freight corridors of the upcoming Ahmedabad-Mumbai high-speed line.
And on the actual valuations, Kotak says they see a large disconnect between the fundamentals for key financials of the major railway stocks and valuations of the railway companies. Moreover, PSU railway stocks traded several times book value and at very rich PE multiples, which are very hard to reconcile, says Kotak, with the financials and growth prospects of these companies. Also that cash and investments account for a large portion of the book value and other income on cash investments is a significant portion of the pre-tax profits of the companies.
Kotak says they attribute the rally in railway stocks to the general excitement and euphoria in small and medium cap stocks or mid cap stocks. And this has resulted in several narratives across sectors that are dominated by small and mid cap stocks. The markets are not making any distinction across sectors and stocks, as long as they fit into some prevailing narrative, that's defence, electrification, manufacturing and railways.
So note that. The other important point, which has of course come up in the past too, is that most of these narrative stocks are largely owned by retail shareholders, which also explains the periodic bouts of extreme volatility in these stocks according to Kotak. The railway stocks are of course a good illustration that many such sectors that are state owned face where the issue is not the company's business prospect per se, rather the valuations of those stocks.
So as Kotak says, several PSU stocks traded extremely high market capitalization relative to their profits, net worth or assets. So that's something to look out for, particularly if you are a long-term investor.
Inflation Projections Are Still Low
We pointed out the other day, a statement from Bank of Baroda Research, which projected inflation for the month of May 2025, that's last month, hitting 3% or below, which would be at least a six-year low. A Reuters poll forecast has also said inflation rates likely ease to a more than six-year low of 3% in May, thanks to a favourable base and a further moderation in food prices. On Friday, the Reserve Bank, as we all know, surprised financial markets by cutting the repo rate by 50 basis points.
The June 5th to 9th Reuters poll of 50 economists published yesterday has forecast inflation as measured by the annual change in the consumer price index, falling to 3% in May from 3.16% in April. This would also mark the fourth consecutive month below the Reserve Bank's 4% medium-term target, the longest such streak in six years, says Reuters.
Companies Pay More Dividends
Companies last financial year paid more as dividend to shareholders despite the muted growth in revenue and earnings, according to a report in the Business Standard, which says that the combined dividend payout of India's top-listed companies was up 10% to a record high of about 5 trillion rupees, up from about 4.5 trillion rupees in the previous year. In the last 10 years, companies have paid about 40% of their annual net profits by way of dividend and share buyback, according to that report. It also says that these companies' combined net profits adjusted for exceptional gains and losses were up 5% in 24-25, while their combined net sales rose 7.5%. So that's the muted growth, despite which the dividend payout has risen. This analysis is based on a sample of 1,218 companies that are part of the BSE 500, BSE Mid Cap, and Small Cap indices. The report also says the payout, including share buyback by companies to shareholders, was up very slightly, about 1%, to about 5.08 trillion, from about 5.03 trillion year-on-year, and that pace is the slowest in the last five years. So there was a big decline in share buyback last financial year, to about 8,000 crores, from about 50,000 crores in the previous year, according to data from Prime Database, reported here by Business Standard, but it does remain lower than the 10-year average of 35%.
In the last 10 years, companies have paid about 40% of their annual net profits by way of dividend and share buyback.
Jensen Huang Gushes On The UK
So the United States wants tech companies to step up investments in the US, and they are doing so, or trying to do so, but they're not ignoring the opportunities elsewhere, at least going by what NVIDIA CEO Jensen Huang, who praised the United Kingdom on Monday, promising to boost investments in the country's AI space.
The UK is in a Goldilocks circumstance, he said, speaking on a panel with British Prime Minister Keir Starmer and Investment Minister Poppy Gustafson, reported by CNBC. He said that you can't do machine learning without a machine, so the ability to build these AI supercomputers in the UK will naturally attract more startups, Jensen Huang said, and then he went on to say that he thinks it's just such an incredible place to invest and that he was going to invest here, that's the United Kingdom. He also said, according to that report in CNBC, that Britain has one of the richest AI communities anywhere on the planet, with amazing startups like DeepMind, Wave, and Synthesia, and 11 Labs.
He also said that the ecosystem is really perfect for takeoff, it's just missing one thing, which is the lack of a homegrown, sovereign UK AI infrastructure. Earlier on Monday, NVIDIA also announced a new UK sovereign AI industry forum, and the UK in January unveiled a plan to boost the domestic UK AI sector, including relaxing planning rules around new data centre developments and increasing British computing power in the next five years by about 20-fold. All of this is, of course, useful to note for countries like India, who are stepping on the gas on AI-linked investments, both by the government as well as at the private sector.
The Signals We Transmit
Your gut tells you that you should get this loan for your small business, or for an asset that you're purchasing. The lending institution, like a bank, for example, feels otherwise, either denying the application fully or reducing the size of the loan on offer. One reason is that the number of data points we are now transmitting are way more than ever before, and all of these are being collected to and scanned by banks. So, it may no longer be just your bank account or regular income statement, which helps lenders decide how much to lend to you, if they do.
Knowing how this system works is important for any borrower, including you and me, and lies in the larger context of KYC regulations, as well as the practice and increasing complexity of challenges faced by financial institutions and their response to it. I caught up with Ajay Trehan, founder of Identity Verification and Due Diligence Platform, AuthBridge, which works with financial institutions as well as organisations in the gig economy on large verification projects, and began by asking him why the traditional process of Know Your Customer or KYC was flailing, and how is this changing now?
INTERVIEW TRANSCRIPT
Govindraj Ethiraj: Which is also suggesting to me that the traditional method of KYC or Know Your Customer and the whole process that goes into opening a bank account is flawed, fundamentally at least.
It works for many people, but for those who want to game it, they are obviously gaming it. In which case, where or which aspect of that chain does the solution lie as we go ahead? Because you can't keep asking me to give more and more data and more and more information, and my home address, my rent agreement, and house purchase agreement, and so on, because it's only, I mean, pointing back all to the same person, so to speak.
Ajay Trehan: See, the reason why financial institutions ask you for so much data is they were trying to catch, if they're not sure about anything in the initial part of the screening or the diligence process. So that's where digital solutions and digital layers come in and which are much faster. Now, at AuthBridge, for example, we would integrate some 160, 170 parallel data points, including a lot of surrogate data points, which could help you quickly make a decision on whether this person is creditworthy or not, or should be given insurance or not.
For example, over a video call, you could detect very subtly whether this is a living individual or a deepfake. You can even detect deepfake videos today with a fairly high degree of accuracy, but that's also evolving. Now, that cannot be done in a normal, conventional way, so the solutions are evolving.
There are ways to identify synthetic IDs now. There's a lot of work happening on mule accounts, but that's also evolving with more intelligence being built on digital fingerprinting, device fingerprinting, et cetera. So yeah, so this is constantly evolving and there are some solutions around it.
Govindraj Ethiraj: Right, so you as a company started out, let's say, verifying individuals for jobs that they were applying to, and I'm assuming this was at scale and you continue to do that. That's your foundation to, let's say, going to the digital side of things and going into the banking and financial system. So at the heart of everything is the person and the person is either a crook or a saint, as it happens.
So tell us about how that is helping you, if so, in solving the problem that we are facing today.
Ajay Trehan: So we have almost like 20 years of intelligence on individual data and how to detect different antecedents, and that's actually been pretty handy as we built surrogate data layers with banks and financial institutions to help them detect all kinds of current or future frauds. One of the biggest areas that we kind of solved for financial institutions was aggregation of criminal and litigation data. Now, what happens here is banks traditionally have been used to looking at credit report failures, right?
So I haven't paid my previous loan on time or I've had a few check bounces while paying my credit card. That could generate a red flag. But I may have borrowed from a private lender and not returned it, and he would have filed a Section 138, which is a check-bouncing case against me, but that you would not know because it never appeared in my credit report.
So where OutBridge comes in is it looks at you as an individual from all aspects. We look at your identity, which is, thanks to Aadhaar, today is a fairly simple process. But then we have to marry that identity with at least one more data point of identity to make sure that that one identity wasn't used and the other identities are also matching.
That is married with the bureau data and that matches. But then we look at all the data available about you in the public domain, including litigation and crime data to see if there is anything there that would impact the bank and your ability to serve the loan properly later, et cetera, et cetera. So that's where we come in.
And that product originally was designed, that product's called Vault. It was originally designed to solve for the gig economy in India. So we are the largest player in the gig workforce screening space.
I screen close to about 100,000 people every day as they get onboarded across multiple screening platforms and they want to know their identity.
Govindraj Ethiraj: You see 100,000 people every day get screened. So every day there are 100,000 new people or there are people who are coming back and rotating in the system.
Ajay Trehan: Yeah, so people moving from one platform to another, people are trotting, moving into other jobs, fresh people coming in. So it's about 100,000 new enrolments on various gig platforms across the country and they need to be taken through an identity check process, even driving licences, wherever driving licences matter or criminal records for sure. So that intelligence and that capability was built to solve that problem.
And today we use it at a massive scale with financial institutions to help them weed out people with all kinds of negative history.
Govindraj Ethiraj: So you're working with banks, non-bank finance companies and other financial services players to act as a layer between the customer and them and providing them this data. So one is, what is the size of this operation? I mean, how many people's accounts are you actually physically maintaining?
And how often are you updating? So that the bank knows if there's something else apart from the usual check not clearing on the second of whatever the month is happening.
Ajay Trehan: So in a typical month, we would be looking at about close to about 20 million data points, 15 to 20 million data points, depending on which month is the festival season, then the number of data points is much higher. That is correlated to how many people, individuals? Typically about 5 million.
And for many of these cases, we keep a check on an ongoing basis. So whether it is an individual who's taken a loan or it's a business that's taken a kind of working capital loan or any kind of another business loan, we would keep a watch on the profile of the customer, whether it is ongoing income, or various other surrogate data points. For example, for business, we would look at their compliances to GST, their compliance to paying their employee PF, depositing PF on time, filing their GST and PF returns.
Because usually what we've seen is when business is going to trouble, that's the first thing where they start defaulting, right? PF delays, GST delays, and then they go into loans not being paid on time. So that's an early catch.
The other area to look at usually for us is the number of employees. So is that count going down? Something as silly as looking at your electricity bill, right?
If it's a season where your electricity bill is normally high, higher than the previous months, why is it going down this month? So there must be an issue. So it's all available, it's public data.
So at the point of onboarding the customer, we ask for details that we can then eventually use.
