The World As We See It

Global Macro Scenario

The surprising growth of 2023, primarily driven by emerging and developing economies, saw a notable acceleration, reaching a projected rate of 4.5%, up from 3.9% in 2022. Notably, global headline inflation decreased from 8.1% in 2022 to an estimated 5.7% in 2023.

However, we believe the global economic landscape for 2024 is marked by mixed forces, with swift monetary tightening impacting housing, lending, and industrial sectors. A looming concern is the spectre of inflation, casting uncertainty on financial stability, especially with persistently high core rates.

Moving to specific geographic indicators, starting with the U.S., the annual inflation rate in November was 3.1%, a slight decrease from the previous 3.2%. In the quarter gone by, President Joe Biden's administration achieved a significant milestone by aligning the inflation rate with the Federal Reserve's target for the first time, indicating positive economic management. The U.S. experienced a 4.9% annual increase in real GDP in the last quarter, driven by rising consumer spending and inventory investment. The strong labour market added over 200,000 jobs in December, totaling 2.7 million jobs for the year.

Major U.S. indices, including Dow Jones, Nasdaq, and S&P 500, witnessed significant growth, led by tech stocks, marking some of the best performance in recent years.

In the EU, while cautious optimism prevails, concerns linger, particularly regarding inflation and the European cost of living crisis. The European economy faces challenges such as a high cost of living, weakened external demand, and monetary tightening, resulting in significant growth deceleration. Despite annual inflation of 2.9% at the end of this quarter, up from 2.4% in November 2023, the debate over potential interest rate cuts from the European Central Bank intensifies. The ECB warns of potential inflation upticks, underscoring its commitment to maintaining the record-high 4% benchmark interest rate until inflation aligns with the 2% target.

Looking ahead to 2024, emerging economies face potential growth deceleration, primarily influenced by China's economic challenges. The Asian Development Bank (ADB) adjusted its economic outlook for developing Asia-Pacific economies to 4.9% in 2023, surpassing the previous 4.7% projection in the last quarter. China's economic expansion experienced its weakest annual growth in over three decades in 2023, likely expanding by 5.2% only. This underscores South Asia's pivotal role in the broader economic landscape and emphasises the region's significance amid evolving global dynamics. 

In 2023 global central banks found themselves on a tightrope as they navigated the delicate balance of reining in interest rates while ensuring they do not undermine economic growth. For 2024, The challenge lies in interpreting strong data points, which could imply uncontrollable inflation, and weak data, which could signal poor growth. We certainly wouldn't want to be in the shoes of any central banker at this time.

Indian Macro Scenario

In 2023, India's economy showcased resilience amid global challenges such as widespread pessimism, geopolitical tensions, a robust dollar, and persistent price pressures. The nation surpassed expectations, achieving a notable 7.2% growth in FY2023, with 7.8% and 7.6% in the preceding quarters and a projected 6.5% for the current quarter. A UN report anticipates a 6.2% growth in CY2024, slightly below the 6.3% estimate for CY2023, propelled by robust domestic demand and growth in manufacturing and services.

Financial indicators paint a positive picture, GST revenues exceeded US$ 19.2 billion (INR 1.6 lakh crore) in December, reaching US $60 billion (INR 5 lakh crore) for the quarter. The Nifty 50 index surged by 16%, solidifying India as the 7th-largest global stock market with a market capitalization of US$ 3.9 trillion. FPIs turned positive in November, recording inflows of US$ 1.08 billion (INR 9,001 crore), culminating in a robust December with total inflows of US$ 7.2 billion (INR 60,478 crore). 

The U.S. dollar index fell over 6% this quarter amid speculation about rate cuts by the U.S. Federal Reserve. The rupee remained stable due to RBI's strategic intervention of ~US$ 600 billion in reserves to maintain the value of the currency. Notable factors included fiscal resilience in the year, substantial growth in central taxes, and a robust increase in capital expenditure supported by revenue mobilisation and the 'Special Assistance to States for Capital Investment' scheme.

In terms of trade dynamics, India's overall exports (Merchandise and Services combined) in April-December 2023 reached US$ 565 billion, with a marginal negative growth of (-) 1.9% compared to the same period in 2022. Concurrently, overall imports during April-December 2023 were estimated at US$ 634 billion, reflecting a negative growth of (-) 7.6% compared to April-December 2022.

In a nuanced development, the velocity of India's S&P manufacturing activity decelerated to an 18-month nadir in December, marking the lowest level since October 2022, moving from 56.0 in November to its current 55.3. However, amidst this dip, there were sparks of resilience – new orders and foreign sales witnessed growth, extending the streak of expansion to 29 consecutive months. Core sectors, including coal, steel, cement, and electricity, reported substantial growth, contributing 40.2% to the Index of Industrial Production (IIP).

India experienced a year filled with notable achievements, enhancing stability and optimism. From a triumphant lunar mission to hosting the prestigious G20 Summit, the nation demonstrated its prowess on the global stage. National elections will also be held in the next quarter, promising further positive developments.

Early Stage Ecosystem

As we reflect on the events of 2023, a year that underscored the ongoing dynamism of the Indian early-stage ecosystem, we witnessed instances of weak corporate governance, poor operating performances as businesses navigated the challenges posed by the funding winter. This year also epitomised the hurdles faced by models heavily reliant on capital injections and those tangled by the evolving regulatory landscape. Despite these trials, the current phase has taught us valuable lessons, fostering a heightened sense of wisdom in our approach to building businesses by prioritising long-term growth and embracing leaner models to ease the financial strain.

In Q3FY24, investments in early-stage startups increased significantly by 121% to US$ 1.78 billion, from US$ 0.81 billion in Q2FY24. During the same period, the number of transactions surged 754%, reaching 504 compared to 59 in the previous quarter. However, the average deal size decreased by 74%, dropping from US$ 13.7 million in Q2FY24 to US$ 3.5 million in Q3FY24.

In CY2023, Indian startups secured US$ 8.17 billion through 1127 deals, showcasing their ability to adapt to dynamic conditions. These figures represent a contrast to the relatively substantial US$ 26.1 billion raised in CY2022 across 2,032 deals, with an average deal size of US$ 12.8 million. Despite the overall funding landscape experiencing a seven-year low in CY2023, the innovation and determination within the startup ecosystem remained strong, laying the foundation for future growth and success.