Master Trust Ltd Management Discussions

Global Economy

The global economy is entering a phase of moderated growth, with GDP expected to slow from 3.3% in CY 2024 to 2.8% in CY 2025, before recovering slightly to 3.0% in CY 2026. The deceleration is influenced by factors such as policy uncertainty, trade fragmentation and softening investor sentiment. Broad-based tariff measures, particularly those imposed by the United States, have disrupted global trade flows, dampened productivity and deepened regional divergences. While labor markets in advanced economies have largely normalized and demographic trends such as healthy aging are supporting workforce participation, persistent structural headwinds and geopolitical tensions continue to weigh on global output potential.

Inflationary pressures are gradually abating, though the disinflation trajectory remains uneven across regions. Global inflation is expected to ease to 4.3% in CY 2025 and 3.6% in CY 2026, with advanced economies nearing their targets of 2.2%, while emerging markets face sustained inflation around 4.6% due to structural and external pressures. Recent upward revisions in the U.S. and U.K. forecasts, driven by service- sector inflation, regulatory changes and tariffs, highlight ongoing risks. Monetary policy remains cautiously balanced, with central banks managing the trade-off between inflation control and growth. Policy divergence is evident, as some Asian central banks begin easing, the U.S. Fed is likely to delay rate cuts until late CY 2025 and the European Central Bank nears the end of its tightening cycle. A weaker U.S. dollar adds to complexity, impacting capital flows and inflation pass-through in emerging economies.

Fiscal and financial vulnerabilities are intensifying, with some economies focusing on consolidation to rebuild buffers, while others increase public spending to address structural and geopolitical challenges. Financial markets remain volatile, driven by rising bond yields, higher leverage in non-bank institutions and escalating sovereign risk, raising the potential for asset price corrections. Despite continued global resilience, risks remain tilted to the downside, with trade tensions, tighter financial conditions and debt stress posing threats to growth. A coordinated policy response, aimed at restoring trade stability and strengthening economic fundamentals, will be critical to sustaining recovery and restoring confidence.

India has retained its position as the fastest-growing major economy, with real GDP rising 6.5% in FY 2024-25, driven by resilient domestic demand, improved consumption and strong investments. In Q4 FY2024-25, GDP grew 7.4% year-on-year, while gross fixed capital formation rose 9.4%, indicating sustained momentum despite global headwinds. For FY 2025-26, the Reserve Bank of India (RBI) projects GDP growth of 6.5%, aligned with multilateral forecasts, reinforcing India?s role as a global growth engine.

This robust performance has been underpinned by calibrated fiscal and monetary policies. The Union Budget 2025-26 introduced revised income tax slabs and higher rebate thresholds, injecting an estimated Rs. 630 billion into household consumption. Simultaneously, a 10% increase in capital expenditure to Rs.11.2 lakh Cr. (5.5% of GDP) is expected to crowd in private investment, boost infrastructure development and create employment.

A benign inflation environment has created space for monetary easing. Headline CPI declined to 2.1% in June 2025, the lowest in over six years, with food inflation turning negative. In response, the RBI has cut the repo rate by 100 basis points to 5.5% since February, aiming to lower borrowing costs, enhance credit offtake and improve financial access, even as core inflation remains slightly elevated.

India?s external position remained resilient. Strong services exports and remittance inflows partially offset the merchandise trade deficit. Gross FDI inflows rose 14% to USD 81 billion in FY 2024-25, while forex reserves reached USD 691.5 billion, covering 11 months of imports. The rupee experienced modest depreciation, but remained broadly stable due to RBI interventions and surplus liquidity.

Structural reforms are reinforcing India?s medium-term outlook. PLI schemes, ‘Make in India ‘, and deeper global value chain integration are promoting high-tech manufacturing. Ease of doing business has improved through regulatory reforms and the Aatmanirbhar Bharat initiative, attracting long-term capital.

India?s digital ecosystem continues to deepen, enhancing transparency, formalisation, and inclusion. UPI now operates in seven countries and accounts for nearly half of global realtime digital payments. Tax reforms like GST, e-invoicing, and faceless assessments are boosting compliance and revenue buoyancy.

With a young demography, stable macro fundamentals, policy continuity, and expanding digital and physical infrastructure, India is well- positioned for sustained, inclusive, and competitive growth in an evolving global landscape.

India?s financial services sector continued its strong momentum in FY 2024-25, supported by sustained credit demand, expanding capital market activity and accelerated adoption of digital and technology-led models. Credit outstanding to the services sector reached Rs.48.5 lakh Cr. as of November 2024, registering a 13% year-on-year growth. Segments such as professional services and IT led the expansion, while credit flow to micro, small and medium enterprises (MSMEs) outpaced that to larger corporates, reflecting focused lending and increasing formalisation of enterprise credit. The capital markets witnessed continued vibrancy, with equity indices touching record highs during the fiscal and a notable increase in IPO issuances over the past decade. This trend highlights the deepening of financial participation and the growing maturity of Indian capital markets. Investor interest remained high, supported by stable macroeconomic conditions, a steady pipeline of listings, and increasing retail participation through mutual funds and direct equity.

Digital transactions surged, with total digital payments exceeding Rs.223 lakh Cr. between January and November 2024. UPI continued to dominate, accounting for over 15,547 Cr. transactions during the same period. Fintech activity remained a key enabler of inclusion and innovation, with strong traction in digital-first models leveraging artificial intelligence, data analytics and embedded finance to enhance access, transparency and service delivery across financial services.

Financial inclusion advanced meaningfully, reflected in the RBI ‘s Financial Inclusion Index, which improved to 64.2 in March 2024 from 60.1 in March 2023, driven by increased usage, access, and quality of financial services across segments. While the sector remained structurally strong, a few headwinds emerged in the second half of the year, including rising cost-to-income ratios and a more cautious regulatory tone towards unsecured lending and digital credit models.

Despite these challenges, the financial services sector remains integral to India?s growth and transformation, backed by robust fundamentals, an expanding investor base and the rising digitalisation of financial delivery channels.

The Indian equity market has undergone a profound transformation, fuelled by a decade of structural reforms, progressive policy measures, and rising global competitiveness. As confirmed by PIB, cumulative FDI inflows reached Rs.89.85 lakh Cr. (USD 1.05 trillion) between April 2000 and December 2024, demonstrating nearly a 20 fold surge in two decades. In FY 2024-25 (April-December), equity-specific FDI inflows jumped 27% Y-o-Y to Rs.3.40 lakh Cr. (USD 40.67 billion), underlining sustained global investor confidence. These gains are supported by enabling reforms such as liberalised FDI norms, GST implementation and Make in India, positioning India as a high-growth, long-term investment destination rather than a cyclical opportunity.

India?s capital markets continued to demonstrate remarkable depth and stability through FY 2024-25, supported by rising domestic participation, robust corporate earnings and sustained policy support.

As of December 2024, the BSE market capitalisation-to-GDP ratio stood at 136%, significantly ahead of comparable emerging economies such as China (65%) and Brazil (37%). This underscores India?s strengthening position as a key global equity market, reflecting investor confidence and the enduring impact of structural reforms.

India?s robust macroeconomic stability in FY 2024-25, driven by prudent fiscal management, sustained capital expenditure on infrastructure and strong domestic consumption, has significantly propelled the growth of its financial services sector. Non-food bank credit expanded by 13% year-on- year to Rs.48.5 lakh Cr. as of November 2024, with notable gains in professional services,

IT and MSME lending, reflecting broad-based economic activity. Achieving the status of the world ‘s 4th largest economy in 2025 and projected GDP growth to USD7.3 trillion by 2030 have reinforced long-term investor confidence, fuelling vibrant capital markets, record IPO issuances and greater retail participation through mutual funds. Complemented by stable monetary policy, declining NPAs and accelerated digital financial adoption, these factors collectively underpin the sector ‘s resilience and position India?s financial ecosystem for sustained expansion.

A stable policy environment, coupled with structural reforms and sectoral liberalisation, continues to attract substantial foreign investment into the country. Between April 2000 and December 2024, cumulative FDI inflows crossed USD 1.05 trillion, with equity inflows during the first nine months of FY 2024-25 registering a 27% year-on-year increase. The financial services sector remains a key beneficiary of this sustained global interest.

The Indian stockbroking industry began FY 2024-25 on a strong note, supported by sustained market activity, elevated retail participation and favourable capital market conditions. Revenue growth and profitability were robust in the first half of the year, with industry-wide profit after tax to net operating income (NOI) margins peaking at 46%. However, the outlook for the second half has been tempered by a wave of regulatory changes aimed at curbing excessive speculative activity in the derivatives segment.

These changes include increased Securities Transaction Tax (stt) on futures and options, revisions in Market Infrastructure Institution (MII) charges, upfront premium collection norms and larger contract sizes. Consequently, F&O volumes saw a sharp decline, falling by nearly 50% between October 2024 and February 2025, while cash market volumes also moderated temporarily. Revenues for H2 FY 2024-25 are estimated to decline to Rs.20,500 Cr., from about Rs.24,000 Cr. in H1, reflecting slower growth momentum and margin pressure driven by reduced incentives and recalibrated trading strategies across the industry.

Despite a strong start, aggregate revenues and profitability are expected to peak in FY 2024-25 but face a potential decline of 5-10% in net operating income and a contraction of margins by approximately 400-500 basis points in FY 2025-26. The impact is likely to be more pronounced for discount brokers with a high dependence on index options, whereas full-service and bank- led platforms may be relatively insulated due to their diversified offerings.

To mitigate these pressures, brokers are increasingly focusing on margin trading as a key revenue lever. The Margin Trading Facility (MTF) book grew to Rs.84,000 Cr. by January 2025, before moderating to Rs.71,000 Cr. in line with broader market corrections. MTF now contributes meaningfully to topline performance, with its share in total revenue expected to rise to 12.0% in H2 FY 2024-25. Meanwhile, the contribution of traditional fees and commissions has declined as product pricing and volume-linked incentives face structural headwinds.

Although MTF is a capital-intensive offering, industry-wide gearing levels remain within manageable thresholds, supported by strong capitalisation and limited leverage in core broking operations. Most brokers are maintaining gearing below 1.5x, preserving balance sheet strength and funding flexibility.

Looking ahead, the industry ‘s near-term trajectory will be shaped by capital market trends and brokers ‘ ability to adapt to regulatory realignment. With continued expansion in investor participation and rising interest in non-broking revenue streams such as distribution, advisory, and financing, the sector remains well-positioned to evolve towards a more resilient and diversified model.

The mutual fund and banking sectors remained integral to India?s financial system in FY 2024-25, supporting capital mobilisation, credit expansion, and deeper financial inclusion. Together, they reflect the growing confidence in Indias economic direction and the outcomes of sustained regulatory, policy, and institutional reforms.

The mutual fund industry witnessed notable growth in both participation and assets.

Assets under Management (AUM) rose to Rs.66.9 lakh Cr. by December 2024, marking a 25.3 lakhs increase from March 2024. Unique investor count doubled in just four years from 2.9 Cr. in FY21 to 5.6 V by December 2024, while total folios climbed to 22.5 Cr. Systematic Investment Plans (sips) continued to gain traction, with monthly average inflows rising to Rs.0.23 lakh Cr. in FY 2024-25 and cumulative inflows surpassing Rs.10.9 lakh Cr.

Domestic mutual funds also increased their equity market presence, with ownership in listed companies rising to 9.5% in September 2024, signalling their expanding role as long-term investors and a buffer against foreign capital fluctuations.

Simultaneously, the banking sector showed improved asset quality, profitability and digital reach. Scheduled Commercial Banks posted their highest-ever net profit of Rs.3.50 lakh Cr. in FY 2023-24, while the Gross NPA ratio declined to 2.54% by September 2024, the lowest in 13 years. Capital buffers strengthened, with CRAR at 16.77% and provision coverage touched 92.88%. Credit growth moderated to 11.8% Y-o-Y by November 2024, yet MSME lending recorded a 13% increase. On the digital front, over 16,544 Cr. payment transactions valued at Rs.2,727 lakh Cr. were processed in the current financial year up to December 2024, with India accounting for nearly half of global real-time payments. Jan Dhan accounts crossed 54.5 Cr., with total deposits of Rs.2.44 lakh Cr., reinforcing the momentum of financial inclusion.

Indias wealth management industry is poised for sustained expansion, driven by rising affluence, expanding urbanisation, regulatory reforms, and the rapid adoption of digital technologies such as AI, data analytics, and robo-advisory platforms. As the number of high-net-worth individuals (HNWIs) increases, especially across western, northern, and southern India, demand for personalised, tech-enabled financial solutions is accelerating. Traditionally reliant on family advisers, Indian investors are now turning to professional wealth managers, supported by evolving regulations and the digitisation of financial services. Banks continue to play a dominant role, while fintech and advisory firms leverage innovation to serve a growing, younger investor base. The future of wealth management in India lies in delivering data-driven, transparent, and ESG-conscious strategies to a diverse and digitally engaged clientele.

According to Deloitte, the industry ‘s assets under management (AUM) are set for a remarkable rise from about USD1.1 trillion in FY24 to USD2.3 trillion by FY29, nearly doubling over five years. This

growth is fuelled by macroeconomic factors such as increasing income levels and shifting investment behaviours across diversified customer segments. The number of High-Net-Worth Individuals (HNWI) in India is projected to grow by approximately 50%, from around 3.5 lakhs in 2023 to over 5.25 lakhs by 2025. Similarly, the Ultra High Net Worth Individual (UHNWI) population is expected to rise by 58% during the same period, making India one of the fastest-growing markets globally for this demographic. This demographic shift substantially expands the client base for wealth management firms, offering significant opportunities for value-added, customised and digital-first advisory services.

As Indias economic growth story continues, wealth management firms are rapidly evolving their models to provide holistic, technology-enabled and ESG-centric solutions. The industry ‘s competitive landscape is being redefined by the convergence of traditional players and digital-first startups, all aiming to capture rising opportunities presented by growing investor sophistication and higher investible surpluses across urban and emerging markets.

(Source: https://www.knightfrank .com/research/article/2025-03-05-the-wealth-report-2025-america-first?utm_source=perplexity&utm_medium=ai&utm_campaign=perplexity_ referral)

AIFs have continued to attract capital by offering potential for superior risk-adjusted returns and stability during periods of heightened public market volatility. The sector benefited from regulatory clarity and enhanced confidence stemming from SEBI ‘s rigorous oversight, as well as new proposals and consultations aimed at strengthening governance and risk management standards. These conditions have facilitated structured capital allocation and prudent risk-taking, establishing AIFs as a mainstream investment solution for sophisticated investors in India.

Overall, the industry ‘s strong growth trajectory during FY 2024-25 underscores its increasing relevance and structural importance within Indias alternative investments space. AIFs are now seen as critical vehicles enabling investors to achieve long-term capital appreciation, mitigate portfolio risks and pursue specialized opportunities in an environment of changing global capital flows.

(Source: https://www.business-standard.com/finance/investment/ aif-investments-rise-32-percent-to-rs-5-38-trillion-by-march-2025-125061500638_1.html)

(Source: https://www.cnbctv18.com/business/finance/india-insurancemarket-to-triple-by-2035-will-overtakejapan-allianz-global-19611515.htm , https://bfsi.economictimes.indiatimes.com/ news/insurance/economic-survey-2025-insurance-market-on-upward-trajectorypenetration-highlights-gap/117788120 )