David Fuller and Eoin Treacy's Comment of the Day
Category - India

    Modi Makes Biggest Privatization Push in Decade to Spur Economy

    This article by Anirban Nag and Vrishti Beniwal for Bloomberg may be of interest to subscribers. Here is a section:

     

    On Wednesday, Indian authorities went into overdrive. The government decided to sell its entire stake in the country’s second-largest state refiner, and its biggest shipping company. It also approved a proposal to pare stakes below 51% in some companies and pushed for an introduction of a new industrial code bill. Meanwhile India’s central bank seized a troubled shadow lender to try and contain defaults from spreading in Asia’s third-largest economy.

    “This is Modi’s renewed attempt to instill confidence in India’s economic potential,” said Priyanka Kishore, head of India and Southeast Asia Economics at Oxford Economics, Singapore.

    She added it was imperative for the Modi government to announce these measures as it attempts to bridge a widening fiscal deficit following the dismal tax collections and cuts to corporate tax rates worth $20 billion. Earlier this month Moody’s Investors Service cut the country’s sovereign debt outlook to negative amid concerns over slowing growth and revenues.

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    Yes Bank Gets Binding Offer for $1.2 Billion Stake Sale

    This article by Suvashree Ghosh for Bloomberg may be of interest to subscribers. Here is a section:

    “If they are able to raise this capital then it will sustain Yes Bank’s growth for next one year,” said Kranthi Bathini, director at Wealthmills Securities Pvt. “But we need to know the name of the investor, timing of the capital infusion and the Reserve Bank of India’s comfort with this proposal.” Gill said in an interview earlier this month that the share sale will happen “much sooner than the market expects.” The company has been in talks with private equity investors,
    technology companies and family offices.

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    Indian Stocks Jump for Second Day on Corporate Tax Cut Boost

    This article by Abhishek Vishnoi for Bloomberg may be of interest to subscribers. Here is a section:

    Indian stocks rose for a second day on expectations that the government’s surprise $20 billion company tax cut will revive economic growth and boost company earnings. The S&P BSE Sensex jumped 2.8% to 39,909.03 at the 3:30 p.m. close in Mumbai, while the NSE Nifty 50 Index advanced 2.9%. Both gauges surged 5.3% on Friday, marking their biggest gain since May 2009, after the corporate tax rate was lowered to 22% from 30%.

    Analysts increased earnings estimates for both measures by as much as 10% to factor in the lower tax burden. The government’s move follows a series of other measures unveiled over the past month aimed at boosting consumer demand and attracting investment.

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    India May Have Entered 'Quasi-Recession' as Growth Plummets

    This article by Ronojoy Mazumdar for Bloomberg may be of interest to subscribers. Here is a section:

    Official data on Friday showed that gross domestic product in Asia’s No. 3 economy grew 5% in April-June from a year earlier, below the weakest estimate of 39 economists polled by Bloomberg and the slowest pace in six years. The five straight quarters of slowing growth mark the longest slump since 2012.
     
    Under the hood, the numbers offer more cause for concern on whether output – once adjusted for inflation -- will increase fast enough to ensure borrowers cover their interest payments. A Bloomberg gauge of high-frequency indicators suggests that economic activity continued to weaken in July, with investment and consumption both falling. Economists at Nirmal Bang expect GDP growth to bottom out in the quarter ending September but believe that “a counter-cyclical government spending boost is required.”

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    Modi Creates Big Banks to Buoy Worse-Than-Expected India Growth

    This article by Suvashree Ghosh, Siddhartha Singh and Shruti Srivastava for Bloomberg may be of interest to subscribers. Here is a section:

    “Just increasing the size of balance sheets and combining operations of banks will only reduce the number of state-owned lenders but asset quality stress is unlikely to be taken care of,” said Avinash Gorakshakar, head of research at Joindre Capital Services Ltd. in Mumbai. “The bigger issue still remains as how risk profiling would improve banks’ bad-loan ratio ahead.”

    After returning to power with a stronger mandate, Modi has been grappling with an economy still hurting from the fallout of his cash ban in 2016 and the botched rollout of a nationwide sales tax. A bad-loan clean up in the banking sector has contained credit to companies and a crisis among shadow lenders is denying consumers loans to buy goods like cars and refrigerators. Meanwhile unemployment is at a 45-year high as companies refrain from new investments.

    Data on Friday showed gross domestic product growth slowed for a fifth straight quarter to 5% in the three months ended June. That’s slower than the 5.7% expansion predicted in a Bloomberg survey. The rupee pared gains in the offshore market.

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    Your Next iPhone Might Be Made in Vietnam. Thank the Trade War

    This article by Raymond Zhong for the New York Times may be of interest to subscribers. Here is a section:

    Samsung has since closed all but one of its smartphone plants in China. It now assembles around half of the handsets it sells worldwide in Vietnam. Samsung’s subsidiaries in the country, which employ around 100,000 people, accounted for nearly a third of the company’s $220 billion in sales last year.

    A Samsung spokeswoman said about 90 percent of those sales involved goods shipped from Vietnam to other countries. That implies Samsung alone accounted for a quarter of Vietnam’s exports in 2018, although even that might not fully capture the company’s effect on the wider economy. Samsung’s success in Vietnam helped convince many of its South Korean suppliers that they needed to be here, too.

    “When you are a big company and you move to a place, everything follows you,” said Filippo Bortoletti, the deputy manager in Hanoi at the business advisory firm Dezan Shira.

    Some Vietnamese business owners say the blessings are mixed, though. Foreign giants, they say, come to Vietnam and work largely with vendors they already use elsewhere, leaving little room in their supply chains for local upstarts.

    Samsung has 35 Vietnamese suppliers, the spokeswoman said. Apple declined to comment.

    When Samsung first set up in the country, it bought some of the metal fixtures used on its assembly lines from a local firm, Vietnam Precision Mechanical Service & Trading, or VPMS. But then more of Samsung’s South Korean partners started coming into the country, and after a year, Samsung and VPMS stopped working together, said Nguyen Xuan Hoang, one of the Vietnamese company’s founders.

    Price and quality were not the issue, Mr. Hoang said, over the hissing and clanging of machinery at his factory near Bac Ninh. The problem was scale: Samsung needed many more fixtures than VPMS could deliver.

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    India Monitoring for "Signs of Fragility" Among Shadow Banks

    This article by Sidartha Singh, Anirban Nag and Unni Krishnan for Bloomberg may be of interest to subscribers. Here is a section:

    Just as they emerge from the worst bad-loan problem in two decades, India’s banks are staring at another potential surge in soured debt as a result of their exposure to troubled non-bank finance companies. In its latest Financial Stability Report, the Reserve Bank of India warned that any failure among the largest of the NBFCs or housing finance firms could cause losses comparable to a major bank collapse.

    The central bank selected the non-banks to monitor based on the size of their balance sheet, the scale of their operations, as well as governance practices and credit behavior, he said.

    There have been some instances of governance lapses and “we are dealing with it,” Das said, without naming any company. “But there are a large number of others who have encountered business failures and certain external factors which impacted their business model.”

    Das said lenders which haven’t been diligent in their lending practices “will have to pay” the price for it.

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    Yes Bank May Complete $1.2 Billion Capital Raise In Two Tranches

    This article by Vishwanath Nair for Bloomberg may be of interest to subscribers. Here is a section:

    The bank, which is currently in capital conservation mode, will be able to return to a focus on growth once the fundraising exercise is complete.

    This growth, however, may be more modest than what was seen under the previous chief executive Rana Kapoor.

    Yes Bank will be looking to grow its loan book at 20-25 percent for some time to come, bringing down its growth rate from the over 40 percent year-on-year growth seen until a few quarters ago.

    Yes Bank is also in the process of adjusting its exposure to a few corporate groups, where the lender was in breach of the Reserve Bank of India’s large exposure framework, the person quoted above said.

    The private sector bank will move from an asset-led growth strategy to a liabilities-led growth strategy as it aims at bringing in more retail and small business customers. It intends to do this by leveraging its 1,100 branches and mining customer data from its digital offerings such as the Unified Payments Interface (UPI). A liabilities-led growth could help the bank bring down its cost of funding by 100-150 basis points, the person quoted above said.

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    India's Water Crisis Is Man-Made

    This article by Mihir Sharma for Bloomberg may be of interest to subscribers. Here is a section:

    Climate change activists have long argued that water will be the political flashpoint of the 21st century. Water-stressed India will likely be one of the first places to test that theory. The state of Tamil Nadu complains that it doesn’t receive its fair share of the waters of the Cauvery River; recently, the authority that nominally manages the river accused the government of neighboring Karnataka of holding onto water that it should have allowed to flow down to the Cauvery delta.


    Things might get even testier up north, where more than a billion people depend upon rivers that rise in the Himalayas. Bangladesh and Pakistan feel that India is being stingy with river water.  Indian strategists constantly worry that China will divert water from the Himalayan rivers that rise in Tibet to feed the thirst cities in its own north.

    The floods in Chennai are a warning. As the world warms, the rains on which India depends have become erratic: They frequently fail to arrive on time, and they fall in a more disparate and unpredictable pattern. The country can no longer afford to waste its dwindling resources.

    A rapidly urbanizing and developing India needs to drought- proof its cities and rationalize its farming. Water-harvesting must be a priority, alongside mechanisms for groundwater replenishment. As it is, every summer is hotter and less bearable. If Indians run short of water as well, one of the world’s most populous nations could well become unlivable

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    Why India's Troubled Shadow Banks Spook the Market

    This article by Divya Patil for Bloomberg may be of interest to subscribers. Here is a section:

    4. Is the crisis spreading?
    Mortgage lender Dewan Housing Finance Corp Ltd. missed debt payments in June and Care Ratings Ltd. slashed its AAA credit rating to D this year. A news site alleged in January that the company diverted funds to shell companies, a claim Dewan Housing has denied. Other companies including Reliance Capital Ltd. and Piramal Capital & Housing Finance Ltd. have also had their credit ratings cut on liquidity concerns. Access to funding has gotten tougher for many non-bank financing lenders in credit markets, and they have a record 1.1 trillion rupees ($15.9 billion) of debt due in the third quarter of 2019.

    5. Where is this heading?
    The worst is probably still to come. Observers warn the credit crunch may hit the property sector next. It is heavily dependent on funds from shadow banks, and concerns are already being reflected in some realtor bonds. The nation’s conventional banks may also see more pain, as about 7% of their loans are extended to non-bank financing companies.

    6. How are shadow lenders coping?
    As access to funds in onshore debt markets has dwindled, shadow lenders are tapping overseas markets where they have to pay 25 to 50 basis points more than onshore rates to get cash.

    7. What’s the economic impact?
    India’s consumption engine is sputtering because the shadow-banking sector plays a key role in the nation’s financial system, particularly in delivering credit at the grassroots. A prolonged slowdown in lending from the sector poses a significant challenge to the Indian economy, where consumer spending growth has cooled on everything from toothpaste to air tickets. It expanded just 5.8% in the quarter ended March -- the slowest pace in five years and lagging behind China.

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