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

    In India, Big Capex Bet on Manufacturing to Lift Growth

    This note from Bloomberg Economics may be of interest. Here is a section: 

    Investment is set to power a pickup in India's growth in the year ahead. An increase in public capital expenditure and incentives aimed at expanding manufacturing capacity are set to spark a private-investment cycle. The Reserve Bank's hold in April after a series of rate hikes to fight inflation also signals a shift to supporting growth.

    Investment is set to power a pickup in India’s growth in the year ahead. An increase in public capital expenditure and incentives aimed at expanding manufacturing capacity are set to spark a private-investment cycle. The Reserve Bank’s hold in April after a series of rate hikes to fight inflation also signals a shift to supporting growth.

    We forecast the expansion in GDP to accelerate to 5.9% year on year in the first quarter of 2024 from an estimated 5.0% in 1Q23.

    On a full-year basis, growth will be distorted by pandemic effects — a low base contributed to a surge to 7.1% in fiscal 2023. Coming off the high comparison, growth is poised to slow to 6% in fiscal 2024.

    Inflation is likely to slide to 5.3% on average in fiscal 2024 from 6.7% in fiscal 2023, due to lower commodity prices, lagged impacts of the RBI’s rate hikes, and base effects.

    We see the RBI keeping its repo rate on hold at 6.5% through the end of 2023, avoiding over-tightening that could damage the economy. As consumer prices cool, we expect it to ease in 1Q24 to add support for the recovery.

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    Just How Dangerous Are India's Generic Drugs? Very

    This article for Bloomberg may be of interest. Here is a section: 

    It shouldn’t have taken more deaths for Prime Minister Narendra Modi’s administration to act. The red flags have been there for years. What’s lacking is political will, and transparency. The FDA publishes different reviews of new drug applications on its website, along with detailed notes. The European Medical Agency gives similarly expansive information. There is no such openness in India.

    As Thakur explained to me, the pharmaceutical industry is India’s manufacturing success story, providing a major source of foreign exchange and soft power. Any criticism is seen through the lens of nationalism, he said, and framed as defaming the industry. So why does contamination with such deadly substances occur so regularly? “The simple answer is that Indian pharmaceutical companies quite often fail to test either the raw materials or the final formulation before shipping it to market,” Thakur said.

    India relies on the weak oversight of developing countries that make up the bulk of its exports — that’s how it can continue to push substandard and often deadly medicines there. As a paper on the Gambia poisonings published in March by the CDC noted, “inadequate regulatory structures make the sale of medications from international markets an especially high-risk activity in low-resource settings.” But what about countries with supposedly strong regulatory systems, like the US? This latest scare should prompt further reform of the FDA’s overseas inspections regime.

    In the absence of a global framework for pharmaceutical safety, what can be done to make the generic drugs that consumers around the world have come to rely on safer and effective? For a start, the WHO’s prequalification program, which facilitates the purchase of billions of dollars’ worth of medicines through international agencies such as Unicef, must be overhauled. Then there’s the question of holding these companies to account for the harm they cause inside and outside India via legal avenues and victim’s compensation.

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    Air India made the largest plane order in commercial aviation history

    This article from Quartz may be of interest to subscribers. Here is a section: 

    The White House was the first to announce the deal with Boeing, releasing a statement from president Joe Biden describing the deal as evidence of a strong economic partnership between the US and India. According to the statement, all the Boeing planes will be made in America and will create over one million jobs across 44 states.

    The purchase was also welcomed by Indian prime minister Narendra Modi, who said it was evidence of “the successes and aspirations of the civil aviation sector in India.”

    Air India was privatized in 2022 after a long run as India’s national airline. Currently, it only has a fleet of around 100 jets, most of them leased. The first batch of planes from Airbus is expected to arrive later this year. Boeing has yet to release a timeline for production.

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    Adani Stock Crash at $92 Billion as Collateral Worries Grow

    This article from Bloomberg may be of interest to subscribers. Here is a section: 

    The crisis of confidence plaguing Gautam Adani has taken a sudden turn for the worse, with a record 28% plunge in his flagship company’s stock raising questions over the extra collateral he needs to cover loans.

    Adani Enterprises Ltd. plummeted in afternoon trading in Mumbai after Bloomberg reported Credit Suisse Group AG has stopped accepting bonds of Adani Group’s firms as collateral for margin loans to its private banking clients. Banks including Barclays Plc had earlier asked for more shares to cover a $1 billion loan.

    With the rout in the group’s stocks triggered by short seller Hindenburg Research’s fraud allegations reaching $92 billion on Wednesday, the risk is that more financial institutions start to scrutinize their exposure to the indebted conglomerate. Without a dramatic upturn, investors who bought into a recently completed $2.5 billion stock sale by Adani Enterprises may be staring at deep losses.

    “The problem now is that the dynamics are becoming a self-reinforcing negative feedback loop and investors are now just dumping the shares and asking questions later,” said Peter Garnry, head of equity strategy at Saxo Bank A/S.

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    Adani Debts Enter Spotlight as Dollar Bond Coupon Deadlines Loom

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    There has been no suggestion that the Adani entities would struggle to make these payments, and Adani has flagged interest coverage ratios that show it has the wherewithal to meet such obligations.

    But Hindenburg’s report last week alleging “accounting fraud” along with its short position in Adani’s US-traded bonds and non-Indian-traded derivatives has put the debt in the spotlight. Some of the notes have fallen to distressed levels below 70 cents on the dollar that generally show mounting concern about creditworthiness. The securities extended declines Monday after a rebuttal by the Indian conglomerate and as Hindenburg followed with its own response.

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    The Future of Uncertainty

    Thanks to a subscriber for this transcript of 3rd Atal Bihari Vajpayee Memorial Lecture delivered by Ambassador Bilahari Kausikan of Singapore in New Delhi yesterday. Here is a section: 

    First, no country can avoid engaging with both the US and China. Dealing with both simultaneously is a necessary condition for dealing effectively with either. Without the US there can be no balance to China anywhere; without engagement with China, the US may well take us for granted. The latter possibility may be less in the case of a big country like India, but it is not non-existent.

    Second, I know of no country that is without concerns about some aspect or another of both American and Chinese behaviour. The concerns are not the same, nor are they held with equal intensity, and they are not always articulated – indeed, they are often publicly denied -- but they exist even in the closest of American allies and in states deeply dependent on China.

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    India is set to become the first country ever to receive $100 billion a year in remittances

    This article from Quartz maybe of interest to subscribers. Here is a section:

    Inward remittances, accounting for around 3% of India’s GDP, surged 12% from 2021.

    Besides a large working population of Indians living abroad, there were other reasons, too, for this increase. For instance, students are the other big constituents of the Indian diaspora. They eventually form high-income groups, with direct implications for remittances.

    The depreciation of the Indian rupee has also helped. Since January, the currency has fallen 10% against the dollar. This has made sending money from South Africa to India cheaper by 26%, from Thailand by about 17%, and from Japan by 14% in the past year or so, the World Bank has said.

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    Email of the day on the big turn:

    Since returning from the Chart seminar in London I have spoken to several people who work in the Israeli high-tech industry, They all tell me that about 10% of their colleagues have lost their jobs recently. Today you referred to your MIIN index. How can we invest in these countries?

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    India's Free-Market Oasis Aims to Take On Singapore and Dubai

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    Another product has migrated to the financial center: a popular derivative based on a benchmark gauge of Indian stocks that was traded on the Singapore Stock Exchange. In 2022 the National Stock Exchange of India opened a cross-­border trading link with Singapore—similar to the Hong Kong-Shanghai connect—to allow global investors to trade stock derivatives listed on the Indian market without needing to set up shop in India.

    Trading volumes have increased since a single regulator, the IFSC Authority, was created by the Indian government in 2020 to streamline approvals and oversight in the special economic zone. In October, average daily turnover on the two stock exchanges in the financial center climbed to $14.6 billion, from $3.4 billion two years before, cumulative derivative transactions by banks jumped to $466 billion, from $22 billion, and cumulative banking transactions rose to $303 billion, from $45 billion.

    “Beyond the shores of India, in some of those centers where India-centric business developed, they are able to notice that something is happening, and things may not be the same in the future,” says Injeti Srinivas, the IFSC Authority’s chairman. “Business is gravitating toward IFSC.”

    A new international bullion exchange will let qualified jewelers directly import gold to India through GIFT City, a change from current rules permitting only some banks and nominated agencies approved by the central bank to do so. That loosening of restrictions is set to widen the importer base in India, the world’s second-biggest consumer. An aircraft leasing and financing business is operating in GIFT City to tap into the demand of one of the world’s hottest aviation markets for new-plane orders. Ship leasing will start soon.

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    Why This Is India's Decade

    Thanks to a subscriber for this heavyweight report from Morgan Stanley which may be of interest. Here is a section:

    In the post-Covid environment, global CEOs appear more comfortable with both work from home and work from India. The emergence of distributed delivery models, along with tighter labor markets globally, has accelerated outsourcing to India. The number of global in-house captive centers that opened in India over the last two years was almost double that of the prior four years. During the two pandemic years, the number of people employed in this industry in India rose from 4.3 million to 5.1mn,and the country's share of global services trade rose 60bps to 4.3%. In the coming decade, the number of people employed in India for jobs outside the country is likely to at least double to over 11mn,and we estimate global spending on outsourcing could rise from US$180bn per year to around US$500bn by 2030. This will have significant effects on both commercial and residential real estate demand.

    If India is already the 'office to the world', it is increasingly becoming its factory as well. We anticipate a wave of manufacturing capex owing to government policies aimed at lifting corporate profits' share of GDP via tax cuts and hard dollars for investing in specific sectors, and we note that performance-linked incentive (PLI) schemes now total US$33bn across 14 sectors. Multinationals are more optimistic than ever about investing in India, as the all-time high on our MNC Sentiment Index shows (Exhibit 39),and the government is encouraging investment by both building infrastructure and supplying land for factories. The trends outlined in Morgan Stanley’s multipolar world thesis and cheap labor add to the mix. We estimate that manufacturing's share of GDP will rise from 15.6% currently to 21% by 2031, which implies nominal output jumping from US$447bn to about US$1.49trn.

     

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