India Business and Finance, June 20th
What happened in India's business world during the past week
As I type on Wednesday morning, the sky is dark and after several false starts, it seems like the badly needed monsoon has begun - maybe. I know India has many important holidays, but the commencement of the rains seems to be the most important of all. The weather cools and the reservoirs, which had been running dry, replenish. Mumbai’s filthy streets are given a bath and the general mood seems to perk up as people seem suddenly, and perhaps briefly, happy to get soaked.
The big picture on the overall Indian economy
Manufacturing continues to expand, according to the HSBC Manufacturing Purchasing Managers’ Index, although the rate of growth, while still strong, has declined over the past three months. Meanwhile, inflation in May continued to run at a high rate, particular for food at 8.7%. This is a particularly important number because about half of Indian incomes are spent on food. Some speculate the sharp increases in this essential price played a large role in the weak electoral showing of Narendra Modi’s Bhartiya Janata Party both directly – both higher food prices are a debilitating tax on the poor that is felt every day– and indirectly because government efforts to cap inflation through heavy-handed measures like banning onion exports hurt farmers, possibly explaining the surprising loss of seats in the state of Maharashtra.
The Reserve Bank of India (RBI), which has avoided criticism for the country’s consistent inflation, seems to have been rattled enough to address its possible responsibility the use of excessively loose monetary policy. But it did so in the usual bureaucratic way of not accepting fault using the common excuse of central bankers who have struggled to meet their primary goal of price stability. In recent interview with the Economic Times, the RBI’s governor Shri Shaktikanta Das, said that to bring down inflation, a “much more drastic measure” would have to be taken in terms of interest rates, “but then we have to also weigh what would be the growth sacrifice.”
The big picture on India’s informal economy.
An annual survey tied to India’s vast informal sector covering the fiscal year concluding at the end of March 2023, indicated the number of new businesses grew 6% over the prior years. Employment grew by 11.2%. Because of the time lag, because of the mechanics of a survey that needs to cover the majority of India’s workers, because of the opacity of the informal sector and because anything tied to the conditions of India’s poor is a source of debate, the results are controversial. The survey would seem to suggest growth at a time when that is rare in the rest of the world. That conclusion is contested by many critics of the current administration.
Investment
1) From the perspective of the Indian stockmarket for Indian companies and investors.
The Indian stockmarket continues to hit new records and expand its investor base. In May, another 3.6m brokerage accounts opened, bringing the total to 158m. A strong stock market has, unsurprisingly, led to public offerings. This has been particularly true for small and mid-sized companies. Since the beginning of the year, 100 have gone public, reflecting a record pace that is expected to accelerate now that the distraction of the election is over
2) From the perspective of foreign companies using internal funds
While foreign direct investment appears to be falling, foreign companies have been increasing the amount of reinvested Indian earnings, according to the Department for Promotion of Industry and Internal Trade. The increases have been consistent, rising in increments from the $12.5bn in the fiscal year concluding at the end of March in 2018 to $19.5bn in the year concluding at the end of this March.
3) From the perspective of foreign companies using the Indian stockmarket
Hyundai, the South Korean auto giant with a market cap of $47bn, has announced a $3bn public offering to take place on the Indian bourses. Partial overseas offerings for global companies are always a bit weird since investors, in theory, can purchase shares anywhere. While Hyundai’s reasons are not entirely cleared, there are a number of possible reasons. One is that Hyundai has done a remarkable job in India, becoming the second or third largest manufacturer in a country that recently proved too much for Ford and General Motors. Indians who would like to invest in this success story, however, face costly impediments tied to tax, capital and foreign exchange controls that come with their buying shares overseas. The listing will provide local shares. Secondly, it is possible that Hyundai will be able to raise capital more cheaply in India’s hot stockmarket than on the South Korean stock exchange.
Many years ago, India required foreign companies to have local listings, often to meet overseas ownership caps. That is, largely, not the case and not true at all in the auto industry. Still, India remains a difficult place to do business that is often xenophobic. In its offering documents, Hyundai notes that a key risk in its Indian operations were frequent changes in government policy. That leads to a third possible reason for the Indian listing. It is possible that for a foreign company operating in India, it helps if at least some of the owners are local.
4) By Indian tycoons
a) Way one: Aggressive capacity expansion
India has a vast need for cement, numerous companies clawing for market share and recently falling prices. No entity plays a bigger role in these factors than the Adani Group which entered the business in 2022 with the purchase of two companies owned by the Swiss firm, Holcim, which collectively was the second largest in India but had only been expanding at desultory rate. That has changed. The operations are piling on capacity and plan to expand by half in the next three to four years. Taking a step in that direction, Adani announced the $1.2bn acquisition of Penna Cement, a major producer based in Hyderabad, that will enable it to expand to a new, growing, region of the country.
b) Regulatory privilege
Meanwhile, Reliance Industries’ Jio operations has received regulatory permission to launch a satellite providing high speed internet connections. Amazon and Elon Musk’s OneWeb are both reported to be waiting for similar approval. Reliance is seen in India as having an unmatched ability to navigate the political and judicial corridors of India, thus being able to operate on an unequal playing field on earth. No one would be surprised if there is an equally uneven playing field in space.
International trade
Export grew 9% in May. America is by far the largest market, with $7.4bn, followed by $3.1bn for the UAE and $2.2bn for the Netherlands. The big change was in fourth place, where Britian, with $1.4bn, narrowly edged out China.
Important company news
Air India’s trouble taking off
Reports of a metal blade found in a meal served on an Air India flight have been widely circulated on Youtube and other platforms. To Air India’s credit, it confirmed the problem, attributing to a vendor’s chopping equipment but a problem is still a problem and the abundant coverage was a consequence of an accumulation of numerous recent complaints including passengers stuck on a Delhi runway for eight hours without air conditioning during a heat wave in May, multiple flights cancelled because of a labour dispute thinly disguised as a mass sick leave, and a fine for violating mandatory rest periods for pilots. Entertainment systems and the pivot on seats often don’t work or work well enough. On time performance is poor. The Financial Express says there have been four emergency landings in the past four weeks including one for an engine fire.
It has been two years since Tata re-acquired Air India from the government, which had expropriated the airline in the 1950s and in decades of poor management destroyed a once pristine reputation. Following the acquisition, hundreds of new planes have been ordered and new senior management installed. No one expected a quick turnaround. It will be many years before the vast new fleet is in service. Still, the current problems have raised concerns that Tata, which in recent years has done a superb job turning around other businesses including steel, power and car manufacturing may be stumbling in its return to aviation.
Unsurprising Indian career advice
1) A survey of the educational background for the founders of Indian unicorns – startups worth in excess of $1bn – revealed that 137 (67%), are engineers. Other areas of study including architecture, English, philosophy and law each produced only one unicorn founder.
2) There are 59,000 immigrant Indian doctors in America, far ahead of number two China with 16,000 and Pakistan with 13,000.
A brutal commute
The insanity of the Mumbai trains at rush hour are well known. As part of stories on the death of a salesman who fell from a train (or was squeezed) out of a train, the Mumbai Mirror reported that so far this year 250 people have died falling off the Mumbai trains and 562 have been injured.
Lost property rights
Many of the longest running cases in the Indian courts concern fights over land. Messy or absent records is a large impediment to investments both in new developments and old properties that are deteriorating. It is tempting to think this only happens with properties that are in odd places but the government of Indoor, while surveying one of its historically upscale areas, has discovered that 333 acres of land is missing.
Shopping
Indian shopping habits are evolving in ways that are hard to predict. There have been many reports of poor sales for shopping malls. They never seem to be that crowded. The opposite is true for street stalls that pile goods on top of open tables where people squeeze next to each other notwithstanding oppressive heat. But new forms of shopping do resonate, even if it means that India is skipping over a phase that was very popular in western countries.
Fast delivery via apps are heavily used for even the smallest item. During the recent heat wave in Mumbai, crossing a road meant dodging small scooters that would skid to a halt at an ice cream stall and then head off to drop off the scoops with a customer before they could melt. But that just hints at the potential for Indian online delivery is just beginning to be tapped. The Times of India noted that purchases of goats to be slaughtered for the annual Muslim festival of Bakrid can now be done online with candidates able to be screened prior to sale on Youtube, Facebook or Instagram.
So Interesting!