India Business and Finance, September 19th
India Business and Finance, September 19th
Ipos, mobsters and strikes and food. What unfolded in India over the past week.
The epicenter of India’s IPO boom
Bajaj Housing Finance listed on the National Stock Exchange (NSE) to an appreciative audience. Its share price more than doubled over an offering price that had already been set at the top end of expectations. With the opening bell and two cannons firing graffiti, the IPO probably created the 9th largest private financial institution in India with a $17bn market cap.
There are many reasons for the reception, all of which say a lot about India at this moment. The first is that the cyclical enthusiasm for new listings is at peak levels. The company is the 32nd to qualify for a primary listing this year and hundreds of other smaller companies have listed on secondary platforms. Prices may have gotten out of hand - Bajaj’s valuation is by any conventional measure a stretch and possibly a stretch too far - but there are nonetheless good reasons for why this deal has created unusual excitement, notably that India’s housing market is finally finding its feet - the second reason. Mortgages have grown dramatically as a percentage of gdp over the past five years but still only comprise 12% of GDP, as opposed to more than 60% in America and Britain. It isn’t unreasonable to expect both the housing market, and the housing finance market, to grow at a remarkable rate.
Third, Bajaj, is among very few companies in India considered to be a superb operator. It initially came to prominence as a producer of motorcycles and rickshaws that are inexpensive and all but unbreakable. Then, it created a subsidiary to finance vehicles which expanded into multiple areas of consumer finance generating strong growth, high returns and low credit losses. Many consider Bajaj Finance to be the best run financial company in the country. The housing finance component, which is being spun off for regulatory reasons, is considered to carry with it the Bajaj virtues. . Profits have grown 30% annually over the past four years. Credit losses have been tiny.
In theory, Indian banks should own the mortgage market but though they are engaged, they often enter indirectly by providing credit to housing finance companies which operate with less bureaucracy.
Foreigners and India
Should America share advanced military technology with India?
At a meeting in California, key entities involved in advanced defense technology in America and India were reported to have signed an agreement to expand cooperation on innovative products. That presumably will allow technology transfers from America to India which is attempting to build a vibrant arms industry for domestic consumption and export.
While a deal will be hailed by both sides as a reflection of closer relations, it puts America in the odd position of potentially providing valuable military knowledge to a country that has had strong defense ties with Russia and strong relationship with Iran and which may choose to export products to numerous other countries that, like Russia and Iran are broadly seen to be potential military threats to America. It is hard to imagine that this effort will avoid being controversial.
Investment. Foreign portfolio investment, after drifting down for most of the year, has suddenly perked up, with Rs278.6bn ($3.3bn) coming in during the first two weeks of September. The change of mind is ascribed to expectations of interest rate cuts but it is very possible other unique factors are responsible, including ones that do not reflect a shift in confidence such as the need to increase holdings in response to higher allocations for India in various indices for stocks and bonds.
Strikes and antitrust litigation. Workers at a Samsung plant in Tamil Nadu have gone on strike. Job actions are not uncommon in India, but far far less common than they have been in the past and this is a first for Samsung in its 16 year history in the country. It produces many products including phones, televisions and appliances. Slowing sales have, however, resulted in announced job cuts of 200 people, about 10% of its overall workforce. Growing in India is hard. Shrinking may be harder.
Samsung, Xiaomi, Amazon and Flipkart. Meanwhile, Samsung and Xiaomi, as well as several other smartphone manufacturers, were found by India’s Competition Commission to reportedly be colluding with Amazon and Flipkart, large electronic marketplaces, for product launches. The move will inevitably be understood as part of the Indian government’s ongoing attack against foreign e commerce companies.
Foreign entities returning. Carrefour, the French retailer which withdrew from India in 2014 after a difficult four years, will re-enter next year in a franchise agreement with Apparel Group, a Dubai-based company that has opened other stores in India for smaller companies under a similar arrangement.
Ford, which sold cars in India prior to the country’s independence, was squeezed out with other manufacturers thereafter, returned in 1995 and then in 2021 left again following $2bn in losses. It has now, apparently, reversed course and will try again. Since ceasing to sell cars in India, it disposed of a large plant in Gujarat but it retained a very large technology centre with thousands of people in Tamil Nadu. Negotiations with multiple car companies to sell a key assembly plant in Tamil Nadu were never concluded and now it appears that Ford wants to keep it, with the intention of manufacturing cars for export. Details of its new project, and possible partners, remain unclear.
Blocked foreign acquisition. When Yes Bank, a major Indian financial institution, fell apart four years ago, a bailout was arranged with the huge government-controlled State Bank of India acquiring 49% and lesser stakes acquired by two private equity firms, Carlyle and Advent International and five other Indian financial institutions, Axis, ICICI, HDFC Bank, Kotak Mahindra and the Life Insurance Company of India. Now, various lockups have expired and the bank, though hardly a model of excellence, has survived. Two possible buyers have emerged, Dubai’s Emirates NBD and Japan’s Sumitomo Mitsui. All of the smaller stakeholders presumably would like an exit but the Reserve Bank of India, the country’s central bank, has reportedly blocked any foreign institution from buying 51% or more, throwing a wrench in any deal from a company that would be likely to impose a thorough sweep.
The internal Indian debate over tariffs and whether it is important to tolerate China
V Anantha Nageswaran, the chief economic advisor to the government, told a conference in Tamil Nadu that for the country’s economy to rise, tariffs must be reduced on components. It is an argument most of the country’s manufacturers would agree with, unless they are trying to build a business manufacturing components in which case, they want protection. The argument becomes particularly heated when China enters. It remains by far the largest exporter of products to India, which is a source of great consternation to the country’s government which feels it is supporting a country that is literally a military threat on its northern border and whose industrial policy often targets Indian industries, from steel to pharma. The annual economic survey said more purchases from China would be positive for Indian manufacturing. This surely true, but so too are the concerns.
The business of crime: Indian gangsters go global
The Economic Times reports that a new generation of Indian crime bosses, mostly from Punjab, are now operating in Canada, Australia, Greece, Portugal, and the Philippines, among other countries, as well as in multiple Indian cities. The men involved seem to be young, ranging in age from 22 to 37, and their activities have grown rapidly since 2019. Among their activities are extortion and protection rackets, arms transportation and murder. There has even been a marriage between two, one of whom, Anuradha Choudhary, is known as Revolver Rani. Her new husband was given a special sixhour parole for the wedding in Delhi. Security was provided by the Delhi police who were concerned that rival gangsters “operating from the shadows in Canada” might use the occasion to gun down the bride and groom.
High profits and low investment
One of the most striking characteristics of the recent period of high profit growth and overall growth for the economy has been the unwillingness of businesses to increase their bets. A study of non-financial corporate profits and investment over the past four years shows annual earnings have risen 32% while investment has increased only 8.5%
Expropriation
The 99-year lease signed in1946 for the 160-acre Madras Race Club, calling for a rent of Rs614 (US$7.34) a year, has been cancelled by a state agency asserting that the termination was “in the public interest that such an invaluable green area be made accessible to the larger public of Chennai by provisioning of public utilities, public offices, public gardens and public open spaces.”
No surprise, the matter is in the courts, as is so often the case in India, particularly in the case of property. This one, though, resonates on many levels. The race track in Mumbai is similarly in the midst of some form of government take over and there are many questions about whether the green space will provide a good for the broader public or for clever politicians and developers. Moreover the abrogation of an agreement, even one signed just before India’s independence in 1947, sends a chilling message in a country that has nationalized and expropriated assets in the past.
The business of food
Finally, a rival to pizza. Some fast food? products seem to have already hit their saturation point years ago but a story that grabbed a lot of attention in the Indian press recently was the rise in demand for basmati rice driven by the country’s love affair with biryani, a dish with a million different recipes (many secret) that entered India from Persia or central Asia (many want to claim credit for this miracle) that then spread to the rest of the country to become fast food, available from rapid delivery services in just a few minutes at all hours.
Coffee. Multiple coffee chain startups, some just a few years old, are raising millions of dollars and opening outlets throughout the country. Included in this list are Blue Tokai, Subko, abCoffee and Third Wave. All of the cafes seem to have attracted large, devoted followings, either for their coffee, their sweet pastries or as workplaces. Their rise, curiously, follows the bankruptcy of Café Coffee Day, which is still struggling to survive in a diminished form.
If there is a difference between Café Coffee Day and the upstarts that captures a transition in India, it is that the newcomers are a bit more, and sometimes far more, expensive. Some put tremendous effort into food. Others, notably Third Wave, have become favourites by adding a single sought-after feature – an abundance of laptop friendly plugs.
Given the above…
Perhaps in a world focussed on biryani and coffee and cakes, it was inevitable. The Economic Times reports that India Inc wants employees to be more fit and companies are even tracking health metrics in performance reviews, including weight loss.