Indian Economy: News and Discussion

[ezsasa]

This is a commonly held stupid assumption that artificially increasing purchasing power of the public will help economic growth with hardly any evidence to back it up. In fact every evidence we have so far indicates that increasing the money in the hands of the public without increasing the productivity leads to disasterous results like inflation, economic stagnation, job loss etc.

One good example is MNREGA, which by the same logic you are using here to justify the BS BJP is trying to do, can be argued to increase the spending power of the poor people. But we all know all it did was increase the inflation , artificially increase the labor costs, which lead to artifically higher prices being charged by the companies for the same labour. Seriously, I dont know when people are going to stop with this stupid argument to justify bloated public spending

Frankly I was not thinking of MNREGA when I posted by comments.

I was thinking of JAM trinity, rural banking, housing scheme, rural roads, rural electrification, LPG cylinders etc.

MNREGA for me is a political legacy issue, which is a failed idea which cannot be dismantled immediately.

Increasing the living standards of lower income groups has an impact on GDP. Let’s say there are new 1 lakh LIG houses created by govt, those families are bound to spend atleast 50000-100000 per annum to run the house. That’s an additional 1000 crores of trade per 1 lakh houses. That is 1000 crores of products/services being sold, which is nearly 300 crores of govt revenues.

 

[john70]

From THE WALL STREET JOURNAL:


India’s Economic Expansion Outpaces Rival China

GDP grew 7.7% from a year earlier, exceeding expectations

Anant Vijay Kala

Updated May 31, 2018 9:37 p.m. ET
NEW DELHI—India’s economic expansion accelerated to the fastest pace in nearly two years, pulling further ahead of rival China in the race to be the world’s fastest-growing economy, as the effects fade from the government’s crackdown on cash and adoption of a new tax.

Gross domestic product in Asia’s third-largest economy grew 7.7% in the three months through March compared with a year earlier.....

according to government data issued Thursday. That was better than economists’ prediction of 7.4% and stronger than the 7% expansion in the preceding quarter.

India has now held the position as the world’s fastest-growing big economy for the second quarter in a row, a title that China had wrested from it about a year ago. China’s economy grew 6.8% in the past two quarters.

During the full fiscal year, India’s economy grew 6.7%, which was slower than the previous year’s 7.1% expansion.

India’s economy had been disrupted by Prime Minister Narenda Modi’s sudden move to ban India’s high-value currency notes—known as demonetization—and the bumpy rollout of a new nationwide value-added tax.

More at ........
https://www.wsj.com/articles/indias-economic-expansion-outpaces-rival-china-1527779172

 

[HariPrasad-1]

Let me give a different perspective, which i think is what modi govt is trying to do.

They are trying to increase the spending power of lower income groups. Almost all the schemes are focused on that particular aspect, same reason why middle class is largely ignored(because middle class can take care of themselves).

No matter what companies produce, there should be people to purchase those products. Modi govt is trying to increase the base.

I fully agree with you but what I said is different from you say. I am talking about increasing the alternate income of government form other sources which are not taxes.

 

[Pandeyji]

I fully agree with you but what I said is different from you say. I am talking about increasing the alternate income of government form other sources which are not taxes.

One way could be the PSUs but with a caveat that Govt stops interfering in their operations & doesn't hold majority shares. If that isn't possible the Antarix model could be utilised

 

[ezsasa]

One way could be the PSUs but with a caveat that Govt stops interfering in their operations & doesn't hold majority shares. If that isn't possible the Antarix model could be utilised

PSU’s have reached their full capacity. Govt intervention is least of their problems, rather PSU employees behaving like govt employees are the problem.

Only option is wait for private companies to grow and hopefully share the load, once it is done slowly allow them to die like “HMT” in next 20-30 years.

We also have to remember that it is always the PSUs that save country’s ass in crux situation be it natural calamity or economic downturn. Private companies are hopeless in these situations.

 

[Mikesingh]

MNREGA for me is a political legacy issue, which is a failed idea which cannot be dismantled immediately.

I can't forget what Modi said of Congress' so called flagship scheme, MNREGA in Parliament:

"Do you think, I will put an end to the scheme. My political wisdom does not allow me to do it. This is a living monument of your failure to tackle poverty in 60 years. With song and dance and drum beat, I will continue with the scheme"!
Lol! That's sarcasm at its best!!

 

[sorcerer]

India-US spread to attract bond buyers

MUMBAI: With benchmark local debt yielding about 5 percentage points more than comparative US bonds, India should continue to draw global investors despite the country’s capital costs exceeding those of other competing emerging economies such as Indonesia , Russia, South Korea, or Mexico.

Since the first week of April, Indian yields have climbed 70 basis points to 7.85%. During the period,

US Treasuryyields shot up to as high as 3.12%, but have since cooled to 2.91%. The sudden increase in Indian yields may have prompted the recent exits of overseas cash from India, but the fat spread should act as sufficient incentive for global funds to return.

An ET analysis shows, for instance, that Brazil and Turkey are offering more than 10%. However, the inherent strengths of India, the world’s fastest expanding major economy, should tilt the scales in its favour, provided the USD-INR exchange rate remains stable.
Read more at:
//economictimes.indiatimes.com/articleshow/64423353.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

 

[hit&run]

Sagar Mala project


Sagarmala Project was originally mooted by the National Democratic Alliance (India) Government under Atal Bihari Vajpayee in 2003 as an waterway equivalent to the Golden Quadrilateral, another project under his government but in roadways. The project aimed to leverage India's vast coastlines and industrial waterways to drive industrial development.[1] The project was expected to reduce cost and time for transporting goods, benefiting industries and export/import trade. Thus transforming India's Coastlines as gateway of India's prosperity. Though under the later UPA governments (I and II), the project received much lesser attention.

On 25 March 2015 Cabinet gave approval for this project to develop 12 ports of India and also 1208 Islands.[2] The project was launched by Ministry of Shipping (the nodal ministry for this initiative) in Karnataka on 31 July 2015 at Hotel Taj West End, Bangalore.[3] A National Sagarmala Apex Committee (NSAC), composed of the Minister in charge of Shipping, with Cabinet Ministers from stakeholder Ministries and Chief Ministers / Ministers incharge of ports of maritime states as members, will provide policy direction and guidance for the initiative’s implementation, shall approve the overall National Perspective Plan (NPP) and review the progress of implementation of these plans.[4][5]

The programme aims to promote port-led development in the country by harnessing India's 7,500-km long coastline, 14,500-km of potentially navigable waterways and strategic location on key international maritime trade routes.[6]

36 projects have been proposed by the Andhra Pradesh government for Sagarmala. Indian coastline will be developed as Coastal Economic Regions (CER).[7]

The Sagarmala Development Company was given the nod for incorporation by Indian Cabinet on 20 July 2016 with an initial authorized share capital of Rs 1000 Crore and subscribed share capital of Rs 90 Crore, to give a push to port-led development.[8]

The Sagarmala National Perspective Plan was released on 14-April-2016[9] with details on Project Plan and Implementation.[10]

 

[pankaj nema]

India gets cheapest LNG as Russia's Gazprom begins supplies of worth $25 bn

At current oil prices, the Russian rate is $1.5 per mmBtu less than the price at which Qatar, India's oldest supplier, delivered liquefied natural gas

https://www.business-standard.com/a...s-supplies-of-worth-25-bn-118060400660_1.html

 

[pankaj nema]

Govt weighs merger of Bank of Baroda, IDBI Bank, Oriental Bank, Central Bank

If the bank merger plan goes through, the resulting entity will become the second largest bank in the country after State Bank of India, with combined assets of ₹16.58 trillion

https://www.livemint.com/Industry/P...-of-Bank-of-Baroda-IDBI-Bank-Oriental-Ba.html

 

[Pandeyji]

PSU’s have reached their full capacity. Govt intervention is least of their problems, rather PSU employees behaving like govt employees are the problem.

Only option is wait for private companies to grow and hopefully share the load, once it is done slowly allow them to die like “HMT” in next 20-30 years.

We also have to remember that it is always the PSUs that save country’s ass in crux situation be it natural calamity or economic downturn. Private companies are hopeless in these situations.

What I am proposing is turn them into result oriented companies instead of process oriented. Make them work like private companies. Think of it like this, what if the Railways work & function as a private entity where employees are not assured of the fat bonus every Diwali but only when the railway earns profit. Where promotions & perks aren't based on union or caste connections but performance. Where responsibility is fixed & heads actually roll for disasters. The railway ministry instead of a nosy overlord is just a guiding authority like Aviation ministry. And the govt still has a non-majority stake in it all earning a hefty profit. Rinse & repeat for all PSUs. What do you think?

 

[ezsasa]

What I am proposing is turn them into result oriented companies instead of process oriented. Make them work like private companies. Think of it like this, what if the Railways work & function as a private entity where employees are not assured of the fat bonus every Diwali but only when the railway earns profit. Where promotions & perks aren't based on union or caste connections but performance. Where responsibility is fixed & heads actually roll for disasters. The railway ministry instead of a nosy overlord is just a guiding authority like Aviation ministry. And the govt still has a non-majority stake in it all earning a hefty profit. Rinse & repeat for all PSUs. What do you think?

PSUs have become so unionised that they can't be reversed. For example : when the topic of Air India sale first came up all television channels had one union guy opposing the sale no their panel. That is not a coincidence.

I had seen NDPL(North Delhi power limited) in the first two years after being purchased by TATA. almost all Govt employees were retained and the work culture remained the same for the first two years. Since it is a business with assured revenues, impact was not that much.

In a practicality there is huge resistance to change, and Govts fall when they try to do massive overhaul's in PSU managements.

Take another example of OFBs. if you go thru parliamentary committee reports on defence production you will find that restructuring and improvement of efficiency will be a common point for many years. but last year's report say OFB has decided not to spend any money on restructuring. same year you will find Modi Govt issue RFI for ammo manufacturing by private companies. if you read between the lines, current govt tried for two years and gave up on trying to change OFB. at the same time govt decided to encourage Pvt companies for defence manufacturing.

And in india where every ram rahim robert thinks they can bring down the govt for simple issues, no political party is brave enough to restructure PSUs. they can only disinvest at best. even the disinvestment is failing now a days.

 

[YagamiLight]

Frankly I was not thinking of MNREGA when I posted by comments.

I was thinking of JAM trinity, rural banking, housing scheme, rural roads, rural electrification, LPG cylinders etc.

MNREGA for me is a political legacy issue, which is a failed idea which cannot be dismantled immediately.

Increasing the living standards of lower income groups has an impact on GDP. Let’s say there are new 1 lakh LIG houses created by govt, those families are bound to spend atleast 50000-100000 per annum to run the house. That’s an additional 1000 crores of trade per 1 lakh houses. That is 1000 crores of products/services being sold, which is nearly 300 crores of govt revenues.

What kind of stupid logic is that. That 1000 crores of products spent on building houses is not revenue for the government but is instead 1000 crores of spending by the government. That money doesn't pop from magic air but is instead got from taxing the population. And no, this is no different from MNREGA where government gave free money to people (here govt gives free money to people again).

Either you really don't understand economics and are talking BS or you are deliberately talking non sense to excuse this pathetic government of its pathetic ideas/spending

 

[tsunami]

What kind of stupid logic is that. That 1000 crores of products spent on building houses is not revenue for the government but is instead 1000 crores of spending by the government. That money doesn't pop from magic air but is instead got from taxing the population. And no, this is no different from MNREGA where government gave free money to people (here govt gives free money to people again).

Either you really don't understand economics and are talking BS or you are deliberately talking non sense to excuse this pathetic government of its pathetic ideas/spending

Dude Building houses are much batter. I remember in MNREGA many workers in our village were getting money for digging holes and then filling them back w/o any purpose. And during last assembly election that Ashok Gehlot BC was distributing more money based on number of working days in MNREGA (i.e. 1000-1500 cash if you worked more then 100 days under MNREGA)

 

[hit&run]

What kind of stupid logic is that. That 1000 crores of products spent on building houses is not revenue for the government but is instead 1000 crores of spending by the government. That money doesn't pop from magic air but is instead got from taxing the population. And no, this is no different from MNREGA where government gave free money to people (here govt gives free money to people again).

Either you really don't understand economics and are talking BS or you are deliberately talking non sense to excuse this pathetic government of its pathetic ideas/spending

The only nonsense is when one sees MNREGA and constructing homes as equal.

Building homes add to growth, create skilled jobs that can sustain further.

Credible infrastructure which supports families to further bring social and civil cohesion including prospectus to support more related jobs and trade opportunity. Last but not least it brings stability to families who can then be part of the mainstream focusing on education and economic activities.

 

[ezsasa]

What kind of stupid logic is that. That 1000 crores of products spent on building houses is not revenue for the government but is instead 1000 crores of spending by the government. That money doesn't pop from magic air but is instead got from taxing the population. And no, this is no different from MNREGA where government gave free money to people (here govt gives free money to people again).

Either you really don't understand economics and are talking BS or you are deliberately talking non sense to excuse this pathetic government of its pathetic ideas/spending

No mate, read it again.
the 1000 crores is the additional trade(not govt revenue) created by people moving into LIG.

 

[hit&run]

.....................................

 

[KumarG]

Eight Charts: India Ascendant
By Sloane Ortel, Saurabh Mukherjea, CFA, Vikas Khemani, CFA, Sunil Singhania, CFAand Navneet Munot, CFA
Posted In: Economics, Portfolio Management
India’s economy will experience the ordinary progress of a century over the next decade.

That sentence is as true now as it was in 1952 when Donald B. Macurda wrote of investment opportunities in India for the CFA Institute Financial Analysts Journal.

The appeal was humanitarian, but also prophetic.

He wrote that the country “should logically become one of the world’s great steel centers,” and today it is. The prediction that “the Indian industrial ball will gather an accelerating momentum that could be enriching to all concerned” has also aged well.

View image on Twitter

Sloane Ortel@sloaneortel
This is nothing if not an accelerating return.

This is because of pro-growth policy, not political personality.

India’s economic liberalization was really sparked during a balance of payments crisis in 1991. Ten years later, the Asian Development Bank’s chief economist observed that the need for continued work had become an item of widespread political consensus. To place the change in context, consider that the weighted average tariff on an imported product was 76% in 1990 according to the World Bank. It was 29% a decade later, and 6.2% in 2016.

That’s more a rebirth than a liberalization.

These compounding efforts have a straightforward result: India isn’t playing catch-up anymore. It’s the world’s seventh-largest economy, and in some ways it’s already well ahead of “developed” places.

In early 2017, Sloane Ortel estimated that a minimum wage earner in New York City spends 1.5% to 2.5% of their discretionary income on banking fees. In India, anything above 0% is an outlier. The Pradhan Mantri Jan-Dhan Yojana (PMJDY, Scheme for People’s Wealth) provides not just free bank accounts to all citizens, but also free overdraft insurance. That makes capital formation easier, and it’s just one of a few hundred reasons why 8% GDP growth seems plausible for the next 20 years.

View image on Twitter

Sloane Ortel@sloaneortel
Indian inflation has bottomed, and looks likely to rise further.

4:48 PM - May 30, 2018

So don’t be surprised if the economy starts running a little hot.

India’s inflation rate printed below 2% in the summer of 2017, but has since risen significantly. The most recent release puts consumer prices up 4.58% from a year ago, and the year-on-year change has been well above the RBI’s target of 4% since November of last year.

The 1 July 2017 introduction of the national Goods and Services Tax (GST) is not least among its drivers. The 18% tax it collects on services is a significant hike from the 14.5% duty that was previously imposed on 28% of the CPI basket.

Fiscal policy is also likely to be accommodative until elections to India’s lower house of parliament, the Lok Sabha, in spring 2019. Local and national government social and infrastructure spending tends to spike in these pre-election periods.

View image on Twitter

Sloane Ortel@sloaneortel
India's manufacturers face a crude reality.
4:52 PM - May 30, 2018

And of course, there are commodity prices.

India imports 86% of its crude oil requirement: about 1.5 billion barrels each year. That means rising crude prices have nearly a one-on-one impact on India’s import bill.

It’s less stark than it seems at first. Refined petroleum is India’s largest single export. The country sent 207 million barrels abroad in 2016, making it the world’s fifth-largest supplier behind the Netherlands and netting $29.5 billion, 9% of the country’s total export trade.

For the Indian consumer, oil prices never fell. The government responded to the 2015 selloff by raising taxes on diesel and petrol. This increases reserves and can always be cut in the future. It’s also a footnote compared to some of the government’s other policy reforms.

View image on Twitter

Sloane Ortel@sloaneortel
This is what an economic transformation looks like.
5:48 PM - May 30, 2018 · Brooklyn, NY

The informal sector accounts for roughly 40% of India’s 2017 output and employs almost 80% of its labor force.

The government seems determined to get rid of it.

India has digitized its financial plumbing, cracked down on cash, and issued a new national tax scheme largely to tamp out “black” money, or untaxed earnings on the black market. Many of these businesses are relatively low quality, and can be expected to lose share or cease operating without the ability to flout wage laws and avoid taxes.

This is a tailwind for listed companies. Market leading franchises have long been gaining share from these informal operators. Soon they will operate in a uniform national market with much less illicit competition.

View image on Twitter

Sloane Ortel@sloaneortel
Indians are starting to discover their domestic capital markets.
5:52 PM - May 30, 2018 · Brooklyn, NY

The money habits of individual Indians are also headed for a significant change.

About 95% of India’s wealth is invested in physical assets: 77% in real estate with the balance in durable goods (7%), and gold (11%).

The remaining 5% is invested in financial assets. This share is already growing and looks set to go further. Households put 45% of their income into financial assets in 2012. The proportion is now around 58% and looks poised for more expanision.

This will materially strengthen India’s capital account if it continues.

View image on Twitter

Sloane Ortel@sloaneortel
Not all borrowers pay their bills.
6:13 PM - May 30, 2018 · Brooklyn, NY

There are risks to the rosy outlook, of course.

A primary one is the sometimes lackluster credit discipline of Indian lenders. “India’s bad loan/twin balance-sheet problem is widely known and so far intractable,” David Keohane wrote last year.

Historically, Indian companies have been weighed down by debt-laden balance sheets and the public sector banks that have financed them have been saddled with non-performing assets. In large part, this is because India’s bankruptcy code did not make it easy for creditors to reach economically viable arrangements. The Insolvency and Bankruptcy Code (IBC) of 2016 has materially strengthened the insolvency framework with an efficient legal structure to enforce debt service obligations.

It’s difficult to overstate the importance of this. The Asia Securities Industry and Financial Markets Association (ASIFMA) estimated that India’s corporate bond market was worth about 15% of GDP in 2017. That’s tripled from 5% five years earlier, but is still much lower than neighboring Malaysia, where outstanding corporate bonds were worth 40% of GDP. Deepening this market will help to finance much-needed infrastructure projects and also provide banks with a bit more breathing room.

There are plenty of reasons to hope it works, but it may be a process. About two weeks ago, a Reuters headline blared, “India State Banks’ Bailout Stumbles as Losses Mount.” And Moody’s just cut their estimate for India’s 2018 GDP, citing a combination of higher oil prices and tighter financial conditions.

View image on Twitter

Sloane Ortel@sloaneortel
Accounting quality drives investment performance in India.
6:23 PM - May 30, 2018 · Brooklyn, NY

And then there’s the same old risk: Investing is hard.

Finding multibagger investments in India is a tricky affair because accounting quality and corporate governance standards vary wildly across companies and over 60% of the market cap of the frontline index, the NIFTY, is in highly regulated sectors like banks, telecoms, metals, power, infrastructure, and pharmaceuticals.

However, India had 5,615 listed companies in 2017, according to the World Bank. That’s more than any other market on the planet: The United States had just 4,336. The top decile of these firms has historically delivered 10-times returns over 10-year horizons.

That’s a 25% compound annual growth rate. Foreign investors have participated in this growth story enthusiastically, which has kept India among the most expensive emerging markets based on trailing price/earnings multiples.

View image on Twitter

Sloane Ortel@sloaneortel
There's plenty of room for India's corporate profits to grow.
6:35 PM - May 30, 2018 · Brooklyn, NY

The standard question to ponder towards the conclusion of an article like this is: What inning are we in?

In India, though, the game is cricket, not baseball. One inning can last as long as four baseball games, and there are either two or four of them. The longest game in historylasted nine days. And that’s really the point. An allocator encountering India today faces an unusual and alluring confluence of factors. The MSCI Emerging Markets Index has only an 8.5% weighting to this fast-growing, cyclically attractive, and tailwind-laden economy.

The outlook is strong enough that we’ve gotten almost to the end before mentioning India’s outrageously favorable demographics, swift digital rebirth, and booming middle class.

https://blogs.cfainstitute.org/investor/2018/06/05/eight-charts-india-ascendant/

 

[Mikesingh]

Eight Charts: India Ascendant
By Sloane Ortel, Saurabh Mukherjea, CFA, Vikas Khemani, CFA, Sunil Singhania, CFAand Navneet Munot, CFA
Posted In: Economics, Portfolio Management
India’s economy will experience the ordinary progress of a century over the next decade.

That sentence is as true now as it was in 1952 when Donald B. Macurda wrote of investment opportunities in India for the CFA Institute Financial Analysts Journal.

The appeal was humanitarian, but also prophetic.

He wrote that the country “should logically become one of the world’s great steel centers,” and today it is. The prediction that “the Indian industrial ball will gather an accelerating momentum that could be enriching to all concerned” has also aged well.

View image on Twitter

Sloane Ortel@sloaneortel
This is nothing if not an accelerating return.

This is because of pro-growth policy, not political personality.

India’s economic liberalization was really sparked during a balance of payments crisis in 1991. Ten years later, the Asian Development Bank’s chief economist observed that the need for continued work had become an item of widespread political consensus. To place the change in context, consider that the weighted average tariff on an imported product was 76% in 1990 according to the World Bank. It was 29% a decade later, and 6.2% in 2016.

That’s more a rebirth than a liberalization.

These compounding efforts have a straightforward result: India isn’t playing catch-up anymore. It’s the world’s seventh-largest economy, and in some ways it’s already well ahead of “developed” places.

In early 2017, Sloane Ortel estimated that a minimum wage earner in New York City spends 1.5% to 2.5% of their discretionary income on banking fees. In India, anything above 0% is an outlier. The Pradhan Mantri Jan-Dhan Yojana (PMJDY, Scheme for People’s Wealth) provides not just free bank accounts to all citizens, but also free overdraft insurance. That makes capital formation easier, and it’s just one of a few hundred reasons why 8% GDP growth seems plausible for the next 20 years.

View image on Twitter

Sloane Ortel@sloaneortel
Indian inflation has bottomed, and looks likely to rise further.

4:48 PM - May 30, 2018

So don’t be surprised if the economy starts running a little hot.

India’s inflation rate printed below 2% in the summer of 2017, but has since risen significantly. The most recent release puts consumer prices up 4.58% from a year ago, and the year-on-year change has been well above the RBI’s target of 4% since November of last year.

The 1 July 2017 introduction of the national Goods and Services Tax (GST) is not least among its drivers. The 18% tax it collects on services is a significant hike from the 14.5% duty that was previously imposed on 28% of the CPI basket.

Fiscal policy is also likely to be accommodative until elections to India’s lower house of parliament, the Lok Sabha, in spring 2019. Local and national government social and infrastructure spending tends to spike in these pre-election periods.

View image on Twitter

Sloane Ortel@sloaneortel
India's manufacturers face a crude reality.
4:52 PM - May 30, 2018

And of course, there are commodity prices.

India imports 86% of its crude oil requirement: about 1.5 billion barrels each year. That means rising crude prices have nearly a one-on-one impact on India’s import bill.

It’s less stark than it seems at first. Refined petroleum is India’s largest single export. The country sent 207 million barrels abroad in 2016, making it the world’s fifth-largest supplier behind the Netherlands and netting $29.5 billion, 9% of the country’s total export trade.

For the Indian consumer, oil prices never fell. The government responded to the 2015 selloff by raising taxes on diesel and petrol. This increases reserves and can always be cut in the future. It’s also a footnote compared to some of the government’s other policy reforms.

View image on Twitter

Sloane Ortel@sloaneortel
This is what an economic transformation looks like.
5:48 PM - May 30, 2018 · Brooklyn, NY

The informal sector accounts for roughly 40% of India’s 2017 output and employs almost 80% of its labor force.

The government seems determined to get rid of it.

India has digitized its financial plumbing, cracked down on cash, and issued a new national tax scheme largely to tamp out “black” money, or untaxed earnings on the black market. Many of these businesses are relatively low quality, and can be expected to lose share or cease operating without the ability to flout wage laws and avoid taxes.

This is a tailwind for listed companies. Market leading franchises have long been gaining share from these informal operators. Soon they will operate in a uniform national market with much less illicit competition.

View image on Twitter

Sloane Ortel@sloaneortel
Indians are starting to discover their domestic capital markets.
5:52 PM - May 30, 2018 · Brooklyn, NY

The money habits of individual Indians are also headed for a significant change.

About 95% of India’s wealth is invested in physical assets: 77% in real estate with the balance in durable goods (7%), and gold (11%).

The remaining 5% is invested in financial assets. This share is already growing and looks set to go further. Households put 45% of their income into financial assets in 2012. The proportion is now around 58% and looks poised for more expanision.

This will materially strengthen India’s capital account if it continues.

View image on Twitter

Sloane Ortel@sloaneortel
Not all borrowers pay their bills.
6:13 PM - May 30, 2018 · Brooklyn, NY

There are risks to the rosy outlook, of course.

A primary one is the sometimes lackluster credit discipline of Indian lenders. “India’s bad loan/twin balance-sheet problem is widely known and so far intractable,” David Keohane wrote last year.

Historically, Indian companies have been weighed down by debt-laden balance sheets and the public sector banks that have financed them have been saddled with non-performing assets. In large part, this is because India’s bankruptcy code did not make it easy for creditors to reach economically viable arrangements. The Insolvency and Bankruptcy Code (IBC) of 2016 has materially strengthened the insolvency framework with an efficient legal structure to enforce debt service obligations.

It’s difficult to overstate the importance of this. The Asia Securities Industry and Financial Markets Association (ASIFMA) estimated that India’s corporate bond market was worth about 15% of GDP in 2017. That’s tripled from 5% five years earlier, but is still much lower than neighboring Malaysia, where outstanding corporate bonds were worth 40% of GDP. Deepening this market will help to finance much-needed infrastructure projects and also provide banks with a bit more breathing room.

There are plenty of reasons to hope it works, but it may be a process. About two weeks ago, a Reuters headline blared, “India State Banks’ Bailout Stumbles as Losses Mount.” And Moody’s just cut their estimate for India’s 2018 GDP, citing a combination of higher oil prices and tighter financial conditions.

View image on Twitter

Sloane Ortel@sloaneortel
Accounting quality drives investment performance in India.
6:23 PM - May 30, 2018 · Brooklyn, NY

And then there’s the same old risk: Investing is hard.

Finding multibagger investments in India is a tricky affair because accounting quality and corporate governance standards vary wildly across companies and over 60% of the market cap of the frontline index, the NIFTY, is in highly regulated sectors like banks, telecoms, metals, power, infrastructure, and pharmaceuticals.

However, India had 5,615 listed companies in 2017, according to the World Bank. That’s more than any other market on the planet: The United States had just 4,336. The top decile of these firms has historically delivered 10-times returns over 10-year horizons.

That’s a 25% compound annual growth rate. Foreign investors have participated in this growth story enthusiastically, which has kept India among the most expensive emerging markets based on trailing price/earnings multiples.

View image on Twitter

Sloane Ortel@sloaneortel
There's plenty of room for India's corporate profits to grow.
6:35 PM - May 30, 2018 · Brooklyn, NY

The standard question to ponder towards the conclusion of an article like this is: What inning are we in?

In India, though, the game is cricket, not baseball. One inning can last as long as four baseball games, and there are either two or four of them. The longest game in historylasted nine days. And that’s really the point. An allocator encountering India today faces an unusual and alluring confluence of factors. The MSCI Emerging Markets Index has only an 8.5% weighting to this fast-growing, cyclically attractive, and tailwind-laden economy.

The outlook is strong enough that we’ve gotten almost to the end before mentioning India’s outrageously favorable demographics, swift digital rebirth, and booming middle class.

https://blogs.cfainstitute.org/investor/2018/06/05/eight-charts-india-ascendant/

Thanks for the details. How about details of NPA's through the years?

 

[KumarG]

Thanks for the details. How about details of NPA's through the years?

The best I could find was from this RBI report (a lot of discussion throughout the report, but especially from Pg 74 onwards):
https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/0RTP20161778B7539711F14E088A31D52351BF6440.PDF

Excerpts below:

Box V.1: NPAs and Credit Cycles in India – Priority versus Non-Priority Sectors

The evolution of NPAs tends to be pro-cyclical albeit with a lag. When NPA ratios rise above a certain threshold, they have a negative impact on banks’ willingness to lend indicative of nonlinearities and reverse causality also at work (Tracey, 2011; Cucinelli, 2015).

It is observed in the Indian banking system that while credit growth on the aggregate positively affects the NPA ratio in the Indian economy (Chavan and Gambacorta, 2016), there are bi-directional effects as well. The NPA ratio has a negative contemporaneous effect on overall credit growth (RBI, 2017). These system-level relationships are investigated at a segmentspecific level, that is, across the priority and non-priority sectors in view of observed differences in the levels of NPAs and credit growth as well as in access to alternative sources of finance in the two sectors.

Quarterly data on year-on-year (y-o-y) credit and NPA growth for both priority and non-priority sectors from March 2002 to June 2017 was filtered to extract deviations from the trend in the form of growth cycles. A visual observation of the y-o-y growth in NPAs and credit in the priority sector suggests that they generally moved in opposite directions. The only exception being a close co-movement with more than characteristic volatility for an intermediate period between December 2011 and June 2014 (Chart 1A). In the non-priority sector, movement in opposite directions was generally observed (Chart 1B).

For the priority sector, Granger causality at a lag length (5) optimised through the AIC, LR and HQ criteria in a VAR framework indicated bi-directional causality between these two cycles.3 NPA growth cycles affected credit growth cycles negatively and significantly with a lag of four quarters while credit growth cycles positively and significantly affected NPA growth cycles with a lag of one quarter. Agriculture forms a substantial part of priority sector lending. The bulk of agricultural credit is primarily disbursed before the fourquarter long agricultural crop year while repayment of credit is due after the harvest following each cropping season which are of a shorter term by nature. These lags then seem intuitively plausible.

For the non-priority sector, Granger causality at an optimal lag length of 6 indicated a bi-directional causality between the credit growth cycle and the NPA growth cycle. Cross-correlation coefficients showed that the credit growth cycle and the NPA growth cycle in the non-priority sector were positively and significantly correlated with a lag of 16 quarters. The long gestation period of infrastructural and core industrial projects covered under the non-priority sector could explain the longer lag in this sector. However, the NPA growth cycle negatively affected the credit growth cycle after about just one quarter. Banks responded to the stress on their balance sheets by curtailing the supply of credit to the sector.

To conclude, the effects of credit growth on NPA growth played out, as expected, in both priority and non-priority sectors in line with the sector-specific characteristics. On the other hand, growing credit risk in the non-priority sector evoked a more prompt contraction in credit growth to that sector as compared to the characteristic lag in the impact of credit risk on bank lending in the priority sector. For some time now, the nonpriority sector has contributed more to the weakening quality of assets on the bank balance sheets than the priority sector. Hence, it is not surprising that a reduction in lending activities in the non-priority sector followed soon after sharp increases in the NPA growth cycle in the sector.