India Business and Finance, September 5th

What is happening in the world's fastest growing, monsoon-flooded, economy.

India is up

Inferring this from taxes:

The collection of goods and services tax rose 10% in June from a year earlier, suggesting growth in consumption.

Inferring this from growth in key sectors:

During the quarter ending in June, key sectors showed solid growth from the year earlier period, with mining up 7%, manufacturing 7.2%, electricity 10.4%, and construction 10.5%. The one area of particularly weak growth was agriculture, up just 2%. Although the sector has declined in importance in terms of its share of India’s GDP, it still employs about 46% of the working population and thus its stagnation has a vastly disproportionate impact on incomes.

Inferring this from the emergence of more wealthy people:

The low to non-existent growth for the many working in agriculture is in sharp contrast to the rewards being reaped from other segments of the economy. At the very top, two newly released rich lists, one by Hurun India and one by Fortune, each underscore the expanding wealth. Hurun reckons that the number of people with more than  $1bn now stands at 334, up by 75 since its report last year. The number of Indians who clear its minimum bar of $120m is 1539, up by 272 from last year.

The valuations distilled by the two reports differ in many cases, most notably in the case of the Adani and Ambani families who lead the list. Mr Ambani leads in the Fortune list, with $125bn compared to $124bn. Mr Adani leads in Hurun’s, $139bn compared to $122bn. But the differences are almost irrelevant in the bigger picture, which is just how large these fortunes are. Behind these two are a handful of other extraordinarily rich people who measure their fortunes in tens, rather than hundreds, of billions of dollars including Shiv Nadar, the low-profile head of HCL, an IT services giant, Cyrus Poonawalla, head of The Serum Institute, a large vaccine producer, and Dilip Shangvi of Sun Pharma.

While the rise of these families has been extraordinary, the Indian story has enabled many ordinary individuals to reap staggering gains on the stock market from companies in conventional businesses that have done unconventionally well over the past 20 years. A report in The Business Standard lists JSW Steel (up 94, 361%), Bajaj Finance (up 87,250%), Titan (up 52,741%), Eicher Motors (up 26,281%) and Shriram Finance (up 12,310%).

Inferring this from the emergence of better paying salaries that are now being paid by the Indian tech centers of multinational companies:

A new report from TeamLease Digital cited by The Times of India says “global capability centers” pay from 12% to 20% more than the equivalent salaries paid at domestic Indian IT services companies that have traditionally been used as a form of outsourced operations. The emergence of these operations and the higher pay is because the services multinationals want from India are increasingly sophisticated, proprietary and important.

But then:

How quickly the promise of a business can change 

India’s electric scooter market is very competitive, with four large producers. At the end of March,Ola, a startup focused only on electric vehicles (unlike the others), had 49% of the market. That set the stage for an initial public offering in early August that was well received by the Indian market, with the company’s shares now trading at double the offering price. But there is reason to believe enthusiasm is cooling. The company’s valuation, though still a significant $6bn, is down 14% from its peak in mid-August. Recent sales numbers indicate it now has about one-third of the market, still a large number but the contraction is sharp. Ola’s approach has been to sell scooters at a steep loss, approaching $1,000 a vehicle, to build scale. Money raised in the offering gave it breathing space. But the older producers seem to have found their footing, with Bajaj, TVS and Hero all now offering appealing products. Ola’s impact on the Indian market has been positive – its early success was a screaming wake-up call and the resulting competition has been fierce, with the beneficiary being the vast number of Indians who are poor and are dependent on scooters for transportation. Whether Ola’s new investors benefit as well is a more difficult question. In recent years, an array of tech companies have briefly been seen as transformative only to stumble as loss-driven strategies to push early sales did not convert to profits.

Foreign direct investment is down:

In the fiscal year concluding at the end of March 2022, foreign direct investment was $56bn, for the 2023 fiscal year it was $42bn and in 2024 it was $26.5bn. There are multiple reasons why this trajectory is important and jarring. India’s government has been emphatic about wanting foreign investment and has seen money coming from overseas as an endorsement of its policies. Some of the decline is doubtless because the global economy has slowed, reducing, perhaps, investment courage and surely affecting demand for Indian exports. But the declining numbers say more than that – they suggest that the impediments to putting money into India and taking it out, as well as how it is treated while in India, remain a concern.

Prime Minister Narendra Modi is a superb salesman but others in the administration can be terrifying, attacking foreign tech giants who have been willing to enter the country or raising the prospect of new rules or taxes in future, or even retrospectively. In post-independence India, with its history of explicit expropriation and economic expulsion, this isn’t seen as just noise. To attract investment, the government has provided “tax holidays” under some conditions, but the holidays, whatever their intentions, make the competitive playing field even more complex and even unfair.

Many big investment firms have begun making brief trips to India but these can have a Potemkin quality. Inevitably, there are references to the recent heavy and successful  investment in infrastructure. But the monsoon-related flooding this summer has underscored how poorly many cities are run and how adequate drainage and water storage has yet to be built, despite the annual reminders. Poorly executed construction projects have turned critical roads into parking lots.

Mr Modi appeared last week at a conference on digital finance held in Reliance’s new Jio Centre in Mumbai’s newish business district, the Bandra Kurla Complex. Many would-be attendees never made it. Instead, they were stuck for hours in traffic jams because of poorly designed roads and sloppy, delayed construction. Overloaded phone networks, including the largest, Reliance’s Jio, meant that people stuck in these jams often could not make calls or send messages. Local retailers were similarly unable at times to get a signal allowing electronic payments to be processed.

If the aspiring conference attendees came from abroad, they perhaps concluded digital India was surely part of the future, if only because physical India was so hobbled, and in itself that was a positive sign. But as they may have also experienced, digital India, in theory a seamless network of connections, can be similarly broken.

A key regulator is under fire:

Madhabi Puri Buch, the boss of the Securities Exchange Board of India (SEBI), the country’s financial market regulator, has suddenly become the target of attacks on her impartiality and management. These began in mid-August when Hindenburg Research, a New York short-selling firm, blamed the lack of regulatory sanctions on the Adani Group on Ms Buch’s investment in a fund that subsequently invested in Adani Securities (both she and SEBI put out statements calling the accusation groundless). Hindenburg said as well that she had other conflicts of interests because of her husband’s ties to Blackstone which benefitted from favourable actions taken by SEBI toward an area in which it is heavily involved, real estate investment trusts (again denied by Ms Buch and SEBI which said any possible complex was disclosed and Ms Buch had recused herself from related matters).

Now, three other claims have arisen. The first of these is from the promoter of Zee Entertainment, Subhash Chandra, who accused Ms Buch of bias and corruption that led to the failure of his company’s merger with Sony. The second line of attack is from the opposition Congress Party stemming from retirements payments made to Ms Buch from her former employer, ICICI, while she has been working at SEBI contrary to its rules (ICICI issued a statement saying the payments were appropriate).

The issue has resonated because ICICI was permitted earlier this year to buy back a 25% slice of its securities arm, ICICI Securities that had been separately listed, without haggling with minority shareholders, as the rules would seem to require. And any suggestions of inappropriate conduct involving ICICI touches a sensitive nerve because its former boss, Chandra Kochhar is in the midst of a longstanding criminal trial in which she stands accused of conflicts of interest and fraud (she has denied all charges). In recent years, the bank has maintained a low public profile and consequently when it is in the news for anything beyond earnings, it is often for the Kochhar case. Its brand remains a work in progress.

Lastly, the Economic Times reported that SEBI officials have complained to the Finance Ministry about a toxic work culture that has emerged under Ms Buch. The string of attacks on a public official is unusual. Ms Buch has been an unusually articulate head of a government agency and thus stood out in many positive ways from the cautious bureaucrats who often populate these positions. She has, however, clearly made enemies. Some of this is doubtless a consequence of the current political climate in India, in which the opposition’s strategy is to raise a barrage of accusations against Mr Modi and his administration. The question is whether these accusations are soon forgotten, which is possible, or gain traction. India’s financial system is in the midst of numerous regulatory changes and any issues consuming the agency in charge matter.

On a final, positive note, India is battling to become the coconut king.

In a speech delivered on World Coconut Day (who knew that even existed?), a senior executive at the Indian Council of Agricultural Research said India vacillates between the second and third largest producer in the world, with 350 coconut-based products that could be exported. This, he said, gave it the potential to top the Philippines and Indonesia and be the largest coconut factor in the world.

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